Cousins Properties Inc (CUZ) 2002 Q4 法說會逐字稿

Good day everyone and welcome to this Cousins Properties Incorporated Conference Call.

Today's call is being recorded.

At this time for opening remarks, I'd like to turn the call over to the President and Chief Executive Officer, Mr. Tom Bell (ph).

Please go ahead, sir.

Good morning, everyone.

I'm Tom Bell, President and C.E.O. of Cousins.

With me are Craig Jones (ph), President of the office division Joel Murphy (ph), President of the retail division and Tom Charlesworth (ph), Executive VP Chief Investment Officer and acting CFO.

I want to welcome everyone to the fourth quarter conference call.

And to start us off today, I'll call on Tom Charlesworth (ph) to review the fourth quarter financial results, Tom?

Good morning.

Thanks for your interest in Cousins Properties.

First let me briefly point out that certain matters we'll be discussing today are forward-looking statements within the meaning of the federal securities laws.

Actual results may differ materially from such statements.

Please refer to the filings with the securities and exchange commission including the form 8K filed in March 9, 2001 for discussion of the factors that may cause differences.

Give the continued difficult environment in which we operate, Cousins is pleased to announce another quarter in which we have reported an increase of the operations funds per share.

The FFO per share increased 9% in the fourth quarter ending December 31, 2002.

FFO per share for the year of 2002 increased by 10% over FFO for 2001.

Our continued financial flexibility is evidenced by the interest expense coverage of 3.2 for the fourth quarter of 2002.

It is also important to note that the adjust the recourse debt to market capitalization is only 8% as of the end of the fourth quarter.

Our strong balance sheet combined with the highly leased operating portfolio, results in a very healthy financial position despite the difficult economic environment.

The company announced during the fourth quarter of 2001 that its board of directors adopted a new plan authorizing the research of up to 5 million shares of the company's common stock.

During the third quarter of 2002, the company repurchased approximately 1.5 million shares under this plan at an average price per share of $23.57.

During the fourth quarter of 2002, approximately 300,000 additional shares were repurchased, at an average price of $23.66 per share.

The $1.8 million shares represent approximately 3.6% of total shares outstanding at the beginning of 2002.

Our FFO payout ratio was 63% for the fourth quarter, ended December 31, 2002, and 64% for the year.

Of our reconciliation of net income before gain on sale of investment properties to FFO is included with our press release.

Once again, please note that we do not include the straight line rents in the FFO.

Also in our quarterly press release, information package is our funds from operations supplemental detail schedule.

I would note that on page bun one of the supplemental detail schedule, we report that the cap ex and second generation Tenet costs increased in the fourth quarter of 2002 to $7.8 million.

Making the payout ratio 86% for the fourth quarter of 2002 and 72% overall for the year.

Of this 7.8 million of fourth quarter cap ex, approximately 3.4 million relates to our share of the costs of the AGL lease at 10 Preach Tree Place in midtown Atlanta.

This is reported as second generation cap ex, this investment is more akin to a new development project from Cousins' standpoint.

Additional cap ex in the quarter included approximately $1.1 million related to the Points at Waterview primarily for the costs of new lease.

Approximately $884,000 of the total cap ex number for the quarter was related to new leases at 101 Second Street, including the backfill of the Arthur Andersen space.

Approximately $543,000 and $40,000 of cap ex was were related to tenant leasing costs at the Wildwood office park and the inform respectively.

I'd like to highlight the details of the fourth quarter FFO which you can begin following on the top of page two from the funds of operations detailed supplemental schedule.

FFO decreased from wholly-owned rental property operations by approximately $2.2 million in the fourth quarter.

Four wholly-owned properties had significant variances of note between the third and fourth quarter.

The increase in FFO recognized that the inform and the fourth quarter of 2002 was due primarily to $325,000 of termination fees recognize in the fourth quarter.

The quarterly FFO run rate for the inform absent additional tenant issues should be between approximately $3.2 million and $3.4 million.

The decrease in FFO from 101 Second Street in the fourth quarter was in part due to the fact that the third quarter reduced lease termination fees and due to terminated leases.

The reduction was partially offset by a $300,000 reversal of a previously accrued minority interest charge.

As we previously announced, the Arthur Andersen lease at 101 Second Street was terminated in August of 2002.

