Cousins Properties Inc (CUZ) 2004 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.

And now at this time for opening remarks and introductions I would like to turn the conference over to the President and Chief Executive Officer, Mr. Tom Bell.

Please go ahead, sir.

Good morning, everyone, thanks for joining us.

I'm Tom Bell, Chief Executive Officer of Cousins, and with me today are Jim Fleming, our Chief Financial Officer and Tom Charlesworth, our Chief Investment Officer.

Unfortunately, my friend Dan DuPree, who was going to be here this morning is down with a bout of the flu and so I'll try to handle Dan's questions today.

If I don't do a very good job of that, then of course Dan is always available here via the telephone.

Thank you all for joining us this morning.

I'll turn the call over now to Jim for our financial results for the quarter.

Jim?

Thank you, Tom.

Good morning.

Thanks for your interest in Cousin Properties.

Certain matters today are forward-looking statements within the meaning of the Federal Securities Laws.

Actual results may differ materially from such at the same times.

Please refer to our filings with the SEC including our form 8-K filed December 10, 2002 for a discussion of the factors which may cause such material differences.

Also, certain items we may refer to today are considered non-GAAP financial measures within the meaning of Reg G as promulgated by the SEC.

For these items, the comparable GAAP measures and related reconciliations may be found the quarterly disclosures and supplemental SEC information linked on the Investor Relations page of our website at www.cousinsproperties.com.

Last quarter we reported on our 2004 asset sales.

At that time we said we had substantially completed the office building sales that we anticipated for the year.

We did have some additional sales activity in the quarter after the time of the conference call.

The shocks of Lake Tuscalusa, a grocery anchored retail center in Tuscalusa, Alabama, which we developed in a taxable subsidiary was sold in December for $9.9 million.

Also our partner, who owns 88.5 percent of Cp Venture Two, elected to sell one of the venture properties, Wachovia Tower, an office building in Greensboro, North Carolina.

We have a minority interest of 11.5 percent in our share of the proceeds was $4.1 million.

This sale triggered recognition of a small impairment loss and a gain arising from our original contribution of this building to CP Venture Two.

I'll return to this in a moment.

I'd like to summarize our 2004 asset sales.

In total, we sold 19 office buildings, one retail center and eight ground leases containing a total of 5.7 million square feet and Cousins' share based on our percentage ownership was 3.7 million square feet.

This represented 40 percent of our office portfolio, based on our percentage ownership and 33 percent of our total portfolio.

The total sales price was $1.3 billion, and Cousins' share of the proceeds was $901 million.

The average sales price was $231 per square foot, and the average cap rate based on income in the trailing four quarters was 7.16 percent.

This is calculated by taking the last four full quarters of rental property revenues less operating expenses from our published quarterly information package, removing termination fees from straight line rents and dividing by the sales price.

The schedule, entitled Summary of 2004 Asset Sales, in our quarterly information package shows the details of this calculation.

We've also included a schedule entitled Summary of Gains on Sales of Investment Properties in our information package that details the calculation, the value creation, GAAP gains and tax gains on all of our 2004 asset sales.

Out of Cousins' $900 million in proceeds, we incurred closing costs of minority interest payments of $29 million, and we paid off or transferred $342 million of project debt, leaving pet proceeds to Cousins of 530 million.

Cousins' gains were as follows: GAAP gain of $345 million and value creation of 201 million on a total, undepreciated cost 700 million, or 29 percent.

Our tax gain is currently estimated to be $416 million but has not yet been finalized.

I would also like to note that Cousins will continue to manage 13 of the 19 office buildings we sold in 2004.

Because of the asset sales, we were able to pay appear special dividend of $7.15 per share or approximately $356 million.

This entire special dividend, as well as a substantial portion of our 2004 ordinary dividends will be taxable to our shareholders as capital gains.

We estimate that 25 percent of the capital gain for the year will be taxable at the 25 percent federal recapture rate.

And the remaining 35 percent will be taxable at the 15 percent federal capital gains rate.

You can find more detail in the 2004 Taxability of Dividends schedule located on the Investor Relations page of our website.

Last quarter we reviewed our capital needs over the next several years.

Although our $325 million line of credit is largely unused, we will need additional funding in order to develop all of the projects we hope to build over the next three years.

We had issued $100 million of perpetual preferred stock in mid-2003, and we were very satisfied with the results of that offering.

We felt that it fit well within the company's capital structure and it had been well received in the marketplace.

Late in 2004, the preferred stock market improved we decided to issue an additional $100 million of perpetual preferred stock.

We were able to do this at a coupon of 7.5 percent, which is a quarter of a percent less than the rate of the 2003 stock.

This transaction too was well received in the marketplace and we believe this preferred stock has improved our capital structure and will be beneficial to us over the next several years.

Because of the asset sales and the preferred stock offering, our balance sheet is in very good shape.

We finished the quarter with approximately $89 million in cash and with very little debt.

Including our share of joint venture debt we had $349 in fixed rate project level debt and $7 million in floating rate debt.

Based on our stock price at December 31, 2004, this gave us a ratio of 17 percent adjusted debt to total market capitalization.

Our recourse debt was $50 million, which represented only 2 percent of our total market capitalization.

Now I'd like to briefly discuss the net income and FFO for the fourth quarter.

Net income available per share was $2.20 in the fourth quarter, compared with $.17 in the fourth quarter of 2003.

FFO per share was $.53 in the fourth quarter of '04 compared to $.52 in the fourth quarter of '03.

The increase in FFO is due in part to increases in net profits from residential lot and tract sales and additional revenues from recently developed and acquired properties, partially offset by a loss net revenues from sold properties.

These items also affected net income available which was further increased from more gain on sales of depreciable investment properties in the fourth quarter of '04, as compared to the fourth quarter of '03 and less depreciation expense as a result of the sale of properties.

Results for the quarter included recognition of previously deferred gain related our original contribution of land to the Wildwood Associates partnership with IBM.

