Cousins Properties Inc (CUZ) 2011 Q1 法說會逐字稿

Good day, and welcome to the Cousins Properties first-quarter 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 Trip Sullivan of Corporate Communications.

Thank you.

Good morning.

Certain matters the Company will be discussing today are forward-looking statements within the meaning of 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 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, 2010.

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'll now turn the call over to Larry Gellerstedt.

Larry?

Good morning.

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

Thanks for joining us on the call this morning.

Greg Adzema, our Chief Financial Officer, is on the line, as well.

Before I share a few of my thoughts on the business, I'll hand it over to Greg for a review of the financial results.

Thanks, Larry.

Good morning, everyone.

As I said last quarter, I'll try to use everyone's time this morning as productively as possible and not just recite data from our financial tables.

It's all there in our press release and supplement.

Rather, I'm going to focus on specific issues that drove our performance during the quarter, and I'm going to leave the majority of the time to Larry so we can focus on strategic issues.

That being said, overall we had a solid first quarter.

FFO before noncash impairment charge was $0.11 per share.

We did well where we like to do well, property NOI.

In particular, our four largest office assets, Terminus 100, 191 Peachtree, the American Cancer Society building, which are all in Atlanta, and Palisades West, which is in Austin, that together comprise over 40% of our Company's NOI, had particularly strong 9.2% NOI growth over last year driven by occupancy increases.

These are core trophy assets that should and are performing well at this point in the cycle.

We also made tremendous strides with our industrial assets.

Although we are now down to only two industrial properties, King Mill in Atlanta and Lakeside in Dallas, NOI from these properties grew 55% over last year, also driven by occupancy gains.

I'd like to also point out the continuing progress we've made with G&A expenses.

On a year-over-year basis, these expenses are down 8% from last year.

This reduction reflects our ongoing commitment to rightsize our G&A to better align our costs with our simpler strategic plan going forward.

Speaking of G&A, if you've read our earnings release and supplement, you've probably noticed the changes from the previous periods.

The first is our presentation of fee income and G&A expenses on the statement of operations.

For purposes of clarity, we have pulled out third-party management revenues and expenses onto their own line items.

We think this new presentation more easily allows you to evaluate the performance of our third-party business, as well as our corporate G&A.

We've also updated our quarterly earnings supplement.

This is a ground-up complete revamp of this document.

We took the best of what we saw out there in the REIT space, as well as suggestions from many of you, to create what I hope is a meaningful improvement.

Please let me know your thoughts.

We are wide open to further suggestions and won't hesitate to continue to improve this document.

Finally, in terms of guidance for 2011, I'd like to remind everyone that we only provide data for specific property assets where historical performance may not exist or may not be a good guidepost for future performance.

We also provide guidance on fee income, as well as G&A expenses.

That being said, there are very few changes from the guidance I provided on our last call in February.

First, the Avenue at Carriage Crossing, a lifestyle center in Memphis, will average approximately $1 million in NOI per quarter for the balance of 2011.

This is down slightly from its previous run rate due to rent mitigations with several tenants.

Second, the Cosmopolitan Center, which is our smallest consolidated office property, we expect virtually no NOI for the second half of 2011 due to the Sandy Springs Police Department's decision to move out at the end of this month.

They took up about half the space in that property, so it's a pretty large hit.

On the bright side, this is one of our very best development sites, and we are currently exploring our options here.

A brand new highway interchange is under construction at this location, which adds to its appeal.

With regard to G&A third-party management, and fee income, there is no change to our previous guidance, just a different breakout and more detail.

For G&A, we expect total expenses for 2011 to be between $27 million and $28 million.

For our third-party management business, inclusive of reimbursed expenses, we expect revenues between $18 million and $19 million in 2011.

With regard to fee income, again inclusive of reimbursed expenses, we expect revenues between $12 million and $13 million in 2011.

Again, these numbers are right on top of our previous guidance, just reformatted with better detail.

With that quick summary, let me turn it back over to Larry.

Thanks, Greg.

Cousins' recent history can really be simplified into three phases.

2009 was a year of the balance sheet where we reduced leverage from 70% to 39%.

2010 was a year of operational execution where we made significant strides in stabilizing the portfolio.

And we expect that 2011 will be the year of returning to where Cousins is at its best, value creation mode.

Operationally, we're focused intently on executing across three key areas -- leasing, sales, and investing.