In September, the company announced that this signed three leases that backfilled 88,000 square feet of the Arthur Andersen space. 101 Second Street should have a quarterly FFO run rate of additional expense of approximately $2.4 million each of the first and second quarters of 2003.

These numbers assume no additional lease-up in the first and second quarters of 2003.

The Avenue East Cobb had a lower level of FFO in the fourth quarter versus the third quarter principally because some percentage rent was recognize in the third quarter and there was no corresponding amount in the fourth quarter.

The Avenue of the peninsula increased $195,000 in the third quarter,.

This was due to adjustments to the prior reserve and capitalized previously expensed items.

As was disclosed in development pipeline schedule included in the quarterly material, the company currently estimates that the FFO for the Avenue of the Peninsula for the year 2003 will be in the range of approximately $4.7 million to $5.3 million, including approximately $800,000 of termination fees in each of these numbers.

It should also be noted that the FFO for the Points at Waterview in the fourth quarter included approximately $230 of termination fees.

Expected FFO for the points at Waterview for the first quarter of 2003 is approximately $240,000 and for quarter two, approximately $440,000.

The last item I would like to mention related to FFO from rental property operations concerns the cable and wireless lease at the 55 carbohydrate second Street property in San Francisco.

As previously announced, in a recent press release, we terminated this 158,000 square foot lease in consideration for the payment of $20 million.

Since cable and wireless did not occupy the space, we never incurred the tenant improvement costs of approximately $4.8 million, required under the lease.

Accordingly, we will have approximately $25 million to work with in recounting (ph) the space and recovering rent losses.

As a result of the(inaudible), we expect the run rate for. 55 Second Street FFO to be approximately $2.3 million for the first quarter, of 2003, and approximately $1.5 million for the second quarter of 2003.

These figures assume no rent from new tenants for the space in these quarter, and do not include the recognition of the $20 million termination fee.

Continuing on page three of the supplemental detail, including joint venture lot sales the company sold a total of 73 residential lots in the fourth quarter as compared to 106 lots in the third quarter of 2002.

As we have discussed in prior quarterly conference calls, the number of lots sold does not always directly correlate to the amount of profits recognized as profit recognition per GAAP accounting is based on many factors.

The company also completed a tract sale of 5.5 acres at Wildwood in the fourth quarter of 2002 netting approximately $2.1 million.

In addition, sites at the sale and road project were sold for a gain of approximately $200,000.

Development income was up in the quarter, largely due to fees related to the development of projects the third party owners.

Leasing and other fees decreased approximately $1.2 million in the fourth quarter due primarily to the fact that significant fees, including Coca-Cola Enterprises and AGL Resources (inaudible) fees were recognized in the third quarter and were not replies placed as such in the fourth quarter.

General and administrative expenses increased approximately $759,000 in the fourth quarter.

This being due primarily to the fact that third quarter included a higher level of expense capitalization.

Next, I would like to provide a brief comparison of FFO per share for the year 2002 versus the year 2001.

Increases in rental property operations pr properties owned contributed 38 cents per share to increase in the results in 2002.

With 30 cents of this increase attributable to properties that had been under development for lease-up.

Similarly, FFO from property joint ventures increased approximately 13 cents per share primarily due to the commencement of rents and leases on projects.

In addition net lot sales increased by 3 cents per share in 2002 over 2001.

Offsetting these increases were the following items.

T income decrease propping FFO by approximately 2 cents per share primarily due to the decrease in leasing fees.

Interest income dropped 3 cents per share due to the payoff on the note receivable on Gateway Village.

Interest expense increased 20 cents per share due to the overall increase of 12 cents per share and decrease capitalized 8 cents per share.

Income tax expense increased by approximately 4 cents per share, with remaining 4 cents per share of expense increase coming from a combination of increases in GNA, FF & A depreciation and other expenses.

Finally, I would like to mention recent proposals by the S.E.C. to amend rule 10B18 which provides a safe harbor for corporate stock buy-back programs.

Currently, this rule allows a company to purchase on a given trading day an amount of stock equal to 25% of the average daily trading volume for the prior four weeks.

Importantly, it also allows a company to buy an unlimited number of blocks.

With blocks being defined as purchases of 5,000 or more shares.

Much of the stock that Cousins has been able to buy back has been in blocks.

Outside of the regular 25% volume limitation.

