Cousins Properties Inc (CUZ) 2012 Q3 法說會逐字稿

Good day and welcome to the Cousins Properties, Incorporated third-quarter 2012 earnings conference call. Today's call is being recorded.

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

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, 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 risk 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.

And now I'll turn the call over to Larry Gellerstedt.

Good morning, everyone. First, I'd like to let all of our friends up the Eastern Seaboard know that you've been very much in our thoughts this week. We hope that you and your families weathered the storm without any catastrophic damage and that the pending recovery process goes as smoothly as possible. Times like these certainly put things in perspective for all of us.

With that said, let me give a few thoughts on our business. Our third-quarter results, with the sale of a noncore business unit, agreement to sell two of our largest retail assets, the acquisition of a strategic trophy office tower in Texas, and another solid performance from the operating portfolio demonstrate continued progress across the board.

The operating performance is best exemplified by a 4.1% increase in same-property NOI through the first nine months of 2012. This uptick is even more impressive on a cash basis at 10.2%. Moving forward, as we've said often, our portfolio will be increasingly comprised of Class-A office assets that are well placed within high-growth Sunbelt markets where our expertise and long-term relationships are competitive advantages. Further playing to our strengths, we are using this stable platform to seek additional returns through opportunistic investments. Operationally, as we work to execute this strategy, we remain tightly focused on simplifying the platform, capturing NOI embedded within our portfolio, and executing on investment opportunities.

The first of these, simplification, should serve to further remove the NAV discount from our shares. The latter two, embedded NOI and investments, should drive future NAV growth, both organically and externally.

First, let's discuss simplification. Aside from its positive impact on valuation, the ongoing simplification of the platform provides two important benefits. First, it enables us to operate more efficiently and to focus where we are strongest. Our ongoing G&A reductions and positive same-property NOI performance provide a clear illustration of these benefits.

Second, the noncore asset sales associated with this process are the primary source of capital for our investment pipeline. With that said, we made another big stride in the third quarter with the sale of our client services business to Cushman & Wakefield. As a relatively small regional player in this sector, we were finding it increasingly difficult to compete against the global players who could offer clients a far broader array of services. And, while this business did not comprise a significant portion of our income stream, it did comprise a significant portion of our infrastructure, with over 120 professionals.

Thanks to the high quality track record of these professionals, whom C&W was thrilled to bring on board, we managed to capture an attractive multiple with a little better than 5 times forward EBITDA. We were particularly pleased with the pricing considering that Concourse, the largest property in the third-party portfolio, was sold to an outside operator during the marketing process.

In summary, this transaction enabled us to exit a noncore business at a healthy valuation, reduce overall costs, and further tighten our focus on our core business.

On the retail front, we entered into contracts to sell two of our largest remaining lifestyle centers, Avenue Webb Gin and Avenue Forsyth, and expect these transactions to close before year end.

Our land disposition initiative continues to proceed on schedule. Earlier this month we sold Cosmopolitan Center, a redevelopment site on the north side of Atlanta, for $7 million. We expect to close on the sale of our site at 615 Peachtree Street in Midtown later today. Upon closing that transaction, we'll have sold over $50 million in land and residential holdings year to date and expect to exceed our goal of $60 million by year end. By 2013 we expect to have less than $50 million in land holdings, amounting to less than 3% of our gross assets. It's important to note that these dispositions are generating a significant amount of capital, leaving us very well positioned to capitalize on opportunities in the quarter ahead, which I'll discuss further in a moment.

Now the second item, embedded NOI. The operating portfolio is in good shape at 91% leased on a same-property basis. However, there is still significant opportunity for cash flow growth within four large office properties. On the last call, we ring-fenced three office assets, 191 Peachtree, Promenade, and ACSC to help quantify the impact of leasing our space. We're adding 2100 Ross to this group this quarter and we believe that taking these four assets to 90% leased would generate approximately $13 million of additional NOI. For a company of our size, the impact on both FFO and NAV is substantial.

