Cousins Properties Inc (CUZ) 2005 Q2 法說會逐字稿

Good day and welcome to this Cousins Property Incorporated conference call.

Today's call is being recorded.

At this time, for opening remarks and introductions, I would like to turn the call over to the President and Chief Executive Officer, Mr. Tom Bell.

Please go ahead Sir.

Good afternoon everyone.

I am Tom Bell, President and CEO of Cousins Properties, and with me today are Dan DuPree, our Vice Chairman, and Jim Fleming, our Chief Financial Officer.

We also have our Chief Investment Officer Tom Charlesworth on the phone with us.

I would like to welcome you to our second quarter conference call and at this time, I will turn the call over to Jim Fleming to review the financial results for the quarter.

Good afternoon.

Thank you for your interest in Cousins Properties.

Certain matters we'll be discussing today are forward-looking statements within the meaning of Federal Securities Laws.

Actual results may differ materially from such statements.

Please refer to our filings with the Securities and Exchange Commission including our form 8K filed December 10, 2003, for a discussion of the factors that may cause such material differences.

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

For these items, the comparable gap measures and related reconciliations may be found through the quarterly disclosures and supplemental SEC information links on the investor relations page of our web site at www.cousinsproperties.com.

As we noted in previous calls, our net income and FFO are down in the three and six months into June ending 2005 compared to previous periods, primarily because of the sale of substantial assets and the payment of a large special dividend in 2004.

Rental property revenues, less rental property operating expenses for consolidated properties, properties included in discontinued operations, and joint venture properties decreased 12.9 million between the second quarter of 2004 and the second quarter of 2005 as a result of these sales.

Rental property revenues, less rental property operating expenses decreased 26.1 million between the six months ending June 30, 2004, and 6 months ended June 30, 2005.

As we noted in our press release and supplemental package, we have two condominium projects under development.

We recognize pretax profits of $514,000 on our 905 Juniper project during the quarter.

I would like to take a minute to review our accounting policies on condominium profit recognition.

Generally, GAAP rules and industry standards require us to recognize profits on condominium sales based on the percentage of completion method if one, buyers make sufficient nonrefundable deposits under their contracts and two, the construction of the project is beyond a preliminary stage.

Down payments of 5% on primary residences and 10% and secondary or investment residences are considered sufficient for the first criteria.

The measure for beyond the preliminary stage is completion of the foundation of the project.

We have completed the foundation at 905 Juniper and 84% of the units are under contract, but only 30% of the contracts have sufficient down payments to qualify for a percentage of completion.

For those contracts where down payments are not at this level, profits will be recognized upon closing of the sale of the units.

On our other condominium project, 50 Biscayne, the foundation is not completed and we do not expect it to be complete until the fourth quarter.

Although all 529 units in this project are under contract, and approximately 80% of the units have sufficient down payments to allow percentage of completion accounting, profit recognition can begin only when the foundation is complete.

As a result, we have recognized no profit on this project to date.

Although the amount of income we recognize in the fourth quarter will depend on the progress of construction up to the end of the year and the status of our contract at that point, we are anticipating between 5, and $5.5 million of pretax income on 50 Biscayne in the fourth quarter of this year.

Please note that all condominium development occurs in Cousins Real Estate Corporation, which is our taxable REIT subsidiary.

So all profits from the sale of condominiums will be subject to income tax expense which we accrue at 38%.

On a same property basis, adjusted and cash basis rental property revenues increase for both office and retail properties.

The same property operating expenses also increased resulting in a 1.2% overall decline in same property rental property revenues less operating expenses.

This variance is primarily the result of increases in property tax expenses at Frost Bank Tower and Avenue of the Peninsula, which are not fully recovered from tenants.

I am going to talk in a minute a little bit further further about the same property schedule.

On July 1st, our joint venture closed the sale of 1155 Perimeter Center West, the 365,000 square-foot headquarters building for Merit Corporation.

In a few minutes, Tom will discuss the leasing we were able to accomplish at that that building, but I want to review our gain and value creation numbers.

We own 50% of the venture that sold this building and the sales price was $49.3 million.

Subject to final accounting this quarter, we anticipate the Cousins GAAP gain will approximately be $1.3 million.

Although this did not meet our original investment objectives, it was a good result given the Merit bankruptcy and the very difficult leasing environment of the last several years.