The S.E.C. is now proposing that this block trade exception be eliminated.

It is our feeling and the feeling of a number of companies inside and outside the real estate industry that this change could significantly reduce the number of shares small to mid-sized companies would be able to purchase in their stock buy-back programs in the future to the detriment of existing shareholders.

At the same time, we do not see any harm in the existing rule.

The S.E.C. is asking for comments on its proposal by February 8.

We will provide our view that the current rule should not be changed.

If you are so inclined, you may wish to submit your views to the S.E.C. on this matter. (inaudible), technically this proposal is contained in releases number 33-8160, and 34-9680 file number 7-7-50-02.

That concludes my remarks.

I'll turn it over to Tom.

Thanks, Tom, for a very complete report on the fourth quarter and for the editorial on S.E.C.'s actions there at the end.

The news on the economic front since we last talked is that there's precious little new news.

If we were in a movie that has been set on slow motion.

If anything, the economy has weakened a bit with poor GDP in the fourth quarter and weakened consumer spending.

Business investing and spending and tiring have been painfully slow to develop.

The continuing uncertainty regarding Iraq fast Fosters indecision and freezes decision-making.

Vacancies and rents are not stabilizing and tenant problems continue to concern us.

Our retail tenants and projects are in better shape, although we share the nervousness about how long the consumer can hold on.

The real estate bright spot continues to be residential activity due in the large part to favorable mortgage rates.

There are those even at Cousins who want to be optimistic, Monetary and physical policy are supportive and physical policy may be for (inaudible), as we get closer to a presidential election year.

Business investment is said to be poised for a rebound, the consumer, ever the hero is still hanging in there.

I admit we are beginning to see a little of this on the retail and land sides of our business.

The positive trends in the office markets have yet to appear.

Turning specifically to our office business, I must say I'm very proud of the team in 2002.

We have had significant leasing successes, and have maintained our portfolio very respectable lease levels despite difficult conditions.

Our quarterly press release enumerates a number of the leases, including those at Coca-Cola Cent prices, AGL and bombardier.

A silent progress on leasing at Congress and Fourth in Austin is being made and releasing of the vacated Arthur Andersen space in San Francisco was a plus in 2002.

I also feel that we're off to a good start in 2003 with active negotiations under way to lease additional space that was formerly occupied by Andersen in San Francisco.

Furthermore, as we announced in January, we have had further success in leasing at Congress and with fourth with two new law firm leases signed in December of 2002.

I can report that we are in active negotiations with several other prospects at Congress and Fourth at this time.

We'll hopefully have more to report before too long.

The recent releases add a significant premium to market.

Rates are under pro forma, additional lease-up costs have added to the project costs and as indicated in the pipeline schedule, included in the quarterly supplemental information, the project will not hit our original pro forma returns.

We do, however, exempt expect to have an acceptable rate on the project at the end of the day and we are more optimistic at time goes on.

To summarize the office leasing situation at the end of 2002, our office portfolio was 94% leased, and the portfolio has a 4% rollover in 2003 and 6% rollover unto (ph)2004.

Going forward, we expect leasing in several major markets to be challenging.

In January, RIGAS, the tenant in the 555 northpoint center at filed for bankruptcy protection.

The impact of this filing is unclear at this time.

In addition, as we recently announced, we have agreed to terminate cable and wineless's lease for 158,000 square feet at the 55 and Second Street building in San Francisco.

We are being paid a total of $25 million for the termination and as Tom indicated, 5 $million have not been spent giving us a total of $25 million to work with in connection with the termination.

That goes without saying that earnings and FFO will be impacted by these events in 2003 and beyond.

And Tom Charlesworth has given you new FFO run rates for 55 Second Street.

We see little office development activity this year.

There may be the occasional special situation, perhaps a new building for a single tenant with good credit.

We don't expect much else.

We continue to look for attractive acquisition opportunities but today we have found the market pricey and we have been unable to find properties that meet our criteria.

As indicated earlier, our retail business is doing well, with 96% -- at a 96% lease level and few tenant (ph) credit issues.

The lease rollover is a healthy 1% in 2003 and 4% in 2004.

And if the general consensus is correct and the consumer will continue to support the economy, we should be in good shape overall in the retail business.

In our last call, I promised to update you on the Avenue of the Peninsula after the holiday season.

