Cousins Properties Inc (CUZ) 2008 Q3 法說會逐字稿

Good day and welcome to the Cousins Properties Incorporated Third Quarter 2008 Earnings 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 Chairman and CEO, [Tony Bell].

Well, I want you to know I haven't changed my name, it's still Tom Bell.

And I want to welcome everybody to the call this morning.

With me are Dan DuPree, our President and Chief Operating Officer, Jim Fleming, our CFO, and Craig Jones, our Chief Investment Officer.

And at this time, I'd like to ask Jim Fleming to review the financial results for the quarter.

Jim?

Thank you, Tom.

Good morning, everyone.

Thanks for your interest in Cousins.

Certain matters we'll be discussing today are forward-looking statements within the meaning of federal securities laws.

Actual results may differ materially from these statements.

Please refer to our filings with the SEC, including our annual report on Form 10-K for the year-ended December 31, 2007 for a discussion of the factors that may cause such material differences.

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

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

This quarter we reported FFO with $0.41 per share compared with $0.31 last quarter.

I'd like to highlight the factors that contributed to this increase in FFO.

You can follow by looking at our supplemental package beginning on page eight.

Revenues from our operating properties are increasing as development projects become operational and recently signed leases commits on our existing properties.

Rental property revenues less rental property operating expenses for consolidated properties increased $1.6 million between the second and third quarters, $1.1 million of this increase came from recently opened retail projects, the Avenue Forsyth and Tiffany Springs MarketCenter.

One Georgia center contributed $447,000 of this increase as the Georgia Department of Transportation lease took full affect in the third quarter.

[191 Peachtree] also continued to improve in the third quarter due to increased occupancy.

FFO from out-parcel sales was $1.6 million in the third quarter as a result of the sale of two out-parcels of the Avenue Carriage Crossing.

FFO from track sales was $2.1 million, a decrease from the second quarter of $3.6 million.

Third quarter track sales gains resulted from the sale of 486 acres of our Paulding County land.

The sale of three acres at our [Village Park] subdivision and the sale of four acres at our Summer Lakes subdivision.

Second quarter sales had included the sale of 28 acres of the Avenue Forsyth, the sale of 75 acres of Jefferson Mill Business Park, and the sale of 30 acres at our Long Meadow Farms residential project.

Profits from lot sales decreased by $174,000 due to a decrease in lots sold from 80 lots in the second quarter to 50 in the third quarter.

Other joint ventures decreased $493,000 as a result of our recognizing $251,000 on an oil and gas lease in the second quarter and a second quarter adjustment to write off minority interest in a [TIMCO] project.

Multi-family FFO increased by $1.9 million as we closed nine units at 10 Terminus and we completed the box sale of the remaining units at 50 Biscayne that we discussed last quarter.

Development income increased $13.1 million because we received a $13.5 million fee under a contract we assumed in the acquisition of Faison-Stone several years ago.

This contract provided that we would share in proceeds over costs from the sale of a building leased by Motorola in Texas.

This building was sold in the third quarter for cash and a note from the buyer.

The fee we recognized represents our share of the cash portion of the proceeds.

As the buyer makes payments on the note to the seller, we will share in these payments and will recognize additional fee income in future periods.

We do not expect the amounts to be significant in any quarter going forward until principal payments are due beginning in October 2014.

In connection with this fee, we paid a $3.4 million commission in accordance with a pre-existing arrangement put in place by Faison-Stone.

This commission is included in general and administrative expense for the third quarter.

Both the $13.5 million development fee and the $3.4 million commission occurred at our taxable subsidiary, Cousins Real Estate Corporation, so the net effect on FFO for the quarter was $0.12.

Also in the third quarter, leasing fees increased by $596,000 as a result of third party leases signed at Concourse and Lincoln Center and we recognized termination fees of $355,000 from a termination of a lease at the Avenue Webb Gin.

With respect to G&A expenses, we've changed our presentation on the income statement and in the supplemental package.

On the income statement we now have a new classification of G&A expenses; reimbursed general and administrative expenses, broken out of the G&A expenses category.

Reimbursed G&A expenses represent costs that are reimbursed directly to us from third party management contracts or management contracts with unconsolidated joint ventures.

The amount we received is included in fee income in the revenue section of the income statement.

We wanted to separately state these expenses since they're merely pass through expenses that are offset dollar-for-dollar by fee income revenues.

In the supplemental package, we also separately stated the commission that related directly to the recognition of the $13.5 million development fee I just mentioned.

Remaining G&A increased by $534,000 between second and third quarters.

This increase is attributable to a $1 million contribution that we made to our charitable foundation and a decrease in capitalized salaries offset by a decrease in personnel cost.

Interest expense increased by $1.3 million in the quarter, primarily as a result of a decrease in capitalized interest because of lower levels of development activity in our residential projects and other development projects becoming completed and becoming operational.

Minority interest expense increased $515,000 in the third quarter as a result of a second quarter [true up] adjustment that reduced minority interest to our 50 Biscayne venture partner, and an adjustment in the third quarter to the amount we owe to our partner on CP Venture Three.