And I'll briefly touch on our efforts within each of these areas and then provide some thoughts on our markets.

Starting with leasing, unlocking the embedded value within the existing portfolio through leasing the remainder of our vacant space remains a top priority.

We've proven our ability to execute on this front regardless of market conditions, and as expected, the first quarter shows continued progress.

Our office portfolio increased from 91% leased to 92% in the first quarter.

Retail increased from 86% to 87%, and industrial remained at 96%.

On the office side, just this week we signed a 70,000-square foot tenant at Terminus 200 bringing the building to over 84% leased.

This is the third largest office lease signed in Atlanta this year and signifies yet another major accomplishment at Terminus 200, which was 10% leased just one year ago.

The most noteworthy retail lease of the quarter came at Avenue Forsyth where Academy Sports and Outdoors leased 72,000 square feet replacing the former 26,000-square foot Circuit City space and bringing the project to 86% leased, up from 70% leased just one year ago.

Also of note for the retail portfolio, we have now backfilled all of the big boxes that were vacated during the recession.

On the sales front, we sold the last of our condos at 10 Terminus Place in the first quarter, and as expected, we are officially out of the residential condo business.

We also sold Jefferson Mill building in the first quarter and hope to sell the two additional industrial buildings by the end of the year.

As I've said before, we will continue to reduce our noncore land and lot holdings in a prudent matter.

As capital recyclers, we will also occasionally harvest value from selected operating properties, especially if the market is willing to pay an aggressive price.

It is from this simplified and stabilized platform that we return to value creation mode, which brings me to our third area of focus for 2011, investments.

As you may remember, in late December, we recapitalized a four-property portfolio of Publix-anchored shopping centers.

This off-market, $14.9 million investment is generating a solid going-in return for us while providing further upside upon lease-up, a prospect in which we feel increasingly confident.

On the development front, we remain excited about the prospects for Emory Point in Atlanta.

The first of three phases comprised of 443 apartments and 82,000 square feet of retail appears to be on track for a start later this year.

The total estimate project cost for Phase 1 is in the $93 million to $98 million range and our equity investment will be in the $23 million to $26 million range.

We have a 75/25 partnership with Gables Residential, on of the most respected apartment developers in the market.

We are also making progress on University Square, a mix use project similar in scale to Emory, located adjacent to the University of North Carolina in Chapel Hill.

This opportunity came as a result of our work with Emory University and while the time frame is probably still two years out, we are optimistic about this project.

We very much like the market dynamics and long-term demographics associated with universities, and we will continue to pursue opportunities within this sector.

Many of you saw the news that Cousins, along with a team including Forest City Enterprises has been selected as the master developer for the multimodal project located in downtown Atlanta.

We're thrilled to have landed such a high profile assignment over several noteworthy competitors.

Cousins' history of revitalization in this area, which includes the development of the Omni and CNN Center, makes this particularly exciting as we'll have the opportunity to add to this legacy.

For those not familiar with the multimodal, it will serve as the hub for the existing and proposed transportation networks serving Atlanta and beyond.

In addition to its transportation functions, the MMPT is expected to serve as a catalyst for one of the largest transit-oriented development projects in the United States, which will include commercial, recreational, and residential mixed-use development.

While the actual development isn't likely to occur for several years, the long-term potential is significant.

In the short term, Cousins will generate fees as we manage the initial pre-development process.

On the acquisition front, our team is working diligently to source attractive investment opportunities within our core markets of Georgia, Texas, and North Carolina.

While we've only seen a handful of compelling opportunities to date, the volume is increasing and we're hopeful that we'll see more activity in the months ahead.

Competition for these opportunities will no doubt remain intense, but we will continue to be patient and disciplined in our underwriting.

I'm confident that true to our paths, we will land more than our share fair of these deals through strong relationships, hard work, and creativity.

Finally, I'd like to provide a little color on our markets.

We remain well positioned in our core markets of Georgia, Texas, and North Carolina.

From the macroeconomic perspective, each of these markets stack up well in terms of long-term potential against the rest of the nation.

Atlanta is slowly pulling out of its recession, but high unemployment still at about 9.8% and continued weakness in the housing market appear to be impeding a robust return to growth.

Rosen Consulting estimates that Atlanta added approximately 10,000 to 15,000 jobs in 2010 and will add another 60,000 to 80,000 jobs by the end of 2012.