I'm pleased to report that holiday sales were generally strong with many tenants posting double digit gains compared to the previous year, 2001, and the center continues to show steady sales and traffic increases and continues to establish itself as an important retail destination in the south bay area.

Our marketing efforts we (ph) believe are beginning to bear fruit.

I do have two tenant lease terminations to report at AOP, which have occurred since year-end.

Elizabeth's (ph), which had 2900 square feet of Tommy Hilfiger which had 8200 square feet.

The space -- approximately 3% of the (inaudible) in the releasing of Elizabeth space is about 89%.

These terminations were not related to the performance of the center but global issues related to the tenants themselves.

A sales and traffic improve at the Avenue of peninsula, we see opportunities to remerchandise the space with positive as a results that should enhance the project sales and return, over time.

Short term basis, the lease termination fees mentioned by Tom a moment ago when he described the expected 2003 run rate will cover expected minimum rent obligations through this year.

At this point, we do sense additional development opportunities in the retail business.

We commenced our Avenue west Cobb project and the (inaudible) anchor center, the shops at lake (inaudible) towards the end of last year.

We are experiencing increase in leasing the center.

We have reached a 68% committed level on the expanded 206,000 square foot center.

The numbers we gave you in the last call, which was 58% committed on the initial 176,000 square foot center, so you can see we have had quite a bit of improvement there.

We also had a number of projects primarily Avenue projects in the shadow pipeline and we'll be working hard to bring these projects to fruition in 2003 and beyond.

The land division continues to do well, as Tom Charlesworth reported on the 2002 results, and as previously discussed as we are expanding the joint --discussed with you, we are expanding the joint venture with temple inland with the new activity being conducted in the 50/50 CL realty entity.

We're getting close to doing a number of deals in this, and we hope to announce some of them soon opinion I would also report that we are opening a second phase at river's call with homes at a lower price point.

We have a contract for sale for a number of lots, and we hope to close the initial round of lots under the contract in the third quarter.

The new year also brings additional activities in phase one with lot sale in January and couple of more that are presently in the works and looking good.

The land group is redoing the master plan for the approximately 220 acres of land the north point center west in Georgia.

This new project will be mixed use with a much smaller office component than originally planned.

We anticipate approval of the plan and expect to generate additional land sales from the project perhaps as early as the end of this year.

Stepping back and looking at the bigger picture for the company, I'd like to comment on a couple issues.

First, property invests continue to express interests in a number of assets and indicate they would be willing to pay good prices.

As you know, one of the core principles is that we will harvest the value that we create when good opportunities arise to capture the value.

We are actively exploring potential on a number of properties in the office and retail sectors and may (inaudible) further information in the months ahead.

To the extent that we do capture the value create the in mature assets well priced in the marketplace, we will use the sale or financing proceeds to pay down debt, fund new project, buy back our stock and perhaps pay special dividends.

As Tom indicated earlier in the fourth quarter of 2002, we bought about 300,000 shares of our stock, bringing the total for the last two quarters to 1.800,000 shares.

The buy-back plan remains in place, and we will continue to buy shares whenever pricing is attractive.

Finally, some comments on what should be an unusual year for or could be an unusual year for earnings and FFO.

Our earnings and FFO results in 2003 could vary significantly from expectations and historic performance depending on property sales and other events.

Certainly, tenant credit issues and lease terminations and termination fees could also affect these result, and in situations like Arthur Andersen or cable & wireless, this impact could be significant.

Asset sales can also have a near term dilutive impact on earnings and FFO.

The more significant the asset sales, the more the initial dilution might be.

On the other hand, stock buy-backs are often accreted.

And it may take a number of quarters for the per share results to reflect the buy-back.

In summary, the 2003 earnings picture may have several unusual items that could negatively or positively effect earnings and FFO in 2003.

I wanted to make you all aware of this early in the year.

It is simply not possible at this time to predict how the items might affect our results.

That concludes my remarks.

At this time I'd like to open the floor to any questions you may have.

Do you have any questions?

Thank you.

The question and answer session will be conducted electronically.

If you would like it ask a question, do so by pressing the star key followed by the digit 1 on your touch tone telephone.

If you are using a speakerphone, make sure that your mute button is off to allow your signal to reach our equipment.

We'll go to Greg White (ph) of Morgan Stanley.