Redevelopment and other expense increased as a result of the write-off of costs associated with two retail projects that we are no longer pursuing.

Income tax change from a benefit of $2.2 million in the second quarter to an expense of $916,000 in the third quarter, primarily because the $13 million development fee I mentioned was earned by a subsidiary of [CREC] and was therefore taxable.

To recap, our earnings were higher than last quarter's because of increased of net operating income for properties, as well as a few lumpy items, such as the fee we received from the sale of the [freescale] Motorola building in Boston and some out-parcel sales.

We've talked in the past about these lumpy items, and although the timing can't be predicted, land development is a core competency of Cousins.

And you can expect these events from time to time.

But I do want to point out for your planning purposes that even though we can't be sure when more of these will occur, we presently don't anticipate any significant items such as these in the fourth quarter.

I'd like to discuss our exposure to two retailers, Linens-N-Things and Circuit City.

Linens-N-Things filed for bankruptcy in May and is now in the process of liquidating and Circuit City announced on Monday a large number of store closings, including all of its stores in metro Atlanta.

We have four Linens-N-Things leases that range from 28,000 square feet to 35,000 square feet.

The two at North Point MarketCenter and the Avenue West Cobb are in our ventures with Prudential, in which we have a minority interest.

The third one is at the Avenue Murfreesboro, a 50-50 venture with Faison and the fourth is at the Avenue Carriage Crossing where we have substantially all the exposure.

On an aggregate basis, Cousins annual exposure to rent and other payments for Linens-N-Things is $978,000.

For Circuit City, we have three stores.

The two larger stores being 33,000 square feet at North Point MarketCenter and 39,000 square feet at Los Altos MarketCenter, both of which are in our first Prudential venture and which we have a minority interest.

The smaller store, 20,000 square feet is a new store at the Avenue Forsyth.

All together, Cousins annual exposure to Circuit City is $606,000 for rent and all other payments.

Based on the information we've received to date, it appears that the Los Altos store will remain open, although nothing is certain.

And as you would expect, we're working to find alternative uses for all of these stores, but I wanted to give you a sense of the order of magnitude of our exposure to these two retailers.

I also want to point out a trend that is affecting our G&A expense, which is likely to continue in the next year.

Our G&A for the first three quarters of 2008, net of the extraordinary commission on the Motorola transaction, and net of reimbursed expenses is $2.2 million less than it was the for the first three quarters of last year.

Of course, this is a positive in today's economic environment and it has resulted from staffing reductions and other cost-cutting measures.

But the reductions are less than they would otherwise be due to decreased capitalization.

Our G&A numbers are reported under GAAP net of capitalization and the capitalization is declining because we have fewer projects under development.

Our capitalized salaries declined $1 million from the first quarter to the third quarter this year, from $4.3 million to $3.3 million.

As a result, we could show a higher G&A expense next year than this year, even with today's staffing levels due to reduced development activity.

We will continue to look for ways to control our G&A expenses as we move forward, and we will update you on this in the future, but I wanted to make you aware of the impact of capitalization on our net G&A expense.

Refinancing risk and liquidity are serious concerns for some real estate companies today and I'd like to take a few minutes to address Cousins financial position in these difficult credit markets.

We have no loans maturing for the remainder of this year.

And in 2009, we have several small loans of which our share is a total of $8.6 million.

In 2010, our two largest loan maturities are for the Avenue Murfreesboro, of which our share is $54 million, and San Jose MarketCenter which is $83 million.

Both of these loans have extension options into 2011.

The only other significant loan repayment obligation we have in 2010 is a $23 million loan on Meridian Mark Plaza, but the cash flows from that property would support a significantly higher loan amount.

In normal times, we typically operate with very little cash, relying on our credit facility for liquidity.

In the current credit environment, however, we decided to increase our cash position.

We do not expect any funding issues with any of the sixteen banks in our credit facility and have continued to receive funding as requested, but felt that having cash on hand was prudent in this environment.

At the end of the quarter, we had approximately $50 million in cash and we've since increased that to $90 million.

Since we have construction loans in place for both Murfreesboro and Terminus 200, this $90 million is sufficient to fully fund all anticipated development costs and capital expenditures through 2009.

We will maintain this cash as long as we feel it's appropriate given the credit conditions in the overall market.

And of course while we have cash on hand, our line of credit balance and our interest expense will be somewhat higher.

But we feel this is a cost worth incurring in order to insure our ability to fund all of our obligations.

Interest rates have been quite volatile lately and at certain times LIBOR, which determines the rate on our credit facility, as well as our Murfreesboro and Terminus 200 construction loan spiked significantly.

To mitigate this risk, we have executed two interest rate swaps to fix the underlying LIBOR (inaudible) on a $150 million of our borrowing for two years at an average rate of 2.84%.

With the current 95 basis point spread on our credit facility, this will fix the all-in interest rate that's 3.79%.

As a result of these swaps, our floating rate debt, which was $284 million at the end of the quarter, or 29% of our total adjusted debt, was reduced to $134 million or 14% of our total adjusted debt.

One last subject that I'd like to address is our bank credit facility.