I would now, like to discuss the components of FFO in more detail by describing the changes between the fourth quarter of 2004 and the first quarter of -- excuse me, I misspoke.

Describing the change between the first quarter of 2005 and the second quarter of 2005.

You can follow my discussion beginning on page nine of our supplemental package.

I will begin with the Office Division where rental property revenues less rental property operating expenses decreased by $169,000 between quarters.

This change is the result of activity at the following properties- Lakeshore Park Plaza decreased by $202,000 as a result of the expiration of the Infinity Insurance Company lease for 107,000 square feet, which we mentioned in our call last quarter.

Inforum decreased $110,000 as a result of the renewal of a lease with the tenant at a lower rate effective in the second quarter.

The Points at Waterview decreased $117,000 as a result of the expiration of two leases in the first quarter totaling 28,000 square feet.

To date we have replaced all but 9,000 square feet.

Frost Bank Tower decreased $159,000 as a result of an increase in non recoverable property tax expense during the quarter.

Inhibitex increased $189,000 as it became operational in April.

Turning now, to the retail division, overall FFO generated from retail operations increased $284,000 between the first and second quarters of 2005.

This resulted from increases at Avenue Viera, due to tenant openings and increases at Avenue of the Peninsula as a result of the commencement of leases executed in prior quarters.

Moving to the land division, gains on tract sales decreased $1.3 million during the quarter as a result of lower gains recognized on sales at North Point and Wildwood.

Even with this decline, our tract sales levels -- our tract sales gains have remained above $5 million per quarter for both the first and second quarters.

But as we have said before, our tract sales tend to be lumpy and based on the deals we see at this point, there are a number of deals that may close in the fourth quarter but there is no visibility of any substantial tract sale in the third quarter.

Gains on lot sales increased by $742,000 during the quarter due to an increase in lots sold and River's Call and Cedar Grove.

Other joint venture increased $262,000 during the quarter.

This increase is partly attributable to an increase in interest income at CO Realty and other joint ventures.

General and administrative expenses decreased $459,000 during the quarter, primarily as a result of an increase in capitalized salaries and overhead costs related to development projects.

As projects become probable we begin capitalizing salaries and other costs associated with new projects.

Activity increased on our probable projects during the quarter, allowing us to capitalize more of the salaries and related benefits of our development of leasing personnel.

Interest expense decreased $678,000 during the quarter, primarily to to increase in capitalized interest on development properties during the quarter.

As a result of the increase in our development activities, capitalized interest increased at a faster rate than incremental interest incurred on our borrowings.

Within other expenses continuing operations, pre development expenses resulted in an unfavorable FFO variance of $303,000.

This item had been unusually low in the first quarter due to our receipt of a promissory note from a development partner for reimbursement of $500,000 in pre development expenses that were incurred in 2004.

The income tax expense increased $246,000 during the quarter.

This increase was primarily the result of increased income from lot sales and condominium profits recognized during the quarter.

These activities are conducted through Cousins Real Estate Corporation, our taxable REIT subsidiary.

I would like to comment on our same property growth schedule which you will find on page 27 of our supplemental package.

In office, our same-store net number declined 9.8% on a quarter over quarter basis and 11.5% year over year.

This is mainly a result of our loss of Norfolk Southern and South Truck at 1 Georgia Center, as well as some occupancy at Inforum in the Merit building, all of which happened in 2004.

Tom will talk in a few minutes about our recent leasing activity, but we feel very good about the progress we're making on these buildings.

I want to point out that because of our asset sales and our development there are very few properties included in the same property schedule.

In fact, there are just four wholly owned retail properties in the comparison of second quarter '05 to second quarter of '04.

With this small sample set, any quarter quarter timing changes or unusual items tend to look very prominent.

In the second quarter of '04 we had a legal fee reimbursement at Avenue of the Peninsula which we mentioned in a previous call.

It caused that quarter's operating expense number to be unusually low.

That combined with the recent property tax increase at the same property resulted in a 30% quarter over quarter increase in retail operating expenses.

Please keep in mind this property tax increase will be substantially passed through to the tenants this year since that property is 91% leased.

Also for the same quarter over quarter period, the same store net number actually increased 0.2% for retail.

