Cousins Properties Inc (CUZ) 2011 Q4 法說會逐字稿

Good day, and welcome to the Cousins Properties fourth-quarter 2011 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 Tripp Sullivan of Corporate Communications.

Thank you.

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 for properties, as well as certain categories of expenses, along with expectations regarding development, acquisition, and disposition opportunities.

Such forward-looking statements are subject to uncertainties and risks, and 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, 2011 for additional information regarding certain risks and uncertainties.

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 turn the call over to Larry Gellerstedt.

Good morning, everyone.

Our strategy for Cousins is three-fold -- simple platform, trophy assets, and opportunistic investments.

Our portfolio will be increasingly comprised of Class A office assets that are well-placed within high-growth Sunbelt markets.

Further, playing to our strengths, we will use this stable platform as the base from which we will seek additional returns through opportunistic investments.

The fourth quarter and full-year results demonstrated significant and consistent progress towards this vision.

Three key areas of progress characterized 2011 -- leasing success, the sale of non-core assets, and a return to offense.

Our ability to continue driving results in each of these areas will be paramount to our success in 2012, and to achieving our strategy for the future.

First, let's talk about leasing success.

In a still-challenging economy, our team did a solid job of leasing additional space and extending existing leases, leaving the portfolio in excellent shape for the coming years.

For the year, our team executed over 1 million square feet of leases in the office portfolio and over 850,000 square feet in the retail portfolio.

Our retail assets were 89% leased at the end of 2011, up from 86% at the beginning of the year.

Our office properties held steady at 90% on a same-property basis, but this doesn't capture the full extent of our success.

We were able to extend our two largest near-term lease expirations in the portfolio, together totaling over 320,000 square feet, for at least another 10 years.

While this isn't immediately apparent in the leasing statistics, it is every bit as important.

Thanks to this progress, the weighted average remaining lease term in our portfolio is now more than seven years.

Specific to the fourth quarter, we successfully backfilled the 64,000 square foot Kids II space at 555 North Point Center East.

As you may remember, Kids II signed a long-term lease at Terminus 200 last year, so backfilling this space became a key goal for us in 2011.

We also made significant progress at Galleria 75, taking the building from 71% to 91% leased.

While this is a significant amount of leasing, we still have work to do at 191 Peachtree and the American Cancer Society building.

We are focused intently on getting this job done.

And as an aside, we did lease over 75,000 square feet at 191 during 2011, and things continue to move in the right direction.

Now to the second key area.

The sale of non-core assets.

The sale of non-core assets is a critical component of our push towards a simple platform.

First, I'll focus on land and residential component of this effort.

Over the last three years, we've sold $168 million of land and residential assets, including over $31 million of sales in 2011.

I mentioned on our previous call that we were in the process of an in-depth assessment of our remaining land holdings, and were exploring various options with the goal of capturing as much value as possible for shareholders.

After a very thorough evaluation of these assets over the past few months -- which included a third-party appraisal of every parcel, as well as an internal analysis of how they fit within the context of our long-term strategy -- we decided it was the right time to further expedite our sales effort.

This accelerated time frame enables us to mark the land assets to values associated with a shorter-term sale, rather than a longer-term strategy predicated on selling as the market improves.

This ultimately resulted in a reduction to the book value of our land and residential projects by approximately 50%.

The economics of holding land with a negative carry versus owning income-producing assets is pretty conclusive.

We estimate that our land would need to increase in value by 75% over the next five years in order to match the IRR on a core office investment.

Thus, we believe the accelerated monetization of these assets, even at a discount to the original cost, will unlock value for our shareholders.

It will also provide a significant boost towards the execution of our strategic plan by allowing us to redeploy the capital into trophy assets -- trophy office assets in markets we know well, and further opportunistic investments.

Ultimately, we expect these investments to be accretive to cash flow, simplify our platform, and redistribute the portfolio towards higher-quality, income-producing assets and stronger markets.

Our landholdings will now comprise a value of $116 million or 9% of our gross assets.

Our intention is to monetize a large number of these investments over the next two years, with much of the activity coming over the next 12 months.

We only intend to hold select commercial landholdings for an extended period of time.

These parcels fall into two categories -- land we expect to put into development in the next three or so years; or land that we believe will have a significant increase in value over the next three to five years.

In wasting no time, we are already under contract for the sale of a significant portion of our residential portfolio.

As you might recall, nearly half of our residential investments are owned through a 50/50 joint venture with Fourstar, which is why we are very excited to have reached an agreement with Fourstar to effectively sell Cousins' ownership in 18 of the 21 projects associated with our two joint ventures for $23.5 million in cash.

We view this transaction as a huge positive for Cousins.

And once we will have eliminated nearly 40% of our residential holdings; generated $23.5 million of cash to be redeployed into income-producing assets; reduced our annual land carry costs by approximately $2 million; and eliminated approximately $80 million of required capital commitments associated with the buildout of these projects over the next 10 to 15 years.