We have a $500 million revolving credit facility with 16 banks, led by Bank of America.

We now have $262 million drawn on this facility, plus $5 million in letters of credit, leaving $233 million available.

The credit facility matures in August 2011, but we have a one-year extension to August 2012.

Due to the cash we have on hand, we don't anticipate needing to draw on this facility through next year for any existing developments or capital needs, so it's available for other opportunities.

None of the financial covenants under the facility are tied to our stock price and we've modeled our financial projections through 2012 and don't anticipate any problems complying with the covenants under this credit facility.

All of this puts us in a much better position than many of our competitors as we look ahead to 2009 and beyond.

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

Well done, Jim.

Well as everyone knows there has been considerable turmoil in the markets recently and Cousins stock prices suffered right along with the rest of the [RET] universe.

Concerns about the Cousins development pipeline and our retail portfolio, as well as our residential business seem to be on the minds of investors.

Now Jim has addressed some of these points, but I'd like to come back to each of them.

I'd also want to reiterate that we're in a much better financial position than many of our competitors, and we're well positioned to take advantage of the distressed opportunities, which while delayed thus far, should eventually come our way as a result of the current downturn.

First, let's have a quick review on where we stand on our various projects.

Our operating portfolio of office properties finished the quarter at 94% leased, and in October we closed the sale of the vacant 3100 building at Wildwood to [Genuine Parts].

I've said before that I intended to deal with this building by the end of the year, and I'm pleased we were able to make that happen.

As a result, our office operating properties are now 98% leased, a great place to be in the current economic environment.

Now these excellent leasing results are not an accident.

Our office team has done a truly superb job in taking the assets we chose not to sale and the 2003, 2006 period because of vacancies and lease rollovers and filling this space with good, solid tenants, including the American Cancer Society and the Georgia Department of Transportation.

Over our 40 years of office developers and owners, we have proven we know how to keep our assets leased in good times and bad.

We've also had two new office developments and one redevelopment project underway.

We're still making progress towards leasing this assets, although things have slowed down somewhat in the last thirty days.

At 191 Peachtree, we're 89% leased, excluding the Wachovia lease that expires at the end of this year, we're 72% leased.

We've signed a total of 800,000 square feet of new leases since we purchased this building two years ago, 191 continues to provide great value for users seeking an A plus building in a preferred location at a relatively moderate cost, and we're currently working with several additional prospects at 191.

By the way, while our pro forma has always used 2012 as our stabilization day, we have not changed our expected full lease-up of this building; we still believe we will be at 98% plus leased by mid-2010.

Our [Palisades West] project in Austin is now 67% leased overall and our lead tenant, [Dimentional Fund Advisors] took occupancy in October.

Our second tenant, [Four Star] will begin paying rend November 1st and we're looking at a number of prospects for the remaining 124,000 square feet and this Austin project.

And that brings us to Terminus 200, our 565,000 square foot building in Buckhead, which is a 50-50 joint venture with Prudential.

We now have leased 100% of the office space in our first building, Terminus 100.

Our second building Terminus 200 is scheduled to deliver about a year from now and be fully operational two years from now.

While we have announced two restaurant leases at Terminus 200, to date we have not find any office leases.

We have several good prospects, however, and are in negotiations for 250,000 square feet of the available space.

Our issue there, as many of you know, is that even though there is a good amount of demand due to lease rollover, several other developers followed us into the market and decided to pursue buildings in Buckhead, so we're having to compete in a market with too much [fly].

Terminus has become the go-to place in Buckhead, and I'm confident we have the best project and location, as well as the strongest leasing team, and as a result, will ultimately succeed.

Many of you who have followed Cousins may recall we face similar issues in downtown Austin with our Frost Bank Tower building.

There we did a good job of balancing timing against rental rates and concessions, and we were ultimately quite successful in what was a very difficult leasing market.

Generally having the best asset in the market is usually enough to win the leasing battle.

We will keep you posted as we make progress on Terminus 200.

We have about eight percent of our assets committed to our residential business, and as you would expect, both our lot and condominium businesses are slow.

We sold 50 lots in the third quarter, and we expect to sell a total of just over 200 lots this year.

At our one condominium project, 10 Terminus Place, we've now closed 12 units and have 22 more under contract.

Sales velocities are slow, but we have a very good product and we can afford to be patient and make progress incrementally.

Fortunately, we closed the bulk sale of our remaining residential units in Miami in August, leaving our venture with just seven commercial units.

We've now closed on three of these commercial units, leaving us with very small exposure to Miami.

I'm delighted to say we came very close to our original pro forma expectations with regard to return in our 50 Biscayne project.

Likely we don't expect to see much improvement in our residential business in 2009.

We have opened three high quality retail projects over the last year; the Avenue Murfreesboro, which opened in October of '07, the Avenue Forsyth, which opened in April, and Tiffany Springs MarketCenter in Kansas City, which opened in June.

These projects are now 80%, 62%, and 90% committed and while that is enough to cover our costs, we still face a challenge in leasing the remaining 398,000 square feet and thus maximizing our operating revenues from these projects.

