Cousins Properties Inc (CUZ) 2009 Q4 法說會逐字稿

Ladies and gentlemen, thank you for stand standing by.

Welcome to the Cousins Properties Incorporated fourth quarter 2009 conference call.

Today's call is being recorded.

At this time for opening remarks and introductions, I would now like to turn the call over to Tripp Sullivan of Corporate Communications.

Please go ahead, sir.

Thank you.

Good morning.

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

For example, the Company may provide estimates about expected operating income from properties, as well as certain categories of expenses.

Actual results may differ materially from those 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 and the current report on Form 8-K followed September 14, 2009, for a discussion of the factors that may cause such material differences.

Also, certain items the Company 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 its website at www.cousinsproperties.com.

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

Larry Gellerstedt, Chief Executive Officer and President.

Please go ahead, Larry.

Good morning.

I am Larry Gellerstedt, President and Chief Executive Officer at Cousins Properties.

And on the phone with me today are Jim Fleming, our Chief Financial Officer, Craig Jones, our Chief Investment Officer and Steve Yenser, our Chief Leasing and Asset Management Officer.

Welcome to the fourth quarter conference call.

Before I give my thoughts on the business, I would like to call on Jim to review the financial results for the quarter.

Good morning, everyone.

This quarter we reported FFO before special charges of $0.11 per share compared with $0.12 last quarter.

The bulk of the special charges this quarter was a $4 million write-off on our -- of our Ridgewalk retail project in the northwest suburbs of Atlanta which we no longer believe is probable.

We also had a small amount of severance charges as we completed the reduction in force from the third quarter.

There were three additional items of significance affecting the results for the fourth quarter.

The first item we told you about on our last call.

It was a $2.8 million fee for the termination of $175 million interest rate swap and a reduction in another swap from $75 million to $40 million which occurred when we paid down our bank debt in October.

The second item was the reversal of our bonus accrual for the year because we made the decision to pay no bonuses for 2009.

This item reduced G&A expenses by approximately $3.3 million.

The third item was a $3.1 million tax benefit during the quarter.

On previous calls, we had indicated that we did not expect to record any income tax expense or benefit for the foreseeable future because Cousins Real Estate Corporation, our taxable subsidiary, had cumulative losses over the past few years.

In the fourth quarter, the tax laws changed to allow companies to carry back current period losses for five years instead of two.

As a result, we expect to receive a $3.1 million refund which we accrued in the fourth quarter.

Turning back to FFO before special charges, I would like to highlight the factors that contributed to a difference from the third quarter.

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

As I discuss these variances, I am going to try to give you some estimates about the income we expect from our properties in 2010.

As I do that, please keep in mind that we may have quarter-to-quarter fluctuations as we did this quarter for a number of items, including collections and debt reserves.

Rental property revenues less rental property operating expenses from our office properties decreased $2.1 million between the third and fourth quarters.

Most of this decrease related to four properties.

NOI from 191 Peachtree decreased about $489,000 as a result of an increase in bad debt expenses and an increase in expenses for the building's fitness center.

We expect NOI from 191 Peachtree to increase in the first quarter of 2010 and to progressively increase each quarter of 2010 as occupancy increases.

Our expectation is that quarterly NOI will start the year between $2.5 million and $3 million and at the end of the year between $3.5 million and $4 million.

NOI for the American Cancer Society Center increased $778,000 as a result of the expiration of the AT&T lease.

For 2010, we believe the quarterly run rate for the building will be between $2.7 million and $3 million until we're able to release the vacant space.

NOI from Terminus 100 decreased by $526,000 as a result of an increase in bad debt reserves.

In 2010, we expect the run rate per quarterly NOI from this building to be between $3.5 million and $3.8 million.

NOI from 100 Point Center East decreased by $145,000 as a result of an increase in bad debt reserves.

We believe the NOI generated by this building in 2010 should be in the range of $350,000 to $400,000 per quarter.

NOI from our retail properties increased $616,000 between quarters, primarily as a result of the following.

NOI from Avenue Carriage Crossing increased by $495,000 as a result of a decrease in real estate tax expense from a lower-than-expected tax bill and a receipt of a previously reserved account receivable.