Now, a quick update on those key assets -- 191 Peachtree continues to show progress, finishing the quarter at 87% leased, up from 80% one year prior. This asset was just 82% occupied at quarter end, meaning we've captured some additional NOI that will come on line as the newly signed tenants take occupancy in the coming months.

At Promenade we remain ahead of pro forma on both leasing volume and rates, and momentum remains strong. The building is now 72% leased, up from 58% at the time of purchase at the end of last year, with a solid pipeline of prospects. We're finishing up the $8 million capital improvement project, which includes a fitness center, bistro, and a significant rework of the entrance area, and upgrades are getting very positive feedback from both existing and prospective tenants.

One additional point regarding Promenade -- earlier this year we made a decision to execute a significant renewal extension with one of our largest tenants. As part of the agreement, the tenant gave back one of four floors, which eroded occupancy by about 3%, but extended their lease for an additional 8 years to 2024. This brought the average remaining lease term at Promenade to over 8.5 years. Our high level of confidence in leasing this building enabled us to make this move. And I'm happy to report that subsequent to the end of the quarter that we've already backfilled the vacant floor.

At ACSC we continue to pursue a handful of both data and office prospects, but nothing appears imminent at this time. This building, with 130,000 square foot floor plate, caters to very large tenants, making the timing a bit tougher to handicap. However, we continue to like our chances, due to the building's attractive location, uncommon infrastructure, and overall value proposition.

Moving on to the third item, executing on investment opportunities -- we're primarily focused on acquiring high-quality, urban office assets well located in the best submarkets, at valuations below replacement costs. The remainder of our investments are more opportunistic in nature and less property-type specific, where we have an opportunity to create value through our development expertise. These are typically nonmarketed, relationship-driven projects.

We have a robust investment development pipeline in place and are diligently working to source additional opportunities. The potential value creation associated with the existing pipeline alone should have a considerable impact on forward NAV.

Our third-quarter acquisition of 2100 Ross Avenue, an 844,000 square foot Class-A tower, located in the Arts District submarket of Dallas, is a perfect example of what we're targeting. We purchased this 67%-leased building at a foreclosure auction for a net purchase price of $59.2 million, or $70 per square foot, for an asset with a replacement cost well above $300 a square foot.

Most importantly, the building is generating a going-in yield above 8%, with significant upside upon further lease-up. Similar to Promenade, we're implementing a comprehensive capital improvement plan that should greatly enhance the tenant experience. We also intend to leverage the building's location, adjacent to Dallas's leading cultural venues and the new 5.2 acre Klyde Warren Park, which now connects the Arts Districts to Uptown Dallas.

I was in Dallas just last week and although we've only owned the building for a little over a month, the shift in momentum is clear. Tenant traffic is up and the pipeline of prospects is strong.

The development pipeline also continues to show encouraging [process.] At Emory Point, both apartment and retail leasing continues to exceed expectations. The first 100 apartment tenants have moved in at more than double the projected pace of absorption. We expect the next big uptick in leasing to come early next year, when we're beyond the holiday season and. perhaps most importantly, the construction will be complete.

The retail portion of the project is 87% committed, with only 4 vacant retail spaces remaining. The retail team is being selective with the remaining space to ensure we get the right tenant mix.

Mahan Village, our Publix-anchored project in Tallahassee, opened a few weeks ago at 87% leased, and we expect to have it over 90% leased by year end. This center is located in an infill location, with Publix relocating a high performing, but smaller and outdated, store from across the street. Just as a reminder, this was an opportunistic relationship-driven investment, where we stepped into the position of the original developer. With the completion of Mahan, we have now accumulated off market a portfolio of 5 Publix-anchored shopping centers, generating a solid return.

Looking further ahead, we're optimistic about the prospects for Phase II at Emory Point, which is expected to comprise 240 additional apartment units and 40,000 square feet of retail space. If the predevelopment process remains on track, we'll commence construction for this $60 million phase in the first half of next year.

Our $100 million mixed-use development at UNC also remains on track for a late 2013 commencement.