As a point of reference, this business generated about $1.5 million of profits in 2011.

To recap this expedited land strategy, we will generate substantial proceeds through the sale of negative cash flowing assets.

It will also reduce annual carry costs by a material amount, eliminating over $100 million in future development costs, and provide capital to invest in targeted, income-generating opportunities.

Also, it's important to note that our sales efforts are not confined to land.

We sold over $125 million of non-core operating assets in 2011, including all three of our industrial buildings.

We will continue to monetize non-core assets when the price is right.

This often includes the sale of mature assets where we feel we can harvest maximum value.

For example, we sold One Georgia Center, a 43-year-old stabilized building, at a favorable price of $48.6 million in the third quarter of 2011.

10 Peachtree Place, our fully-leased asset in Midtown Atlanta, is now officially on the market.

This 260,000 square foot office building is held at a 50/50 venture with Coca-Cola.

We are still early in the process, but we're optimistic about pricing and hope to have the building sold by mid-year.

Now let's talk about the third key area of progress -- our return to offense.

The key driver behind all these sales efforts is the opportunity to reinvest these proceeds in compelling acquisitions and development.

That was certainly the case in 2011, as we announced $239 million in gross new investments.

As I mentioned earlier, our core focus is Class A office assets that are well-placed within high-growth Sun Belt markets.

Our November purchase of Promenade, a 775,000 square foot Class A tower in the excellent Midtown Atlanta location, falls within this category.

Our team has wasted no time getting to work, executing four leases totaling 32,000 feet in our first 30 days of ownership.

Tenant interest continues and we are optimistic about more progress in 2012.

I'd like to note that while Promenade is a value-add opportunity, we are open to acquiring a more stabilized core asset that brings other opportunities, such as a strategic tenant relationship or a complementary development pipeline, particularly if this asset as well-located, high-quality, and in a market we like.

I'll also add that while Promenade is in Atlanta, we still intend to decrease our overall exposure to Atlanta over the next couple of years.

Our roots are in Atlanta and we will always be firmly established in this market.

However, we are focused on increasing our presence in Texas, North Carolina and other Sun Belt markets where the long-term demographic and economic outlooks are especially attractive.

We will also continue to seek additional returns through opportunistic investments.

These investments are less dependent on any particular property type or market.

Emory Point, Mahan Village, and University Square are good examples.

As a reminder, Emory Point is a multi-phase, mixed-use development adjacent to Emory University and the Centers for Disease Control in Atlanta.

The $102 million Phase I phase consisting of 443 apartments and 82,000 square feet of retail broke ground last summer, and is scheduled to open this fall.

Emory Point is an outstanding infill opportunity in a high-demand, supply-constrained submarket.

The wait list for apartments already has more than 325 people.

Gables, our partner on the project, has never seen such a high level of interest at this stage of construction.

The retail portion of the project is also progressing well at nearly 80% committed.

Phase I is going so well that we've begun predevelopment work for Phase II, which is expected to be comprised of 240 additional apartment units and 40,000 square feet of retail space.

If things remain on track, we expect to start construction for this $60 million phase in 2013.

We also began construction late last year on Mahan Village, a $25 million Publix supermarket anchored development in Tallahassee, Florida.

We are on schedule for a successful fourth quarter opening with over 80% of the space already leased.

In 2013, we also expect to break ground on Phase I at University Square, a mix-use development adjacent to the University of North Carolina at Chapel Hill, another outstanding infill opportunity in a high-demand, supply-constrained submarket.

The first phase is expected to have a total cost of approximately $70 million to $80 million.

These are all excellent examples of off-market, opportunistic investments.

So, in summary, we're very pleased with our fourth-quarter results as well as the progress we made throughout 2011.

Moving forward, we'll continue to work diligently to lease space, sell our non-core assets, and source attractive investment opportunities.

Cousins is a far simpler, more efficient company than in recent years past.

We're confident that our shareholders will benefit from a tightened focus on what we do best -- trophy office assets in markets we know well, and the generation of additional returns through opportunistic investments.

In closing, I'd like to thank all of you who made the trip to Atlanta for our Investor Day last month.

We enjoyed having everyone on our home turf and the opportunity to take everyone through several of our assets firsthand.

I was also glad you had a chance to meet the members of our management team that aren't able to join us at various investor conferences.

For those of you all who were not able to attend, we invite you to come any time.

With that, I'll pass it on to Gregg for an overview of the financials.

Thanks, Larry.

Good morning, everyone.

Excluding the non-cash impairments Larry just reviewed, we had a solid fourth quarter.

FFO was $0.16 per share, which is up from $0.14 last quarter, and it's our best three-month number since the second quarter of 2009.

So what's going on?

First and foremost, we are leasing up space.

As Larry said, we signed 1.9 million square feet of leases this year, and these leases are translating into increased NOI.