Before I finish I also want to make -- take a minute to talk about our quarterly supplemental package.

We made a few changes to the package this quarter.

The biggest change is the addition of a debt schedule, which will find at page 35.

We also moved all of our land tracts to one schedule that begins at page 31, and we made a few other changes that we thought would be helpful.

In the process we determined that one of our reconciliations of non gap financial measures wasn't needed under regulation G so we deleted it from the package.

Last night one of our analysts called to tell us the reconciliation had provided some useful information.

Today we are adding this reconciliation on our web site and you will be able to find it under Detail of Second Generation Tenant Costs and Building Capital Expenditures.

We appreciate the feedback and will include this in future packages.

With that, I will close my remarks and turn it back over to Tom.

Thank you Jim.

Well, we're now halfway through the year and I'd like to review our priorities for this year and talk about where we see ourselves at this point.

Since last year's asset sales and large special dividend, much of our efforts have been focused on rebuilding our asset base.

Identifying and executing against new development opportunities are critical to our strategy because it allows us to create value for our shareholders and, of course, grow our FFO.

Last quarter our active development pipeline was about $300 million, but we noted that it was increased through the year as we added projects.

We have now added a new office project at Terminus, our new Buckhead multi use development as well as 50 Biscayne, our Miami condominium project.

Today our total cost of projects under active development is $630 million, of which our share is $521 million.

We expect shortly to announce the start of another Atlanta Avenue projects, the Avenue [Wet Gin] which will bring our share of the total pipeline to over $600 million.

These numbers don't include our residential neighborhood development business and so far this year we have started new residential projects that will have an anticipated combined peak investment of $22 million.

At this point in this cycle a large portion of our development involves retail projects.

At the beginning of the second quarter we had two Avenue projects in our development pipeline, Avenue Viera and the Avenue Carriage Crossing, plus three power centers, Hanover Square, Viera Market Center and San Jose Market Center.

These developments are all on track.

The first phase of the Avenue Carriage Crossing is scheduled to open in October and is now 83% under binding agreement and 88% committed.

This was a large project for us and we're pleased that construction and leasing are going very well.

The San Jose Market Center is also moving along.

Target has accepted its building pad and is under construction on its store, and all the major tenant leases are now signed, and the project is 75% under binding agreement and 80% committed.

Our focus has now moved to out parcel leasing and sales.

This project is on budget and we are still anticipating a March 2006 opening.

We have completed construction on Hanover Square and we now have a contract to sell this property.

We have always anticipated selling this project soon after it's opening, and for this reason we developed it in our taxable subsidiary.

Although we will not discuss the sale price until the sale has closed, we are very pleased with the expected financial return on this project.

Regarding the Avenue [West Gin], which I mentioned earlier we now have received almost all of the discretionary approvals we need, and we anticipate starting construction when we complete this process, which we expect to be in the third quarter of this year.

At this point we are very pleased with our leasing progress at [Wet Gin].

This project is scheduled to open in the third quarter of '06.

The Avenue West Cobb reached 100% occupancy in the second quarter, and we're now planning a 45,000 square foot expansion on land that we currently own.

We are working our way through the title process, which is going well and we expect to start this expansion in the fourth quarter.

Our leasing efforts on the expansion have been well received.

Our first office building at our Terminus development in Buckhead is now under construction and we are scheduled to open the building in the second quarter of 2007.

As we expected, we are finding a solid market for this kind of premium property with great amenities at a wonderful location.

We have signed leases for 140,000 square feet of the 536,000 square feet of office space in this building.

We also have fully negotiated letters of intent for another 57,000 square feet and other substantially negotiated deals for another 118 square feet.

The office space is now, 59% leased if these negotiations are all completed and turned into leases.

The momentum continues to be very good on this project.

The first building at terminus will include a 72,000 square feet of retail and restaurant space, and we are seeing strong interest in this space as well, and are negotiating with several tenants at this time.

We're pleased with the progress we're making on securing these high quality restaurant and retail commitments, and they will serve to launch a Terminus as a truly mixed use project.

In June we announced we have started construction on the 50 Biscayne condominium project in Miami, which we are developing in a venture with a related group of Florida.

All 529 residental units in the project are currently under contract and we have collected almost $40 million of earnest money deposits.

