Cousins Properties Inc (CUZ) 2009 Q2 法說會逐字稿

Ladies and gentlemen, thank you for standing by.

Welcome to the Cousins Properties incorporated second quarter 2009 conference call.

During the presentation, all participants will be in a listen-only mode.

Afterwards, we will conduct a question-and-answer session.

(Operator Instructions).

As a reminder, this conference is being recorded Tuesday, August 11, 2009.

Before we begin, certain matters the Company will be discussing today are forward-looking statements within the meaning of the federal security laws.

Actual results may differ materially from these statements.

Please refer to the Company's filings with the Securities and Exchange Commission, including its annual report on Form 10-K, for the year ended December 31, 2008 for a discussion of the factors that may cause such material differences.

Also, certain items the Company may refer to today are considered nonGAAP 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 its website at www.cousinsproperties.com.

I would now like to turn the conference over to Mr.

Larry Gellerstedt, President and Chief Executive Officer.

Please go ahead, sir.

Good afternoon everyone.

I'm Larry Gellerstedt, President and Chief Executive Officer of Cousins Properties.

On the phone with me are Jim Fleming, our Chief Financial Officer; Craig Jones, our Chief Investment Officer; and Steve Yenser, our Executive Vice President of Leasing and Asset Management.

Welcome to our second quarter conference call, and at this time, I'll call on Jim to review the financial results for the quarter.

Jim?

Thank, Larry, and thank everyone else for your interest in Cousins.

This quarter we reported FFO before special charges of $0.45 per share compared with $0.15 per share last quarter.

The primary reason for the increase is the gain on the repurchase of the San Jose mortgage debt that we told you about last quarter, which resulted in a gain of $12.5 million or $0.24 per share.

In addition to this, we did a bit better in several areas, which I'll touch on in a minute.

As described in the earnings release, we reported $88.3 million in impairment, valuation, and retirement charges during the second quarter.

These charges were largely associated with our residential lot and condominium businesses and reflect the challenges we are seeing in today's housing markets.

Except for a portion of the retirement charges, these were all non-cash charges.

The largest impairment was a $34.9 million charge on our 10 Terminus condominium project.

Since this project is held for sale, we are required to record it at fair value for accounting purposes.

Condominium sales continue to struggle in Atlanta as they have across the nation, and sales activity at 10 Terminus has been slower than we projected.

Our updated analysis reflects a longer sellout period together with a high discount rate on the anticipated cash flows from the project.

In spite of the impairment for accounting purposes, we continue to believe 10 Terminus is a high quality project that provides exceptional value to condominium buyers.

Going forward, we will continue to implement innovative sales strategies in an effort to distinguish this project from the rest of the market.

Additionally, we took a $28.1 million impairment charge on our investments in residential joint ventures.

Accounting standards require that we write investments in joint ventures down to fair value if the decline in value is considered to be other than temporary.

Given the continued decline in the demand for residential lots and high discount rates applied to anticipated cash flows from lot and tract investments in today's market, we concluded that the impairment was other than temporary and recorded this charge in the second quarter.

We did not record impairment charges on our wholly-owned residential projects, even though a discounted cash flow analysis would perhaps show impairments, because the GAAP rules do not allow an impairment charge where the undiscounted expected cash flows of these projects exceed our cost.

We also recorded a valuation allowance on our deferred tax asset as of the end of the quarter.

Since 2007, we've been receiving a benefit for income taxes in our income statement, because our taxable REIT subsidiary, Cousins' Real Estate Corporation, which we call CREC, has had pretax losses over that period.

We've been recording the effect of this benefit on our balance sheet as a deferred tax as setter.

GAAP rules require that companies evaluate whether to place a valuation reserve against deferred tax assets based on their expected ability to take the tax benefit in future periods from the generation of income.

Based on CREC's operating loss history, including the impairments taken this quarter on 10 Terminus and our residential ventures as well as our inability to predict at what point in the future markets will improve and when CREC will again become profitable, we recorded this valuation allowance.

The following impairment charges and valuation allowance have reduced our net income and FFO in the second quarter.

These non-cash charges do not affect our coverage ratios or leverage covenants under our bank credit facility.

Going forward, the tax valuation allowance is going to have an effect on our FFO.