At 191 Peachtree alone, our headquarters building here in Atlanta, NOI increased from $3.2 million in the first quarter of this year to over $3.9 million in the fourth quarter -- that's $700,000, or $2.8 million annualized in growth this year alone from 191.

For perspective, that's $0.03 per share in FFO.

Clearly, leasing up our large properties can move the needle.

Another reason for our solid quarter was a land sale at our North Point development here in Atlanta for a gain of $2.6 million.

This is a true gain off our regional basis that was driven by a rezoning we successfully completed earlier this year.

This sale clearly illustrates the value our development team can create.

Finally, I'd like to draw your attention to our G&A expenses.

For the year, G&A was down 15% from 2010.

It's down 23% from 2007.

Although this is a significant decline, the full story of how much leaner and more efficient we are reveals itself when you look at our gross G&A expenses.

This is the number prior to any capitalization.

Using this number, our true G&A expenses are down 43% from 2007.

Net G&A now represents 1.3% of our total undepreciated assets, and we've accomplished this while leaving our value-add capability intact.

As Larry said earlier, we have two active developments underway with an attractive pipeline behind that.

You may have also noticed that we've added an additional table to our earnings supplement this quarter.

It's a Same Property Leasing and Occupancy table, and it sits right in front of our Same Property NOI table.

For the fourth quarter, our same property portfolio was 90% leased and 90% occupied.

Same property NOI on a GAAP basis was up 3.7% in 2011 over 2010.

As we move toward a simpler, leaner strategy in property portfolio, same property performance will increasingly influence our financial results.

We want to make sure our investors have the information they need to analyze our performance.

Hopefully, you find this new disclosure helpful.

Before moving past our financial results, I want to address a question I'm sure several of you are waiting to ask -- what happened to the property-by-property basis information in our earnings supplement?

We're not trying to hide anything.

Rather, our decision to exclude this detail was based on our goal of maximizing value in these facets for our shareholders, as we aggressively move to sell them.

There's the potential that disclosing our new fair market value for each asset might somehow negatively affect the marketing of these properties.

To reduce this risk, we have excluded this information from the supplement.

We have, however, added a schedule on page 24 of the supplement that summarizes the actions that we took around values and ties back to the earnings statement.

Moving on, there are a couple of large capital markets transactions that are in process that I'd like to bring to your attention.

First, we've received the lender commitments and anticipate closing on a new unsecured credit facility in the next few weeks.

Our current facility doesn't mature until August, but we decided to take advantage of the current liquidity and pricing in this market, and recast our line early.

I'd like to wait on disclosing the details of this new facility until we actually close, but rest assured, we'll file an 8-K with the entire agreement once closing is complete.

Also, we have locked rate and are in the process of closing a nonrecourse permanent loan for 191 Peachtree.

The closing of this loan is scheduled a bit later than the new credit facility, but we should have details to share with you right around quarter-end.

191 Peachtree is currently unencumbered and in a position to obtain attractive debt.

There's ample liquidity in the capital markets and rates have been low, so we moved to match-fund a long-term asset with a long-term liability.

This has been our plan with 191 all along.

With that, let me provide introductory guidance for 2012.

Before I start, 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.

So let me start with the office properties.

At Promenade, our new acquisition, we are expecting a quarterly NOI run rate of about $1.75 million in the beginning of the year, increasing to $2 million by year-end.

Obviously, this number is subject to wide variability depending upon how quickly we're able to secure additional tenants.

With several tenants now taking occupancy at Terminus 200, the quarterly NOI run rate should increase to the low 300,000's in the first quarter, escalating to the high 300,000's by year-end.

At 555 North Point, we expect a short-term drop in NOI over the next couple of quarters down to about $150,000 in the first quarter, as a major tenant moves out of this building and into Terminus 200, as Larry mentioned.

We've already released this space, and once the new tenant moves in, we expect the run rate to return to $400,000 per quarter, which should happen by year-end.

At Galleria 75, due to leasing success over the past few quarters, the NOI run rate has increased to $200,000 per quarter.

Now for the retail portfolio.

At Avenue Forsyth, the quarterly NOI run rate will increase to around $2.3 million for 2012 as a result of additional tenants taking occupancy.

The first quarter should show approximately $2.6 million of NOI, but this is related to a one-time accounting reversal.

Avenue Webb Gin experienced a few tenant expirations at year-end, leading to reduced NOI run rate of approximately $1 million for 2012.

That's all the property guidance we're providing at this time.

Again, other than these specific instances, historical performance is a good guidepost for future cash flows.

Regarding G&A expenses, the 2011 fourth-quarter G&A run rate is good for 2012.

As for fee income, we break it down into two buckets.

First, at Cousins Property Services, our third-party management and leasing business, we expect revenues for the year to be between $19 million and $20 million.

As is usually the case, this will be a bit back-end loaded, with the quarterly run rate starting around $4 million and ending around $6 million.

Our second bucket is the fees we earn outside of our third-party management business.

This is a smaller figure that should be between $10 million and $11 million for 2012.