We are also pleased with the status of our 905 Juniper project.

Although we didn't anticipate or plan for significant presales in this project, we now have signed contracts for 100 of the original 117 units and we have collected $1.2 million in earnest money deposits to date.

We mentioned before the possibility of redeveloping our property at 615 Peachtree Street here in Atlanta.

We bought this building almost ten years ago with redevelopment in mind.

We are now working to empty the building so that we can move forward with that redevelopment.

Preliminary plans call for a mix of condominiums and a future office building.

We expect demolition to commence in the first quarter of '06, on the 615 site.

Construction is under way on our first industrial building in Henry County, this 416,000 square-foot building, which is expandable to 790,000 square feet is planned to be completed in the first quarter of '06.

This building is being built on a speculative basis in order to allow us to compete for the large part of the industrial market that requires space with a short lead time.

The Atlanta industrial market continues to improve with over 4 million square feet of net absorption in the second quarter and we strengthen our industrial team by adding leasing veteran Bob Curry from Cushman and Wakefield.

As we developed our business plan for '05 we recognized that a major priority had to be leasing vacant space in our existing office portfolio.

After our large office asset sales in '04 we were left with several office properties with leasing opportunities and challenges.

Let me review the status of five of these properties. 615 Peachtree and Forum, North Point, 1 Georgia Center and 1155 Perimeter Center West.

We've already discussed our redevelopment plans for 615 Peachtree.

And Forum remains at 86% leased after we renewed one large tenant in the second quarter and we have several good prospects for additional space there.

We're also working on a strategic reposition of the property that will take greater advantage of its proximity to Centennial Park and the new Atlanta Aquarium and World of Coke.

In the four buildings at North Point we increased occupancy from 70 to 78% with more than 42,000 square feet of leases executed in the first six months of the year.

At 1 Georgia Center we're making steady progress as we work to refill the significant of departures of Southtrust and Norfolk Southern.

We're doing this through the relocation of several tenants from 615 Peachtree and the leasing of multi tenant floors.

We are seeing a consistent flow of small lease prospects at this time and we brought the occupancy up from 15 to 24% during the first six months of the year.

We have upper level space available for a large user, but we will continue our strategy of marketing space to smaller tenants and work to build back the occupancy over time.

We expect approximately 25,000 square feet of tenants to relocate from 615 to One Georgia Center in future months.

At 1155 Perimeter Center West, the Merit Headquarters building, we signed several leases totaling 136,000 square feet in the first six months of the year including a 97,000 square foot lease for Arby's new corporate headquarters.

This brought the occupancy up from 59% to just under 90%.

After this leasing activity, the partnership determined it was advantageous time to sell the building.

When we signed the original lease for the entire building, Merit was known as Southern Energy, which is a subsidiary of the Southern Company and an excellent credit tenant.

As we all know now, Merit's fortunes declined dramatically leading to a bankruptcy and a substantial restructuring of the lease in a very bad market.

Under the circumstances between our negotiations and sale of our bankruptcy claim, our releasing efforts in the recent sale of the building, we were able to salvage substantially all of our investment to deliver a positive IRR on this project.

I consider this a very good recovery under very bad circumstances.

One additional project that has been the focus of much of our attention lately is Lake Shore Park Plaza, where with the lease expiration of Infinity Insurance, we had 170,000 square feet to release.

We bought this building several years ago expecting Infinity to vacate and anticipating we could experience a significant roll up in reletting.

Because of the current market conditions, we may not realize quite the bump in rents we had hoped for, but neither do we face the threats of a rolldown as we move forward to bring that well located project back to full recovery.

We are now working with prospects for significant part of the vacant space.

Our land division had a good quarter with strong tract sales and good profit from lot sales.

A couple of our Texas projects lag behind our internal targets because of weather and permitting issues.

We anticipate strong lot sales as the year progresses, and we still believe our project will sell over 1800 lots this year.

Land development is a core competency of Cousins Property. and along with our joint venture partners, we have over 3,000 acres of land; 6,000 acres of option land at very good option prices; and 22,000 acres of timber leases, which provide future development opportunities.

Lately it has been hard to pick up a newspaper without reading about the current housing bubble.

It is a bit alarming to see how much prices have appreciated in some markets such as parts of California and the Northeast and Florida.