Third and Colorado, our proposed $130 million office tower in downtown Austin, continues to move forward as well. The pipeline of prospects is strong, and tenant feedback has affirmed that we have the best site and a great design. The biggest challenge is getting firm tenant commitments two and a half years in advance of occupancy. We're pushing hard and hope to be in a position to commence construction in the first half of next year.

Austin remains one of the strongest markets in the nation, with unemployment now down to 5.3%. Class-A vacancy in the CBD, where we see the best opportunity, is below 13%. Rates continue to trend at or above replacement cost, while vacancy continues to trend down. The CBD is a particularly tight market for users seeking contiguous space in excess of 20,000 feet, with only a couple of viable options currently available.

Now let me comment on our other key markets. Atlanta continues to surprise on the upside. Unemployment rate is down to 8.4% and looks like we'll be seeing around 40,000 new jobs this year. Both these numbers are far better than the experts were predicting. Atlanta has now fully regained all of the professional services jobs lost in the recession. Reflecting this positive momentum, the office market is on pace for its best year since 2006, with over 3.3 million square feet of absorption through the third quarter.

Dallas's economy also continues to outpace the nation with a significant margin, with unemployment down to 6.3%. Class A vacancy in the Uptown submarket where we're focused is in the low teens and projected to reach single digits over the next 24 months. As I mentioned earlier, we're particularly excited about the roll-over in the Uptown CBD markets over the next 12 to 36 months.

Houston is leading the nation in jobs and growth and, with single-digit vacancy in every submarket, it's home to one of the healthiest office markets anywhere. We continue to track Houston closely and hope to find some opportunities in the months ahead.

North Carolina is doing very well, too, particularly in the Raleigh-Durham market where we have been most focused. The momentum is perhaps best captured by Raleigh's unemployment rate, which has declined from 8.7 in September of 2011 to 7.2 in September of 2012. Class-A vacancy for the overall market is around 12%.

In summary, it was a very active and productive third quarter, with continued progress toward our strategic goals. We are focused intently on three things, all of which tie directly to our overall strategy -- simplification, capturing embedded NOI, and executing investment opportunities. The upside potential associated with these items is considerable and we believe will be the key driver of both short- and long-term results for our shareholders.

I'd like to point out in closing that this upside is juxtaposed against a very attractive overall risk profile. The balance sheet is rock solid, with leverage below 40%. The weighted average lease term in our portfolio is over 7 years. And the condition of our markets continue to steadily improve. Needless to say, we're very excited about the prospects that lay ahead.

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

Thanks, Larry. Good morning, everyone.

The third quarter continues a strong of solid quarters we've had throughout 2012. However, before I jump into the numbers, I thought it might be helpful to quickly review the handful of special items that were in our third-quarter results.

First, as Larry just discussed, we sold Cousins Properties Services, often referred to as CPS, during the quarter. The total potential sales price is $15.4 million, of which we received about 64% up front. The earn-out of the balance is dependent on driving fees at the properties included in the sale, as well as adding additional properties to the deal. With a few exceptions, the earn-out will be settled up a year from closing. We recorded a gain of $7.4 million during the quarter, and any additional proceeds we do receive will be recorded as additional gains as we receive them.

The second special item has to do with the participation interest we purchased in an acquisition we completed in 1999. In this purchase we assumed a development contract that entitled us to 50% of the proceeds, after debt, from the sale of Motorola's 1 million square foot campus in Austin, Texas. This project was eventually sold in 2008, generating cash of $27 million, of which we received $13.5 million, and an $18 million seller's note that had a laddered debt maturity between 2014 and 2016.

The buyer chose to pay off half the note, $9 million, early, this past quarter. This generated $4.5 million to us during the quarter, which runs through fee income on the earnings statement. There was also a $1.1 million commission associated with this transaction, with that expense running through other expenses, for net proceeds of $3.4 million. This is the number reflected in the special table in the earnings release.