A slight reduction for 2011, due to a decrease in leasing activity and construction management at Terminus 200.

This is actually good news, as it's a direct result of bringing that building to nearly 90% leased.

Quite an improvement, considering it was only 9% leased two years ago.

With that quick summary, let me turn the call over to the Operator for your questions.

(Operator Instructions).

Jamie Feldman, Bank of America Merrill Lynch.

I was hoping you could talk a little bit more about the impairments in the quarter.

Just kind of walk us through the process of how you got to these valuations.

And then if you could talk about demand for some of the parcels that you haven't announced sales.

Sure, Jamie, I'll start off and Gregg can add on.

First of all, the process itself has been painstakingly thorough.

We went through and actually hired a third-party company to go through every parcel of land we had, both on the residential side of the business and the commercial side of the business, and give us appraised values of that land.

We also went through a internal process of looking at the values.

Obviously, we didn't just accept the appraised values.

We gave them feedback and came up with something that we thought was probably the most accurate look.

We then looked at the land and said, well, if that's the appraised value today, what do we think that value is going to be three years from now, five years from now?

What type of capital is going to be required?

On the commercial side, how likely is it that development will occur on that land?

And if so, what kind of development is the highest probability?

So, just given the extent and diversity of our landholdings, it was a very broad effort but also a very deep effort.

In addition to that, obviously, Deloitte, our auditors, were very involved in the process, as they always are, both on a quarterly basis and a -- and on the annual year-end look.

So I would sort of characterize the residential piece -- I would mainly look at the -- or we'd look at the residential piece really with three large buckets.

One is our CL/Temco JV, which I talked about in just in my prepared remarks.

And that's been a -- it cost us about $2 million a year just in carry.

It's generating about $1 million and it's come back to the current level where it's generating about $1.5 million in profit.

It's got future capital contribution and it's a long, 10 to 15-year horizon for the business.

It's not a core business to us.

It is to Fourstar.

And we also, in our venture with Fourstar, it wasn't an easy type of venture being 50/50 for us to really be able to break that -- sell that 50% to any other party.

But we've had a great relationship with Fourstar over the years.

I think we came up with a transaction that will be very good for both parties.

And I just consider that to be a huge win -- hopefully, for both us and for Fourstar, but I know for Cousins.

The other two components, really large components on the land are Blalock and Callaway.

If you just look at the size of the investment.

And just to characterize, both of those have been really dismal investments.

Like a lot of people, the Company invested -- both of those are second-home markets primarily when they were developed.

We all know what happened in the housing market in general and to second-home housing in specific.

And just looking at our sales and our pricing, it really was -- those two, even without a change of intent on management, we were going to have some impairments on those just because of what's going on in the second-home market.

But it's also similar to CL and Temco -- the second-home business long-term is not a business that we have a desire to be in.

And so that really is the large chunks of the residential.

On the commercial side, the biggest part of the commercial really is the industrial land, which once again, we got into the industrial business eight or nine years ago.

And the industrial market was -- has been very muted, particularly in Atlanta.

We were able to sell our Dallas land this quarter to Duke.

But we marked those to a part that we thought we would be able to meet the market and to where it currently is.

And then there's an assortment of commercial properties that, just going through this process, that we looked at and said, what do we want to do?

Do we want to hold them?

Or can we go on and sell them now, if it's something that we think the value is there, and there's not a development opportunity or a lot of appreciation to do?

And then the last bucket I would add is there are two -- what show on our schedules as operating properties.

But actually -- and those two operating properties are Galleria 75 and Cosmopolitan Center.

Those operating properties are actually one and two-story buildings, both Galleria 75 and Cosmopolitan -- not typically the type of assets that had been part of the Cousins portfolio.

And although those are listed as operating properties, the main motivation for when the Company bought those was for their redevelopment potential.

So they're operating properties in the short run, but the value that we bought those at was based upon the long-term development opportunity of tearing them down and developing something else on those sites.

Just given where we are in the cycle in this process, we determined that the long-term development potential was sufficiently far out that we thought it was a better move financially for us to try to harvest those two assets.

So, sorry for the long-winded answer, but you really -- we looked at it with a commercial bucket, CL and Temco with Fourstar, and then Callaway and Blalock being the big pieces; the commercial piece by piece, the industrial being a good part of it; and then the two operating properties.

Gregg, I don't know if there's anything you want to add to that.

Yes.

I think that was pretty thorough.

Okay.

And then I think in your comments you had said there were some that you expect to rise in value in coming years.

Which assets are you talking -- which land are you talking about?

And how did you decide on that mark?

Well, a lot of it just -- we don't plan on carrying much land.

I mean, by the time we get through with this recycling, just to give a goal we have, we're probably talking about total landholdings for Cousins being in the $30 million range plus or minus.

So when we looked at certain landholdings, a lot of them had to do -- they're really consistent with our strategy.

They're the more infill sites.