For 2010, a more reflective quarterly run rate of NOI from this property is estimated to be $1.1 million to $1.3 million.

NOI from San Jose Market Center increased by -- excuse me, by $174,000 due primarily to collections of previously reserved accounts receivable.

We believe that NOI from this property in 2010 will be $1.8 million to $1.9 million per quarter.

And NOI from Tiffany Springs Market Center decreased to $212,000 as a result of an increase in real estate tax expense from a higher than expected tax bill.

For 2010, we expect quarterly NOI from this property to range from $800,000 to $900,000.

One other retail property I want to mention is The Avenue Forsyth where we expect the NOI to start 2010 at about $1 million to $1.2 million per quarter, and then increase later in the year to between $1.3 million and $1.5 million per quarter.

While NOI from industrial properties remained consistent between the third and fourth quarters, we expect NOI from the King Mill building to increase approximately $150,000 per quarter by the third quarter as a result of the additional space leased by Briggs & Stratton as Larry will discuss in a few minutes.

Obviously, new leasing and lease terminations would have an effect.

But as of today, with the exception of the properties I have mentioned, we don't expect any major changes in NOI from our properties for 2010.

FFO from multi-family sales increased $1.6 million as a result of significant progress at our two condominium projects.

Management fees decreased during the quarter primarily as a result of the decrease in reimbursable expenses.

General and administrative expenses before separation expenses commissioned on development fee and reimbursed expenses, changed primarily as a result of the reversal of the accrued bonuses I mentioned earlier.

You may have noticed that our retail same property retail revenues were off 11% in 2009 compared to 2008.

This is largely the result of the big box vacancies we experienced at the end of 2008 and coupled with some rent concessions to existing tenants.

The 11% decline is actually an improvement from the 12% decline we reported last quarter.

And you can see that we made a modest improvement from the third quarter to the fourth quarter in our quarter-over-quarter same-store numbers.

As Larry will discuss in a few minutes, our retail leasing team has done a good job back filling our big boxes.

And you will see from our supplemental FFO schedule that our total retail NOI actually increased by $1 million from 2008 to 2009.

As you know, the strengthening our balance sheet remains a very high priority.

During the quarter, we further reduced the outstanding balance on our line of credit from $150 million to $40 million, resulting in an improvement in our overall leverage ratios.

As a result of this and a reduction of debt from our third quarter common stock offering, our leverage has decreased from 73% of total market capitalization as of the end of the first quarter to 47% at the end of 2009.

Our bank leverage ratios which are not based on stock price, decreased as well, 40% as of year-end.

We continue to look for ways to further delever the Company through sales of non-core assets.

We focused on reducing the bank debt in particular for three reasons.

It was recourse debt, it expires in 2012, and the bank market while improving still remains volatile.

Reducing this debt by nearly $360 million since September has obviously helped us with most covenants under our bank credit facility.

However, because we've largely focused on paying down the bank debt, which is very inexpensive debt, the equity offering hasn't made a big difference in our fixed [cost] coverage ratio.

Our projected cash flow shows we should be fine with the ratio going forward, but with less cushion than we would like.

And sales of assets such as our San Jose retail property would reduce this ratio, even though the sales would allow us to further delever and pay down bank debt.

Because of this, we're working on a proposed amendment to our bank credit facility that would provide more cushion on this ratio and enhance flexibility to sell assets.

As part of the amendment, we expect to pay some fees as well as a higher interest rate and also to reduce the size of the facility and tighten up some of the other covenants.

I believe we'll be able to give you more details on this in the next 30 to 45 days.

Our other debt maturities over the next three years are project level and largely non-recourse.

Even though these loans are not a significant concern, we're working on a number of them to either refinance or try to extend the maturity.

This is all part of our effort to move our financing more toward long-term fixed rate non-recourse mortgage debt.

We talked before about the Murfreesboro construction loan which we have with our partner Faison.

This loan matures in July and we working on the terms of an extension with our three lenders.

Our other significant maturity this year is at the Meridian Mark Medical Building where the loan matures in September.

We're now out in the market seeking proposals from a few lenders for a refinancing which we expect to close in the second quarter.