Next, we took the last write-down on our Verde investment that was made back in 2004. As many of you are probably well aware, after protracted negotiations Verde agreed to a merger with Brookfield during third quarter at a gross price of $13.85 a share, or $13.45 net of a holdback. We had previously written down our investment in Verde down to the very bottom of a Verde-provided NAV range of $14.67 per share. This transaction resulted in an additional write-down of $488,000. And when the deal closes, which is scheduled for later this year, we'll be completely out of Verde.

Finally, we completed a strategic reorganization in the third quarter that resulted in net severance costs of $574,000. We anticipate an additional $1.1 million in severance costs in the fourth quarter, as the reorganization is finalized. This move is a direct result of the simplification steps that Larry discussed earlier. We anticipate this move, plus our sale of CPS, to lower our corporate G&A expense from the $25 million range in 2012 to the $22 million range in 2013, and our CPS G&A to move from about $18 million to $0.

To put this in perspective, we've now moved these two overhead line items from over $42 million in 2008 down to $22 million today. And as our current investment pipeline bears out, we've done this without compromising our ability to find and complete compelling off-market value-add opportunities.

Now for the numbers. For the third quarter, we earned $0.25 a share in FFO, $0.15 excluding special items. Performance was driven by solid same-property operating numbers and terrific lease-up at the Big 4, previously the Big 3, properties that we have ring-fenced and are laser focused on leasing up. As of September 30, we've signed leases representing a little over $3 million of the $13 million embedded NOI target that Larry talked about earlier, with about a third of this number actually captured in the third-quarter financials.

We also started to realize cash flow from our two new development projects, Emory Point and Mahan Village. The NOIs aren't terribly meaningful yet; combined these two assets produced $46,000 in NOI in the third quarter. But the cash flow is coming. Both projects opened with significant preleasing already in place. And as soon as we get these residents and these retailers in, cash flow will soon follow.

Overall, the balance sheet remains solid. Fixed charge coverage continues to move up. Leverage continues to move down. There are no unaccounted for near-term debt maturities, and our dividend is well covered. From a financial perspective we are well positioned to execute our strategic plan.

With that, I'd like to update the guidance for 2012. Other than the G&A guidance I just gave a bit earlier, we will provide 2013 guidance in the fourth-quarter earnings call. Before I start I want 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.

That being said, we only have one specific property-level update for our guidance, 2100 Ross Avenue in Dallas this quarter. We purchased 2100 Ross about one month into the third quarter. So the NOI in the supplement doesn't really provide an accurate guidepost. Going forward, we anticipate this property to generate about $1.2 million in NOI each quarter until we sign some significant new leases.

Also, now that we've sold our third-party business, we've deleted this line item from our income statement and obviously won't provide any future guidance. But just for clarity, the third-party results for the third quarter have been moved down into discontinued operations.

Finally, we I mentioned earlier, the $4.5 million participation interest we received in the third quarter ran through fee income, a line item for which we typically provide guidance. This participation interest was not included on our previous guidance and so I need to add it now. As a result, fee income in 2012 should move up from a range of $10 million to $11 million to a new range of $14.5 million to $15.5 million.

Other than that, I'm happy to report everything else continues to come in right on plan, and we have no other changes for 2012.

That being said, I do want to again briefly discuss the earnings implications of the capital recycling program we're in the midst of executing. Strategically it's very compelling. We're pleased with the results to date and I think many of you listening to this call are as well. But we've got more work to do.

In the near term, we have several assets under contract for sale that should close prior to year end, generating around $250 million in cash proceeds over just the next two months. Included in this number are proceeds from Avenue Forsyth, Avenue Webb Gin, and our Palisades office property in Austin, Texas, where our partner has notified us that he's exercising his purchase option. We also have several parcels of land that we'll sell before year end.

That's over 10% of our gross asset base, not an insignificant number. It's a lot of very powerful dry powder for us to use as we look at new investment opportunities. And, as Larry said earlier, we're excited with our investment platform. But it will take time to deploy these proceeds. We'll remain disciplined and we'll adhere to our strategy. But in the meantime, in addition to the performance of our existing property portfolio, please take into account our capital recycling activities as you generate your new earnings forecasts.