Now there are really two sides to this coin; the negative is its 398,000 square feet left to lease in what we expect to be a tough market.

The positive is, every foot that we lease increases our NOI, so there's a significant opportunity for here for us in this leasing opportunity.

History would suggest it's generally been a mistake to bet against our leasing team when it comes to fully leasing our retail properties.

Across our retail portfolio, we've leased 246,000 square feet of space so far this year and overall our operating portfolio remains at 91% leased.

Now retailers are very reluctant to commit to new space in the current environment.

We're working hard with a number of prospects, including good local and regional tenants to fill up the rest of our space.

In the meantime, fortunately, we're not forced to make any decisions about these projects due to any financing concerns and we remain confident that our leasing team can handle the challenge.

While we have a number of proposed office, retail, and mixed-use development projects in our [shadow] pipelines, we're very cautious about starting any new developments in today's environment, and as a result, we've pushed back our start dates into 2009 or later and will continue to evaluate these projects as we move into next year.

It will be particularly important to us to fully understand the financial conditions of key retailers after the holiday season in order to insure our commitments from these retailers are still viable and that we have sufficient pre-leasing to move ahead with our retail developments.

For new office developments the key will be high levels of pre-leasing to good credit tenants.

Now I want to comment specifically on two proposed developments.

The first is [Emery Point] a mixed-use project in Atlanta adjacent to Emery University and the Center for Disease Control.

We previously announced that we were planning to start this mixed use development in the fourth quarter of this year.

In that project, we will be responsible for the retail and condominium developments, while another party will develop apartments.

It now appears this project will be delayed into next year due to our apartment partners need to find financing for the apartments in this very difficult market.

For us that may not be such a bad thing, because it will give us some more time for the financing markets to improve for our condominium buyers.

We, at Emery, continue to be extremely excited about this project and will let you know once the apartment financing issues have been resolved.

The other project which we hope to start in Q4 of this year, is a new one for us; a proposed retail outlet center in Oklahoma City.

This project is a 338,000 square foot development that we planned to develop in a joint venture relationship with [Horizon Group Properties].

We now plan to wait until we've seen the results of the holiday seasons, to make sure our key retailers remain committed to the project.

At this point, however, the level of interest is extremely strong and the project is nearly 70% committed.

Our third party management leasing business continues to grow, and we've added 2.3 million square feet of leasing and 1.7 million of square feet of management already this year.

Today we have 13.4 million square feet under management and or leasing with nine excellent clients.

We have some very talented people in this area who are continuing to grow our business, and it's a good business to expand in capital constrained markets.

We have focused this year in operating efficiently, and as a result of attritions and layoffs throughout the year, we have reduced our non-property headcount by about 15%.

Managing expenses remains a focus for us, and we will continue to balance our desire to have top quality people who can create value for shareholders and take advantage of distressed market opportunities with the need to be frugal and mindful of our responsibility to control costs.

Now several of you have asked about possible stock repurchases by the Company; I'll remind you that we haven't been in the position to do this in the past month due to our blackout period, but we do have a plan in place and as we move forward, we'll continue, as we have in the past, to evaluate stock buybacks against other opportunities for use of our capital.

We've always said our company should be largely valued on the basis of our net asset value, plus future value creation from our development process.

In these schizophrenic markets, you would think investors would flock to companies with hard assets that have real value.

However, in my view, our company, like many RET's is selling well below its net asset value, even at today's higher cap rates.

I assume this will change as markets regain their sanity and RET's once again sell closer to their true [NAV].

Our goals for the first quarter in 2009 are straightforward.

First, lease our vacant space, and keep our overall percentage leased high.

Second, carefully manage our costs and third, continue to seek out distressed real estate opportunities, both acquisitions and development that will create significant value for our shareholders over time.

With that, I'll conclude my remarks and turn the call over for any questions.

Your questions, please.

Ladies and gentlemen, at this time we'll begin the question-and-answer session.

(Operator Instructions).

Our first question is from J.

Habermann with Goldman Sachs.

Please, go ahead.

Hey, good morning, Jay Haberman with [Sloan] as well.

Now, Tom, just following up on your last comment about the stock and obviously the level at which its trading.

If you weigh the different options in terms of capital at this point in the cycle; I mean where are you leaning?

You've talked before about looking at distressed land deals.

Clearly the stock is an interesting opportunity here, but you also talked about preserving the balance sheet and keeping cash on hand as well as availability on the line.

So, I was just curious as to your thoughts on those various options.

Well, Jay.

I think that will definitely be a subject of conversation at our November board meeting.

And it is exactly the right question and the right place to focus; what is the best use of our capital?

We expected, as most of you know, by now to have seen significant distressed opportunities where we felt we could add real value.

And we expected that that would be the highest and best use for our available capital.

To date, we've frankly not seen those opportunities.

We have looked at many, many opportunity.

Most of those opportunities so far have been in the residential area.

But frankly, we've not found anything to date that's compelling.

We think the banks, frankly, and other financial owners have been a little reluctant to move, particularly on the commercial properties.