If CREC recognizes an operating loss in any quarter, we will no longer record an income tax benefit, since any benefit recognized would increase the valuation allowance.

Conversely, when CREC generates taxable income, no income tax expense will be recorded until CREC reaches several years of sustained profitability.

Therefore, in the short run this will reduce our FFO, but when CREC returns to profitability, it will add to our FFO for several years.

Turning back to FFO before special charges, I'd like to highlight the factors that contributed to the difference from last quarter.

You can follow by looking at our supplemental package on page 8, beginning on page 8.

Rental property revenues less rental property operating expenses from our properties increased $1.7 million between the first and second quarters.

$1.4 million of this increase relates to our office properties.

FFO from 191 Peachtree increased $772,000 as a result of additional revenue from the Deloitte and Touche lease as they began paying rent on additional space where tenant improvement work was complete.

FFO from the American Cancer Society Center decreased $640,000 as a result of the lease modification and extension as well as adjustments to operating expense payments by tenants from prior years.

And FFO from Terminus 100 increased $1.4 million as a result of the reversal of bad debt reserves taken in the first quarter for three tenants.

FFO from our retail properties increased $204,000 between quarters, primarily as a result of an increase at Avenue Carriage Crossing related to the collection of previously reserved rent.

FFO from out-parcel sales increased $543,000 between quarters.

In the second quarter, we sold an out-parcel at the Avenue Carriage Crossing.

Our first quarter gain was from the sale of one out-parcel at the Avenue Webb Gin.

FFO for tract sales in the second quarter was generated from the sale of a tract at our North Point Westside property.

In the second quarter, we sold 48 lots compared to 25 lots in the first quarter, which generated a slight increase in FFO of $59,000.

FFO from other joint ventures decreased $416,000 between quarters because of certain oil and gas royalties and forfeited lot deposits earned in the first quarter.

Leasing fees increased $359,000 between quarters due to higher third party leasing fees as well as additional fees for leasing at unconsolidated joint venture properties.

Termination fees increased $738,000 between quarters as a result of fees earned on Avenue Carriage Crossing and Terminus 100.

General and administrative expenses increased $531,000 between quarters as a result of a reduction in capitalized salaries due to lower levels of development activity.

We continue to monitor our G&A expenses and have been successful in significantly reducing many of our discretionary expenditures.

We are employing strategies to further reduce these expenses and continue to monitor our staffing levels to ensure that we are operating as efficiently as possible.

Since the beginning of 2008, we've reduced our nonproperty level headcount by 25% and we've reduced our G&A run rate from our 2007 level by over $11 million a year.

So far, however, the effect of this has largely been offset by a reduction in capitalized salaries, which have gone from over $15 million in 2007 to what we estimate will be about $4 million this year.

In the second quarter, we reduced our quarterly dividend to $0.15 per share and continued the policy of paying part of the dividend in cash and part in common stock.

Our intent is to be as conservative as possible with our cash while paying out all of our taxable income to shareholders.

Ultimately, our dividend is a board decision, but we set the dividend at its current level based on our current projection of taxable income for the remainder of 2009 and into 2010.

We will continue to work with our board to monitor our taxable income and dividend level each quarter to make sure we are conserving as much cash as possible while meeting our REIT dividend requirements.

As I addressed in detail on the last call, we don't have large exposures to maturing debt until 2012 when our credit facility, bank term loan, and Terminus 100 loans will mature.

We hope by that time the economy will have stabilized somewhat and the credit markets will have returned to a more rational level.

Our leverage level under our bank covenant calculations dropped this quarter from 54% to 52%.

The maximum allowed is 60%, so leverage continues to be higher than we would like.

But at quarter end we were still holding over $54 million in cash to cover future funding needs.

The other significant covenant in our bank credit facility requires us to maintain at least a 1.5 times fixed charge coverage ratio.

Under the terms of the credit facility, our coverage is now 2 times.

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

Thank you, Jim.

As most of you know, I became CEO of Cousins on July 1 when Tom Bell retired.

I've had the pleasure of meeting a number of you in person and many others I've been able to speak to on the phone.

For the rest of you, I look forward to spending sometime with you at NAREIT meetings in November or whenever we have a chance to get together before then.

Since this is my first conference call, I want to let you know that I'm both excited and honored to have an opportunity to lead this extraordinary company.