They're sites that we see that the redevelopment or development of those are more consistent with our desires in terms of what we develop in the future.

Just to pick one as an example would be Research Park in Austin, Texas, which is the final site of a existing development that we've done.

We've sold the buildings off, but we've got four buildings there, and Austin is a vibrant market.

And we think that would be -- that's a site that's got a high probability of us developing on it.

There are a handful of other sites, relatively small, that we think we looked at it and we said, we just -- we don't think it's prudent to sell them at this time, because we do think the market will come back in the next three to five years, and there will be a better time to harvest.

But there's not a lot of that.

We really are aggressively moving towards more of that $30 million goal.

But those sites, were those not impaired?

Or those were impaired also, to what you think is market value?

There were certain sites that we looked at that did not have impairments.

I mean, when we went -- it wasn't like every single site was impaired that we had.

Certain sites when we went and looked at them were at or above what the appraisal numbers came in at.

If you look at our portfolio, some of the sites had very little basis in them.

Okay.

But it sounded like if you weren't -- if you're not -- if there's something you think you can still develop but it's on your books above market, you still would have impaired it?

Or are there some that's still out there at above market value or appraised value?

No, I think, this was very thorough.

So we go through and we look at -- there's sites in existing developments we have, future pads that you would say may be a development opportunity for us.

Some of those sites were impaired.

So we didn't go through and say, we're going to have certain land assets that we're going to exclude from this analysis.

We asked the third-party in Deloitte, they looked at every single piece we had, whether we intended on holding it, developing it or whatever.

Okay.

All right.

Thank you.

Brendan Maiorana, Wells Fargo.

I wanted to follow up on the land a little bit.

What value -- where do you guys think you are at the end of the year, given you've got the sale to Fourstar, and then you took aggressive write-downs on Blalock and Callaway.

So does that mean that there's something that's likely in process there?

Do you have a good indication of value?

And where do you think you are on your residential lot holdings as you get towards the end of 2012 and then maybe at the end of '13?

Well, you know, the market, we never know what the market is.

There are some parcels on the commercial side that we have under varying forms of contract that we think will proceed and be sold.

Some of the commercial land -- the big ones being Blalock and Callaway.

Blalock, with this action that we've taken this quarter, we will be marketing Blalock and looking to sell it as quickly as is prudent.

But we don't have -- on every single parcel that we're planning on selling, we obviously don't have contracts on all of them.

But, Brendan, I would tell you that on some of these -- and Blalock would be a good example.

It really was a challenge for the appraisers to appraise it, because there's just not been a lot of liquidity, in terms of similar type of second-home developments that have cleared the market and very little comps in the area.

But we took that into account in the way we looked at it.

The auditors took that into account the way they looked at it and the appraisals did the same thing.

So, we will be aggressive now that we've taken this step -- to get the benefit, we'll be aggressive on moving the land out as quickly as we can get it marketed and sold.

And we certainly have worked hard to make sure that the values that now are on the books with these impaired things reflect that.

And Brendan, it's Gregg.

Maybe this will help as well in addition to Larry's comments.

The strategic decision to change the intent on these land parcels was not made until after year-end.

So if you look at our balance sheet, really, there's nothing held for sale at December 31, because the decision to change it wasn't made until after December 31.

But now that the decision has been made, you will see the assets start to be held for sale -- March 30, June 30, September 30 -- which will give you, I think, a much clearer indication of kind of the pace at which we're moving forward with this.

Okay.

That's helpful.

And then I wanted to follow-up on Temco and CL.

I mean, for a venture that's profitable, and for a venture that has most of its assets in Texas, which is your better market, to take a haircut by 50% seems like a lot.

I mean, does that suggest that then Atlanta markets are significantly higher than that on the resi side?

It just seems like it's a big swipe to that venture.

Well, I think the -- first of all, when you looked at that transaction, the Georgia component of the assets took a much more significant mark in the appraisal process.

And there are certain developments in the Georgia part of the venture -- the Georgian, for instance, where that development -- which I can't remember how many lots it has, but I think it's about 1,000 ultimately -- I think it sold fewer than five lots in the last three years.

So, as you can imagine, as the appraisers looked at some of this, and Fourstar and ourselves did our valuations, the Georgia side of it took a much more significant mark.

The Texas part of it is more healthy, but that was taken into account as well.

And at the end of the day, I think if you look at our 2011 sales, lot sales, 90% of them were from Texas.

Most of that land in Texas also was bought since 2000, so it reflected more of the current market.

It wasn't long-held land in terms of its basis.

And when you looked at that with the 400-plus lots we sold this year, we had $1 million -- on the Cousins' side of the ledger, we had $1 million -- $1.5 million of profit and $2 million of carrying costs.

So in reality, it wasn't profitable for us when we flow through the operating costs and carrying costs as well.

And then when you look at the future capital cost to it -- I think you'll find over time that this is a very compelling transaction for Cousins.

(multiple speakers) Okay, that's helpful.