And we know there were many extremely, let me say, financing agreements made in late '04 throughout '05 and most of '06, so we expect that in the first or second quarter of '09, we'll see some of these assets start to come back.

So we'll have to balance all these issues when we think about how to use our capital going forward and how to employ the partnership relationships that we have from a financial perspective going forward.

And frankly, we're just waiting right now to make those decisions.

And then, just switching gears, you mentioned retail and obviously the bankruptcies, as well as the developments and the current leasing position.

Can you just give us a sense of interest level thus far in the spaces, in terms of the bankrupt spaces and the availability there?

The Linens-N-Things space and three of the four areas we have a lot of interest, and it looks like two of those have a very active and interested tenant.

I believe one of those, Dan, would be moving from elsewhere in the project and expanding.

The other is another user.

I think it's a little early to say, frankly.

I think we would be surprised if anyone made a decision between now and Christmas on a large chunk of space like that, but let me ask Dan to fill in any details he might be able to provide.

No, Tom.

I think that's exactly right.

We're not going to have real clarity on that until January or February.

But the level of interest in the Linens space is -- has been significant, we've had more time to work it.

The Circuit City space, and I should point out that they continue to pay rent, this isn't a situation of a bankruptcy at this point.

And it's a little bit newer.

But it will be first quarter before we can really start moving forward on some of these proposed leases.

And then just a general comment, Jay, with regard to retail leasing.

I don't know what you're hearing from any other retail organizations that you follow, but we are signing a few leases, but in terms of new leasing commitments, we didn't see much at all in October and we don't really expect to see much until we these retailers see how they perform through the holiday season.

Right.

No, that sounds consistent.

And then on 10 Terminus, the sales to date and then the 22 under contract; is it fair to say that the pricing is coming in line with expectations, or -- I'm just curious to get your thoughts there.

So far, we've provided no discounts at 10 Terminus, and most of our contracted parties are moving through with their closure commitments.

We have had a few that have asked to delay closing, because they're trying to sell another property.

But by and large the buyers that we have at that project, which are generally mature, higher-end buyers are living to their commitments.

We are seeing traffic.

The traffic did fall off, frankly, in October, but we had been seeing pretty good traffic, 12 to 15, what we call qualified buyers a week.

And so we're hopeful.

I mean the project, frankly, looks better than we had hoped.

We do shopping comparisons, we have agents do shopping comparisons between the three higher-end projects that are right there in Buckhead down the street from each other.

We're about $200 a foot under the one closest to us and almost $400 a foot under the next one.

So from a value perspective, the property is holding up extremely well.

I just think we're going to have to wait a while and let this market clear a little bit before we're going to see real sales velocity there.

And then lastly, just on the G&A impact, obviously the lower capitalization; does that appear to be about $0.10 in terms of impact from '08 to '09?

It's hard to answer that, Jay.

It depends on the level of activity we have; development activity.

But it certainly could be in that range.

Okay, and your planned development starts for next year, at this point?

We are going to look at both Emery Point and the Oklahoma City project probably February, March.

As soon as the holiday numbers are in for all the retailers and we've had a chance to see who the winners and losers are and then compare that to our prospective leasing opportunities in those two centers.

Jay, this is Dan.

One other thing, relative to development opportunities; the capitalization doesn't just go to projects that start in '09.

If the market improves in the later part of the year and some of the other projects that are in our shadow pipeline become more likely, then there's the opportunity for capitalization there too.

So it's just real hard to make a prediction on exactly what the level of capitalization will be in 2009.

If we had to make a guess today, I bet our guess would probably come in about where your guess is.

It's just we can't predict the future.

Sure.

No, that's helpful.

Thank you.

Our next question is from the line of Ian Weissman with Merrill Lynch.

Please, go ahead.

Yes, good morning.

Question on 200 Terminus.

You talk about the challenges of competing with other developers in the marketplace, what's happened to rents in the marketplace in concession packages?

Is that a level of a way to compete with competitors?

Yes, in the Class A space, Ian, I'd say that people are trying to hold face rates.

The face rates are in the $21.50 to $24 rate net, depending on where the space is in the building and what building you're talking about.

There is some difference between the buildings, both real and perceived.

In terms of concessions, I think free rent is growing.

From the traditional six months to eight, ten, twelve months depending on how long the lease term is and what the other concessions look like.

I think we're seeing [TI] numbers grow from the traditional Buckhead $40 number to $50, $55.

Once again, depending on the length of lease term.

How have you return [levels] on that project changed then?

Well, if we were to factor in our best guess as to what competitive deals would be today; I think you'd see our leverage returns fall slightly and our partner's leverage returns fall slightly, but still -- we've also stretched out what we consider to be the leasing period, but still acceptable from terms of Cousins historic returns.

Okay.

Two other questions.

Everyone in this environment is talking about the need to preserve capital.

I understand you have enough liquidity for, I guess through '09, but you are overfunding your dividend.

Will the board address the dividend at its next meeting?

Yes, every November that's the meeting where we do a deep dive on our dividend.

And, traditionally -- and we've said this many times, I'll say it one more time; we've always looked at our dividend coverage based on FFO and value creation, because we're not an FFO company.