Good morning.

A couple of questions.

On the cable and wireless space.

What you are talking about in terms of rent on the space and how does it compare to the rent that you had in cable & wireless?

Greg, we're probably looking in the rates now in that car met we think, are around -- market, we think, are around $30, $28 to $30 gross.

We originally had a $55 rent on that space with cable & wireless.

Tenant improvement packages increased, but as Tom Charlesworth said, we never spent the original dollars on the space.

We feel we got an attractive settlement on that.

I think the run rate on that was in the 8 $8.5 million range.

On an annual basis.

On an annual basis.

We have a couple of years to work with here.

We have had interest in this space.

In fact, Cable & Wireless was in a half hearted effort to lease the space for a short while.

There is interest in the space.

So, we feel pretty good about the termination agreement that we reached with C & W and our ability to release it over time.

Okay.

Tom, maybe just philosophically when I look at what the occupancy level has done, you have held it pretty steady here, and maybe we're misinterpreting this, but it seems logical to come to the conclusion that you're really focused on occupancy and you're prepared to spend a lot on TI's and concessions to get to that.

At whap point do you sort of start -- what point do you sort to allow occupancy to slip a little bit and cut back on TI?

That's a good question.

We underwrite the transaction just like it was a development deal.

So, we look at in all its various forms.

As long as we can strike a deal that we feel is value -- that increases value, (inaudible) value for the company -- enhances value for the company, we'll do it. 23 we can't enhance value, we won't do it.

We'll wait.

We carefully underwrite each of the major leases individually.

So far, the team has done great job of being able to produce leasing transactions that create value for the shareholders.

If we end up in a situation for instance in San Francisco where we believe that we cannot do that, we will wait until we can do that.

What's the timing on the (inaudible)?

When do you think we will start to see the FFO?

Some of the projects under the new CL Realty -- I assume that's what you are talking about, the new joint venture?

Yes.

Some of those projects that we're involving ourselves are already under way, and would produce FFO this year.

Since we have not taken all of these projects to the board yet, they have not been finally approved.

I can't predict for you what impact it might have, but it shouldn't be too long until we'll be able to report on the initial transactions within the CL Joint Venture and give you some idea of what those ventures look like.

Okay.

Tom, how active or aggressive are you on the FCFO search?

Well, we have -- CFO search?

Well, we have hired a Senior Vice President, Chief Accounting Officer and Controller who will start Monday.

My feeling at this time, and I think it's the feeling of the board as well that, we're going to let him get in place and get his feet on the ground and then determine what our CFO needs might be.

We're very comfortable with Tom Charlesworth in that role at this time.

Okay.

Just a couple of other things here.

On the Congress and Fourth, obviously, you reported some decent progress during the quarter on some leases there.

You said that you had a couple of others in place.

I mean, where do you think you'll be, you know -- given give us some answer as to what's happening with occupancy and the progress that you are making so far.

Are you happy with it, are you going to have to give up more on rent?

It's hard to predict the future.

I think exactly what I said with several.

We have several leases we're in the process of negotiating right now.

If they all are completed, it might equal as much as an additional $60,000 feet.

In that building.

We have other interested parties.

In fact, the activity is up, as we have gotten some more prestigious tenants in the building, we're hearing -- we're see more activity.

Thus far, our rates have held up not at what we originally pro formed the building at, but significantly above market.

It's definitely perceived as the premium building in the market and worth a premium.

So, I -- I'm cautiously optimistic about Congress & Fourth right now.

I think that market is improving a bit.

The building is becoming more popular, and the team is really digging in and doing a good job.

Okay.

Just one final thing.

You know, you mentioned obviously some ups and downs on the FFO on the earnings this year.

You clearly whet our appetite for the suggestion of a special dividend.

Are you prepared to give more on that.

Where are you going with it?

Well, here's the story is simple.

We have some property investors who are chasing assets.

If we can end up in the right place, then we're inclined to sell the -- obviously that's going to create some short term dilution and depending how much any assets that we sell and what we have to do with the proceeds and also, Mike, include a -- might include a special dividend.

What I'm trying to say here, Greg, and to all of you is that with big-time lease terminations where we get $20 million in termination fee, you know, that has to go into FFO.

It distorts the numbers.

Then the future of that space is -- in future years is going to depress the numbers.