Cousins has an incredible history of performance, driven by great assets and exceptional people, from the board and Senior Management throughout the Company's ranks.

In the 1970s, Tom Cousins developed a set of core principles to guide our decision making.

These are listed in our 2001 annual report, and they still available on our website, and they include basically focusing on value creation, total shareholder return, recycling capital, and managing risk.

These long held principles have remained relevant throughout the years in both good markets and bad, and our strategy will continue to follow these in future years.

We have a strong board and a very talented dedicated team of people at Cousins.

Rest assured everyone is working with dedication and focus to deliver superior results for our customers and shareholders.

Some of you have asked me what changes my leadership will do to our strategy.

My response generally has been that I've been a part of this leadership team for several years and I believe in our overall strategy.

We'll continue to be an opportunistic company focused on value creation.

In the current environment, we will remain very rigorous in our underwriting process for capital deployment.

For the next few years, we will probably not be starting many new developments, but we expect to find distressed acquisitions where we can add value, primarily in the Sun Belt markets we know well.

In that light, I think it is important to remember that we sold over $2 billion of assets at the peak of the cycle from 2003 to 2006.

This allowed us to pay almost $600 million in special dividends and to reinvest the rest.

While today it would be nice to have the $600 million back in the Company to take advantage of the future opportunities, clearly selling those assets was the right thing to do for our shareholders.

In the near term, we may sell a few assets, but it's probably not going to be the right time to do much capital recycling.

Given the current market, we may need to access other capital sources through joint ventures and equity markets.

However, in the long-term, capital recycling will be our preferred approach.

I'd like to take a minute to give my perspective on the impairments that Jim discussed.

In this area, I have to say the accounting rules don't make a whole lot of sense.

For wholly-owned rental properties, impairments are rare because you evaluate those using undiscounted cash flows well into the future.

Where we and other REITS are seeing impairments is in joint ventures and for sale projects such as condos.

The rules require these investments be marked to fair value today using discounted cash flows.

Given the state of the investment market, we'd use relatively high discounts rates of 20% or more to value the expected future cash flows, and we also have tried to be conservative in our estimates on lot -- on residential lot, and condominium sales.

I believe we've come up with reasonable numbers for what these investments would be worth if we sold them today.

But we haven't made any decisions to liquidate any of our holdings in today's markets.

While I'd like to see us sell some nonincome producing properties, we are going to be prudent about this and do not intend to give assets away.

As a result, we should have opportunity to earn back some of these impairments in the future.

Jim commented on our debt maturities, and we are fortunate not to have any short term issues.

We have a very favorable line of credit with a good bit of term left.

However, I believe the market cinema that we've seen develop since last October towards lower debt levels is probably right, and ultimately I would like to see us get to a lower leverage than where we are today.

As we have said before there are three ways to reduce leverage -- sell assets, retain earnings, or issue equity.

We are looking at all three, and since we aren't facing any deadlines any time soon we are going through a very deliberate process to figure out what option make the most sense as well as when and how to implement them.

Tom Bell commented on several of these conference calls about our efforts to find opportunities in distressed real estate.

We haven't seen any big opportunities yet, but these efforts are continuing and we expect to see some good opportunities probably in 2010.

As I've told a number of you all, I think I will see assets with debt maturity problems which I would label as financially challenged and assets with leasing problems which I would label operationally challenged.

Our sweet spot will be assets that have some of both challenges.

What we are looking for are opportunities like 191 Peachtree and the American Cancer Society Center -- situations where we can understand the market and can use our market knowledge and relationships to fill up a quality asset that hasn't performed well for the current owner.

These could be retail and residential projects anywhere in the Sun Belt, but I think from what we are seeing thus far, our office buildings in our core markets may ends up providing the best opportunities.

We've taken advantage of some small opportunities and I want to mention one of them as an example rather than a significant item by itself.

In the last quarter, we bought a project called Brownstones at Habersham, 14 townhomes and five additional home sites from a bank that had foreclosed on the second phase of a high quality townhome development in the heart of Buckhead, Atlanta.

The first phase had sold out quickly at prices from $400,000 to over $900,000.

We were able to buy the foreclosed units for an average price of $285,000, and we began marketing units from $359,000 to $559,000.