I would like to comment on a change we made to our supplemental package that we hope will be helpful.

This quarter we provided rental property revenues less rental property operating expenses for our joint venture properties on a property-by-property basis together with FFO from consolidated properties.

While this information was previously available in other sections of our supplemental package, we believe the change improves your ability to track operations of all of our properties in the same place.

And finally, a quick note about our dividends, as you know, this is a Board decision and our Board is going to keep looking at it each quarter.

In the near term, we expect the Board to continue our approach of paying out our expected taxable income, using a combination of two-thirds stock and one-third cash.

At some point, we'll likely get back to an all-cash dividend but for now, the stock dividend is a helpful way to delever our balance sheet bit.

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

Thanks, Jim.

2009 was clearly a year that most of us would like to forget and are certainly happy to have behind us.

And for Cousins, it involves large impairments, a reduced dividend, staff reductions and a lower stock price.

But with our leasing efforts throughout the year, our stock offering in September and our decision to get more aggressive in selling condos last fall, I believe we've made some real progress and I am encouraged about where we stand as we start 2010.

We're focused on a number of key objectives for 2010.

One, increasing our revenues by leasing space and generating fee business.

Two, selling non-income producing assets to further reduce debt and improve our asset mix.

Three, perhaps selling a few non-core assets in order to further delever our balance sheet.

Four, continuing to move our capital structure towards long-term recourse mortgage debt.

And five, positioning ourselves to take advantage of opportunities.

I'm going to talk in detail about a few of these points, starting with our efforts on the leasing front and we'll be glad to answer questions about the rest.

Our retail leasing team did a good job in 2009, bringing our retail portfolio up to 84% from 77% leased at the end 2008.

In the process, we were able to release 80% of our big box vacancies.

In the fourth quarter, we were encouraged to see three consecutive months of positive year-over-year sales comps in our Lifestyle Center portfolio.

We continued to monitor sales performance closely because it is a key driver of new leasing activity, strong rental rates and tenant retention.

We'll stay focused on retail leasing in 2010 and we expect to stay aggressive as we work to lease the remaining 600,000 square feet of vacancies in our portfolio.

This will be a challenging task, but with 110,000 square feet of leases currently out for signature, of which 70,000 are actually executed, our team continues to perform well in a challenging environment.

Our office portfolio ended 2009 as 87% leased, down from 91% at the end of 2008.

This was driven mainly by the Afrogenix's bankruptcy and last quarter's expiration of the 138,000 square foot AT&T lease in American Cancer Society Center.

These two leases account for nearly 3% of the 4% decline.

Despite the challenging market, our leasing team remained active signing 944,000 square feet of leases in 2009.

We expect our office markets to continue to see headwinds in 2010.

However, leasing activity is picking up and we will continue to work to make progress with our vacant space.

Palisades West project in Austin provides a perfect example.

Last week, we signed the lease with Saint Jude's Medical to take 87,000 square feet of the 108,000 square feet of unleased space beginning in 2011, bringing the Palisades project to 94% leased overall.

We now have only 21,000 square feet available and we have an active prospect list for the remaining space.

Aside from Terminus 200, the vast major of our vacant space now sits within two buildings; 191 Peachtree and the American Cancer Society Center.

These are top-equality assets where thanks to a low-cost basis, we are able to offer very competitive rates.

Leasing activity is picking up a little and we expect to make significant progress with both of these buildings over the next 12 months.

Regarding Terminus 200, as many of you know, we wrote off our entire investment in this building in the third quarter.

And we made it clear we would not put more money into the project under the current loan structure.

We have been in discussion with the lenders since that time and with five banks involved, the process moves continues to move slowly.

At this point, I can't give a lot of color on how things will end up.

The good news is however, our discussions with both the banks and potential investors have provided invaluable insight on how these deals are likely to be structured on a go-forward basis.

We keep plugging away at our industrial space with a goal to sell our buildings as soon as they are leased.

Given the economy, industrial leasing was almost non-existent in 2009, but we're seeing more prospects now.

At our King Mill project, south of Atlanta, we further expanded our lease with Briggs & Stratton bringing the 796,000 square foot building to 85% leased.