With that, let me turn the call back over to the operator.

Thank you. (Operator Instructions) Jamie Feldman; Bank of America Merrill Lynch.

I was hoping to talk a little bit more about 191 Peachtree and American Cancer Society, just kind of leasing prospects and what you guys are seeing in the datacenter space versus the office space.

I will tell you on American Cancer Society, we're seeing -- we began our remarketing effort to the data users earlier this year, and we're seeing a lot of interest from those users. And what we're not in a position to do is try to handicap exactly when those might convert to leases.

And what I would say that the users are finding is that the building is extraordinarily compelling in terms of its location and infrastructure. And that is generating a lot of interest. The timing issue is, some of these users, particularly the ones that are public in nature, are more used to owning their space than leasing space. And so it's taken a while to sort of work through those economics for them.

But in the meantime, the building remains very attractive from an office user standpoint as well. It's just it's different than your normal office building lease-up because of those 130,000 square foot floor plates, is your leases tend to come in big chunks and therefore the progress is a little bit more difficult to predict.

[In terms of] 191 Peachtree, I think you can see that we had great leasing momentum over the summer. And just to dial back, when we bought this building, it was at 20% occupied. And so we're now -- we'll move up to 87% occupied. And we've got existing tenants that are talking expansion. So we feel good about 191 Peachtree. I will tell you that downtown Atlanta the office market remains slow. It's not bad, but it's just slow relative to a Midtown or a Buckhead. And we're going to do some efforts to make sure that we work to keep the downtown market in front of the tenant rent brokers and others, because there's so much positive going on with downtown.

Okay. And then I guess a similar question on 2100 Ross -- what's the typical tenant that wants to be in the Arts District right now? Or do you feel like you have to kind of bring people to that market, or that submarket?

No. The market is very full. There's an article in one of the leading Dallas business magazines. I think it's called Big D, which would be appropriate for Dallas. But it features this park, this 5-acre park that spans the interstate and connects the Arts District, where all the symphony hall, the museums, and all those components in Dallas have been put in one location over the last couple of decades. It really connects the Uptown and Arts District market into one.

The occupancy rate in that market is very low and contiguous space is very hard to find. What's happening in Dallas is that some of the traditional Downtown tenants in the CBD of Dallas, if you look at the last 5 to 10 years, have generally been migrating out of the CBD to the Uptown Arts District model.

And so the 2100 Ross deal actually is a Main and Main location. It's just an older building that hasn't had sponsorship or capital improvements done to it in a while. But the largest tenant in that building is CDRE and you've got a very strong tenant roster. We just feel really confident that the combination of the momentum in that submarket as well as our sponsorship and some capital, that that will be a very, very compelling investment.

Okay. And then, finally, Gregg, in the press release you talk about further severance charges. Is that still related to the third-party management business? Or is there more going on?

No, the costs related with the third-party management sale were wrapped into the third-party management transaction. These costs are incremental to that. These are corporate reorganization costs, excluding the third-party sale.

Okay.

So what you've got going on there, Jamie, is that we've -- when the third-party business was sold there was some further corporate restructuring we were able to do. And those costs are -- some of them flowed through in the third quarter, which is what you saw. And the balance are some folks that will be here through the end of the year, and so their severance costs will flow through in the fourth quarter.

The good news is that really, after a couple years of really working all the cost structures we got out of these noncore businesses, is that we've really got the platform where we want from a cost and size standpoint on a go-forward basis.

Okay. And then, my last question is, I mean, Austin, I think you said you had the best site in town. We're hearing there's several potential developments there. How do we get comfortable that there's not going to be too much supply coming on line in that market?

Well, if you look at who's gone through the entitlement process is the best way to track Austin, because it's a very difficult city in terms of getting through the entitlement process. And if you look at who is at the tail end of getting their final check-offs, it's us and then one other building that's about 180,000 feet that's about exactly where we are. The other buildings that you hear talking about in Dallas are much further behind us in terms of their process and I would say are at least 9 to 12 months if they were to decide to start going today, would be my guess.