Atlanta still boasts one of the most diverse economic bases in the nation and remains among its three fastest growing metro areas, so while this turnaround remains slower than prior recessions, we remain optimistic about the long-term outlook for Atlanta.

As for Texas, trends are positive across the board.

Austin, Dallas, and Houston all rank in the top ten nationally for job growth over the past 12 months.

Austin, with unemployment down to 6.9%, is regaining the jobs lost during the recession and then some.

Dallas, where unemployment is about 8%, has had a relatively mild recession to begin with and continues its steady recovery.

Houston's unemployment rate is down to 7.4% and growth expectations are high, especially given the continued rise in energy prices.

Similar to Atlanta, each of these market's low cost of doing business, highly educated workforce, and diverse industry mix should continue to foster stable, long-term economic growth.

In North Carolina, both Charlotte and Raleigh-Durham also continued to rank among the top cities in the nation for businesses, jobs, and population growth.

In fact, Raleigh is the only city to outpace Austin, Texas, in population growth over the past five years on a percentage basis.

Looking at our markets from a real estate perspective, it's no surprise that supply/demand characteristics in Texas and North Carolina are more encouraging than Atlanta across the spectrum, at least in the short run.

On our retail side, the leasing velocity remains steady.

Although many of our deals over the last 18 months have been with local and regional tenants, we continue to see an uptick in national deal activity.

Tenant sales continue to improve, which is ultimately what drives deal economics.

On average, terms for new leases are stabilizing while renewal activity remains positive.

On the residential front, sales remain steady in Texas and slow in Atlanta.

According to Metrostudy, single family housing inventory, however, in North Atlanta, where the vast majority of our lots within Georgia are located, has declined 76% from its peak in 2006 and now just has 6.7 months of supply, and we're hopeful that that's an encouraging sign of things to come.

On the office side in Atlanta, although the Class A market has shown 5 straight quarters of absorption, I would say that deal terms remain level.

We're not seeing economics get any worse, but we're not seeing them rebound either.

We think we'll continue to bounce along the bottom for a while until we see a meaningful decline in vacancies and sustained return to job growth.

Dallas and Houston have shown an ongoing trend of positive absorption.

However, similar to Atlanta, deal economics have yet to recover in a meaningful way.

In Austin, where overall momentum has been the strongest, we're actually beginning to see rates improve.

More importantly, Cousins continues to outperform its markets as a whole.

This pattern is more evident now than ever as tenants located in lower quality buildings look to take advantage of the opportunity to trade up.

This trend has been particularly clear in Atlanta where last year the Class A market captured 64% of the office leasing demand though it comprises just 34% of the total inventory.

You may recall that last year in-town Atlanta, where Cousins has just 5% market share, we captured over 40% of the square footage amongst the 20 largest transactions.

Buildings like 191 Peachtree and Terminus in Atlanta along with Palisades West in Austin offer the highest quality space in their markets for solid value and that's one of the reasons we're very confident in our ability to continue to outperform.

With that, I'll turn it over for questions.

Thank you.

(Operator instructions.) The first question comes from the line of Brendan Maiorana from Wells Fargo.

Please proceed with your question.

Thanks.

Good morning.

Larry, just -- I thought maybe we could just pick up on the office conversation that you were speaking about in the prepared remarks.

I'm just wondering if you can give a little bit of color on how the lease up-prospects are continuing at 191 and then the outlook for backfilling the space at American Cancer with Turner moving out this quarter.

Great.

I'd be happy to, Brendan.

Let's start with American Cancer Society.

We do have Turner moving out of their space the end of this month, and we actually are very optimistic about being able to have a positive announcement of re-leasing that space in the next few months.

It's still a little bit preliminary, but I'm encouraged with a specific prospect that we have.

And one of things, Brendan, that's important to keep in mind on that lease is that the Turner space is actually leasing at a little bit more than $17 a foot gross, which is actually a fairly low rate within that building compared to some other leases.

So we think that the space has got some good prospects even if this one particular opportunity I spoke of happens not to pan out, just given the quality of the asset and the price that it's at.

But, I'm real encouraged on that.

191 Peachtree, the first quarter was a little bit slow, but the pipeline looks pretty good.

We're really, I think, really just beginning to see the impact at 191 of the Commerce Club move into the top of that building.