As part of the expansion, we also extended the Briggs and Stratton lease term from 2012 to 2015.

With a little more leasing, we'll have this building full.

Regarding fees, you may have seen that our management contract was terminated at Bank of America Plaza in Atlanta.

We entered into this contract which was set to expire in September 2011 when we sold the building to Bentley Forbes.

We did not expect the contract to continue beyond 2011 and it was not a major portion of our client services business, accounting for around $1 million in annual revenues.

However, we were disappointed in the early termination and in fact, we are disputing the termination.

We don't comment on pending litigation so I don't -- I can't give anymore color on this.

However, I will note that our client services group had a good year in 2009, especially on the leasing front and we expect this business to continue to grow.

You may also have seen the recent announcement by Cox Enterprises regarding the expansion of their Atlanta corporate headquarters.

They are planning to start a 600,000 square foot building this year and as they announced, they have decided to engage us as the developer.

You may remember that we worked with Cox as a fee developer for their current corporate headquarters building beginning in 1999.

And we're really pleased to once again have the opportunity to work with them to meet their growing needs.

I will now turn to our sales efforts.

Not surprisingly, 2009 was a particularly rough year for our residential lot business, closing the year with only 142 lots sold.

We're becoming more optimistic about our Texas markets, based on both general market conditions and what we are seeing in our specific projects.

Although not as strong as Texas, Atlanta is showing some signs of improvement as well with the end-of-the-year housing inventory down 41.6% from the end of 2008.

As a result, we expect our lot sales will pick up a bit in 2010.

We didn't sell outparcels or tracts in the fourth quarter, but we do expect to have some sales in 2010.

We have two parcels under contract to Ray Weeks and Forrest Robinson that we expected to close in December for a sales price of $10 million and a gain of $1.2 million.

We extended the closing from December to March and they deposited an additional $250,000 of non-refundable earnest money.

We also have outparcels sales in the works.

First Horizons, Chilis, Macaroni Grill and Red Robin and Avenue WebGen are under contract as is Chick-fil-A and Avenue Forsyth.

These sales are expected to close in the first quarter at a gain of approximately $2 million.

We also are working on some sales that we hope to close in the second quarter.

Condominium sales results continue to be encouraging in our two remaining projects.

At 10 Terminus here in Atlanta, we closed 35 units in the fourth quarter.

Through February 6th, we closed 9 more units and have 13 additional units under contract, leaving only 55 units available.

As of year-end, we had closed 24 of 28 residential units and one of four retail units at 60 North Market in Asheville, North Carolina.

We currently have one more residential unit under contract and we expect to close out all of the units in the first half of 2010.

And for that matter, if sales continue at the current pace, we'll be completely out of the condo business by the end of this year.

The final point I want to touch on is the outlook for opportunities moving forward.

While we continue to position ourselves for opportunistic acquisitions, we simply haven't seen many attractive deals yet.

Generally speaking, it's very difficult to get financial institutions to make decisions regarding their troubled assets.

Syndicated loans are proving complicated to work through and the large securitized loans are even more complex.

However, pending maturities and the need for capital expenditures should ultimately serve as a catalyst on this front and we hope to start seeing some attractive acquisition opportunities within the next 12 to 18 months.

Our discussions with various financial institutions lead us to believe that most of the deal structures will not look like the traditional foreclosures of the past.

Many acquirers will be forced to evaluate the various pieces of the capital stack and seek alternative ways to attain ownership of these assets.

We're prepared to go this route if it provides access to an asset we feel strongly about.

Generally speaking, acquisition opportunities will come in two forms; real estate assets that are financially distressed but operationally sound, and those that are both financially and operationally distressed.

We'll actively evaluate prospects in the first category, but competition will be considerable given the significant amount of capital on the sidelines.

It's much more likely that we'll participate in the second category, where our capability to both recapitalize and reposition troubled assets provides a significant advantage.

Our primary focus is on class A office assets in Texas and Georgia where our platform and expertise are strongest.

The retail sector where we also have exceptional talent should provide attractive value add opportunities as well.

As always, our priority will be on investment return rather than project size, and transaction structures could take a variety of forms including teaming with a financial partner.