And Brendan, (multiple speakers) just to clarify one point, we keep saying carrying costs, we've said it several times, that excludes interest expense.

So we're not assigning any interest expense to those carrying costs.

That's homeowners' fees, property taxes, maintenance.

Yes, okay.

That's helpful.

And then, Gregg, just one more for you.

The $2 million run rate at Prom II by the end of the year, what does that indicate for occupancy for that property?

Brendan, I don't have that in front of me in.

We'll get back to you with that.

Okay.

All right, great.

Thank you.

John Guinee, Stifel.

Okay, well, congratulations, guys.

Just a couple of questions.

I think you mentioned at the Investor Day that you're going to sell -- your retail is about $400 million and that will be -- serve as a source of capital.

And then Aaron just told me that he thinks you can probably borrow $130 million, $140 million on Peachtree, 191 Peachtree.

Does this imply that you don't -- but at the same time, your debt plus preferred is in excess of 50%.

How does that all come together in terms of going back to the equity markets?

The plan does not anticipate, John, going back to the equity markets.

As you just laid out, we've got ample sources of liquidity on a leverage-neutral basis for our future cash flow -- sorry, for future investment needs.

So, nowhere in our numbers, as I sit here today (multiple speakers) --

And it's all leveraged interest.

-- do we anticipate going back to the capital markets.

And our strategic plan is absolutely leverage-neutral.

Okay.

But you still seem to be a little bit high when you look at debt plus preferred to EBITDA.

And if you peal off some of the stabilized retail assets, does that put you under any pressure for a different source of debt metrics?

No.

I mean, we're in complete compliance with all of our line covenants; we're in compliance with our future line covenants.

And debt plus preferred to total undepreciated assets, which carves out our share price movements, is 45%, 46%.

And debt, excluding preferred to total undepreciated assets is 37%.

Got you.

Okay.

Well, thank you very much.

Nice job.

Sloan Bohlen, Goldman Sachs.

Maybe I'll ask John's question just a little bit differently.

From a sources and uses perspective going forward, can you lay out maybe what your CapEx requirements are over the course of this year, as it relates to leasing up Promenade, as it relates to some of the development projects that you're working on?

And are we to understand that none of the proceeds from selling either land or other non-core assets would go towards, I guess, matching those funds needed?

We don't provide CapEx guidance, but we have signed, as we just outlined in the prepared remarks, almost 2 million square feet of leases in 2011.

And we have to move those people in.

So you can obviously project that forward.

In terms of uses and sources of capital, the cash flow that our properties will generate post-CapEx -- so FAD or AFFO, if you want to call it, are adequate to service our dividend.

So, any proceeds that we receive from the disposition of properties will go toward new investments.

Okay.

So just to make sure I'm hearing that correctly then, the proceeds from what you sell, we can expect that the vast majority of that goes towards new acquisition as opposed to gets pumped into existing CapEx requirements?

You can assume all of it.

All of it.

Okay.

That's helpful.

And then just quickly on Promenade, can you give us a sense of where market rents are in Midtown?

And what your expectations are for occupancy hurdles over the course of the next year or two?

Well, when we completed our acquisition, the basis of which we were able to buy the building and where the market is, we clearly did the transaction feeling like, with our sponsorship, it put us in a very attractive spot.

I think just being able to show 32,000 feet in the first 30 days is a testimony to that.

We think that the -- well, the actual market in Midtown today is not a lot different than Buckhead.

The office rents would be about the same.

So that would put the office rents in the high-teens on a net basis, and a little bit higher than that for brand-new space.

And our prospect list in terms of Promenade, we have done a lot of research on the depth of the market.

And in terms of prospects, we feel very good about where we are.

We think we'll have some nice announcements to make, in terms of additional leasing demand there in the next couple of quarters.

And we're going to be aggressive about filling that building up in the next two to three years.

And we feel very good about our ability to do that.

And all in, when we do that, our basis, all-in basis will still be well below $250 a foot.

That building would cost every bit of $350 a foot to put up today.

So we feel very good about Promenade.

Okay.

Thank you, guys.

Michael Knott, Green Street Advisors.

It's Jed Reagan here with Michael.

Wondering if you can talk a little bit about how you're seeing fundamentals trending in your core markets?

And with respect to Atlanta, specifically, what's the job growth picture looking like?

Well, there's no question, as we talked when you guys were here, that Atlanta has been through a tough stretch.

The unemployment numbers, which were in the 10.5% a year ago, are down to the -- between 9% and 9.5%, but 9% to 9.5% are still very, very high unemployment numbers.

Job growth, in terms of last year, was flat.

And the good news is, is as we looked at the various forecasters in terms of job growth coming up, and we spread that over our markets -- our markets that we track every day being Atlanta and Austin, Houston, Dallas, Charlotte, Raleigh, Durham -- the forecast in terms of job growth from '12 to '16, Atlanta is at the upper end of that, in terms of forecast.