In 1986 when we formed the Wildwood Associates 50-50 partnership, we contributed the land at an agreed upon value which was higher than our basis.

This created a deferred gain, a portion of which was recognized when we sold the four Wildwood buildings in September.

An even larger portion was recognized when we sold the two Wildwood buildings and eight ground leases in October.

One half of the deferred gain, or the portion attributable to the company's half interest in the land underlying the Wildwood office buildings and ground leases, is included in net gain on sales depreciable investment property and is excluded from FFO.

The other half of the preferred deferred gain, which relates to the half interest in the land that was transferred to our partner in 1986, is included in gain on sale of undepreciated investment properties, and is included in FFO.

The impact on FFO was about 5.4 million in the third quarter and about 9.3 million in connection with the assets sold in the fourth quarter.

Net income and FFO for the quarter included a charge related to debt secured by property sold in the quarter.

Previously when an asset encumbered by debt was sold, the gain on the sale did not effect FFO.

This seems logical since FFO is designed to measure operating performance.

However, under newly applicable GAAP rules, when an encumbered asset is sold and the debt is transferred or repaid, the debt is separately valued as either above market or below market and the sales price for the real estate asset is adjusted to take this into account.

The offset to the sales price adjustment is included in interest expense.

This debt adjustment affects FFO for the quarter of which the asset is sold, notwithstanding the fact that it is related to a sale gain that is not reported in FFO.

This change resulted in a decrease of our FFO in the fourth quarter of $3.9 million, 605,000 of which is included as an expense in income from discontinued operations and the remainder of which is included as an expense in joint venture FFO.

Let me point out however, that net income available was not affected by this as the net gain on sale of the respective parties was increased by a corresponding amount.

Those are the highlights for the quarter and the year.

Now I'll discuss other details of FFO and net income available, describing changes between the third and fourth quarters of '04.

You can follow my discussion beginning on page two of the Net Income and FFO -- and, excuse me, Funds from Operations supplemental detailed schedule.

Starting with the Office Division, 101 Independent Center decreased 626,000 as a result of the sale of this property in the third quarter of '04.

In Forum, decreased by 390,000 due to Lockwood Green's bankruptcy filing in early 2004 and the early termination of its lease in May '04.

One Georgia Center decreased 425,000 as a result of the departures of South Trust Bank, Burr and Foreman, and Norfolk Southern, which comprised a total of 210,000 square feet, or 60 percent of the building.

As of December 31, '04, this property was 15 percent leased.

The vacancy in this building is very significant for us and we're working hard to lease this space.

Cross Bank Tower increased 410,000 as the average economic occupancy increased from 39 percent in the third quarter of '04 in the 56 percent in the fourth quarter.

In the retail division, the Avenue Viera became operational in November '04, contributing 189,000 of the overall division increase of 210,000.

Discontinued operations reflect the operations of 101Second Street and a 55 Second Street, the two San Francisco properties that were sold in the third quarter of '04.

And North Side Alpharetta One and Two and the Shops of Lake Tuscalusa which were sold in the fourth quarter.

Net income from tract sales increased 8 million, of which 3.9 million resulted from increased deferred gain recognition on Wildwood sales and 4.1 million represented increases in tract sales.

As I mentioned previously, we recognized deferred land sale gains on Wildwood sales of 5.4 million in the third and 9.3 million in the fourth quarter.

During the fourth quarter, we sold 30 acres at North Point, our mixed use development and Alpharetta, Georgia for a gain of $4 million.

The profit margin on the sale was 65 percent which is consistent with the profit percentages we have reported in prior quarters.

We also sold 6-acres in Wildwood Office Park for a net gain of 3.3 million and a ground lease at our North Point retail project for a net gain of 1.4 million.

Continuing with quarter over quarter variances in the schedule, net profit from lot sales including our share of joint ventures increased 1.6 million from the third quarter of '04 as the company's share of lots sold increased from 134 in the third quarter to 296 in the fourth quarter.

Development income increased the 505,000 due to an increase in development fees recognized on the company's joint venture residential development projects and construction management fees.

Interest income and other decreased 215,000, primarily as a result in the third quarter in the fair value of the AtheroGenics launch and a decrease in the fourth quarter.

In early October '04, we exercised one half of our 50,000 AtheroGenics warrants and sold the stock at an average gain of $27.50 per share.

This gain was recognized in the third quarter.

The decrease in the value of the AtheroGenics warrants in the fourth quarter was on the remaining 25,000 warrants the company still owns.

This decrease was partially offset by an increase in interest income from the investment of cash proceeds from property sales.

Interest expense, including interest expense classified as a component of income for discontinued operations, decreased 1.2 million.

The prepayment or transfer of debt associated with property sales resulted in a $2 million decrease, partially offset by a $605,000 mark to market adjustment on the sale of NSA One, excuse me, North Side Alpharetta One, and a $301,000 decrease of capitalized interest.

The offset to the mark to market adjustment was an increase in gain on sales of depreciated investment properties.

The decrease in capitalized interest was primarily due to the transfer of Cross Bank Tower to fully operational sales in December of 2004.

The Company's share of joint venture FFO decreased 6.9 million.

This decrease was primarily due to the sale of office assets, including recognition of $3.3 million mark to market adjustment of debt transferred or repaid on those properties mentioned earlier and the recognition of a 209,000 impairment loss on the Wachovia Tower sale by CP Venture Two.

Even though we recognize this impairment loss within CP Venture Two, we also recognize the deferred gain on this sale of $2.5 million.

This $2.5 million deferred gain was a remaining deferred gain from the contribution of this property to CP Venture Two in 1998.

Including this 2.5 million, we have recognized a total of $28.3 million on this property since it was completed in 1998.

The income tax provision increased $465,000, primarily due to an increase in profits recognized on residential lot sales.

The next two line items are excluded from FFO, but are necessary to reconcile FFO to net income.

Gain on sale of depreciated investment properties includes the gains on property sales that I mentioned earlier along with one half of the deferred gain recognized on the land associated with the Wildwood Office Building sales.