Prices have moved up $30,000 to $50,000 in the few weeks we've been marketing these units, and we now have contracts to sell 11 of the 14 units, plus we have a contract for all five future home sites.

This shows that even though the housing market is terrible, at the right price there are buyers who are looking for good value.

It also shows the importance of understanding local markets.

I want to conclude by talking about our most important business issue right now, which is keeping our existing properties full and continuing to make progress leasing our development projects.

Here we've made reasonably good success.

We've had reasonably good success given the state of the markets.

We maintained our operating portfolio of office assets at 90% leased this quarter and our remaining office roll-over for 2010 is now down to 9%.

We are also spending a lot of time working on 191 Peachtree and Terminus 200 in Atlanta as well as Palisades in Austin.

We made a little progress at Terminus 200 with our 50,000 square foot Firethorn lease, which we announced in April, but we have a lot of work left to do.

We do have several significant prospects and I hope we'll have more to talk about later on this year.

We made some headway on our industrial portfolio by leasing another 104,000 square feet to Briggs and Stratton, and extending the lease on their existing space to July of 2012.

We are continuing to pursue lease prospects aggressively on all of our industrial buildings, and it's still our plan to get these properties leased up as soon as possible so they can be sold.

Our retail operating portfolio listing shows our leasing percentage dropped from 83% to 82% this quarter.

But the reason for the decline is we are now including the Avenue Forsyth as an operational center in these numbers.

Without that reclassification, the percentage would have gone from 83% up to 87%.

If you look at the individual property numbers, you will see that we made some very good progress -- for example, bringing Carriage Crossing from 83% to 88% and bringing Murfreesboro from 75% to 84%.

We've also made some progress at the Avenue Forsyth, which went from 55% leased to 62% leased, although we'll need to keep focused on finishing leasing this project.

I'm encouraged that we are now seeing retailers willing to commit to new stores, and as a result our potential co-tenancy issues are declining.

We continue to see downward pressure on rental rates in new leases, and as a result, in some cases we are choosing to sign leases for the shorter terms.

I'll finish with a brief comment on the overall real estate markets.

Clearly the housing markets are very challenged and will remain so for some time.

This includes apartments, although my sense is apartments will recover quickly once the economy gets back on its feet.

The office and retail markets are both tough right now due to the state of the overall economy.

But on the retail side, despite the pressures on rents, I'm encouraged to see that there is demand for space in proven quality centers.

We'll continue to put a lot of effort into maintaining tenants and increasing occupancy at our retail centers.

On the office side, the combination of our recent overbuilding and job losses is significantly affecting demand, and there will be a big difference over the next 12 to 24 months between buildings that are well leased and those that aren't.

We feel very good about the high occupancy and low level of lease rollovers in our operating portfolio.

So our challenge is leasing up our development projects.

You should expect to see us be aggressive in our efforts to lease up vacant space, because I'm convinced we are better off leasing space even at somewhat reduced rates than keeping space off the market.

We'll keep you posted on our progress.

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

Thank you.

(Operator Instructions).

Our first question comes from the line of Dave AuBuchon.

Please proceed with your question.

Good afternoon.

Wanted to ask whether or not you feel like we should assume you really scrubbed the portfolio here and you are done with most of the impairments going forward?

Dave, this is Jim Fleming.

I wish I could give you a definitive answer.

I'm sure everybody that goes through this process wishes they could.

I will tell you we've been very thorough.

We've worked with our auditors at Deloitte.

We've done a lot of work internally and we think we've been conservative as we've gone through this stuff.

Some of these things tipped over this quarter -- for instance, the residential joint ventures we determined are other than temporary impairments.

So we had to record them this quarter.

This is an ongoing process for the joint ventures, for the condominium projects.

Those now have to be marked to fair value and we have to do that analysis every quarter.

And so the answer really is as the market gets materially worse, we would have to do this again.

We hope we've gotten it all, and we've really tried, but you just couldn't have any absolute assurance on that.

This is Larry Gellerstedt.

I might just add to what Jim had said that as I mentioned briefly before, there are very specific accounting rules and guidelines that we have to follow.

And more than 50 REITS have taken impairments in the last three quarters.

And we certainly value having our outside auditors Deloitte come in every quarter, and we rely on them to provide guidance so that we are making every effort to be very transparent, very conservative in what we are showing on the books.