It's hard to describe the impact that that club has, but now we've got a club with 2,000 members that really functions very similar to the National Press Club in Washington in terms of the activity that it has.

You rarely go up there that you don't have a senator speaking or a governor or some other person that is talking about various topics.

It's just brought a tremendous amount of activity and vitality to the building.

So certainly the remainder of the space at 191 is something we're very focused on, but the prospects, I think, are good.

I think we should have the building on track to be 85% leased by the end of the year and with the space remaining, one big lease could move it quicker than that, but it's something that we feel pretty good about.

Are tenants more willing to make decisions now in a little bit more of a timely manner or are -- is the decision-making process on leasing still fairly protracted?

You know, that's a -- I hadn't really thought about it in that light, Brendan, but I would say absolutely that the tenants -- they're making decisions.

I think they're making decisions in a much more timely fashion for several reasons.

I think they feel more confident in their own businesses, which is the primary reason, but I also think they see that rates have bottomed out and they want to try to take advantage of getting a good long-term office location at a good price.

And so the time in which you see transactions from when they come in until the tenants are ready to make a decision has really returned to about normal pace whereas as you're referring to in that question in '10, and certainly '09, it was a very, very slow pace on both the tenant side and the landlord side to be able to get deals done.

Sure.

And then just on the land side of the business and the lots, I know that this year is supposed to be down a little bit because you guys had some big outparcel sales and obviously the condo sales are now -- you're out of that business.

But can you give us a sense of how the progression is going in terms of selling some of the residential lots that you've got?

And I know that Texas was looking a bit better than metro Atlanta last time we chatted.

Yes, the -- and with the housing market in the shape it's in, it's very appropriate that we get questions on the residential lots.

One of the things I -- that you're certainly aware of, Brendan, that I like to remind folks is -- the questions are very fair.

They do only represent about 10% of our assets, and so the volatility needs to be kept in perspective.

But what we're seeing is the Texas markets I would say are -- that's certainly where the sales are taking place and they're progressing at about the same pace they were last year plus or minus a little bit.

The Georgia markets are continuing to move relatively slow, and you continue to see some weak housing data coming out just in terms of home prices and those types of issues in Georgia.

But the number of just calls we're beginning to have, conversations we're beginning to have with builders about lots and that type of thing in Georgia is slightly better I would say, but still Georgia is going to be a slow haul until you see these inventories get down a little bit more.

So my feeling about the lot part of our business would be it sort of feels about the same as last year in terms of the prospects for this year just in terms of actual lot sales.

We do have, obviously, prospects for where we're talking about undeveloped tracts where we see activity and opportunities to look at selling those for other purposes like we did in Texas in the fourth quarter, and we'll continue to look at those things.

But overall to answer your question, I think the residential business sort of feels flatish.

Do you still think over a 5-year time frame that you can be kind of essentially out of the residential lot business?

It all depends on the wildcard that I think the whole country's trying to figure out, is what does the housing recovery look like?

It certainly, as I've hopefully made very clear, it's not a business that we consider to be core.

It's a business that we won't be adding assets to, and we'll be harvesting as aggressively as we can.

But I also don't think we need to be looking at fire-sailing lots just to move them.

I mean, we -- with our condo business gone, it's sort of an interesting number to look at.

Our carry on our residential lot business and the carry we have in our interest carry, our taxes, our homeowners association deficits, all that -- all those numbers is probably down to the $4 million and $4.5 million range on an annual run rate basis across the entire portfolio, so it's not a big drag.

It's something we want to prudently exit, but it's almost impossible to force the market where in some cases it's a fairly illiquid market just due to lack of trades.

Sure.

That's helpful.

And then just two quick ones for Greg if I could.

It looked like there was a little bit of change in disclosure on the land, and I just want to understand if there were any substantive changes to kind of those projects or is that just more changing around the disclosure?

And then I noticed the 221 Peachtree garage slipped out of the supplemental.

Was that just put somewhere else or is that project -- did you guys do anything or put that project up for sale or something like that?

Yes, in terms of the lot and the land disclosure, there were no meaningful changes, so that's just a change in presentation, hopefully for the better.

And then in terms of the parking deck here in Atlanta, it's just clumped into the 191 building.

Okay.

Got it.

Great.

Thank you.

Thank you.

(Operator instructions.) The next question comes from the line of Cindy True.

Please proceed -- from JPMorgan.

Please proceed with your question.

Hi, guys.

