Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations for the Three and Six Months Ended June 30, 2002 and 2001

A critical accounting policy is one which is both important to the portrayal of a company's financial condition and results and requires significant judgment or complex estimation processes. As the Company is in the business of developing, owning and managing office and retail real estate properties and developing single-family residential communities which are parceled into lots and sold to various home builders, its critical accounting policies relate to cost capitalization, depreciation and amortization, impairment of long-lived assets and residential lot sales profit recognition.

The Company expenses predeveloment costs incurred on a potential project until it becomes probable that the project will go forward. After a project becomes probable, all subsequently incurred predevelopment costs, as well as interest, real estate taxes, and certain internal personnel and associated costs directly related to the project under development are capitalized. If the decision is made to not commence development of a project that had been deemed probable, all previously capitalized costs are expensed. From the date a project receives its certificate of occupancy and for one year thereafter, the Company continues capitalizing interest, real estate taxes and certain internal personnel and associated costs directly related to the project under development based on the portion of the project which remains under construction.

When a project is completed and placed in service, it is depreciated on a straight-line basis over its estimated useful life. Projects which the Company developed are depreciated over 30 to 40 years and projects the Company acquired are depreciated over 15 to 30 years. Leasehold improvements are amortized over the lesser of the life of the applicable lease or the estimated useful life of the asset.

As required by accounting principles generally accepted in the United States, the Company periodically evaluates its real estate assets to determine if there has been any impairment in their carrying values and records impairment losses if the undiscounted cash flows estimated to be generated by those assets are less than the assets' carrying amounts or there are other indicators of impairment. At June 30, 2002, the Company did not own any real estate assets that were impaired.

In its determination of the gross profit percentages to be applied to its residential lot sales in order to calculate the profits to be recognized on these sales, the Company utilizes several estimates. Gross profit percentages are calculated based on the estimated lot sales prices divided by the estimated costs of the development. The Company must estimate the prices of the lots to be sold, the costs to complete the development of the residential community and the time period over which the lots, once completed, will be ultimately sold.

Rental Property Revenues and Operating Expenses. Rental property revenues increased approximately $7,433,000 and $11,178,000 in the three and six month 2002 periods, respectively. Rental property revenues from the Company's office portfolio increased approximately $5,568,000 and $9,612,000 in the three and six month 2002 periods, respectively. Two office buildings, Cerritos Corporate Center-Phase II and 55 Second Street, which became partially operational for financial reporting purposes in June 2001 and February 2002, respectively, contributed approximately $763,000 and $1,672,000 in the three and six month 2002 periods, respectively, and $4,297,000 and $6,901,000 in the three and six month 2002 periods, respectively, to the increase. Additionally, rental property revenues from 101 Second Street increased approximately $731,000 and $867,000 in the three and six month 2002 periods, respectively, primarily due to the recognition of a termination fee paid to effect the early termination of a tenant's lease of approximately $778,000 in the three month 2002 period. Rental property revenues at the 3301 Windy Ridge Parkway Building increased approximately $285,000 in the six month 2002 period due to the renewal of the single tenant's lease at a higher rental rate beginning May 2001. Furthermore, rental property revenues from 1900 Duke Street, which became partially operational for financial reporting purposes in October 2000, increased approximately $314,000 in the six month 2002 period, and rental property revenues from Meridian Mark Plaza increased approximately $290,000 in the six month 2002 period, as its average economic occupancy increased from 94% in 2001 to 97% in 2002. The increases in rental property revenues were partially offset by decreases of approximately $557,000 and $1,148,000 in the three and sixth month 2002 periods, respectively, from The Points at Waterview, as its average economic occupancy for the six month period decreased from 96% in 2001 to 49% in 2002.