But as Jim said, this is just something we have to look at on a quarter by quarter basis.

Okay.

And then you mentioned the Brownstone example as an example of an opportunity that you guys have pursued and it looks like you've been successful.

Did you mention the profit perhaps that you've made at selling 11 of those 14 units and the five home sites?

I think from the -- you can generally see the expectations that we've had from the sales price versus the average price that we bought them.

We underwrote the project with an IRR in excess of 25% and we certainly think we are on board to hit that.

And I would comment on the residential side, one of the things we found particularly attractive about this project was not just the location and the track record and the first phase had had, but the fact that at the right price we could make an acquisition and see the benefits of that acquisition in relatively short order.

We have found that type of acquisition -- that's the only one that we've actually done.

But as we look, that type of residential acquisition is generally more attractive to us than buying undeveloped lots, because of the uncertainty over the time period that it may take to get a return.

Right.

And should we read your comments about the multi-family segment perhaps responding quicker than others, Larry, to -- that's a property class that Cousins will pursue?

Well, I think Cousins is -- one of the strengths that we have is we've always been driven by value and a lot of flexibility.

But I would not read that to say that we are going to become one of your major multi-family apartment developers.

We do have several developments where in the future, particularly our development out at Emory, that has a significant apartment component where we have Gables as our partner.

So we certainly are following that, but really just mentioned that for guidance on where we think you might see some recovery first.

On the industrial side, do you believe that leasing is sustainable?

Can you give more detail behind the space that you leased in the quarter?

I wouldn't, I wish I could tell you that the space we leased in the quarter was the start of a trend.

We are seeing a lot of activity, but so far that activity has been slow to commit.

And so we are pleased to get that list, but I wouldn't read any momentum trends into that.

Okay.

And my last question, Jim, I think when you went through the property by property changes from Q1, you mentioned in Terminus 100 there was a bad debt reversal.

Can you talk about that again?

There were three tenants that we reserved rent on there, Dave, and we reversed those reserves.

We worked out the issues with those three tenants to where those reserves have come off.

We've also had that with a few other properties.

We've had that with some retail properties.

I think I commented a couple of quarters ago that we had put in some bad debt reserves where we weren't sure whether we could collect the rents.

We did that in the fourth quarter.

We did that in the first quarter.

We are going to continues to be conservative as we go forward on those, and then as we are able to collect them, we will reverse the reserves.

The tenants are still in the building.

Have they taken less space?

No, they are still in the building.

Okay.

Thank you.

Our next question comes from the line of John Stewart with Green Street Advisors Incorporated.

Please proceed with your question.

Thank you.

Jim, just a follow up on that point, so was it not a credit issue?

I don't understand why you would have taken the reserve and then reversed it.

Can you help us understand that?

It was a concern about credit which we no longer have.

And that's generally -- and these fall in two categories, we either will work out a situation where we will collect the rent or we will work out a situation where the rent will be payable in a later period, and this was some of both in the current quarter.

We no longer have the credit concern about whether the rent is going to be paid.

Okay.

In looking at the land schedule, it look like Handy Road moved from consolidated to consolidated and also looked like the basis in 615 Peachtree went up a couple million dollars.

Can you shed some light on some of the major changes on the land schedule?

I can't on that, John.

The 615 we some predevelopment costs which were shown in other assets previously.

We rolled that into the land schedule.

That's really not a change on our balance sheet.

That's just a reclassification on our supplemental of where we are showing that.

Got it.

The Handy Road, we have had a partner, we still have a partner in that deal.

We have -- there's a debt on that property that we have no liability -- Cousins has no liability on, but the partner has ceased making payments on that debt.

We've really stepped into control of that.

I think the likely outcome is going to be that that will just become our property.

And that we are not committed to do this, but it's likely that we will ultimately pay that debt off.

So we are now showing that on the debt schedule -- on the property schedule as a consolidated property rather than as a joint venture investment.

Okay.

Larry, you referenced towards the tail end of your comments that you think you're better off leasing space, just taking the market clearing rent in this environment.

How does the impairment at 10 Terminus give you the flexibility you think to reduce the condos to a price that's going to clear the market?

What's your philosophy there?

Well, we certainly have priced them at a level that we think would clear the market.