Total depreciation and amortization of real estate decreased $803,000 from the third quarter of '04 primarily due to sold properties.

That concludes my discussion of the detail is the fourth quarter's FFO and net income available.

I would also like to mention a couple of events that occurred subsequent to December 31.

In January we sold one tract at Wildwood for $2.6 million, and we anticipate a second sale in February for $2.8 million.

The pretax profits are estimated to be $2.2 million for the January sale, and $2.4 million for the February sale, subject to finalizing the accounting for the first quarter.

Second, as we reported last quarter, we expect that profits will be recognized this year on the sale of condominium units at our [50 Biscane] project in Miami.

Recognition will be based on the percentage of completion method.

In effect, we will recognize profit on pre-sold units on a pro-rata basis over time based on the percentage of completion of construction.

Please keep in mind there will be income taxes on this income.

We believe we have have a substantial income tax expense in 2005 as a result of these sales.

We also anticipate a substantially larger income tax obligation in 2005 from the management of the office buildings we sold in 2004.

Most of these buildings were previously managed by the REIT for its own account, and are now being managed our by our taxable subsidiary.

Finally, we now have $200 million in preferred stock outstanding, which will increase our preferred stock dividends and will reduce or FFO available to stockholders.

With that, I'll close my remarks and turn it back back to Tom.

Thank you, Jim.

By and large, I feel like we had a good year in 2004.

We were able to accomplish most of the things that we set out to do.

We finished the year well positioned to move forward with our business plan for '05 and beyond.

I'll just take a few minutes to recap the major elements of our overall strategy and let you know where we see ourselves at this point as we move into the new year.

As we discussed before, we have been a development Company for over 40 years now.

Because this of we're a bit different than most REITs, as you know.

We typically develop to own and throughout our history we've been able to create value through the development process and then add to that value through leasing and management as our assets mature.

On a regular basis, we look at each of our assets and we ask ourselves whether we have completed the value creation process or do we still have more work to do.

We also regularly assess the investment market and determine how our assets are being valued.

And when we feel our assets are fully valued, we try to capture that value and redeploy it in places where we can create more value for our shareholders.

We've done this throughout our history, throughout the history of our company in a number of ways, such as financing joint ventures and sales.

Early in 2004, we concluded several of our office assets were mature, our work was substantially done, and the investment sales market market was strong.

So we decided to sell a number of these buildings.

We concluded we should try to close these sales by late '04, hoping there would not be any significant disruptions to the market during the year.

And fortunately the market stayed strong and as Jim reported, we were able to sell $1.3 million of office buildings which allowed us to pay a $7.15 special dividend, our second special dividend in two years, and also recycle over 500 million of additional capital back into the company which we will use to fund new projects and pay down debt.

Another key for focus of 2004 was to expand our development capabilities and development much our development opportunities.

We worked on this a number of ways.

First, we continued to put a great deal of effort into our retail business, focusing both on our current projects and our development pipeline.

And also on possible future products in our shadow pipeline.

On the retail side of our business, we continue to seek good opportunities both for our Avenue Lifestyle Centers and Power Centers.

In November, we successfully concluded a nationwide search for the right person to head up our power center business in the Eastern U.S., and we're pleased to have Mark Gamble join our retail team here in Atlanta.

Mark's an industry veteran and he will allow us to increase our focus on the Power Center business without taking any steam out of our existing and successful efforts to grow the Avenue Specialty Center concept.

In addition, we're moving one of our senior retail deal makers, Alex Chambers, from our home office here in Atlanta to Austin, Texas, where he will lead our newly formed Central Region.

Alex and his team will focus on new Avenue and Power Center development opportunities in Texas and surrounding states.

Finally, one of our senior leasing directors, Kevin [Colestin] who is fresh off the highly successful lease up of our Avenue West Comp project, has been promoted to lead our new avenue development projects in the Southeast.

These three appointments, along with our well-established California office led by Bob [Manorino] will give us solid developers with product type expertise in three key growth regions consistent with our national retail Sunbelt strategy.

Let me update you on where we stand with a couple of larger retail projects under development.

Our Avenue Carriage Crossing in Memphis is progressing nicely through construction and initial lease-up.

We are on budget and on schedule for our October '05 opening of this 692,000 square foot Phase One center, and we are currently 70 percent leased and 85 percent committed, and Letters of Intent covering most of the remaining Phase One space are now in negotiation.

Despite three hurricanes, we opened our Avenue Viera project in Brevard County, Florida on November 19 in time for the holiday buying season.

I'm pleased to report that the retailers are reporting excellent sales for the most part and are significantly exceeding their initial sales projections at the Viera.

Phase One is now 84 percent leased and 86 percent committed and Letters of Intent are now in negotiations that if converted to sign leases, would push us over 90 percent at Viera.

The retail team also advanced a number of significant projects on our shadow pipeline.

The Avenue Webb Gin, here in Atlanta, continues to move forward if a positive matter and leasing interest in this 360,000 scare foot project remains quite strong.

We also obtained unanimous approval of our San Jose California Target anchored Power Center from the San Jose city council.

We now have all of our discretionary approvals for this 365,000 square foot project in hand and we're actively working for finalize our construction budgets and finish up the pre-leasing we need to move forward.

We've also advanced our planning an leasing efforts on the expansion of our highly successful Avenue West Cobb project.

And finally we've closed on 22 acres of land adjacent to the Avenue Viera and began construction on the first phase of a Power Center there anchored by Kohl's.

I want to take just a moment to make a point about our shadow pipeline.

By shadow pipeline, I mean development projects that we are working on but which we have not yet committed to build.

Now we feel good at this point about the depth of our shadow pipeline and about the momentum of many of the projects we are working on.

However, I want to emphasize that we have not yet purchased the land for all of these projects though we have it under control.

And we have not yet made a final decision to move forward with them all.

I point this out because several reports have been published regarding these projects based on the marketing materials we use for pre-leasing.