If we sell a lot of asset, it's going to be diluted to FFO on the short term.

Whereas normally, you know, I think that you guys and all of you can generally predict within a few cents what Cousins' results will be on an FFO basis.

I think this year if we do have some of these, say, extraordinary items, it's just going to be more difficult.

A little bumpier.

I'm just trying to give everybody a heads up early.

Thanks, guys.

That's helpful.

Thanks.

We'll go next to Stuart Axlerod (ph) of Lehman Brothers.

Is the Q4 capital run rate good for '03, given the current development delivery time line.

Good morning, Stuart.

This is Tom Charlesworth again.

I think Kelly reiterated in the past that GNA is hard to predict a run rate on because capitalization is somewhat unpredictable depending upon the level of development at any given time.

Having said that, it's not far off absent some erratic capitalization, probably a little touch higher would, say, do it, but again it has in the profit and probably will continue to be erratic because of capitalization.

Okay.

Could you explain the drop in annual base rent for the consolidated '03 office explorations.

At the end of Q3, you had a $21 number on that, an you now have $16 for '03.

The numbers that you see in the current package are correct.

We had a number of tenants who went out and some who came back.

And they went out at a higher number.

When they came back on a short term basis, think I in one -- I think in one case, a 30-day month to month situation, at a substantially lower rent.

That does affect the calculation.

Stuart, in checking it, there was one lease where the net expense had not been taken out of the gross, which is now corrected.

Okay.

And could you elaborate on the recent filing in Pauline county in the next project, the differences between Bent water and the new project.

Well, Seven Hills which is the name of the new project is a mile-and-a-half down the road.

Is (inaudible).

It's very similar, Stuart.

It has a little -- it will have a couple of new builders, but he think all five existing builders also plan to participate.

It's larger.

It's almost 70% larger when it's fully built out.

But the same sorts of amenities that you would expect from -- as we have at the Bentwater and the same customer focus.

And the same price points.

Okay.

So, about 2200 lots?

Right.

And also, of course, a long term project.

It will take some years.

Okay.

Just comment on the discussions with Norfolk Southern on the expansion into One Georgia Center.

I wish we had something to report there.

The previous administration in the state of Georgia, as we understand it, was quite close with doing a deal with Norfolk Southern on the property here in Atlanta which is generally called the gulch.

Which they were going to acquire for the multimodal station here in Atlanta.

The governor did not get re-elected.

Those negotiations and the people that were doing them, have since left.

Negotiations have ceased and the people have left.

The new governor has come into office with a significant deficit, which he is intensely focused on, so multimodal in the Gulch is not high on his list of priorities right now.

Which we believe will slow this process.

We are exploring other alternatives with the city and the state and Norfolk Southern on how to deal with these issues but these explorations are early we're early in the process, not sure exactly where they'll lead, but so, particular, we don't have much to report right now.

I can item you -- I are tell you that when we talked to the powers that be in the state and city, they are interested in multimodal, and I think it's definitely in our future.

That is the preferred location.

It's just now really a question of timing.

Okay.

Lastly, just comment on the actual rent that you get from Regis, and any update on more pant.

What do you mean by the actual rent.

The current rent that Regis is paying?

Well, we don't -- I don't have any information on how that bankruptcy could impact us.

Of in economic terms.

We don't know.

We in fact have had discussions with them prior to the bankruptcy, and we are trying to negotiate a deal, but we have not been able to finish that.

But they're current as of now.

I think.

Yeah.

I think they were in arrears for January, weren't they?

If they are, it's not much.

The bankruptcy filing was very recent, and they're trying to figure out where they want to end up.

We're talking and we hope to ultimately, Stuart, work out the deal where they stay in both buildings.

We think there's a chance of doing that.

Perhaps at a reduced -

Perhaps at a reduced square footage.

So, what's the current dollars they're paying in aggregate.

I don't have the Regis total dollars at this point for up.

Okay.

And ...

Marsia will come back to you with that.

Great.

Thanks

Once again, that is star 1 if you'd like to ask a question.

We'll go to John Loutas (ph) of Green Street Advisers.

You mentioned the potential rule change with respect to stock buy-backs.

How much of a problem would that be for you?

Is the potential of a special dividend your best alternative around that?

Well, I'll let Tom comment, but I think beyond -- if you look back at the 1,800,000 shares that we acquired to date, significant majority of those shares have been acquired under the block program.