I just wanted to kind of hear a little bit more about the transaction environment you're seeing in Atlanta.

Are you guys seeing Atlanta kind of becoming a more heated environment like some of the other office markets we've been hearing about?

And if so, would you be willing or looking to sell more assets?

I'll talk about that.

It's interesting in terms of Atlanta and in terms of transactions.

There really -- the pace of office assets that have come to market that have actually traded and closed is still relatively small and they really fall into two -- the ones that have, into two fairly distinct buckets.

One is the well-leased Class A asset, which there was a well-publicized trade in Buckhead that Parkway did for 3344 Peachtree, which is an asset of comparable quality, not quite as positive of rents, to our Terminus 100 building.

It was developed slightly after that, and as I'm sure you know, that traded for a sub-7 cap.

And so there have been a few trades like that.

On the other end have been the more distressed buildings where you've got an older building with relatively low occupancy or no occupancy.

Most of those that have traded have been more on the price per pound.

So I think that to answer your question whether on some of our assets that would be of comparable quality to the first bucket I'm talking about, the well-leased Class A assets, is to whether we would be a seller of those assets, we really look at that on an asset-by-asset basis and look to see what we think the long-term prospects are for that asset.

The Terminus 100 building, which we get asked questions about, we got a very attractive -- we announced last quarter a very attractive refinance, long term attractive rate.

We don't have any roll in that building coming up.

I think the first roll is in 2017 or later.

We like the prospects of that building given its location and the quality of the development and it's a very attractive asset from an earnings standpoint.

So we don't anticipate being a seller of that asset in the short time.

Having said that, we're always open to considering things that if something comes across the track.

But in general, there haven't been a whole lot of trades in Atlanta that we can track.

Great.

Thanks.

And just one quick follow-up on that.

Can you talk a little bit about your acquisition pipeline and how it's looking at the moment?

I know you've mentioned Cousins wants to grow the portfolio.

Are you seeing any assets you'd consider buying, whether it's Atlanta or Texas or your other key markets?

What we've really been doing in the last six months in particular is we've assigned a senior executive to each of those markets that are out in the markets every day talking to the various investment sales folks as well as talking direct to other owners.

So we've got a resource in the Company, Thad Ellis, who is up in North Carolina and is beating the bushes in that market on a regular basis.

We've got Tim Hendricks who's out in Austin, Texas, that's traveling to Austin, Dallas markets on a regular basis, and of course, several of us are here in Atlanta and tracking those.

I think that our -- my read thus far is if you just look at the number of transactions that have priced, is we would be similar to what you're hearing in other calls -- is the acquisition -- number of assets that have been trading in these markets have been much slower, fewer in number that we expected.

The distressed assets are coming along at a much slower pace than we had expected, and the few assets that have traded have had a lot of capital chasing them and that capital has been more aggressive than we thought were prudent.

As we talk to bankers and others that are talking about what they expect the pipeline to be for the balance of the year, that's why I made the reference in my remarks that we're seeing the activity pick up.

You are beginning to see folks start to move on assets that we've talked about for 6 months, 12 months, 18 months with the owners or the banks that have them.

But it's still something that is -- thus far has been much slower than we expected and the pricing on what has traded has been generally more aggressive pricing than we have found that the market warrants.

All right.

Thank you very much, guys.

Thank you.

Thank you.

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

Please proceed with your question.

Good morning, guys.

I just have a question on the office market in Atlanta and maybe if you could give us an update with regard to the sub-lease market and just how much of space that the tenants have is being utilized today and whether that's -- in thinking about renewals, are tenants looking for more space, less space, the same amount of space?

Sloan, the overall market in Atlanta is still 20% vacant.

As I said in our remarks, Class A is getting a disproportionate share of the leasing, so it's had actually 5 straight quarters of positive absorption, over 1.5 million feet.

So having said that, it still is a little over 20% vacant.

You're seeing excess inventory in Buckhead getting leased up.

And so deals are getting made, tenants are making decisions.

But most of that leasing is still not new leases.

It's cannibalization going from one building to another, so it's tenants moving from one building to another, generally improving in terms of their quality with the exception of one lease, the Sony Ericsson lease we did at Terminus 200.

The rest of them would not be new leases to the market or are generally not expansions in the market.

So it's still -- until that job growth picture picks up, I think it will continue to be that type of thing so you definitely are in an advantageous position to have the high-quality assets in the market in the right locations.