Please make sure you realize that even though we are pre-marketing these shadow pipeline projects to potential tenants, they're speculative until we announce them.

We use this pre-leasing process ensure the project has significant and sufficient support from the retail community.

If this support is not evident or if we run into other development difficulties, then we'll not move forward with the project.

Once we close on the land and begin construction of a project, we will show it on the development pipeline schedule that we publish each quarter.

In 2004, we also started in industrial division as you know, with the addition of Forrest Robinson and our Cousins-Weeks venture with Ray Weeks.

On January we closed on our first tract of land for this venture, 182 acres in Henry County, south of Atlanta, which will allow us to build 2.9 square feet of industrial space over the next several years.

We've not yet made a decision to move ahead with the first building on this property, but if the market conditions continue to improve as they have over the last several months, we hope to do so this year.

Forrest is looking for tracts of land to provide opportunities in other suburban markets here in Atlanta.

We don't expect the industrial division to begin to contribute to FFO in '05 but we hope to begin some projects this year that will contribute in '06 and beyond.

In 2004, we continued expansion of our single-family residential business through our venture with Temple [INDISCERNIBLE].

We began five new projects in 2004.

And additionally, our lot sales profits increased by 77 percent from 2003 and we closed 1,688 lots in 2004.

Now we're cautious about the single-family market and we know sales maybe affected by a rise in interest rates, but for now, the business continues to be strong.

As long as job growth continues to occur in the Sunbelt, most of the experts expect high levels of household formation, which we believe will fuel the market for single-family homes in our markets.

As all of you know, our office markets have been difficult for the past couple of years.

We now we believe we have seen the bottom of the cycle for most of these markets.

Overall, vacancies declined from third quarter to the fourth quarter and activity seems to have picked up significantly.

In most places, we haven't seen many improvements yet in rental rates or concessions, but we believe things are trending in the right direction.

And we're making good progress and pre-leasing our proposed Buckhead building in Atlanta.

At this point, we have over 200,000 square feet of leases either signed or in file negotiation and we have an additional 100,000 square feet of prospects in serious discussions.

We've been able to keep a very talented group of people in our office development field even though opportunities have been few over the last couple years and as we move forward, we plan to take advantage of office development opportunities as they arise.

In 2004, we also decided to take a couple of measured steps in the condominium market.

We did this through two ventures [50 Biscane], a venture in downtown Miami with the Related Group, And 905 Juniper, a venture in midtown Atlanta with the [Gowerstead] Group.

The Related Group was actively been refining the design and pricing of the 50 Biscane Project as well as soliciting pre-sale contracts for the condominium units, and currently 96 percent of the units are under contract and construction is anticipated to commence on or about April 1, with completion by November 30 of 2006.

Pricing for the pre-sales is well in excess of our pro forma.

In November, we announced that we had purchased the 905 Juniper site in Atlanta, we would decide whether to move forward with this 117 condominium development in the near future.

This project is now underway.

In December, we closed a $20 million construction loan for this development.

And the venture broke ground on the project in early January.

Our last major goal of 2004 was to address our capital structure so we would be well positioned to fund and move forward with new development.

We expanded our revolving credit facility in July, adding three banks and increasing the availability of 325 million, with the right to further expand the facility to 400 million under concern conditions.

Also, we felt good about the preferred stock we had issued in the summer of '03, it fit well with our capital needs and has been well accepted by the market.

Because market conditions were favorable, late in the year we decided to issue some more preferred stock, and in December, we sold 100 million of perpetual preferred at a coupon of 7.5 percent.

With this preferred stock, our credit facility had the ability to add debt to the properties when appropriate, we are now well positioned to take advantage of our development opportunities.

As we move forward, there are several keys to our continuing success.

First, we have some leasing challenges in the office area.

We have significant vacancies in a few of our office properties and of course we're still in a difficult time in the market cycle.

But we're seeing more activity than in the past and we're optimistic that leasing fundamentals will improve over the next couple of years.

We have strong leasing teams and we will keep work on this as a top priority.

Our second goal for '05 is to execute well on our extensive development pipeline.

We now have a significant amount of development underway and would likely start three or four new projects in '05.

With this level of development activity, flawless execution, and successfully moving new projects to the pipeline, is extremely important.

Finally our third goal is to be well positioned to take advantage of good opportunities whenever and wherever the market provides them.

We're excited about our new industrial development capability because we're starting to see more activity there, and we expect good demand for warehouse and distribution facilities in the near and midterm.

We will continue to carefully watch the condominium markets because we believe the demographic changes in the Sunbelt will support all types of for sale housing, and the having the capability to participate in urban condominium projects should provide a good supplement -- compliment to our substantial land division which focuses on suburban, single family residential opportunities.

We believe our single family lot development business and our land division is about the right size now for given current market conditions, but we plan to continue to add projects to replace the lots that we are selling.

We're hopeful about our Buckhead office building project.

Although we haven't made the final decision to move ahead with it, pre-leasing is very strong, and it appears we should make a final decision by the end of the fourth quarter of this year.

I want to make one final comment about our FFO and our dividends.

Clearly our FFO will be less this year than last because of our asset sales.

And in fact, as Jim pointed out, the dividends on our preferred stock and income taxes on our condominium sales in increased fee business will be much greater this year than before.

As we've said, our FFO will fluctuate as our asset base changes with the completion of new projects and the sale of fully valued assets.

Looking ahead to '05 and '06, it seems appropriate for keep our regular dividend at its current level.

We should be able so grow our FFO over time as our new development projects become income producing.

Of course, the level of the regular dividend is ultimately determined by the Board as it reviews our situation throughout the year.

In summary, we were pleased with our performance in '04.

And are enthusiastic about the many opportunities available to us in 2005.

With that I'll close my remarks and open the floor for questions.

Do you have questions, please?

Thank you.

The question and answer will be conducted electronically today.

If you would like to ask a question, simply press star key, followed by the digit one on your touch tone telephone.