Is that fair?

That's correct.

If the block program is eliminated, it's going to make it very difficult for us or any small cap or mid-cap company that has a float similar to ours to be able to significantly buy back shares of their own stock.

It definitely has an impact on us.

It if we can't buy back share, then that certainly -- which is sort of our number one use of proceeds, it definitely raises the possibility of -- or increases the possibility of special dividends should we sell a significant number of assets.

And, of course, the benefit that you lose by having to go to a dividend distribution is that you do not get the discount that is currently in the stock versus what most people think the N.A.D. is.

Is one alternative to buying blocks some sort of a tender offer program?

Tender offer -- there are many tools.

That's one of them.

Generally, you have to offer premiums when you go into 245 that kind of a program.

So, yes, that's possible, but taking away a tool like stock buy-back which is probably going to get you better pricing is not the best situation.

The biggest advantage with the buy-back is the discount and it seems like any alternative, you will lose the discount.

That's probably right.

I think you're right.

We have been calling our investors and, Tom, I thought eloquently editorialized today that, you know, this can be stopped if investors will raise their hand and will contact the authorities.

They won't do -- we think there's a chance they won't do this, but it's been a sleep sore far, John.

Not many people have commented on it.

Okay.

Or noticed it.

Okay.

Yeah.

Or noticed it.

I was surprised to see that Cable & Wireless termination fee.

Am I just out of the loop as to their financial condition or was there some other reason why you did the deal?

Well, I don't know that it's appropriate for to us get into Cable & Wireless financial condition in any great depth.

I think it's fair to say based on the information that we have, we were very concerned.

There is a lot of public information on them.

They have had not only management difficulties in London, but restructuring programs they have put in place, and I think it's generally recognized that the North American operations are losing a fair amount of money, and they are independent subsidiaries, and there are some issues there.

So, we felt it was best to go ahead and to negotiate the best termination fee we could, recapture the space so we could release it and get new people in there, and move forward.

Okay.

Then last question, you can make a general comment on the success of Avenue Peachtree City as compared to the Avenue East Cobb.

I'll ask Joel to respond to that.

Hey, John.

This is Joel.

Good.

How are you?

We have been pleased with Peachtree City.

It's kind of -- I owe (inaudible) we refer to it as East Cobb Lite in the sense that it's smaller.

As we have leased it up, we are extraordinarily surprised not only with the sales that people have accomplished.

But the releasing ability.

We replaced Harry's.

We did the termination.

We brought in the book store.

That increased traffic significantly.

The difference between the two, it's not as dense, but the trade area is wider and there's no competitive offerings.

We have been quite pleased for the scope of that project relative to the results we have gotten at east Cobb.

How do the financial results compare?

Like yield on costs for example?

Peachtree City yield on cost would be lower than East Cobb.

East Cobb was done at a different time and improving rent environment.

We made a great land deal.

Entitlements are brutal in Peach Peachtree City.

To get zoned property, we had to pay more for the land.

They were all above the thresholds but East Cobb was significantly above.

Thanks.

We'll go to Jessica Tully (ph) of Real Estate Management Company.

Good morning.

I was wondering if you were starting to see pressure on developers.

One of the nice things about Cousins is you have an excellent balance sheet.

It sounds like you have more liquidity opportunities in the possibility of selling mature properties that are well leased to high quality tenants.

There's obviously an active market for the properties and, you know, probably very good cap rates for the seller.

But I was wondering, r you're hearing so much pressure on, you know, just some stories about developer, you know, giving very aggressive amounts of free rent, trying to rent up things.

Are you starting to see pressure on developers that would allow you to buy assets at cheap prices like what's available in the last cycle, or is it just not happening yet?

Well, we haven't seen it yet.

We search every day in all of our major markets.

You would expect to see it, Jessica but it just -- I think there's just so much cap it available to date -- capital available to date, you follow the pricing, it's a robust market considering the leasing environment which we are operating in.

So, we remain hopeful that at some point we see these opportunities for acquisitions, but thus far, we just don't see them.

Thanks, Tom.

And gentlemen, at this time, there are no other questions in the queue.

Thank you, all for joining us.

We'll talk you to next quarter.

Don't hesitate to call if we can help in any way.

That does conclude today's conference call.

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