It has become clear to us from our discussions that there is a good bit of joint venture money available to invest along with us if that is the tact we decide to take.

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

Thank you.

(Operator Instructions).

Our first question from the line of Brendan Maiorana from Wells Fargo.

You may go ahead.

Thanks.

Good morning.

Larry, with respect to the opportunities that you talked about and contrasting that to your comments earlier about trying to sell some non-income producing assets, do you need to get the first step done in sales of non-income producing assets and leasing up the portfolio before you would be willing to spend additional capital to pursue these opportunities?

Brendan, the short answer to that is no.

We're looking at opportunities in here, really, every day and the -- what we're seeing in those opportunities, I haven't seen anything yet that should we elect to pursue it, that we feel capital constrained in terms of going after.

To say, the structures that we're seeing so far haven't really been your traditional foreclosure structures.

They have tended to be structures where you have an existing ownership structure, and you need new equity to come in and you get into various structures there, buying different tranches of debt.

As we look at that, there is really several things we can do.

One, we have a fair amount of room on our line and we're continuing to work on that.

The number of partners that talk to us -- investment partners that have capital that are finding it very attractive to have a partner that is an operator -- knows how to operate the asset and can co-invest with them, traditionally we're seeing maybe a 15% to 20% investment on ours and 80% on theirs with some type of promote structure.

At this point, I wish we were seeing more opportunities where the focus was more on -- where we felt capital constrained because we certainly, either between joint ventures or going back and issuing more equity, we look forward to when we're feeling that pressure.

Can you give us a sense of the amount of capital you would be comfortable spending or the magnitude?

I am thinking about in that second bucket of financially-stressed assets that are also operationally stressed, and thinking about office, that would suggest to me that there is probably a fair bit of capital that needs to get spent to bring those assets up to a stabilized level.

And just thinking of your 2012 maturities and venture capital needs there, where do you think you would be comfortable today in terms of the amount of capitol spend you can do?

I will let Jim add on to that with his thoughts, but I don't have a specific dollar amount in mind.

It's more about the investment and the yield we can get on that investment, and the risk adjusted return that we can get on that investment.

And as we look at those, as I said, we have the option of putting it on our line for a period of time and looking at selling some non-core assets if we want to take the pressure off the line.

We have joint venture structures to look at and as we look at the opportunities, we really evaluate them one at a time.

Some we're looking at right now, we go, well, that is the type of opportunity we really think would be good to have a partner as we look at the risk and we look at the best structure for that.

Jim, you might want to get more color but -- not something that -- it's not something that I am feeling constrained on.

I wish we were seeing more opportunities.

I will make two comments about our line.

I think Larry talked -- gave a good description and good discussion about the opportunities, but on our line, I did make a comment and can't get into any more details right now.

One of the things I may have said in my speech is that we're working on some potential amendments to our line.

And as part of that, we'll probably decrease the size of the line.

I do want to comment that I do think and I think everyone here at the Company thinks, we still need room on the line to have some dollars that we can access quickly to take advantage of opportunities.

We're not talking about not having a line.

I think we need to have some available capacity on the line and that foreshadows what we will likely do in 2012, which is continue to have a line that gives us a bit of liquidity.

The other thing about the line is we had a balance of it, almost $500 million before the equity offering and we've reduced that to $140 million.

One question that we wrestled with was how do we feel about either repaying or refinancing that $500 million at the end of -- or in August of 2012 and I can tell you, I feel good about the $140 million.

We've looked at it a lot of different ways, including where we could put mortgages on or cash flows and I feel good about that the debt we have right now is easy to deal with in a number of different ways.

We'll be conservative about it, but there is room to go do some investments.

Okay.

Then the other maturities that you have in 2012, you feel there is a risk there that there may be additional capital -- equity that you need to put in to pay down some of the maturities?

The biggest one we've got is the Terminus 100 loan which is a five-year loan put in place back in 2007, $180 million loan.

It is a non-recourse loan and generally my comment is that we want to move the capital structure more toward long-term fixed rate non-recourse mortgages and we think it's a better fit for our company.

One possible thing we might do there would be to extend that loan and we're in some very preliminary discussions about that right now, and extend that loan to make it longer term so it doesn't mature in 2012.