Rental property revenues from the Company's retail portfolio increased approximately $1,930,000 and $1,678,000 in the three and six month 2002 periods, respectively. Rental property revenues increased approximately $1,135,000 and $1,905,000 in the three and six month 2002 periods, respectively, from The Avenue Peachtree City due both to the property becoming partially operational for financial reporting purposes in March 2001 and to the recognition of a termination fee of approximately $719,000 in the three month 2002 period. Rental property revenues increased approximately $619,000 and $713,000 in the three and six month 2002 periods, respectively, from The Avenue of the Peninsula, as its average economic occupancy for the six month period increased from 72% in 2001 to 79% in 2002. Rental property revenues from Presidential MarketCenter increased approximately $222,000 in the six month 2002 period, as its average economic occupancy increased from 91% in 2001 to 98% in 2002. Rental property revenues decreased approximately $1,064,000 in the six month 2002 period from the February 2001 sale of Colonial Plaza MarketCenter, which partially offset the increase in rental property revenues in the six month 2002 period.

The Company expects additional termination fees will be recognized as rental property revenues during the second half of 2002 as a result of its ongoing negotiations to terminate leases with other tenants in certain of its properties. In August 2002, the Company did enter into a termination agreement with Arthur Andersen which terminated its 148,000 square foot lease at 101 Second Street. The result of the termination agreement with Arthur Andersen will not have a material impact on rental property revenues in 2002. However, there will be no economic benefit to the Company or its rental property revenues from the Arthur Andersen lease in 2003 and beyond. The Company is in active negotiations with prospective tenants to lease approximately one-half of the Arthur Andersen and Reflect.com space located in 101 Second Street. While the Company is hopeful, there is no guarantee that these negotiations will result in executed leases. In addition, the San Francisco market continues to be a difficult leasing market. Due to the uncertainties surrounding both the ongoing negotiations and the market, the Company cannot currently estimate the result of its efforts to re-lease the 101 Second Street building and the resulting impact on rental property revenues in 2003 and beyond.

Rental property operating expenses increased approximately $1,538,000 and $2,433,000 in the three and six month 2002 periods, respectively, due to the aforementioned office buildings and retail center becoming partially operational for financial reporting purposes. The increase in rental property operating expenses in the six month 2002 period was partially offset by a decrease in rental property operating expenses of approximately $316,000 from the aforementioned sale of Colonial Plaza MarketCenter.

Development Income. Development income decreased approximately $664,000 and $1,104,000 in the three and six month 2002 periods, respectively. Development income decreased approximately $570,000 and $642,000 in the three and six month 2002 periods, respectively, from CPI/FSP I, L.P., as construction of Austin Research Park Buildings III and IV was completed. Additionally, development income decreased approximately $209,000 in the six month 2002 period from 285 Venture, LLC, as construction of 1155 Perimeter Center West was completed, and approximately $409,000 in the six month 2002 period from the third party development of the Turner Tower. The decrease in development income was partially offset by an increase in development income of approximately $234,000 in the six month 2002 period from the third party retail redevelopment of a center in Albuquerque.

Management Fees. Management fees increased approximately $314,000 and $1,197,000 in the three and six month 2002 periods, respectively. Management fees increased approximately $233,000 and $1,005,000 in the three and six month 2002 periods, respectively, from Cousins Properties Services LP ("CPS"). Effective March 1, 2001, CREC II purchased the remaining 25% interest in CPS at which point the operations of CPS were consolidated, whereas the operations had been previously accounted for using the equity method of accounting and therefore recognized as joint venture income. Approximately $301,000 and $612,000 of the CPS increase in the three and six month 2002 periods, respectively, was from the Concourse Corporate Center in Atlanta, Georgia, of which CPS commenced management in October 2001. Additionally, management fees increased by approximately $107,000 in the six month 2002 period from CPI/FSP I, L.P., as Austin Research Park Buildings III and IV became partially operational for financial reporting purposes in June 2001 and September 2001, respectively.