Also, if you're using speaker phone, make sure the mute function is turned off to allow your signal to reach our equipment.

Once again, that's star one to ask a question.

We'll first hear from Greg Whyte from Morgan Stanley.

Good morning, guys.

You covered a lot of what we were interested in.

A couple of small things on the second generation leasing CapEx.

Can you give us a little bit of your thoughts on where that might be in '05?

I realize that there were a bunch of one-off items in '04.

Greg, this is Jim.

Looking at '04 the -- and kind of looking back at '03 and '02, to give some perspective, if you look at our CapEx, I think our number was $19 million this year.

Yep.

It was about -- let me see if I have the numbers here.

I think it was 14.5 million the year before, and 13 the year before that.

A good bit of a difference from '02 and '03 and into '04 was CapEx on buildings that we sold.

We did have a fair amount of CapEx in the fourth quarter that relates to buildings we will continue to own that we've been leasing out or re-leasing.

It's about 6 million of the 7.7 million.

If you look into '05, we will have some additional leasing that we will do -- we hope to do on buildings such as One Georgia Center the Merit Building, and some others where we may have some CapEx there as well.

It'll be choppy.

It will depend on our leasing.

But I would think we would have some in '05 as we lease up these buildings.

Okay.

Tom, on the development.

It sound as though the Atlanta ones actually, construction's going to start a little before Miami.

Can you give us some sense of the materiality of each project to one another?

Whether it's by unit cost or total construction cost?

Well, the project in Atlanta will be in total cost around $30 million, I think.

Okay.

And, we are the primary equity investor there.

Yep.

We have a $20 million construction loan.

And the early activity there has been good.

We've not started marketing that project officially yet.

But we already have, I think at last count, about 90 names on the list of people who have contacted us and have said they're interested -- from just the stuff in the newspaper interested in those condominiums.

So, we'll see how that goes.

We're pretty enthusiastic -- about that project today.

The Florida project is much larger, of course.

It's 500 plus units.

We have a 40% interest in that project.

The total cost of that project is, what, Jim?

$145 million.

$145 million.

We donated the land.

We put the land in that project, as you know, Related is the developer.

Yep.

I think our total equity commitment after construction financing will be about $9 million.

And that project has gone very well.

It's 96 percent pre-sold.

We expect to start construction in early April, at which time the owners have to put down another 10 percent on the project.

And the rates we're getting, per square foot rates we're getting on that project are well above what we had pro forma-ed, so it's looking very good.

We sort of hold our breath until we get this next 10 percent.

But it's looking good.

Okay.

Now if we could just -- in a sort of related area on the residential lot and tract side.

I mean, you sounded cautiously optimistic I think is a right way of describing it.

Can you just maybe reflect for us -- obviously there is some seasonality to the business and stuff.

Have you seen any pullback relative to the time of the year, Tom?

No, we really haven't.

We're cautious because, you know, every time you pick up a periodical or a newspaper or a newsletter or read an analyst report, you hear about, you know, the bubble in residential housing or the fact that rates are going to affect residential housing.

We track this literally on a weekly basis in terms of lot sales.

And, you know, so far, we have not seen any weakening in the business.

Now it's lumpy because as you know we sell lots to builders.

And builders take down lots, 20, 30, 40, 50, 100 at a time.

So it depends from quarter to quarter on how many lots they have taken down.

But for the last two years, we have met or exceeded our budgeted targets for lot sales and I think '05 is stacking up as another good year.

Obviously it's very early to say.

But we're optimistic at this point about our residential business.

We don't plan to significantly grow our lot business in terms of the total number of lot that is we have to develop, but we do hope to keep the level where it is now.

So as we sell lots out, we'll be starting new projects.

Okay.

Then just one last question.

You had -- you itemized a couple of decent size sales in Wildwood.

Can you remind us what there still is on the land side to sell at Wildwood.

Well we have a fair amount of land left.

Some of which is dedicated to future office use.

Some of it could be either residential or office.

In terms of exactly how much land we have left, I think Jim is looking it up on the schedule.

Yeah, Greg, we have got in Wildwood, the Wildwood venture, which is the 50-50 venture, we have 32 acres.

And then we've got 62-acres in in addition to that, that Cousins owns.

About 100 acres all together.

Okay.

Thanks a lot, guys.

Thank you, Greg.

Next we'll hear from Chris Haley of Wachovia.

Good morning.

Good morning.

Jim, could you give us a sense of how much NOI Viera contributed in the quarter?

Plus or minus?

Greg, I think it's in the supplemental.

Let me see if I can find it quickly.

I think it's on the second or third page of the supplemental.

Avenue Viera, it's the last line under retail, Greg. 189,000.

Now remember, that didn't open in the 19th.

And in some cases we had at that time, not now, some tenants not full payers because of various lease clauses.

So I wouldn't use that as the number going forward.

You're going to probably need to wait -- see the full first quarter numbers.

Okay.

Just a -- just try to simplify all of the moving parts that occurred in the quarter.

Including the gain adjustments and the debt adjustments.

The $.53 reported, kind of stripping those out.

And stripping out your expected gains that might be included in the fourth quarter related to the land activities or, pardon me, the commercial land sales.

Could you give us a sense of what's the run rate going in on a kind of a clean basis into the early part of '05?

Greg, -- Chris, excuse me.

You would have to -- I don't know that we can do that any better than you can.

I think what we would --what you would need to do is take out those things that are related to the sales, which we highlighted.

You'd need to look at the new operational properties.

And you'd have to make some assumptions about properties like Viera.

You have to make some assumptions about where we'll be in terms of leasing, although, the situation with the leasing, that generally takes a while before that changes significantly.

So if you're looking at the fourth quarter, you're probably look at what our occupancy is right now, and look at that, it gives you some indication of the first quarter.

Greg -- I mean, Chris, I'm sorry.

I can't help much more.

But I think to do that, we'd have to really make projections about where we think we're headed.