It makes sense for us and for the life insurance company who is a lender on that project.

The others are relatively small but that is the biggest we have we've got in 2012.

Sure.

Jim, in terms of the write-off of the Ridgewalk project -- predevelopment project, are there other predevelopment projects and if so, where are they located in the balance sheet?

I'll let Jim talk about where they are in terms of our information.

I will go through them with you.

It's a relatively short list.

Ridgewalk was a retail development that we were looking at and we had an option on the land.

The land is in the process of being foreclosed on.

We went ahead and wrote that off.

There are three others.

One is Emory, which we talked about before which is a site that is part of the Emory University campus that we have an option to do a development on that still is a very positive looking development, because it is primarily driven by the housing needs and the retail needs of the university and that is a high barrier to entry site.

We still feel good about that.

We have a -- we commented before, we have been looking at an outlet mall deal in Oklahoma City which actually has been making progress.

It's currently 62% signed leases on that and that continues to move ahead.

Obviously, the outlet space is one of the few shining stars out there in terms of retail and Oklahoma City actually has got very positive growth dynamics.

We're continuing to monitor that.

The final one is an office building outside of Dallas and Frisco where our partner has land control.

Although we don't see that as a short-term development, we still think that it's a highly-attractive area down the road.

On the balance shed, Brendan, those are in other assets and the total of all of those is between $7 million and $8 million.

Okay.

Great.

Thank you.

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

You may proceed.

Good morning.

Jim, a couple of items real quick.

For looking ahead, the tax impact you talked about in the fourth quarter, can we expect that going forward?

No, Sloan, that was a one-time thing.

Okay.

I know you that you've been asked previously, you can give us a sense of where we should expect the G&A to trend this next year?

Sloan, if you look at 2009, you can see the run rate of what we've done in 2009.

We will continue to work hard on that and that is a continued focus.

We need to keep a staffing level so that we can take advantage of opportunities and we plan to do that, and we think we're at that level right now.

We're going to continue to look at that and monitor that.

We've made some comments about it previously.

I don't really want to forecast where it's going, but that is going to be a high area of focus for us.

Okay.

And just turning to the line real quick.

Are you currently in negotiations on the line or -- and is it more the focus on fixing the new fixed charged coverage ratio?

Where do you think that could go?

Second to that, relative -- Is that more important or is the overall size of the line more important to you guys?

We're in negotiations right now and I can't really comment much more because we're not done yet.

But we all wanted to mention it so that if we're able to get this done here in the next quarter that you guys know about it.

The size of the facility we do need to keep some availability on it because we want to be able to take advantage of opportunities.

But I think you all know that we had a $600 million total facility.

We've paid it down substantially -- about $360 million.

That is really not our intent to go load back up on the short-term recourse debt that matures in 2012 so there is room for us to give back capacity and still feel we've got the liquidity we need.

And that is the primary capital option at this point, right?

You haven't really looked at doing something in the unsecured market or --

We do talk to the folks in those market all the time and there are some other options that are available to us.

We would consider those.

Right now for the liquidity piece, the bank credit facility -- and we've explored other options there.

But the bank credit facility piece gives us the best liquidity option right now.

We don't really view it as something that we want to keep as a long-term part of our capital structure because it's relatively short-term in its recourse.

We like other options, but for what we're using it for, we're keeping a relatively low balance and using it for liquidity, I think it's the right piece for us.

Okay.

I would add what Jim's saying, a clarification on the line, this is something we're proactively doing.

We're not in violation of this covenant.

Our model doesn't show that we would be.

But just in the way we have always been conservative about things, this is something we want to get taken care of.

We don't see any need, nor would we want to take advantage of the $600 million line, given the short maturity and the fact that it is recourse debt.

But this is something that's just a positive for us to make sure we get adequate room on this and we can make the right business decisions on a go-forward basis.

But it currently is not a problem for us.

Okay.

And one last one for you, Larry.

On the sales activity at 10 Terminus in the quarter, how much do you think of that was pent up and a seasonal impact?

Do you think there is a level of consumer confidence coming back and can we see that carry through to next year?

Yes.