Leasing and Other Fees. Leasing and other fees decreased approximately $973,000 and $437,000 in the three and six month 2002 periods, respectively. Leasing and other fees decreased approximately $544,000 in both the three and six month 2002 periods from CPI/FSP I, L.P., as leasing fees were recognized for Austin Research Park Buildings III and IV in 2001. A decrease in leasing and other fees from CPS also contributed to the decrease by approximately $365,000 in the three month 2002 period due to a significant third party leasing fee recognized in the three month 2001 period. Leasing and other fees also decreased approximately $100,000 in the three month 2002 period from 285 Venture, LLC from leasing fees recognized in the three month 2001 period related to the lease-up of 1155 Perimeter Center West. Furthermore, leasing and other fees decreased approximately $143,000 in the six month 2002 period from CSC Associates, L.P., which owns Bank of America Plaza, and approximately $151,000 in the six month 2002 period from CP Venture Two, LLC. Leasing and other fees from CPS increased approximately $256,000 in the six month 2002 period, which partially offset the six month 2002 decrease in leasing and other fees, primarily related to leasing at the aforementioned Concourse Corporate Center. Also partially offsetting the decrease in both the three and six month 2002 periods was an increase in leasing and other fees of approximately $267,000 from Ten Peachtree Place Associates.

Residential Lot and Outparcel Sales and Cost of Sales. Residential lot and outparcel sales decreased approximately $998,000 in the three month 2002 period and increased $649,000 in the six month 2002 period. Residential lots sold decreased from 30 lots in the three month 2001 period to 5 lots in the three month 2002 period and increased from 75 lots in the six month 2001 period to 96 lots in the six month 2002 period.

Residential lot and outparcel cost of sales decreased approximately $910,000 in the three month 2002 period and increased approximately $61,000 in the six month 2002 period due to the aforementioned fluctuation in the number of lots sold. The decrease in cost of sales in the three month 2002 period and the increase in cost of sales in the six month 2002 period was less than the corresponding decrease and increase in the three and six month sales, respectively, due to an increase in 2002 of the gross profit percentages used to calculate the cost of sales of lot sales in certain of the residential developments.

Interest and Other Income. Interest and other income decreased approximately $384,000 and $844,000 in the three and six month 2002 periods, respectively, primarily due to interest income recognized in the 2001 periods from the $18.6 million note receivable from Charlotte Gateway Village, LLC ("Gateway") that was repaid in full in November 2001.

Income from Unconsolidated Joint Ventures. (All amounts reflect the Company's share of joint venture income.) Income from unconsolidated joint ventures increased approximately $961,000 and $2,485,000 in the three and six month 2002 periods, respectively.

Income from Wildwood Associates increased approximately $385,000 in the six month 2002 period primarily due to an increase in income before depreciation, amortization and interest expense of approximately $258,000 in the six month 2002 period from the 3200 Windy Hill Road Building, as its average economic occupancy increased from 99% in 2001 to 100% in 2002.

Income from Temco Associates decreased approximately $227,000 in the three month 2002 period and increased approximately $559,000 in the six month 2002 period. Lot sales in its Bentwater residential development decreased from 89 lots in the three month 2001 period to 79 lots in the three month 2002 period, which contributed to the three month 2002 decrease, and increased from 138 lots in the six month 2001 period to 180 lots in the six month 2002 period, which contributed to the six month 2002 increase. Additionally, approximately 213 acres of the option related to the fee simple interest was exercised and simultaneously sold in the three month 2001 period. CREC's share of the gain was approximately $360,000. No tract sales occurred in the three month 2002 period. Approximately 559 acres of the option related to the fee simple interest was exercised and simultaneously sold in the six month 2002 period. CREC's share of the gain was approximately $371,000.

Income from CPI/FSP I, L.P. increased approximately $550,000 and $976,000 in the three and six month 2002 periods, respectively, as Austin Research Park Buildings III and IV became partially operational for financial reporting purposes in June 2001 and September 2001, respectively.

Income from Gateway increased approximately $197,000 and $408,000 in the three and six month 2002 periods, respectively. The Company recognizes an 11.46% current preferred return on its equity in Gateway, which increased from $3,200,000 to $10,556,000 in November 2001.