As it is with all real estate, the market for housing is local and it is important to focus on the fundamentals of each market.

The largest markets in our land division are Atlanta, Houston and Dallas-Fort Worth where we have 92% of our investment.

Average home prices on these markets have increased only 4% to 5% year over year of the last five years.

We have monitored the inventory of unsold homes and lots as well as the pace of home sales, and these are still generally healthy.

We believe demographic fundamentals will continue to support these markets.

We could experience some slow down if there were a significant disruption in the overall housing market, but these areas have not been affected much by the kind of speculation and price appreciation we have are seeing in the, quote, hot markets.

In fact, last month Fortune Magazine named Atlanta one of the two major housing market's least likely to suffer a burst of the housing bubble.

There are, however, two matters worth noting in our residential markets.

First, Dallas-Fort Worth is on our internal watch list with almost a 24 month inventory of developed but unsold lots.

We will be careful before adding additional projects there, but we remain confident our existing projects will perform well over time.

Second, we see a 25% increase in average home prices in Tampa in the last 12 months, but the inventory of developed unsold lots in Tampa is less than a 12 month supply, and with the lengthy entitlement process, is not likely to increase in the near term.

Only 8% of our investment is in the Tampa market and our projects there are doing very well.

We did not base our underwriting on the recent price increases, and as a result we feel we have a limited investment risk in Tampa.

I mentioned the progress on 905 Juniper, our first Atlanta condominium project.

We undertook that project to learn more about condominium development in general, and the multifamily market in particular, all in a careful and measured way, without committing a great deal of capital and working with an experienced partner.

As we announced regionally, our relationship worked so well with our partner, the Gellerstedt Group, that Larry Gellerstedt and his team have become part of the Cousins organization.

We are very excited about the energy, expertise and relationships that Larry's team have brought to our organization.

Over the next several years with the densification of cities like Atlanta, we will see increasing opportunities to pursue mixed use projects, and most of them will include a multifamily component.

With the acquisition of the Gellerstedt Group, Cousins now has expertise in all of the areas we need to evaluate and pursue these mixed use opportunities.

We believe these capabilities give us the competitive advantage in pursuing mixed use development.

We didn't buy any ongoing condominium developments as part of the Gellerstedt acquisition.

But Cousins has a number of sites that could be developed as condominium and or mixed use projects, and we plan to evaluate these carefully to see whether they make senses for development in the near term.

Also, Larry's earlier background as CEO of a major construction organization brings additional strong leadership and executional expertise to our organization, and we are quite pleased to have him leading the combined office multifamily division.

Our focus for the last half of '05 remains consistent.

Our most important challenges as a Company are to continue to identify good development opportunities, to paying the entitlements we need, to lease the projects with the right tenants, to build them on schedule and on budget, and continue to increase the value of our existing assets.

We believe this strategy will allow us to continue to create value for our shareholders as it has for many years.

Over time we will generate additional FFO as development properties become operational, but this will be a lumpy process.

As we develop new projects, we will probably also be harvesting value from fully valued assets.

In any given year we may start projects with good inherent value creation, but these projects may have little or no FFO growth until they are completed and stabilized.

This may be such a year.

In this environment I would caution you to be careful when using our current FFO or our short term of FFO growth as metrics for measuring how we are performing.

Solid development activity is the key to our long-term success and to the investment performance of our stock.

I must say I'm that while development activity I have reported on to date, and with the strong predevelopment efforts that are now under way, I believe we are on track to perform very well for our shareholders over time.

With that, I will close my remarks and open the floor for any questions.

May I have your questions please?

Thank you, Sir. [ OPERATOR INSTRUCTIONS ] First question from Greg Whyte with Morgan Stanley.

Hi, good afternoon guys.

Just a couple of quick follow-up questions.

I think you mentioned four assets in the retail same store portfolio?

Can you tell us how many there are in the office side?

It is a larger number.

I've got a list.

It is probably 12 to 15 assets, Greg.

That is on a the year to year comparison, Greg.

RIght, but I mean its --

16 assets on the, yes on the year over year comparison.

Okay, but it is still a small enough number that we are going to see a fair amount of sensitivity there?

Yes.

Really the issue there is that, and its especially true with retail, when you have some small quarter to quarter variation it can wind up looking funny, comparing one quarter to another, but we do feel that our core portfolio performance is actually increasing and we feel good about it.