That is a good question.

This was our strategy, which was to take -- be very aggressive once we took the impairment on selling the units.

And what that strategy has shown is that, yes, with the right product at the right price, there is demand for high-quality, residential homes.

We have said all along and many of you all have seen 10 Terminus.

It is an extraordinary well executed development.

At the price we put it at and that we're selling at, there is a pent-up demand for buyers.

And it also, quite frankly, the more you sell, the more successful it gets.

A lot of the buyers because of the bad publicity that condos have gotten are worried about being one of the few units that are occupied in an empty building.

Now that we have gotten over the 50% mark, you also get much more mortgage options for your buyers to be able to look at.

I don't think -- it doesn't show such a demand that any developments on the horizon for a long time, but I do think we'll continue to see good demand for our 10 Terminus thing at the price it's a, vis-a-vis, the competitive product out in the market.

Great.

Thanks, guys.

You bet.

Our next question is from the line of John Stewart from Green Street.

You may proceed.

Thank you.

Larry, it looks like -- according to the supplemental, that Glenmore Garden Villas is in contract.

Can you give us a sense for what you expect to recoop from that?

Glenmore Gardens is under contract and hope that that contract will close this quarter.

And in terms of where we are, the contract would be consistent with the impairment that we took and no further impairment would actually be registered at the contract amount.

Okay.

Thank you.

And then just with respect to your comments that basically you expect if the current momentum continues to be out of the condo business by the end of this year, what gain can we expect to see on the remaining condo sales in the rest of 2010?

We sold -- you can see the gain, John, in the fourth quarter.

I want to comment.

This is all obviously relative because we took a big impairment and that formed the basis for this gain.

I don't want to get us too excited about this.

But on a go-forward basis, you can see the gain.

We sold 35 units and so the gains were from the 10 Terminus project.

We're pretty much selling at about break even on the Asheville condos.

You can do your own projections in terms of the level of sales each quarter, but so far we have the pricing where it is.

It seems to be holding pretty well and I would think the margins would stay about the same as we go forward.

Okay.

That is helpful.

Larry, can you give us any color in terms of what happened at Blue Valley during the quarter?

Now, Blue Valley is a -- John, was a residential project, very far north Atlanta suburbs which we wrote off second or third quarter of 2009.

And that is not anything that we have still got any activity in, John.

And did the bank actually foreclose during the fourth quarter?

The bank is in the process, we think of foreclosing.

I don't think believe as of today they have gone through the formal foreclosure process, John.

It is not an asset we have any interest in pursuing through the foreclosure process.

Okay.

Lastly, Jim, I presume from your comments that the total impact of AT&T would have been felt in the fourth quarter run rate at American Cancer Society.

Is that right?

I have given -- I may need to go back and look at my notes.

I gave you a run rate going forward which we think is (multiple speakers).

You said $2.7 million to $3 million.

I think that is consistent with the fourth quarter number.

Right.

Okay.

Thank you.

That's right.

Okay.

Fourth quarter is within that range, John.

Got it.

Our next question from the line of Jamie Feldman, Bank of America.

You may proceed.

Thank you.

I was hoping you could talk a little bit more about the bad debt reserves in the quarter.

Is there new fourth quarter bad debt?

How should we be thinking about where you are in terms of your credit watch list and as we head into 2010, do you feel pretty well-reserved?

I'm trying to figure now what the continued shake-out may be in the portfolio?

John, that is -- I'm sorry, Jamie, excuse me.

And thanks, John, for your questions, too.

Jamie, there have been a fair number of swings in those numbers.

It's been hard to track some of the NOI numbers and that is why we tried to give some run rate numbers.

But if you look overall at the reserves and at the receivables, really our receivables number from the end of the year 2008 to end of the year 2009, really hasn't gone up.

It's really stayed pretty much constant -- actually come down slightly.

Whereas at the end of 2008, we reserved a relatively small number, about a quarter of that amount and I'm talking about the receivables from tenants.

We reserved about a quarter of that and -- really over a half of that right now.

I can't make any predictions about whether it's going to go up or down, but we feel very good that we have a healthy reserve.

We've reserved anything that's got any age on it and we reserved a very good portion of it.