Income from Crawford Long - CPI, LLC increased approximately $199,000 and $306,000 in the three and six month 2002 periods, respectively, as the Emory Crawford Long Medical Office Tower became partially operational for financial reporting purposes in February 2002.

Income from Ten Peachtree Place Associates decreased approximately $260,000 and $561,000 in the three and six month 2002 periods, respectively, as its average economic occupancy for the six month period decreased from 100% in 2001 to 16% in 2002.

Income from CSC Associates, L.P. increased approximately $199,000 and $299,000 in the three and six month 2002 periods, respectively, due to an increase in rental revenues from a tenant whose increase in rental rate did not require straight-lining under Statement of Financial Accounting Standards No. 13.

Income from 285 Venture, LLC increased approximately $177,000 and $191,000 in the three and six month 2002 periods, respectively, as the average economic occupancy for the six month period of 1155 Perimeter Center West increased from 87% in 2001 to 100% in 2002.

General and Administrative Expenses. General and administrative expenses increased approximately $131,000 and $1,325,000 in the three and six month 2002 periods, respectively. The increase in the three month 2002 period was partially due to an increase in moving expenses and salaries and employee benefits. The increase in the six month 2002 period was primarily attributable to the aforementioned consolidation of CPS and partially to an increase in moving expenses. The increases in the three and six month 2002 periods were partially offset by a decrease in general and administrative expenses resulting from the capitalization of additional general and administrative expenses to offset the partial elimination of certain development and leasing fees from joint ventures.

Depreciation and Amortization. Depreciation and amortization increased approximately $2,308,000 and $3,744,000 in the three and six month 2002 periods, respectively, due to the aforementioned office buildings and retail center becoming partially operational for financial reporting purposes, which increase was partially offset by the February 2001 sale of Colonial Plaza MarketCenter.

Interest Expense. Interest expense increased approximately $3,007,000 and $4,368,000 in the three and six month 2002 periods, respectively. Interest expense before capitalization increased to approximately $10,790,000 and $21,219,000 in the three and six month 2002 periods, respectively, from approximately $8,966,000 and $18,451,000 in the three and six month 2001 periods, respectively, due to higher average debt levels. The Company completed four non-recourse mortgages in 2001: Presidential MarketCenter in May 2001, 600 University Park Place in July 2001 and 333 John Carlyle/1900 Duke Street and 333/555 North Point Center East in November 2001. Also contributing to the increase in interest expense was a decrease of approximately $1,183,000 and $1,600,000 in the three and six month 2002 periods, respectively, in interest capitalized to projects under development (a reduction of interest expense) to approximately $1,233,000 and $3,130,000 in the three and six month 2002 periods, respectively, from approximately $2,416,000 and $4,730,000 in the three and six month 2001 periods, respectively, due to a lower level of projects under development in 2002.

Other Expenses. Other expenses decreased approximately $371,000 in the three month 2002 period and increased approximately $214,000 in the six month 2002 period. Predevelopment expense decreased approximately $281,000 in the three month 2002 period. Minority interest expense increased approximately $194,000 in the six month 2002 period primarily due to an increase in minority interest expense from 55 Second Street, which became partially operational for financial reporting purposes in February 2002.

Provision(Benefit) for Income Taxes from Operations. The benefit for income taxes from operations decreased approximately $1,887,000 to a provision for income taxes from operations in the six month 2002 period. The decrease in the benefit for income taxes from operations was primarily due to an increase in income before income taxes and gain on sale of investment properties from CREC and its subsidiaries in the six month 2002 period. This increase is primarily due to increases in income from residential lot sales, net of cost of sales, income from Temco Associates, leasing fees and a decrease in general and administrative expenses. The increase in income before income taxes and gain on sale of investment properties from CREC and its subsidiaries was partially offset by a decrease in development income and an increase in interest expense in the six month 2002 period.