The sub-lease space is always a bit more problematic to track, but thus far, it has really not been a factor in the market to the degree that we saw in the 2000 time frame.

So the overall feeling that I have about Atlanta is you're beginning to see the job numbers pick up.

You're beginning to see companies relocate here.

But it's not showing up in terms of something I expect to see in the next quarter or two in terms of leasing prospects.

I think it will continue to be positive.

There -- tenants are making decisions, but the economics will probably remain about the same.

Okay.

And then just a question -- just a little bit more detail on the comments you had about some of your tenants maybe, I guess, renegotiating leases.

I'm wondering if you could give us a little bit more color as to what was going on there.

Yes, that -- Sloan, it's Greg.

That had to do with one of our retail properties.

What's a reasonably common occurrence in retail leases is you've got sales thresholds and they span over years, three, five years, and if they -- if these certain retailers are realizing sales that are below that level, they can kick out or they can renegotiate the lease.

And so you can imagine over the last three years we've had some retailers who have had some poor sales, and so they have had the opportunity to kick out if they want to.

But the good news is that we're seeing the sales per square foot at our centers pick up.

They bottomed out in 2009.

They increased about 7%, 8% in 2010, and we think we'll see another 4%, 5% increase this year.

So we're starting to see the sales per square foot at all of our properties on average pick up.

And so as that improves, the risk of tenants kicking out goes down.

Okay.

And there isn't sort of a backlog that we should look for with some of the assets that were delivered over I guess the course of the bottom of the market, that there could be more renegotiations?

There's always that risk going forward, but you've -- the rat has come through the snake.

Okay.

All right.

And then just one last question, Greg, actually for you, on the office NOI.

Just could you maybe walk through what the drivers of the sequential step-down was?

We can see it in a couple of the buildings, but what went on at Peachtree and some of the others?

Sure.

Let me just tackle the big buildings that saw a sequential change.

At 191 Peachtree, which is our second largest building in terms of NOI, the decline from fourth quarter to first quarter was really the result -- as you recall, we had a large termination fee in the fourth quarter of 2010.

So if you kind of go back and look at the run rate, the core NOI at 191 Peachtree continues to grind upward, which is a good thing, and it'll continue to do that through the balance of the year.

You just had a spike in the fourth quarter of 2010 due to a large termination fee.

The balance of our other large assets, Terminus 100, American Cancer Society, Palisades West, those are the big four, like I said earlier, that comprise 40% of our total NOI.

They're actually going in the right direction.

They sequentially improved.

Okay.

All right.

Thank you very much.

Thank you.

The next question comes from the line of John Stewart from Green Street Advisors.

Please proceed with your question.

Good morning, guys.

It's Jed Regan here with John.

Couple questions.

One is would you say you guys are underwriting more office or retail deals at the moment, and I guess kind of going forward in the pipeline what do you see as sort of more coming to market in the coming months?

Are you talking about on the acquisition side?

Yes, exactly.

On the acquisition side, we have seen the retail assets generally be much slower to come to market than the office assets and -- but just in terms of number of transactions, size of assets, et cetera, we're seeing more deal activity on the office side.

We're going to be opportunistic on either side and, quite frankly, on the -- more the opportunistic side where we might find compelling opportunities is probably in the short run more on the retail side than the office side, just because a lot of the retail assets are in many cases private owners that, similar to the Watkins deal, have very specific needs.

And many times they need to have those needs addressed in a quick fashion with a partner that understands them.

So we're seeing some more on the opportunity side on the retail side, but also those transactions tend to be smaller in terms of dollars.

But I think the Publix type transaction, you are beginning to see some of the large tenants like Target and others that are back to having conversations about needing to add stores and often times they may have a site that they want a store added on that the owner of that land is no longer in a financial position to do the development.

And so there's opportunities with that type of thing.

So the retail is where you're seeing more velocity -- I mean more prospects, but they're smaller in terms of dollar volume.

And the office is slower, but the assets tend to be bigger in scale.

Okay.

And just sort of strategically, would you guys consider yourselves sort of agnostic on which property type you're most interested in going forward?

No.

We're primarily on the long-term hold -- buying assets for a longer-term hold.

I like sort of the mix we have today.

I think we primarily are office-oriented in the retail.

We certainly are opportunistic.

We like the retail dynamics.