And we really have not tried to do that.

In the office business, what would you say your -- the pluses and minuses related to occupancy and rental rate changes that might at least turn the same-store cash and NOI numbers around?

That's the right question, Chris.

And you know, that's what we spent a lot of time on here.

It's trying to make that decision and your best of sort of risk reward judgment on whether we should lease the space today at the rates that are available to us, or whether we should hang tough for another six months or so because we feel like better rates are, you know, available to us in the future.

On a regular basis, we go building by building, market by market and make that review.

We have a couple leases working right now at Merit, which we feel are sort of a good half measure.

Couple floors, a little better rates than the market has been offering recently.

But not at good as we would like.

And so I think, a plausible strategy is there we get those two leases buttoned up, and then we'll wait a little bit longer, because it's a great property in a great location, right next to the transportation system there.

And so we'd be looking for higher rates in the future.

One Georgia is in a very, very tough downtown Atlanta market where there is a lot of space on the street.

There is a huge amount of class a space on the street.

That space is being leased alt extremely competitive numbers, even in great buildings like 191.

So that has presented a real challenge for us, because ours is sort of a B Plus building.

We're being aggressive in that building, but you know, I frankly don't want to sign a 15-year, you know, or 10-year lease in that building is an extremely low number, when I think that, you know, if I give that -- give us a year, we'll do better there.

You're asking the right question.

I wish I could give you a simple answer.

It's, you know, we try to make those decisions on a day to day basis.

We held off in Frost Bank in Austin as you know for the last six months of last year.

That looks like it's going to pay good dividends for us if we can if we can get these two leases that we're working on right now signed.

So, I can't give you a specific answer, but that's how we're thinking about.

Chris, this is Tom Charlesworth.

I might add, because you know, we look at our key markets very carefully every quarter.

There is some positive things in the class A Atlanta market.

We see a couple of sub-markets that have had 200 basis point drops vacancy, and that's very positive at this point.

Of course, Buckhead is leading the way there.

Midtown had about a 1 percent improvement.

And our leasing guys are telling us that they see good traffic.

So we see positive changes coming, but as Tom is saying, you have to balance off and waiting on those versus trying to effect some current leasing.

In terms of thinking about making, trying to forecast future earnings though, if we were -- let's say we were to complete deal negotiations this afternoon, you know, on a full-floor tenant in one of our buildings.

It would be at least 30 and maybe 60 days before we had a signed lease, then you go through, you know, whatever build outs you had to do.

That's provided that the tenant is immediate, but the tenants aren't immediate.

They're usually out ahead a year of their move date.

So, it would be the exceptional situation.

We expect to find some.

We expect to do well in leasing this year, but it would be the special situation where we would have a June or July move-in date which would produce significant NOI in this calendar year.

Our next question from Jessica Tully from Credit Suisse First Boston.

Good morning.

I had a a couple of questions.

One, I wondered if you could touch a little bit on the North Fulton market, because you've got some leasing challenges there too.

Jessica, Tom Charlesworth again.

That is a tough market.

Availability is in the 22 percent range.

It didn't have much improvement in the last quarter.

It is the perhaps the toughest in the Atlanta market right now, so there's a ways to go.

Having said that, we do have very good leasing people who have some good traffic.

We are working on some deals up that way.

But it will take some time to recover.

The other thing to remember about that, jessica, in two of those buildings we're number a very good position in terms of our per square foot investment, and can be very aggressive and have been and we have got some good leases that made good money for us that we did last year.

But we're competitive in that market on two of those buildings, so, I think what Tom says absolutely correct.

But I wouldn't be surprised so see some success in the North Fulton area this year.

And then on the Frost Bank, Tom, if those two leases are signed, what would you get up to on that building?

Mid-70s.

Mid-70s.

And then also I wondered on the Juniper condo.

Will that be a percentage of completion accounting, too?

That's what they tell us.

Okay, and then just one final question.

I know that you've got some older office buildings in Atlanta.

There has been speculation you have thought from time to time turning them some time into condos.

Is that something that, even construction wise feasible, or is that something more just sort of --?

We don't have any that we feel are really great candidates for redevelopment.

We have a couple at least one and maybe two that we feel maybe candidates to be scraped and replaced with a, probably mixed use -- particularly 615 Peachtree, where we a little -- about 2.5 acres there, probably is very well positioned, at some point in the future, for a mixed-use project we'd have for sale residential along with office and parking and some retail.

Thanks, Tom

Thank you.

I point out that -- Tom Charlesworth again, that 615 we actually bought with redevelopment in mind at some point down the road.

That would be major redevelopment, such scraping it and doing a mixed use project.

So it was a good way to carry some very, very good well located real estate.

Thank you.

Next we'll hear from David Toti of Lehman Brothers.

Good morning.

Good morning.

Quick question.

I might have missed this.

Did you talk about the NOI declines at [In Forum]?

No.

Could you give us a little color on that?

David, this is Jim.

We've had one tenant that filed bankruptcy earlier in the year.

It was a full floor.

That's a very large floorplan, over 100,00 feet and that space is still vacant.

That accounts for most of it.

There may have been some fluctuations from quarter to quarter that had to do with fees and some expenses.

But that's not a significant -- really the story is the full floor we need to lease.

Okay.

My next question has to do with your same store declines.

Has there been any change in the way you're looking at our same support pool?

Obviously the asset pools are probably impacting, but did you change any other parameters?

No, what happened there is we're looking now at properties, at really a small subset of the properties we had last year because we sold a number of properties last year.

And of course we're not looking at the new properties that have come online.

If you look at same store, we did have some declines on the office side.

Really, there the main issues were Merit's downsizing -- and I'm looking year-over-year, from '04 back to '03.

The Merit's downsizes at 1155 in the Perimeter Center area, we lost three large tenants at One Georgia Center, which is a significant issue we just talked about a few minutes ago.

And then the tenant that I mentioned at In Forum that vacated due to a bankruptcy.

So those were the real drivers behind the decrease in office.