But we didn't start much in the way of new development this year, we're uncertain about our new development starts next year because of the natures of the market, so I think this will be a very robust conversation in November when the board takes this issue up.

Okay, and finally on 10 Terminus, I understand you've closed a number of units and you have about 22 more in contract.

Have you had anyone actually walk away from deposits?

We've had two units, I think, walk away from deposits.

And since we've [CO'd] the building.

Last quarter of last year, or no, first quarter of this year we had some contracts fall out, which we've replaced.

So, we've stayed within this 33 to 35 range now for a while.

Okay, thank you very much.

You're welcome.

Our next question is from Chris Haley with Wachovia.

Please, go ahead.

Morning.

Chris.

Interested in a bigger picture perspective, historically as well.

Many are looking for opportunities in a variety of real estate, commercial or residential sectors and our firm, banks of the like are certainly probably reticent to take those marks.

Maybe due to the liquidity being offered by our friendly neighbors in D.C.

As you look into 2009, 2010; there's a feeling that the best deals happen later in the cycle, or further into the cycle, the down cycle, which maybe we're just getting into it, it's been really only a year into it.

So, I'd be interested in your perspective on balancing the near-term opportunities that exist with your equity and recognizing that the equity may lead would be an indicator of what's happening in the private market versus the patience you might have in waiting to make those direct deals.

It's a provocative question, Chris.

I guess our orientation is to be patient.

Craig and his team follow the investment market very carefully, we did that by the way, not just recently, but from 2004, 2005, 2006 -- we tried to look at every deal that got done.

As you know, we sold almost $3 billion of assets.

We knew for a fact that some of our buyers were making some very, very aggressive calls on those assets.

We watched how those assets were financed.

So we know for a fact that there are many commercial assets that are going to come back to the market.

Very good assets that have been over-financed, significantly over-financed and whose value have significantly decreased over the last 18 months.

And we would like to get some of those assets, we'd like to buy some of those assets.

We've seen developments, good developments in good locations that have stalled out at 50% leasing and we expect that the financing institutions will get those assets back.

It has been a very slow process, perhaps with the reason that you suggest, perhaps because they needed to get some of the other parts of the credit market cleaned up first.

Perhaps because the interest reserves were enough to carry these assets for a while, but there is no way to avoid this.

When that debt becomes due and they have to refinance, they're going to have to come up with significant equity, which is not available at the price that they can afford to pay, in my opinion.

And they're going to be looking at significantly higher financing costs.

So we are confident the deals are out there and we're prepared to wait for them.

I suspect that we'll begin to see them shed some of these land assets earlier.

We're also interested there, but of course we'll be very cautious.

Could you expand upon that; you mentioned that some of the deals you've seen in the residential market have not achieved the hurdle rates that you desire.

Could you care to give us any color on what those hurdle rates might be in terms of whether it be finished product or unfinished product?

Well, the first thing that the financial institution seemed to want to do is to get you to buy their note.

And they are having some success.

There is so much money out there chasing these distressed opportunities, that they are having some success of selling notes.

We're really not interested in buying notes, by and large.

We would like the bank to take the assets through the foreclosure process so that we can deal directly with the bank and we don't have to worry about taking on a note and then facing a bankruptcy and or a foreclosure process.

So that has been the issues in some cases.

In other cases, because of the turmoil in the financial industry and the few deals that we thought we were going to do, you can't get anybody to answer the phone right now, because of combinations that are taking place or because of, as you suggested the treasury department injecting capital and it being a little unclear who the winners and losers are.

So, we've got money to invest, we've got partners who want to invest money with us, and we're just going to wait and we think it's probably well into '10 before we see the kind of deals, and maybe even towards the end of '10 we'll see the kind of deals that we're really interested in doing.

All right, that's very helpful.

Thank you.

And last question has to do with the freescale transaction.

What are the -- could you give us some color on this in terms of the scale of it, the size, the future of cash receipts and principal several years out?

What is the magnitude?

We'll get Craig to talk about this, if that's all right, Chris.

Again, we indicated that there was a purchase money note that -- and that was a total of $18 million of which we'll receive half of that.

It carries a coupon of 5.5% payable monthly.

Again, as we receive it, as we receive principal and interest, 25% of it is still subject to the commission structure that we earlier talked about and I think we had it in the speech about when it ...

2014.

2014, there's no principal reduction until 2014.

So, when ...

Chris, I think the principal is payable in four installments 2014 through 2016.

That's right.

So ...

So, I'm sorry, who is the holder of this is -- could you give us a little bit of detail on who are the counterparties?

The buyer was [Firstrate Capital], but the original owner was a group out of Dallas, and again we had a 50% participation interest in that, but we never had any actual ownership of the asset [development] level.

We developed this asset, Chris.

It's really a campus for Motorola ...

Yes.

And this is what would be called a back-end participation that we had and we acquired it with Faison.

When we acquired that business and this is probably the fifth time we've come very close to doing this deal and I think finally it worked, and it's been very attractive obviously for us, took a while.

So and then -- and thank you for that.