So I would expect that probably in this cycle -- because so much of the downtown Austin market rolls in a two, two and a half year time period, I would think that you probably would see at most two buildings go, which would add a little over 0.5 million square feet, which that market has certainly shown an ability to absorb.

Okay, so you'd be comfortable, even if this other building got started?

Yes. I mean -- but we are also are really watching closely the preleasing activity we can get. And I want to give just a little bit more color on that. Your tenants, most of your tenants in the downtown Austin market, because of the state capitol and some other components of Texas, they're 10,000, 15,000 foot tenants. I think the average size deal in downtown Austin is 10,000 square feet, or something roughly like that. So when you talk to tenants of that size about preleasing, but it's a decision that their lease isn't up for two or two and a half years, it's not a question of interest. It's just a question of getting prioritization of why is this something I need to jump on right now.

I was out in Austin for over a day last week, meeting with tenants myself. And I just couldn't feel more positive about where we sit, where our building is, the response from tenants. But we also are going to be very disciplined in making sure that we've got enough preleasing and enough in the pipeline that we feel, on a risk-adjusted basis, that it's a compelling investment to make. And if it's not, then we won't do it. But I feel very positive about it right now.

Okay. Thank you.

Brendan Maiorana; Wells Fargo.

Larry, so what's the level of preleasing that you think you want to get before you make the go decision at Third and Colorado?

Good question, Brendan. I'd sort of give you the range. We set an internal thing of you certainly would pull the trigger and go in the high 40s, 50% level. There you can get construction financing and just the market's so compelling and that level -- that's a pretty easy decision. And the other range, we're not going to start at 0%. So then the question gets to be -- if you were to start at less than 50% and above 0%, what's that magic number?

And to me that magic number is really a combination of two things. One is how many firm commitments we can get, actual leases in our pocket that we know are good. And then how many LOIs we can get that are leases that we have a strong feeling in terms of being able to convert those in the first half of next year. And then we're going to have to make a gut call.

And the thing that I remind people about the Austin market is the -- I've certainly never seen in developments that I've been involved with where you've got a new building coming on at a great location in the CBD area and the tenants that you're talking to that are existing tenants, that you're talking about rents in a new building that are either flat or lower than rents they're paying in buildings that are much older. Great buildings -- we built some of them. But it's a pretty compelling thing.

But in that range we're definitely a no at 0%. We're definitely a yes at 50%. The judgment call comes in between and we're probably going to end up in between.

Okay. And when you're saying 50% preleasing, you're talking about actually having leases in hand, as opposed to leases plus LOIs. Is that right?

Yes. I mean, that would be a very easy decision. But I don't think we're going to end up with that decision. I think we're going to end up with something that we've got some leases, some really strong LOIs. And then we'll look at the pipeline. It's a very compelling market to be in. And I think -- putting 350,000 square foot in that downtown market, there's a real need for it and a demand for it.

Sure. Larry, another question, just in terms of with all the capital that you have coming in and the new investment opportunities. And development is one of them. And then you talked about acquisitions, too. If we look at your [whole] market in Atlanta, there's been a couple of deals that have happened there over the past few months where maybe buyer reception wasn't as significant as what sellers thought initially. There's been, I think, at least one or two deals that maybe got pulled. Are you -- we know the Texas markets are strong in terms of new investment opportunity, pricing. Are you seeing that in the other markets where you're looking, that maybe pricing is maybe backing off a little bit and that gives you a little more confidence that you'll be able to get some deals done?

That's a great question, Brendan. I think what we clearly have seen in Atlanta is you saw some assets trade at pretty aggressive numbers over the summer. [PruAlliance] we thought was a pretty strong number, particularly as we look at Terminus. You saw the Concourse deal, which I mentioned in my speech, get done. And then you have seen a couple of assets get pulled.

I think the reason that the assets got pulled from the sellers, at least the ones that I've talked to, is as Atlanta has gotten better their pricing expectations have gone up. And their comfort level withholding has also gone up. So whereas someone might have been willing two years ago to sell at 90% of expectation, we've got, at least in one case -- I happened to be talking the guy two nights about and then came in about 96% of expectation and decided 96% wasn't good enough.