Retail was up slightly, but it was really the result of some very small changes there.

Great.

One last question.

And, you know, obviously I know many of these projects that you have in your shadow pipeline are obviously not confirmed and not potentially going to be built, but there are four that I was wondering about.

If you could just give us a quick update on.

One is the office building in Dallas.

One is the Wind Rock Market Center.

One is the Avenue La Fonterra.

The last one is the Haynes Bridge Road, Alpharetta project.

Okay.

Office building in Dallas.

Where will did you get that one?

I've seen it in a number of reports that you guys are involved in a potential office building in Dallas.

Well, we are looking at a project in Frisco with our partner there, Tom Hicks.

It's, you know, early in the process.

We really don't have anything to report about the project, other thane we're sort of in the second level of our pre-development process.

We have a long way to go.

Okay.

And it could ripen quickly, or, depending on what happens with the market, or it could be a slow process.

Okay.

Did you ask about Albuquerque?

Uh...

Wind Rock?

Wind Rock, as you know is partnership we have with Prudential.

That one is moving along pretty good.

It's going to be mostly a big box Power Center.

Almost 1 million feet.

Dillard's is in that center now.

It was a mall.

It has been cleared out.

Dillard's is still operating, it has two stores on that property.

And I think, our latest conversations with Dillard's would indicate that they will continue to operate on the property.

And we are in the pre-leasing stages on that.

It's going fairly well.

Pre-development work is going fairly well.

I'd say we'll have more to tell you about that in the third quarter of this year.

Okay.

At least be able to give you a significant update at that time.

What was the next one?

La Fonterra?

La Fonterra.

We have land under control.

We have two good commitments there for significant square feet -- square footage.

I have several other deals in the works.

It has not proven itself out yet, from a pre-leasing stand point, but it's looking pretty good.

Most of the development issues that we were concerned about have been resolved.

We still have a couple of issues with the powers that be there in terms of Austin that we have to resolve.

I think we probably will get them resolved.

So I'd say we'll be ability to give a good report on that in at least an update in our next call as well.

Great.

And then San Jose, is that the other one you asked about?

No, the last one I asked about was the Haynes Bridge Road site in Alpharetta?

West Side or East Side?

I believe it's potential for an Avenue brand development.

East Side.

That's about a 12, 13 acre site that we have which is presently zoned for office.

And in fact it's zoned for high rise office, which as you heard Mister Charlesworth say, they definitely do not need in North Fulton at the moment.

We're trying to get it re-zoned to an Avenue-like concept , it'd be small for an Avenue, I think it's 167,000 feet in the plan, that's certainly not any certainty.

We had our first neighborhood meeting last night as I understand it, which apparently went okay.

But that will be a long process.

Getting things re-zoned in Alpharetta is a torturous process.

They're very careful and very deliberate about what they do.

We've had some very fresh experience with that with our West Side situation.

They seem to like the concept.

They like the looks of it.

We'll see how that goes.

That's not an '05 opportunity in my opinion.

That's more like an '06 opportunity.

Great.

That's been helpful.

Thank you.

Once again, that's star one to ask a question.

Now we'll hear from Jim Sullivan from Greenstreet Advisors.

When I look at our office business, when I look at your retail and development business, it's obvious that you bring a lot of competitive advantage to both of those businesses.

But when I look at the condo business, it's not clear what you're bringing to the table other than capital for your development partners.

Can you help me understand the strategy and perhaps what competitive advantage you see in the business?

I will, Jim.

It's a good question.

You know, the Miami deal was sort of a fluke.

I mean in Miami we were well done the road on an office development project.

And Related convinced us, and it appears they were absolutely correct that the our shareholders would be far better off if we developed it as a condominium project.

We would make a lot more money and make it faster.

And so that's the explanation of that.

In the Atlanta market and our partnership with [Gowerstead] is a little different.

More and more of the opportunities that we're seeing in this market, particularly this urban market are mixed-use type opportunities.

And in those opportunities, like the one we did in Charlotte with Bank America, we have traditionally given away the residential component of that opportunity.

And they've done very well.

So in our planning meeting last year, we talked a lot about this.

We decide what we would try to do, starting in Atlanta, where the Cousin's name has a marquee value.

I think good marketing value.

In the Atlanta market we would try to find a partner and we would participate in that partner and then one or two sort of experimental deals to see if we could develop a comfort and a capability with this product type so that as we pursue additional, you know, mixed-use opportunities, and we have some those in our pipeline, we would be able to hang onto some of the value creation in the multi-family for sale part of those transactions.

That's what we're doing.

We're sort of sticking our toe in the water.

We have great confidence in Larry with this project.

As I've said before, I don't plant to create a condo division here.

Certainly at least not at this time.

I don't plan to hire any people.

But I would like to be able to be involved in those projects where I think we can bring value, as you suggest, and take advantage of that part of some of these mixed-use projects that we're seeing.

That's -- that's how we got into these two deals.

Jim, this is Tom Charlesworth again.

I would add to that that I think we generally feel very, very good about midtown Atlanta over the long haul.

It's going to be a dynamic, 24/7 part of our city.

We think that that's a good place to do this type of thing.

And it should work out quite well.

Let me give a few statistics, Jim, because I know you like is statistics.

The ARC, Atlanta Regional Commission, says we'll grow by 2.4 million people over the next 25 years.

During that period of time, the over 65 cohort will increase by 300 percent, the over 55 by 200 percent, homes with children in residence will decrease by 37 percent.

This market is changing.

And because of our traffic situation, it is moving in very significantly.

And I don't think that's unique to Atlanta.

I think most of these new cities, these new urban areas which have grown very quickly over the last several years, and have outgrown their city boundaries, so they're reaching out regions without regional governments.

I think you're going to see a lot this inward migration as the demographics change.

So there is an opportunity there, somewhere, not from a condominium or residential perspective.

There's an opportunity in many ways.