So over the next four, five years you'll receive just interest income on your 50% share of the $18 million note and then after 2014, you'll receive principal repayment?

Right.

Four different [tranches] on the principal repayment.

Payable per annum, or can it be paid all at once?

It's payable in four different installments over about a three-year period, Chris.

Chris, this is probably more information than you need or want, but it's -- there are four underlying notes.

There are several different buildings in this project and there's a note on each building, a senior note.

And so this is secondary financing and it's tied to the payoff, the maturities on those notes.

I said four different pieces.

Craig, do you have any other of these positions on the Faison assets?

No.

Okay, thank you.

Thanks, Chris.

Our next question is from Dave Aubuchon with Robert W.

Baird & Co., please go ahead.

Thanks.

Jim, I think you said you sold the 416 acres, I didn't catch where that was?

Hi, Dave.

Yes, that was in Paulding County, some of our TIMCO land.

We had an option, and this is the 50-50 venture with what is now [Four Star], used to be [Temple Inland].

We had an option there and two or three years ago we exercised the option to take down the remaining land under the option, which was about 6300 acres.

And so this 486 acres was a piece of that.

Okay.

And in your [subnotes closure], page twenty-one on the [all-fis], the Wachovia lease that is scheduled to expire, is that in the 2008 expiration; the 106,000 square, or is in the 2009?

The 174,000?

No, this is the -- these are the operating properties.

Okay, okay.

That other one is separately disclosed, Wachovia lease is separately disclosed in the development pipeline schedule, Dave.

have the last 30, 60 days changed your leasing strategy at all in how you attack this market?

I am assuming that there's not a lot of activity out there because tenants don't know what they are doing, certainly probably to the end of the year; but regard to 191 Peachtree, I'm assuming you have a favorable cost position in the market anyway, do you feel like you have to be more aggressive just given the operating environment right now?

Well, frankly, that one asset that you chose, I would say no, not really.

It's so well positioned in the market, [VZV] it's competition in downtown, and we see quite a bit of momentum here at 191 Peachtree.

Though we are dealing with two big users, what we're seeing mostly are 7,000 feet, 10,000 feet, 12,000 feet users who are rolling out of their space.

They've got to go someplace, and in many instances they are coming from mid-town or Buckhead and they're paying significantly more, higher rates than they can lease here and be our pro forma.

So haven't had that much affect at 191.

Now, in Buckhead at 200, absolutely, we are seeing a different leasing environment.

We are becoming more aggressive with the five or six clients or tenants that we're well along with.

We want to get that building -- we'd like to see that building 200,000, 250,000 feet in the relatively near-term lease.

And so we are being more aggressive there.

On the retail side, we're very focused in keeping our tenants in place.

In some cases, tenants are coming to us who are having a hard time and saying, we would like an extension or we would like some rent relief.

Normally we're pretty tough to deal with on those issues, we're being more flexible now a days on that because we want to keep our tenants in place.

We know that long-term it's better to keep good tenants and we're being much more aggressive in trying to move local tenants and regional tenants of good retailers from their present locations, in neighborhood centers and things of this nature, to our Avenue projects, and we're having some success with that.

And then, on the office side, and I guess specifically the Terminus 200, what's the pressure point?

With the conversations with potential tenants, is it just pure and simple rent term or are they really trying to extract a lot of TI dollars?

It's both, I think.

The good news is that most users will admit that this is not a commodity that all these new projects are not equal and so we have a preferred place in the market.

It is the top building in the market and generally perceived to be the top building in the market, so we have a little more leverage and latitude than the other buildings.

But there's no doubt that it puts pressure on concessions.

No doubt about it.

And I'll be very frank, we have offered some tenants higher more free rent, and higher concessions than we had originally pro forma in the hopes to get some deals done.

And Prudential, our partner, agrees with our strategy there.

And those conversations, I believe you've been having them most of the year, at least in the second quarter and the third quarter.

Is it your anticipation that something [will be] done by the end of the year, or is this a decision that's going to be made post year-end.

With regard to what?

Leasing tenants at the Terminus 200.

I would hope that we would get some deals done by year-end, but in this market -- I think that if you watch the market go up 12 points, down seven points, up 11 points, it's very tough as someone suggested for people to make decisions.

We are working with three tenants who need to move, so they're going to go somewhere and it's just a question of how quick they'll pull the trigger, but it's definitely our hopes that we can get some things done by year-end or early in the first quarter of '09.

Dave, the neat thing about it right now is there are actually people looking for space.

We've gone through down cycles in the past where it there was just nobody for you to talk to.

There are, as Tom said, a reasonable number of prospective tenants who need not insignificant amount of space that are actively looking in the market right now.

So we have someone for whom we can compete.

Are you aware of the other two million square feet that's being developed in that market?

Has there been any big leases signed at your competitor's buildings?

Well, I hope it's not two million feet because it's bad enough at 1.5 million feet.

But, no.

No one's signed a lease, no one's signed any leases frankly but us at our two restaurant leases.

But so far, no one to my knowledge has signed a lease.

I'm sure we'd know if they had.

All right, thanks.

Last question is just what do you guys think about what's going to happen at AtheroGenics?