Tom, can you comment, even if it is just subjectively, on the rent rates you're getting on Terminus?

Whether they are as expected, better, weaker, maybe you are giving more concessions?

Thus far we have met all of our pro forma rates at Terminus and I think things are getting a little better.

We might actually succeed our pro forma.

They exceed our pro forma rate.

Okay.

And then local press has suggested a prior Avenue project in [Murphy's Burrough]?

Do you have any comments on that?

There was a beauty contest to pick developers for that project.

When we won the beauty contest, the city of Murphy's Burrough and the landowner decided they were going to announce that we had won.

We tried to convince them not to do that, because we don't like being in front of those projects like that, but we were unsuccessful.

So we jointly announced that we had won that beauty contest.

It is very early, Greg, in the planning processes.

We have got a very good reception at ICFC to the Murphy's Burrough project, we think that it is going to be a great project, quite successful but it is so early in the process we really don't have much information to provide.

Can you give just a little bit of color on the Hanover Square sell

Hanover Square is going to turn out to be quite a good project for us.

You, I think, commented in your report that wondered why we have sold it so early.

And the reason we sold it so early was that there was a gentleman who wanted to buy it very badly.

Okay.

Thanks very much guys.

[Operator Instructions] We go to Chris Haley from Wachovia.

Congratulations.

Thanks Chris.

Actually [inaudible] Jim, particularly on the balance sheet too.

Is there a way to, if you had to mark to market your leverage numbers today, would there be any upward or downward numbers?

Because I am looking at your average debt costs just below 7.

If you look at our debt schedule, I think it is 6.78, Chris.

I would say some of that is short term, some of that is long-term, you really got a pretty good break down in that schedule.

If you were to market to market, you could probably replace the fixed-rate debt at slightly lower rates, but not a whole lot lower.

Today, say quotes you're receiving for permanent financing on retail or office projects, where would you say your all in costs might wind up being for debt finance?

Incremental debt financing for development projects.

You're talking about a permanent financing or a construction loan?

Permanent.

We have done that a lot of our projects when they become stabilized.

What we would need to do for that would be to have a project reached stabilization and then put debt on it.

We wouldn't typically -- or in the past we haven't typically done that when we started construction/ But if we were at that point in a project, generally those, if you do a 10-year loan, they are generally priced off of treasuries which are now somewhere around 4.2% , and you probably add about 80 to 100 basis points to that for a solid project.

You'd add a higher spread to a less solid project, but let's call it 5.2% and then you've got some up front costs.

So, I don't know, maybe 5.5% all in.

On the Biscayne fees, 5 to 5.5 million, that is your share?

That is a pretax number of our share.

Yes.

That is correct.

That will be recognized -- how much of that might flow or are there additional proceeds might flow into the early part of '06?

That would be the number that we anticipate for the fourth quarter of '04.

2005.

I'm sorry, of '05, based on where we anticipate construction progress to be as of the end of the year.

That will require us, of course, to get the foundations to complete within the fourth quarter, but we expect that to happen early in the fourth quarter, so we feel pretty strongly that that is going to happen.

The question would be where are we on construction progress as of the end of the year?

There'll be more profit recognition in '05 -- excuse me, in '06 -- and then also into '07 as we continue on with the project.

Last question, just if you could help us get a sense, appreciate the CapEx discussion or reference, what are your thoughts in terms of your ability to cover the dividend if you want to break it down into six month increments?

If you want to look at that first half of 2006.

Let me make two comments on that.

First, before we paid the special dividend last year, we did a lot of modeling.

We went through months of modeling to look at our sources and uses of capital and make sure we felt comfortable paying the dividends and continuing with funding our regular dividend as well as all of our development costs and operating costs.

And we did feel comfortable then and we do feel comfortable now.

We update our modeling pretty regularly.

We meet once every two weeks to review it and make changes for whatever may have happened in that two weeks.

We still feel very good about funding the development we anticipate, which is at a very high level as well as our continued dividend.

From a cash standpoint we feel fine about it.

From an FFO standpoint,.

Or FAD or AFFA or --.

FAD or however you want to look at it, that will grow as development properties come on line.

I really can't comment on that very well without getting into future earnings guidance which we are not going to do.