And I think what we'll see is a lot of redevelopment and in-fill development and things like this 615 Peachtree project where you tear down an old office building, a big parking lot and a bank and you build, you know, a new product.

We're certainly seeing that happen in the Atlanta market and I wouldn't be surprised if it's not happening in other new urban markets as well.

So that's sort of our thinking behind that.

That helps a lot.

It'll be fun to see how that evolves for you.

It sure will.

Second question.

Tom mentioned a couple of spots with respect to the health of the Atlanta office market.

I was just hoping you could provide a little bit more detail.

And if the question is is the market improving or not, or I guess in some sub-markets still weakening.

And the measure is net effective rent, gross rent, minus expenses, minus releasing costs, can you comment on your important sub-markets, and getter better or still getting worse perhaps, in North Fulton and in downtown?

Well, we think they're getting better in terms of absorption.

But, you know, a lot of absorption is smart people in the market taking advantage of bad markets and doing pre-extensions of their leases and moving around to take advantage of these market opportunities.

I don't think Tom, you'll have to comment on that.

I don't think we have seen a lot, we have seen some.

But I don't think we have seen a lot of movements in rates or in other related costs to new leasing.

We think, however, that that is changing and will change into '05 and '06.

But it's going to change pretty slowly in our opinion.

I think that's exactly right.

That is the class A net rents and economics that we follow don't show much change at this point.

We are seeing it first in the absorption numbers.

Pretty decent absorption last year as I mentioned.

We can't call the exact quarter of the shift upward.

It is coming.

Hopefully this year sometime.

Is it possible in North Fulton and downtown that Net effective rents worsened, even if occupancy starts to improve a little bit, just because there is so much empty space and landlords are duking it out the way that they have to to keep their tenants and steal tenants from others.

Is it possible net effective rents are in this year in a couple of those sub-markets?

Well, I think it's certainly possible, Jim.

I mean, you know, you have got EOP with 191, which effectively when K&S, Kay and Spaulding moves out and [INAUDIBLE] moves out, it's effectively 75 percent vacant.

And it's a great building.

I know we just competed with them to keep Troutman Sanders and they were very aggressive.

Fortunately, Troutman wanted to stay in Bank America, so that helped us make a decent deal with them..

There is a lot of space down there.

And there's new space coming on the market.

One of the developers here, [Barry] is building two new buildings, one anchored by Ernst and Young, and another anchored by the Southern Company, which will put 350,000 feet of spec space on the market.

Now, the way they pro forma those deals, as we understand it, they'll have to get a big number for the spec space, in order to make those deals work.

So I'm not sure they're going to be all that aggressive.

And they must feel better about the market going forward that most do.

We think the North Fulton market has bottomed out.

We think the downtown market has bottomed out.

We see a lot more activity in the market, we have quite a bit of inward migration going on.

I'm Chairman of the Metro Atlanta Chamber this year.

We're seeing a lot of economic development opportunities, in other words, we're talking to a lot of companies that are moving people here, or talking about moving people here.

So, I think that it's more likely that things will get better in those markets than it is that they'll get worse.

But in my view and anybody else in the room should comment, it's not a certainty.

Yeah, and Tom Charlesworth again.

The numbers have been more or less stable in recent quarters.

Now it could-- what you're saying could in fact happen.

It may not.

There's a lot of space to be absorbed.

It does appear to be absorbed at this point.

Okay.

Thanks a lot.

Slowly, any ways.

There is one name remaining in our queue.

Our final question for today will come from David Shulman from Lehman Brothers.

Hi.

It's a question for Jim.

Could you go over the accounting entries on the gain on sale and the expensing of debt when you do the sale on the $3.9 million.

What exactly goes on, on your books?

Sure, David.

On the -- the gain on sale, you're talking about the Wildwood?

Where you're marking that you're reducing the gain but increasing market expense?

I think that's the Mark to market.

That's the mark to market on the separation between the debt.

I got it.

One question.

I'm with you.

Right.

Sure.

What we did and this started in the fourth quarter and we're told that this is now a requirement that all of the large accounting firms have determined that this is what the CCOOB is requiring.

What happens is when you you have an aspect income encumbered by debt, and you sell the asset, you have to value the debt separately.

Right.

And when you do that, you come up with a value that's either positive or negative, whether you think it's above or below market debt.

So in this case, the value of the debt is higher.

The value of the debt we said was negative value.

In other words, the interest rate on the each of the loans was higher than what you could get in today's market.

The interest rate was higher.

So the interest rate on the debt was higher, so therefore, the value of the debt is more, right?

Yeah.

It's an encumbrance, I guess that's right.

The liability is now higher, right?

Correct.

That's exactly right.

So, when you havel what you do for accounting purposes, you take your sales price, which is the transaction sales price.

Right.

For the building.

And in separating that building from the debt, you have to separately attach a value for the debt --

So you increase the gain on sale then?

You increase the gain on sale for the building then you separately report at a loss on the extinguishment of the debt.

You have a loss of extinguishment of debt, because you're marking the debt up, so if it's 100 par, and let's all it 105, that five basically showed up on a loss of extinguishment of debt which shows up as interest expense.

In FFO, where our sale gain does not.

That's right.

So sale gain gain winds up being higher, which doesn't contribute to FFO.

And you wind up with a negative that decreases FFO.

Okay, so sale gain goes up.

Sale gain goes up because of that.

And then you have a loss on extinguishment of debt.

That's exactly right.

In the fourth quarter it was $3.6 million, was the total of that, and so the sale gains were increased by that 3.6.

Now we didn't report them that way in our reporting where we show cap rates and all that.

That's the way it was done for accounting purposes.

Okay, so for GAAP purposes, okay, got it.

Thanks a lot, guys.

Sure, David.

There are no further questions at this time..

Mister Bell, I'll turn the call back to you for any additional and closing comments..

Thank you, everyone, for joining us.

We appreciate your support and your attention, and We'll talk to you next quarter.

So long.

That does conclude this teleconference.

Thank you all for your participation.

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