What's your plan right now?

That lease is up March of next year and our plan is to -- and they are still paying rent.

Our plan is to make that a multi-tenant building.

We made those design decisions when we built the building and that's a very strong market, that Alpharetta, North Fulton market, it's probably the best market in town right now.

So I think we'll be able to lease that building to two or four tenants.

And then that's in your CapEx numbers, Jim that you highlighted that you can fund through 2009?

Yes.

Yes.

Okay.

Thank you.

You're welcome.

(Operator Instructions).

Our next question is from Cedric Lachance with Green Street Advisors.

Please, go ahead.

Thank you.

Tom, you eluded to repurchasing shares and your NAV.

Can you share with us what your NAV is?

Well, we can tell you that one of our analyst seems to think it's $24 and another one thinks it's $14, and we think that first guy is probably closer to being right than the second guy.

You're going to have to talk to that second guy, I guess.

Well, I tried that.

It didn't work.

It's been reported that you have an interest in [Greenwood Plaza] in Houston, which is obviously a sizable office complex.

In what structure are you looking at that complex and are you still interested?

We think Greenwood is a great, [Greenway] is a great, great asset in a wonderful location.

And we were interested in doing it with partners where we would have a significant equity position, but definitely a minority equity position.

But we would manage the building and there are some redevelopment opportunities there as well, which we like.

We like the Houston market generally, it would give us a big footprint in that market, make us the dominant player in one of the prime submarkets there.

But frankly, given the present credit markets and all I'll let Craig add anything he chooses to this, it's very tough to get that deal done right now.

It would require very significant level one lender, and they're just -- near as we can tell they don't exist today.

Again, I think that's accurate.

We've been out with [Holiday Finolio] looking at debt and again, there's really just no activity out in the market right now for assets of that size.

But that being said, we're still out there working on it.

Would Greenwood probably be representative, the kind of assets you'd be looking for?

And what I'm thinking is it's something like 90% leased, so it doesn't seem to qualify as distressed in many ways.

When I think of the capital that you have available for future acquisitions, or development, I find it surprising it has an interest in that complex instead of achieving sales deals or other distressed properties.

You make a very good point, I'll let Craig speak to the details.

But I think the answer is no, that's not what you would traditionally expect us to look at.

It's first of all, larger than the deal that we normally do; and second of all as you relay, it is a very well kept and well-leased asset.

But there are some underlying factors that make it very attractive.

The primary thing is a good many of the existing leases are significantly under market, so even if you factor in some discount of where the present market is, there's still significant bumps in those leases to the tune of $7 to $10 a foot in some instances.

So that's really more the play there.

Okay.

In regards to [Gablar's] G&A and projects are in development, how many projects are you currently pursuing and how many projects were you actually pursuing, let's say a year ago?

Well, right now in terms of projects where we are still capitalizing, I guess there are three, or four?

We're still on [Murphy's Burrow].

So four.

And two of those, which are assets which are operating, but not fully completed, Forsyth and Murfreesboro; those will burn off sometime in '09.

And then the two new ones that we're looking at; Emery Point and Oklahoma City, we'll have to make a decision what will continue to consider those probable after we skip through the holiday season.

And then as Dan pointed out, later in the year, it's possible that we'll be moving some other of the projects in our pipeline into probable, in which case we could capitalize against those.

But it would require significant change in today's environment for us to do that.

So you basically only have two projects and the shadow pipeline at this point on which you're capitalizing?

Right.

Okay.

Maybe just one last question.

When we look at page 18, 19 through supplemental where you list the property, there are several assets where you footnote that a [parts taken by] a third party.

Those assets could change your economics.

Can you give us a sense as to whether any of those assets may have a materially different ultimate ownership of the [whole] economics for you versus with [Senta] and supplemental?

Cedric, the -- just trying to look at the Gateway Village.

Gateway Village we've talked about in the past, that's a structure where we have a limited amount of capital.

We're going to get -- our expectation is to get a significant [IRR] on our capital, but not get a substantial amount of upside from that, that's a very unusual deal where there's a lease that is fully amortized as a loan and I don't want to go into too much detail there, but that's an unusual one.

And we've talked about that in the past.

The other ones, I really can't think of any that where you would expect to have a materially different economic result than what you're seeing from our percentage because we've tried to calculate our percentage as best we can based on our estimates.

And as far as the industrial building in Dallas, where you don't present your current ownership interests, what do you expect it to be?

The deal in Dallas?

There's really more of a remote structure in that deal, so it's kind of hard to tell.

But we have a substantial amount of the ownership of that --

The vast majority.

Somewhere between 80% and 90%, depending on how the promote works out.

All right, thank you.

I show there are no further questions at this time.

I would like to turn it back to Mr.

Tom Bell for any closing remarks.

Well, thank you, everyone, for participating today.

As you know we're always available to you to answer any additional questions you may have and we look forward to talking with you again next quarter.

So long for now.

Ladies and gentlemen, that concludes the Cousins Properties Incorporated Third Quarter 2008 Earnings Conference Call.

Thank you for your participation.

You may now disconnect.