Most of the folks have it in the 3.8% job growth range.

So that would be right up there with Austin and others.

So the local forecasters here are predicting that next year, whereas job growth was flat this year, would be more in that 30,000 to 40,000 jobs.

But some other folks have it at a little bit more aggressive than that.

So Atlanta still continues to lag.

What we're seeing, just in terms of our daily activity in the market with leasing, it has picked up.

And we're beginning to see some new companies to the market as well as some expansions.

But it's still a very competitive market, just as we look at it in terms of the next few quarters.

It will continue to be a tough market -- although with our assets, we obviously like where we sit.

Okay.

Thanks.

And then of the remaining markets, where would you say fundamentals are the strongest or weakest?

Well, if you just look, obviously Texas just remains very, very strong.

Austin is -- job growth numbers are strong.

Overall vacancy in Austin today is in the 11% kind of range; Houston, 12%, 13% vacancy.

Both of those have over 3% job growth projections.

Dallas/Fort Worth, which has higher job growth -- which has high-growth -- job growth continues to have sort of mid-teen vacancy.

Raleigh/Durham continues to be a strong market with relatively low vacancy and over 3% job growth.

Charlotte certainly is a laggard in the crowd, and we're not as focused on Charlotte as we are those other markets.

Okay.

Thanks.

Could you just talk a little bit about your outlook for investment deal flow in your core markets?

Are you seeing any pickup in opportunities there?

That's a good question.

In reality, the first is we expect -- December and January are traditionally slow, in terms of folks are focused in December on getting stuff closed; and January, folks are reloading.

So it's been a little bit slow so far this year.

But actually the pipeline of opportunities that we'll be looking at in the next quarter or two is pretty encouraging.

And so we'll have to see how everything prices out.

We'll remain very disciplined in our pricing and focused on the right assets in the right geographies.

But there will be ample opportunities in terms of deal flow.

Great.

That's helpful.

Thank you.

You bet.

Anthony Paolone, JPMorgan.

Gregg, thanks for the color on the interest savings not being in that carry cost on the land item.

But I was wondering if you could just point us to or detail a little bit more those carry costs, where they show up on the income statement, so we kind of understand where they're coming out?

Or are those all being capitalized?

How does that all work?

No, they're not being capitalized.

They're running primarily through the income statement.

Let me flip to the income statement, Tony, and point you in some of the directions.

I'm looking at our consolidated statement of operations in our earnings supplement right now, Tony.

And they flow through -- a lot of them flow through in the Other Expense category.

It was $2.1 million this year.

That takes care of property taxes flow through there; pre-development costs flow through there.

So a lot of that would flow through there as well.

Some of them are capitalized.

I think some of the planning in longer-term strategic stuff is capitalized.

Beyond that, Tony, I'd have to get back to you.

Okay.

But -- so when we think about these landfills occurring over the course of this year and next, I mean, do we assume that the bulk of that line item really goes away?

Or are there some other stuff in there that probably stays?

And then the interest savings are, obviously, on top of that?

Yes.

Both of what you just said is correct.

Okay.

Thanks.

And my last question is on Emory Point, you outlined Phase II.

Just refresh us on the potential total size of the project.

And is there anything beyond that?

Well, the Phase II is about a $60 million phase.

If we -- and on Phase I, and we would anticipate doing this on Phase II as well, we did put a construction loan on it.

We were able to get about -- we were able to get 65% loan to cost on that phase.

On Phase I, we had Gables as our partner.

We have not finalized whether they would be our partner on Phase II, although there's some logic to having that continuity.

They were 75/25.

So if you sort of assume the same thing, you could back in to what the equity contribution would be in terms of Cousins on Phase II.

There actually is a Phase III as well.

And the Phase III is in the $80 million range.

So that would be the next two phases of Emory.

And do you -- it seems like the demand for the apartments is quite strong.

Do you have the ability to accelerate that piece of it, given the demand?

Or does the way it just physically lay out has to go in that sequence?

No.

We actually can accelerate the phases to meet the demand.

And the main thing that we want to do on Phase II, the apartment demand is clearly there.

And we actually have had just phenomenal success on the retail leasing side.

We're just under 50% signed leases now and 80% of the space is committed.

But we'd like to get a little bit of operations up and running on the retail side, so that we make sure to tenant the second phase with the appropriate retailers, based upon our experience on the retail on Phase I.

Okay.

Thank you.

Dave AuBuchon, Baird.

Just a few questions left.

Timing on the sale to Temco, is that a Q1 event?

We would hope that it closes late Q1, early Q2 or sooner.

Okay.

(multiple speakers)

We have a firm contract on that, David.

Yes, it's under contract.

Okay.

And they've gone higher with the deposit in the latter?

There's not a deposit, but it's a binding contract.

Okay.

Related to Promenade, Gregg, did you say that $1.75 million NOI -- was that a Q1 number?

That's correct.

Okay.