But we have said that we felt that in the short term, it didn't make sense to reduce our dividend then to see our FFO grow back, and we still feel that way.

Chris, it is hard to say.

I would say, I'll get out on a limb and say the lines will cross next year, but that provides everything stays the way it is now, which in our case is always an unlikely because we may sell more assets between now and then, or we may acquire assets, or we are developing additional assets.

But if you just look at it and say look stuff that we have under development right now, and all of that comes on line, and stabilizes on schedule or before schedule as it appears it is going to do now, then the lines would cross next year.

Thank you.

We go next to Cedric Lachance with Green Street Advisors.

Thank you.

Can you tell me what is the mark to market on the new leases that you have signed for office buildings in Atlanta and Dallas over the quarter?

The what?

The mark to market on the rents, so the difference between the cash [inaudible] on the outgoing space and the new space that you leased in Atlanta and Dallas during the quarter.

I can give you the stand, I can give you more of a general comment, which goes, I think, to the status of the broader market.

There is still generally some rolldown for us and the rolldown is by and large, probably below a point of replacement cost rents.

A mixed blessing for us has historically been that we sign long-term leases with annual bumps, and as those leases get near their expiration date, the rents have gotten pretty healthy and most cases, well beyond rents necessary to support development of new buildings.

That has, in some instances, made us a little bit of a target for new development because there are tenants out there that could perhaps strike better deals.

What we are looking for is we are looking for where we have rolldown where it gets beyond -- stays above replacement cost rent.

What we have got is we've got an improving situation where the rolldown is considerably less than it was this time last year, but we are still experiencing rolldown.

That is the reason on the Infinity leases, one of the points we really wanted to make, we bought Lakeshore for the primary reason, it was a great location in the Birmingham market.

We had this 107,000 square foot tenant that was in our minds well below -- is well below replacement cost rent level.

We looked at the opportunity for a significant roll up in 2005.

The bad news is we are probably not going to get significant rollups.

The good news is it will be one of the few situations anybody in the office business has had where we are really not unduly concerned about significant roll down.

It also depends on the access.

You can think about the market as a whole, but you also think about the assets.

In an asset like BanK America, you get above market rents and an asset like One Georgia, we definitely have a roll down there.

We recently did -- renewed a significant lease, at Inforum, I think it rolled down slightly, but nothing very significant at all.

You have to think about the market, but also think about the asset.

If you were to look at your portfolio as a whole would you say you still have 5% to 10% of rolldown?

Embedded in the rents in place?

No, I would not say that.

That would be extremely speculative on our part.

Giving the rollover that we have.

This is Tom Charlesworth.

Let me give you a suggestion.

If you look at our rollover schedule in the supplemental materials, the first page is the office page.

There is relatively low rollover in '05, there is some rollover in 2006,and you will notice that the average contractual rental rate is about 15 30.

One way to look at that, which is certainly a generalization, but it gives you a sense, if you look at where the Atlanta market is, we have a good constitution in Atlanta, and right now, in the class A markets we think the market is around a 14.

It hasn't moved much but our leasing people feel like we're probably going to see concessions loosen up in the next quarter or so, and by the time we get done leasing that '06 property we may even have some higher rents.

We'll have to see.

But I think that gets you into the ballpark and gives you some sense of magnitude.

Second question regarding 905 Juniper, are you able to use deposits on construction as part of the equity that you put into the building?

Is that something that you can do in Atlanta?

No.

In terms of the Terminus, what kind of interest rates do you budget during the construction period?

Well, Cedrik, we view interest and the cost of money really as a corporate matter, and we tend to look at that for the entire Company and not on any particular asset.

Chris raised the question of permanent financing and that could happen.

There could also be a construction loan if that made sense, which would probably be based off of LIBOR.

But we really don't tend to look at the debt costs for any specific asset when we do our underwriting our look at how a project is doing.

We do our underwriting, we're more at our weighted average cost of capital and comparing the performance of the asset against that.

Last question regarding the Gellerstedt acquisition.

How is Mr. Gellerstedt dividing his time right now between his position with Cousin and the projects that were still on the books at his company, and one of them being 905 Juniper?