Retail tends to have a little more volatility, but a little bit more upside to it, at least that's been the history in recent years.

So we're really -- the larger assets, I don't think you'll probably see us go out and try to acquire a large regional retail asset, a mall or something.

We're more opportunistic there and the -- but primarily focused on office.

Okay.

Thanks.

And just one more for Greg.

Greg, you mentioned the G&A expenses down 8%.

Could you just give a little bit of color on any details there and where you saw most of that benefit?

For the last couple of years ending at year end 2010, Cousins was very aggressively reducing the G&A line items, particularly payroll and headcount.

This is a development company, and it had a large development platform.

And as development opportunities dried up, it became difficult to sustain that platform.

And it's not just the developers, it's all the support, accounting, IR, HR, everything that surrounds that effort.

And so you've seen G&A rightsized as that portion of the business is rightsized for the opportunities that are present.

Okay.

Thank you.

Thank you.

The next question is a follow-up question from the line of Brendan Maiorana from Wells Fargo.

Please proceed with your question.

Thanks.

Just a follow-up for Larry.

You guys have had very good leasing success, really good leasing success over the past call it 18 months or so.

How much of that do you think is attributable to the quality of the portfolio versus the quality of your local teams and how does that view kind of play into your outlook on where you're comfortable deploying new capital into either existing property investments or development projects?

Brendan, I think it -- the impact in terms of -- you've got to have the right assets and the right location.

If you don't have that, then you're not even going to get out of the batter's box.

But the relationships in terms of being able to get to the decision makers, talk to the decision makers, them having confidence that this is a landlord that not only performs but is stable and exceeds expectations once the deal is done and is a business partner to help in growing their businesses is very, very important.

And part of the reason that not only on the demographics that have driven our focus to North Carolina and Texas in addition to Georgia is because it also overlays with our history and our relationships.

We've been in both those markets for a long, long time.

We had the -- we've been in Texas for 20 years.

Dary Stone, Tim Hendricks, Mark Dickenson and their teams out there, so it's not a new stretch for us to say we're going to do what we've always done out there.

The deal that we got Palisades West absolutely case in point.

You look at who the largest and initial tenants were, relationship with Dimensional Fund Advisors, which we had, relationship with Four Star, which we had, and that -- help underwrite that success.

We've still got the Gateway Village deal in Charlotte.

We've developed in Charlotte.

We've got the opportunity at the University of North Carolina.

So part of the drive was obviously looking at the strong demographics and where we focus.

But it also was looking at where our footprint -- we felt like we weren't fully leveraged not only in terms of the asset mix we wanted to have, but that we had the ability to utilize our relationships better to drive results as we do in Atlanta.

Sure.

And then just in terms of the university opportunities that -- sound like you guys are pursuing some additional ones, would those be in new markets or are those more likely in existing markets?

Well, you always want to make sure you leverage your relationships in markets you're in first, but you obviously are open to going to other markets.

And here's what's sort of an interesting thing about the North Carolina opportunity is, as you probably know, Brendan, because you've known me a while, we've got a fair number of folks that went to the University of North Carolina here.

But that is not how that opportunity happened, and I think that's one of the real opportunities in the university thing.

University administrators, that's a tight-knit circle.

They go to their association meetings.

They talk to those types of things.

The way that the University of North Carolina opportunity happened is one of the top guys at Emory was at a conference talking about what they were doing in terms of partnering with private developers.

A fellow, the head finance person for the University of North Carolina, was there.

He said if you look to do something, you ought to talk to Cousins because we've had a wonderful relationship with them.

They know what they're doing.

They're a great partner.

That guy picked up the phone and called us and said would you come up here and talk to us about that opportunity.

So I think within the university segment, universities are looking for proven track records and stable partners and folks that they're fellow university folks with can say these are good folks to work for.

So it's a little bit of both.

But once again, it falls back to that relationship theme.

Sure.

Okay.

That's helpful.

Thanks.

Thank you.

Mr.

Gellerstedt, at this time, there are no further questions.

I would now like to turn the call back to you.

Please continue with your presentations or closing remarks.

Well, I just want to thank everybody for being on the call today.

We feel good about the first quarter and are optimistic about the prospects going forward and we appreciate your continued interest in Cousins.

And if you have any other questions, as always, just reach out to us and give us a holler.

Thanks.

Thank you.

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

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

Thank you, and have a good day.