But I do think that we're very cognizant of some of the aggressive pricing that's going on in Texas and we're being very disciplined about that. We do have some opportunities out there on the acquisition side as well that are consistent with our strategy. But we will remain very disciplined.

We also certainly have not turned off looking at opportunities in Atlanta, even though we want to geographically lessen the amount of our portfolio in Atlanta. And I'd point out that when we sell these two retail centers, both of which are in Atlanta, that will be a significant amount of capital that we are freeing up that is currently invested in Atlanta assets. And so we keep our eye certainly close on the Atlanta market and would pull the trigger on something in Atlanta if we thought it was compelling and consistent with our strategy.

Sure. That's helpful. Did you guys provide the pricing on the two retail, the Forsyth and Webb Gin?

We have not provided that yet. We've just gotten them under contract and we would expect both those contracts are now hard with the buyers, with significant earnest money down. And so we feel very confident that both of those will close by the end of the year. And buyer interest on both those assets was very strong.

Okay. And then just for Gregg, you kind of alluded to this in your prepared remarks, but with all the capital that's coming in, how should we think about what's likely for the use of proceeds? You've got the preferreds, which I guess potentially that one or both of the tranches could be repaid. There's some debt that's maturing next year. But there's not a lot of -- there wouldn't appear to be a lot of near-term uses of that capital coming in.

That's right, Brendan. We feel confident in our investment opportunities. But none of them are close enough to the finish line where we can disclose them. But we are going to have -- the timing's not going to be perfect on this capital recycling. We're likely going to be sitting on some cash for a period of time. We had $90 million outstanding on our line at quarter end. And, as I said, we'll have $250 million in cash coming in. So there's a high probability that for a short period of time we'll have a large cash balance on the balance sheet. And so that's what I'm referring to when I say please take that into consideration as you guys generate your fresh earnings forecast for '13. I don't think --

Sure, and --

Well, I don't think we'll have it for a long period. I know we won't have it for a long period of time. If our investment opportunities don't pan out, we do have the option of buying in either our preferred or our common stock, most likely our preferred stock. The series A is a 7.75% coupon, which would immediately receive a 7.75% return upon purchase, not the worst investment we could make in the world. But in the near term while we let these investment opportunities flesh out to see if they come to pass or not, there will be a period of time where we'll likely sit on a little cash.

Okay, great. Thank you.

Brendan, I might just add one thing, just as sort of a side note. When I became CEO in July of '09, I made a little marker and I dreamed of the day that I would get the question of what we're going to do with cash, so thank you for making that come true. It's been a long haul.

It's a tough problem to have, right?

Exactly.

All right, thanks.

John Guinee; Stifel Nicolaus.

So Larry and Gregg and Cameron, you guys are a little bit of an oxymoron. You're a small cap REIT that doesn't need capital. So congratulations.

How are you guys thinking about joint ventures these days? Is that an arrow in your quiver in terms of things you'll do? And when you do it will you do it as a capital source versus a value-add partner? And then, refresh our memory on a couple of the bigger ones, such as Murfreesboro and Charlotte Gateway, the big sale/leaseback to B of A.

Well, let's start with the assets, John. Let me let Gregg walk through Murfreesboro and Gateway. And I'm really glad you asked the question on Gateway, because I think as we have simplified the Company, Gateway may be the one that needs the most clarification.

John, good morning. Murfreesboro is a large lifestyle property that we own in Tennessee in a 50/50 joint venture with Faison. It has floating rate debt associated with it, mid $90 millions, in terms of the debt. Debt matures in July of '13. Obviously no prepayment penalty with floating rate debt. And we are in the process right now with Faison of deciding what to do. We have an option of selling it, obviously. We have an option of refinancing it. And we're in the midst of working through that right now. I would tell you that we're both highly leaning towards selling it before the debt matures in the summertime. But no firm decision has been made.