As you know we did -- and I think this was an innovative type of thing that we did on the value assurance program that we've been offering the last couple of quarters, which we saw a lot of increase in traffic and we've actually had a couple of contracts under that program.

But what we and other folks are seeing is that the main drivers in this market for the condos is price right now.

And although our product, we are very, very confident in, we can't set the market.

We have to respond to the market, and we think we'll get better than the market clearing price.

But we still have to react to that price.

So we have been I think prudent as the accounting standards would have us be at pricing those and to this impairment at a level that we believe would clear the market.

That doesn't mean that we'll have a sales strategy.

As a matter of fact, it's not going to be our sales strategy to try to instantaneously drop price and sell these on a bulk basis.

You will see us coming out in the next few months as we have in past months with I think some innovative sales approach.

Some price change will be a part of that thing.

But we still plan to sell these out over a period of time in a prudent way and hopefully we'll be able to see some improvement from the current level of the impairment that we are taking today.

Okay.

It seems a little bit at odds with the experience that you had with the Brownstones.

That's a good question, John, and I would point to this.

What we have seen in the Brownstones in today's market both from the buyers' perspective and the mortgage perspective -- when you get above the conforming mortgage standards, finding mortgages particularly in condos is a challenging thing to do -- that if you look at absolute price with this impairment we begin to get about the same in terms of square foot, sales per square foot as the Brownstones.

So it gets to be an absolute price that these things begin to clear in today's market.

I think the Brownstone thing really supports what we are doing on 10 Terminus if we wanted to try to clear the market right now with those units.

Got it.

Okay.

One more point -- you referenced three ways of deleveraging with asset sales, retained earnings, and issuing equity.

Can you talk specifically about asset sales and equity and the thought process there, specifically what might be in the market today?

And you also touched on joint ventures, are 191 Peachtree and American Cancer Society, are those at the point where would you look to do a joint venture today?

That's about five questions rolled into one, so can I just take the one that's the easiest to answer and do that?

I think in terms of asset sales, we absolutely are looking at asset sales.

We mentioned before when we purchased the debt on San Jose that we would go to the market and both look at what type of debt, third party debt that we might be able to put on that asset as well as what type of sales price we may be able to get -- that asset is currently being marketed and we expect to get some feedback on it this month.

We've got some other debt.

We've been looking at the debt on Meridian Mark, our medical office building here in Atlanta that's been a real positive earner for us and has a relatively low level of debt vis-a-vis the value, and where similar to San Jose we've gotten feedback on what a debt extension may be to roll that over and push it out for two to three years, which is certainly an option that we have.

And we are also looking at what it might bring in terms of sales.

So it's great to have the flexibility to look at that.

Currently, I mean, we don't want to do that on a wholesale basis, because this isn't a good market to harvest in.

I think in terms of the equity markets, we certainly have followed with a lot of interest what a lot of our peers have done in that regard and I certainly want us to remain focused on deleveraging our balance sheet.

And not just from the leverage that we currently have, but to make sure we have the capital in place to go after what I think will be unprecedented opportunities on the distressed side.

And so we are being very thoughtful right now of going through the Company's model as we look and go forward years and really studying the fact that we are fortunate enough not to have maturities driving us to a quick decision.

But we certainly want to delever the balance sheet to position ourselves better, and I think an equity raise is something that you'll see us giving a lot of consideration to and probably be ready to talk about in the next quarter or two.

We are really looking at all of those options and being very, very serious about that look and we are just not pressured to have to do something right at the moment other than a couple of asset sales.

And there are a few other out-parcel sales and some other things that we are looking at.

Thanks.

(Operator Instructions).

Our next question comes from the line of Sloan Bohlen with Goldman Sachs.

Please proceed with your question.

Good afternoon, guys, and congratulations, Larry.

Larry, to follow on John's point on how we should think about framing what the correct level of leverage is going forward or what the correct amount of capital on hand for opportunistic acquisition.

Can you give us a thought on how to think about that, and as a follow on to that would you consider using joint ventures as a source for potentially a fund for being opportunistic going forward?

Yes, and I left that out in my response to the questions that John asked me.

Joint ventures is certainly an avenue and we've got discussions going with several parties.

I assume -- I expect we will have them with others where we are actually looking at how the structure of those might be in terms of the equity contribution splits, et cetera.