Going forward, we'll look very hard to make sure we're comfortable that we're going to actually collect something before we reverse the [rereserve].

What percentage of the total portfolio occupancy would you say is being reserved?

Total portfolio occupancy.

I'm trying to figure out what the risk is to occupancy, based on the tenants you're still concerned about.

You're really focused more on the credit watch list than on where we are from the reserve?

To finish up the last question, I feel very comfortable that we've got healthy reserves against the receivables we have.

The other question though is how do we feel about the credit watch list.

Correct.

I might let Steve comment on that for retail and then we can turn it over to office if you want to.

Going back what you said a little bit -- I think we have been very conservative.

Even the run rate numbers that Jim gave took into account the reserves on NOI going forward, based upon the tenant base.

We're consistently watching, in particular, the retail sector that everybody watches on a macro basis and monitor it accordingly.

And really on the office basis and in these times, you never know.

There is not anything -- any large concentration that we're particularly worried about right now.

We took the [Afrogenix] hit less last year.

Okay.

'm looking for more macro color in terms -- within your markets and even within the retail and office portfolio.

Are we at the point in the cycle where you really feel like things are stable or are there still companies that are still a real risk?

If so, what sectors and what types of companies?

I think the overall macro view on the office side, we're in a period where you're beginning to see the office tenants start to make the decisions whether it's moving, expanding, talking to you about lend-and-extend, whatever.

The underlying fundamentals in our markets are still not going to improve significantly until you see job growth, which is projected to be really a 2011-2012 phenomenon.

Unlike a year ago where no decisions were being made and everybody was just buttoning down the hatches, our lease activity, both with our existing tenants and with prospects, is up and we're seeing people make decisions.

The macro color is people are certainly not as defensive in terms of looking at their businesses on the office side as they were a year ago.

On the retail side, I would say it's the same.

We certainly continue to worry about retailers and as Steve said, we're monitoring that closely.

We're seeing same-store sales, showing positive trends and we're seeing retailers wanting to take advantage of the market and move into empty space.

What we have done on our big box vacancy is shows that healthy retailers see the empty boxes as opportunities.

I don't think we're out of the woods in terms of still being concerned about some surprises.

But we have tried to take a conservative look at it.

The general business environment, whether we want to call it a little bit better or a little bit less bad, it is moving towards a little bit better from my perspective.

Does that answer your question?

Yes.

Thank you.

In terms of the potential JV partners that you have been talking to, what kind of returns are they looking for?

Once again, it's -- it depends on the -- obviously, the risk and what the asset is and how troubled it is, all those kinds of things.

I think generally what folks -- because trying to guess what a [exit] cap rate is a difficult thing to do as you look at investment.

I think folks are mainly going back to looking at -- on a pretty conservative basis what your cash on cost yield is and folks that we talk to on that criteria or looking at 10 and above on a risk-adjusted basis.

Okay.

And in terms of the Cox contract, the timing and what the fee stream would be?

The timing of that -- this is actually -- we're very pleased about this opportunity.

Cox has got -- this is the consolidation of a number of leases that they have for their IT groups all over North Atlanta.

This is just consolidating all -- this is their IT group, consolidating it on their campus.

Most of those leases have termination dates in the second half of 2012, which would mean that you would have a start on the 600,000 square foot building in the fall of this year.

We'll definitely be the fee developer on that project.

And the fee you get for doing it normally would be somewhere in the $3 a square foot plus or minus type of fee.

We also may be, and these are discussions that are ongoing, there might be an investment opportunity for us on this facility.

This will be 100% occupied facility by Cox.

It may make sense for us to be an investor in that and we should have more color on that next quarter.

Okay.

And then will they be coming out of any of your portfolio?

No, they won't.

Okay.

All right.

Thank you.

You bet.

Mr.

Gellerstedt, there are no further questions at this time.

You may resume with your closing remarks.

We appreciate everybody being on the call today and hope you can share with us and seeing the momentum in terms of beginning to execute on our 2010 plan that we have already achieved.

We appreciate your continued interest in Cousins Properties.

Ladies and gentlemen, this concludes the conference call for today.

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

Have a great day, everyone.