905 Juniper is now, as a partner, -- 905 Juniper is a project of Cousins Properties as are all his projects.

We didn't buy the assets, but we are developing all the projects and we are developing the projects that we don't own on a fee basis.

So all of his time is here at Cousins Property.

That was the case also prior to the acquisition?

No.

So it was part of the acquisition?

Right.

Okay.

Thank you.

You're welcome.

[Operator Instructions] We have a follow-up question from Chris Haley from Wachovia.

Just get so excited about this stuff don't I?

Question on the lot sale and tract sale side.

Jim, you mentioned that there was $5 million a quarter so far running this year, and I am looking at -- is that the tract sale FFO including JVs?

Or is that the combination of tract and lot?

That's the tracts, Chris.

Okay, and you are saying that the volatility is on the tract side, versus what Tom had gone through in terms of his comments on lot sale activity still likely to reach 1800 units or lot sales during '05?

I think the point I was trying to make, Chris, and its -- in fact, Cedrik discussed it in his Green Street report that came out today.

I think the tendency is to look at our tract sales, our land development activities as nonrecurring and they are obviously reoccurring.

We are in the land development business.

We acquire land, we entitle land and we resell it or we develop it.

That is something we do.

We have done it for over 20 years and we make a lot of money doing it.

I guess we are trying to help the markets understand that this is a core competency of ours.

And we have a lot of land under our control.

Either owned on a fee simple basis or optioned or controlled with joint venture partners.

Our plans are to develop that land over time.

And we sell tracts of land to other developers on a regular basis and then we develop our own residential properties.

The tract sales are necessarily lumpy because you sell a couple hundred acres of land, you might sell it for $6 or $7 million, and that occurs in the second quarter, but might well not occur in the third and then in the fourth you might have another sale.

That is why we just urge all of our investors and the people who cover our Company for investors to pay careful attention to all our supplemental data, pay careful attention to the value creation aspects of our business, because FFO for Cousins Properties is going to be an extremely unpredictable number as long as we pursue the strategy that we have of harvesting fully valued assets and redeveloping new assets.

What I was getting to Tom, was looking at the six month numbers based on your supplemental, looking at total tract sales, net of costs at about 12 million year to date versus the -- just call it 4 million year to date 2004, and your -- versus the lot sale activity which has been relatively steady.

Looks like the run rate so far for tract sales has been above normal, at least above the first half of 2004.

Is there any reason to believe that this trend -- tract sale activity will, for the second half of 2005, will not match or approximate the same level of last year?

I can tell you it is not going to match.

Last year, I would have to look at last year.

It is not going to match the first half of this year.

There is no such thing as a run rate for tract sales.

That is the point I am trying to make.

I understood, I am just trying to get a sense.

Just trying to clarity on the tract sales, which are obviously more lumpy than the lot sales.

The lot sales are basically, we have lots in production that we are selling that vary from quarter to quarter because when home builders take down the lot, but by and large we have pretty good visibility on what is going to happen over the course of the year.

Tract sales is a different deal.

Comment on the Dallas comments in terms of the excess inventory or the in excess of one year inventory of unsold homes, what is your best guess on how that corrects itself?

Unsold lots.

Unsold lots, I'm sorry.

I think that Dallas has always been a funny market in all parts of real estate as you know, but residential being no exception.

We have been extremely successful in the Dallas-Fort Worth market.

We continue to be very successful there.

But there was a tendency in that market for, I don't know, I would hate to use the term amateurs to rush into to the market when they see all of this activity and they start putting locks on the ground and they don't do very well.

That makes us nervous when that happens.

We start paying very careful attention.

So literally, on a weekly basis we look at how many people are coming through our subdivisions, how many homes are being sold, how many lots are being taken down, and we are outperforming the market, but we are being very careful there.

I think the point we're trying to make is for transparency's stake to let our investors know that we feel that market is slightly over built, and that we are being careful about additional developments there.

All right.

Thank you.

[Operator Instructions] Gentlemen, there are no further questions at this time.

I'd like to turn the call back over to you for any additional or closing comments.

As always we appreciate your interest in our Company and we want to do everything we can to provide you the information that you need to make good decisions.

As you review our schedules, if you have any questions, please don't hesitate to call Mark Russell or Jim or myself, Tom Charlesworth, Dan DuPree.

We are always available to you.

Thank you for joining us this afternoon.