And I think that I feel confident you'll see both some activity on the asset sales side, you will see it on, I think we will seriously consider the equity side, and I'm sure that joint ventures just based on discussions we'll have, we'll find attractive for certain opportunities as well.

I think that our current level of leverage is higher than we want it to be.

I've heard on these calls, other calls where folks have talked about where the new going forward right level of leverage is, and I don't really have the crystal ball on that.

But as I look at Cousins, we've generally operated in that 30% to 45% leverage and that's probably the right range on a go forward basis.

It's not something that we have to do in an emergency way to get there, but we are going to look at all these avenues both in terms of the timing and how much of each one we pick and try to drive those ratios down in that regard.

The thing about the distressed opportunities and the 191s of the future that we find, I think the key thing there is we don't have to time the market perfectly there.

What we are seeing is the depth of these problems, and it's still probably 2010.

We are seeing the spread between the bid and the ask narrow, but sellers I think are figuring out what they are willing to pay, but -- I mean the buyers are figuring out what they are willing to pay, the sellers are not quite come to match that.

So we've got some time to address that.

I want to make sure we have the capital there, but we don't need to be a market timer on being perfect on that.

I hope that gives you some guidance on that, Sloan.

That's helpful.

A couple of quick once for Jim.

On the lease up in the retail developments at -- are those leases, have they commenced yet?

Because I didn't see quite the pick up in the NOI quarter over quarter.

Sloan, that's always a difficult one for us because our schedule that shows leasing percentages shows leasing percentages.

And the NOI that you look at for our properties is going to be based on the occupancy.

In other words, for us to get an NOI pickup from a tenant, we're going to have them actually in place.

And there's generally going to be a lag.

It'll vary from property to property, but it can be from 90 days to nine months.

And so I'd say on average, there's probably a quarter or maybe 120 days of lag between those two.

So where we've got some good pick up in places like Murfreesboro and Carriage Crossing, it's going to be probably next quarter or maybe even the quarter after that before you'll see that.

Along those lines, maybe it's a question for Steve.

But just on that retail leasing in the quarter, was it a lot -- it seems like there was better activity from the retailers themselves, but have the terms changed from maybe beginning of the year, what you guys are giving up in terms of concessions?

I think we are seeing it be very similar as it was in the beginning of the year.

Retailers are clearly being opportunistic, but we are also finding opportunity in doing shorter term leases with them as we deal with the market conditions and the rent.

So I think we are pleased with the increase in activity and are happy to see retailers in the marketplace for quality proven centers such as our portfolio.

One last one, just on the two lease term fees at Terminus 100 and I think it was the Avenue Carriage Crossing.

Do you guys have a sense of what the prospective mark-to-market on those rents would be going out again in the market?

I think your question, Sloan, is when we release space that we terminated, are we going to have a roll down?

And the answer is yes, if we lease it in today's market, which is what our game plan is.

And I think the roll down level will depend on a number of things, whether we go to a national retailer that's being -- that's really trying to expand aggressively and has got good credit.

And there you are going to have a significant roll down and Steve can comment on that.

But we also might do some deals with more local or regional tenants.

We seeing some of those, and those generally involve somewhat of a roll down, but much less of a roll down.

The Cost Plus specifically at Carriage [V&A] box rent was not -- it was a lower rent to begin with.

So we will see some roll down to that.

We've seen anywhere from a 15% to 25% specific to that case, but over the portfolio as we are having rents roll out.

Okay.

Thank you guys very much.

Thanks, Sloan.

Sir, there are no further questions at this time.

I turn the call back to you.

Please continue with your presentation or your closing remarks.

Well, I know it's August and vacation time, so those that have been on the call, we appreciate your continued interest at Cousins.

This is a period of time where I have a lot of confidence in the team we have and the folks that have supported this Company in the past, and we have some opportunities to work through.

But I think they are manageable, and the opportunities that we look forward to we think are significant.

And we think we are well-positioned to take advantage of those.

I appreciate your interest in Cousins, and anything that we can do in terms of being available to talk or answer any other questions -- as always, just give us a call and we will make ourselves available.

Thank you very much.

Ladies and gentlemen, that does conclude the conference call for today.

We thank you for your participation and ask that you please disconnect your line.