And that primarily is comprised, I'm assuming, of the space that was already leased when you bought the building plus the 32,000 square feet or so that you've leased subsequent to your purchase?

It's actually -- I think it's just the existing space because the 32,000 doesn't kick in until mid-summer.

Until they start to move in, which I believe is late spring, maybe summer.

Okay.

So that the increase from Q4 is purely related to the timing of your purchase?

Most of it has to do with proration.

Yes, we didn't own it for the first -- for the full quarter in the fourth quarter.

Right.

Okay.

And then I know you, Gregg, you said to look for the 8-Ks on some of the financings that you're doing, but can you provide at least some guide posts to sort of what you're looking for, in terms of size and term potentially on Peachtree and the facility?

On the facility, our current facility is a $350 million facility.

So you should anticipate something right around there.

And then in terms of pricing, you'll see pricing come in, depending upon what you think is significant -- I see it as a significant improvement in pricing.

And then in terms of term, the standard out in the market right now is a four-year term with a one-year extension option.

So we're going to be right in that ballpark.

We've gone down the center of the fairway as best we can, considering our strategy on that.

And I think our pricing proves that up.

I'm really encouraged and excited about closing that new facility for us.

(multiple speakers) And what about Peachtree?

And then in Peachtree, we've locked rate, Dave.

We locked rate a couple of weeks ago.

I think we've got a terrific deal.

But we've got a lot of stuff to do between now and closing.

I'd prefer to hold off on that until we actually close the deal.

Very good.

Thanks.

Brendan Maiorano, Wells Fargo.

I had a quick follow-up.

Does Fourstar have any right of first offer, right of first refusal on additional land parcels that you guys have?

Or is this agreement just in and of itself an isolated agreement?

This is the agreement.

There's no tail.

No, it does -- I don't want to get too deep into the details.

It does tweak the joint venture agreements on the remaining assets and the remaining two joint ventures that we have, Temco and CL Realty, where it starts to tweak kind of the buy/sell or the ability to unwind those quicker than we currently have, which is a net positive for us.

But in terms of it providing any type of purchase option for them, it does not.

Okay.

And then I think you gave this in your response to Dave's question, but I notice that Fourstar put a shelf -- filed a shelf today, but there's no financing that is contingent upon this transaction?

I mean, this agreement is a binding contract?

No, there is no contingent financing.

And basically, Brendan, at the end of the day, the only assets that we have after this transaction closes with Fourstar are three assets, two of which are just landholdings, and one is a golf course that's leased to a third-party.

So there's not a lot of assets left once this transaction takes foot.

Sure, great.

Okay.

Thank you, guys.

(multiple speakers)

And plus we maintain the mineral rights in the venture.

Okay.

And how much does that give you guys a year -- kind of rough ballpark?

I think last year the mineral rights were somewhere around $1.5 million.

Okay.

Okay, great.

Thanks.

You bet.

Jamie Feldman, Bank of America Merrill Lynch.

Can you just talk a little bit more about the investment landscape in North Carolina and in Texas?

I know you said you want to kind of shrink your Atlanta exposure and grow in those markets.

I'm just curious what's out there.

Well, we're obviously -- and the reason we picked those is we have offices there.

So we like the Raleigh-Durham market.

We're doing this deal with Chapel Hill.

Now, once again, our focus is, in terms of acquisitions, is not on suburban product.

So we're primarily looking in downtown Raleigh.

And we certainly consider downtown Durham to be a positive market.

Its vacancy rate is actually in the single digits.

And then -- and so there's some activity there.

And in Houston, Dallas, and Austin, once again where Dallas and Austin, we have a presence.

We've been spending a lot of time in Houston the last two years.

There was a fair amount of activity in 2011.

We got close on a couple of deals but we didn't get there on them due to pricing.

But we think there's some really good prospects.

And our primary focus is on Austin and Houston.

A little bit secondarily in Dallas, although we are looking there.

But there are a fair number of assets that are in the pipeline that are supposed to be trading in the next couple of quarters.

And these are also CVD type assets, CVD office?

We're -- however you define CVD, but they're the urban type of deals versus the suburban.

So these would be mid-high-rise to high-rise -- similar to what we own in Atlanta.

Where we think that we can buy that type of asset at a discount to replacement cost, and then use our -- just our expertise on managing and leasing those things up to create value.

That's where we're focused.

And this is on the office side you're talking, not retail?

Yes, this is office.

Most of our acquisition -- 95% of our activity in terms of acquiring existing product is on office, will be on office.

Okay, thank you.

Thank you.

Mr.

Gellerstedt, there are no further questions at this time.

I will now turn the call back to you.

Well, we appreciate everybody's interest.

We consider this a great year for Cousins.

The quarter and the year were fantastic.

And I think if you look at the progress of the Company in terms of our strategy, the land is a very significant milestone for us in terms of taking the next step in that strategy.

And we'll be available, as always, for questions, and look forward to them when you have them.

Hope everybody has a good day.

Thanks.

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.