The decrease in the benefit for income taxes from operations was partially offset by an increase in the loss before income taxes and gain on sale of investment properties from CREC II and its subsidiaries in the six month 2002 period. The decrease is mainly due to a decrease in income from CPS.

Gain on Sale of Investment Properties. Gain on sale of investment properties decreased approximately $17,350,000 in the six month 2002 period. The 2002 gain included the amortization of deferred gain from CP Venture LLC ($2.1 million) (see Note 5 of "Notes to Consolidated Financial Statements" in the Company's Annual Report on Form 10-K for the year ended December 31, 2001). The 2001 gain included the following: the February 2001 sale of Colonial Plaza MarketCenter ($17.1 million), the February 2001 disposition of leasehold interests in Summit Green ($.2 million) and the amortization of deferred gain from CP Venture LLC ($2.1 million) (see Note 5 of "Notes to Consolidated Financial Statements" in the Company's Annual Report on Form 10-K for the year ended December 31, 2001).

Extraordinary Loss. The Company recognized an extraordinary loss of approximately $3,501,000 in the six month 2002 period due to the refinancing of the CSC Associates, L.P. non-recourse mortgage note payable (see Note 6 to the Company's consolidated financial statements included in this report).

Financial Condition. The Company's adjusted debt (including its pro rata share of unconsolidated joint venture debt) was 39% of total market capitalization at June 30, 2002. Adjusted debt is defined as the Company's debt and the Company's pro rata share of unconsolidated joint venture debt as disclosed in Note 4 of "Notes to Consolidated Financial Statements" in the Company's Annual Report on Form 10-K for the year ended December 31, 2001, excluding the Gateway debt as it is fully exculpated debt which is supported by a long-term lease to Bank of America Corporation. The Company had $89 million drawn on its $275 million revolving credit facility as of June 30, 2002.

The Company has development and acquisition projects in various planning stages. The Company currently intends to finance these projects, as well as the completion of projects currently under construction, using its existing credit facility (increasing the credit facility as required), long-term non-recourse financing on the Company's unleveraged projects, joint ventures, project sales and other financings as market conditions warrant. In September 1996, the Company filed a shelf registration statement with the Securities and Exchange Commission ("SEC") for the offering from time to time of up to $200 million of common stock, warrants to purchase common stock and debt securities, of which approximately $132 million remains available at June 30, 2002.

The Company from time to time evaluates opportunities and strategic alternatives, including but not limited to joint ventures, mergers and acquisitions and new private or publicly-owned entities created to hold existing assets and acquire new assets. These alternatives may also include sales of single or multiple assets when the Company perceives opportunities to capture value and redeploy proceeds or distribute proceeds to stockholders. The Company's consideration of these alternatives is part of its ongoing strategic planning process. There can be no assurance that any such alternative, if undertaken and consummated, would not materially adversely affect the Company or the market price of the Company's common stock.

Cash Flows. Net cash provided by operating activities increased approximately $8.4 million in the six month 2002 period. Operating distributions from unconsolidated joint ventures increased approximately $7.0 million in 2002, which contributed to the increase in net cash provided by operating activities. The increase in operating distributions from unconsolidated joint ventures is mainly due to increases in operating distributions of approximately $5.0 million from Wildwood Associates and approximately $1.8 million from CPI/FSP I, L.P. Depreciation and amortization increased approximately $3.8 million due to the aforementioned office buildings and retail center becoming partially operational for financial reporting purposes, which contributed to the increase in net cash provided by operating activities. Income before gain on sale of investment properties and extraordinary loss decreased approximately $1.1 million and income from unconsolidated joint ventures increased approximately $2.5 million, both of which partially offset the increase in net cash provided by operating activities.

Net cash used in investing activities decreased approximately $11.7 million in the six month 2002 period. The decrease in net cash used in investing activities was primarily due to a decrease of approximately $46.3 million in property acquisition and development expenditures, as a result of the Company having a lower level of projects under development in the six month 2002 period. Investment in unconsolidated joint ventures decreased approximately $15.6 million, which also contributed to the decrease in net cash used in investing activities. This decrease was primarily due to a decrease in contributions of approximately $9.3 million to CPI/FSP I, L.P., as construction of Austin Research Park Buildings III and IV was completed in 2001, a decrease of approximately $4.7 million to Crawford Long - CPI, LLC in 2002, as construction of the Emory Crawford Long Medical Office Tower was substantially completed in February 2002, and a decrease of approximately $1.0 million to 285 Venture, LLC, as construction of 1155 Perimeter Center West was completed in 2001. The decrease in net cash paid in acquisition of business of approximately $2.1 million, which resulted from the acquisition of the remaining 25% interest in CPS in the first quarter of 2001, and a decrease in change in other assets, net, of approximately $2.0 million, both further contributed to the decrease in net cash used in investing activities. Net cash provided by sales activities decreased approximately $52.8 million due primarily to the sale of Colonial Plaza MarketCenter in February 2001, which partially offset the decrease in net cash used in investing activities. Investment in, net of collection of notes receivable, decreased approximately $1.5 million, which also partially offset the decrease in net cash used in investing activities.

Net cash provided by financing activities decreased approximately $24.8 million in the six month 2002 period to net cash used in financing activities. The decrease in net cash provided by financing activities was primarily attributable to a decrease in net amounts drawn on the credit facility of approximately $70.6 million. Also contributing to the decrease in net cash provided by financing activities was an increase of approximately $67.0 million in repayment of other notes payable and an increase in extraordinary loss of approximately $3.5 million, both due to the refinancing of Bank of America Plaza (see Note 6 to the Company's consolidated financial statements included in this report). An increase in the dividends paid per share to $.74 in 2002 from $.68 in 2001 and an increase in the number of shares outstanding also contributed to the decrease in net cash provided by financing activities as dividends paid increased approximately $3.3 million. The increase in proceeds from other notes payable of approximately $119.0 million due to the aforementioned refinancing of Bank of America Plaza (see Note 6 to the Company's consolidated financial statements included in this report) partially offset the decrease in net cash provided by financing activities.

CSC Non-Recourse Mortgage Note Payable. As discussed in Note 6 to the Company's consolidated financial statements included in this report, CSC completed a $150 million non-recourse mortgage note payable on the Bank of America Plaza building. Pursuant to the loan agreement, CSC must maintain all of the insurance required under the loan agreement with insurance companies having certain claims paying ability ratings. In July 2002, the claims paying ability rating of CSC's insurance carrier was downgraded to a level immediately below that required by the loan agreement. The Company notified the lender of such downgrading. The lender is not requiring that CSC obtain replacement insurance at this time, but has reserved the right to require CSC to do so at a later time.

On the advice of its insurance consultants, the Company believes that the insurance coverage currently required under the loan agreement is available from insurance companies that meet the minimum claims paying ability rating requirements under the loan agreement. If required to provide insurance from a carrier with the required rating, there can be no assurance, however, that such insurance can be obtained, or if obtainable, that such insurance can be obtained without significant additional cost to CSC. Pursuant to the loan agreement, the lender permits insurance to be issued by insurance companies with a lower claims paying ability rating under certain circumstances, including obtaining written confirmation from the rating agencies that the ratings of any securities issued or to be issued as the result of a securitization of this mortgage note payable will not be qualified, downgraded or withdrawn as a result of such lower claims paying ability rating. There can be no assurance that if requested, the rating agencies would approve a reduction in the claims paying ability rating of insurance companies. In the event that CSC is required to obtain insurance from an insurance company with the required rating and cannot obtain such insurance, and, in the further event that the rating agencies will not confirm that the rating of the related securities will not be qualified, downgraded or withdrawn due to the use of an insurance company with a lower rating, CSC could ultimately be in default under the loan agreement and related documents.