And then in terms of Gateway Village, that's a property that we own in a joint venture with B of A, so a 1.1 million square foot property in downtown Charlotte. It's where they have all their back office operations. It's 100% leased through 2016. That lease corresponds to debt. The debt is a fully amortizing piece of debt. So come 2016 when their lease expires there will be no debt on the property. We receive about an 11.5% preferred return that we recognize on our income statement every quarter.

And it gets a little squirrelly on the backside, but really the likely outcome is that they can either, when their lease matures and the debt matures -- we can either retain 50% ownership interest in the ongoing building or they can buy us out, providing us with a 17% look-back IRR on our initial investment, which was $10.5 million. And they have not indicated which they're going to do. And there's still four years away. So in the meantime we're running the building as it was originally intended to be run and we'll wait for an indication from B of A.

Great. Well, congratulations. Thank you.

And then, John, in terms of your question on joint ventures, I do think that our creativity in terms of being able to structure ventures appropriately and with partners is a competitive strength. I think if we look at the Publix deals, where in the first four of them we were a capital provider and in the fifth one we stepped in and did the development as well. But even when we were a capital provider we had the knowledge and skill sets to come in and add value. And if the deals had gotten in trouble we certainly could have taken them over.

I think the same at Emory. I was just out looking at Emory yesterday. They just opened the -- you know, when we talk about over 100 apartments rented, this is on a project that's still under construction and has been leasing out of a trailer. So I went out yesterday to see. They've just opened a leasing office out there. And I would say venturing with Gables on that deal, they have added a tremendous amount of value and the 25% of the deal that we gave to them we feel very good about.

I think the same thing in downtown Austin. If you sort of took the glass is half empty approach, if that deal does not happen, then we are not left with a huge land holding in downtown Austin. We've partnered with the landholder there, so our exposure today is probably a little bit over $1 million of predevelopment costs, versus us being in the $15 million because we bought a site and had that.

So I think it's certainly a strength. Our preference, obviously, is if we can find deals to do that are 100% Cousins, it's cleaner. If we do ventures, we like to -- our next preference would be, obviously, to be the operator because we, once again, think that's very much a part of our skill set. But we -- on the opportunistic side you've got to be creative to get the value and keep the risk in check. And I do think it's a competitive strength.

Great. Thank you.

(Operator Instructions) Michael Knott; Green Street Advisors.

It's Jed Reagan here with Michael. Question as far as the deals getting pulled in Atlanta and pricing getting pretty full in Texas, as you mentioned, does it make you want to cast a wider net geographically in order to source kind of compelling opportunities? I mean, could we see you guys doing a big deal in Florida, let's say?

I think, first of all, I feel really good about our pipeline. And so, we have not felt compelled for lack of what we think are good prospects to cast the net further. Having said that, we certainly consider anything in the Southeast to be within the net. It's just not the primary part. So could you see us potentially doing something in a Nashville, Tennessee or a market like that, Tampa, Orlando? You could, and we look at those deals that come through.

But so much of our strength is our on-the-ground management and leasing. It's a real differentiator for us. And so we're not ones that, unless there was something very unique about it where we have a local partner that brought some value -- one-offs are not exactly our strategy on our long-term hold deals.

And we constantly study other markets. I mean, we've got a group that's dedicated to do that. We look at the South Florida market periodically. But I really would stress right now we don't feel opportunity constrained in terms of when I look at our pipeline.

Okay, thanks. And just kind of a related question and, obviously, this is more long term. But any updates on the two large mixed-used land developments, Fort McPherson and the big multimodal project?

We continue on the multimodal project to be actively working it. We've got a team working full time on it with Forest City. There's a long entitlement process to go through, getting all the federal permits and various things there. I'd say the project is tracking ahead of schedule on the whole design and permitting standpoint. The funding component of it, with everything going on at the federal level, is still -- I wouldn't say it's less clear than it was. It's just -- it's two to three years out, I would say. I would put Fort McPherson in the same category.

Okay. Question for Gregg -- can you talk about the solid expense performance you guys had in the third quarter, just maybe a little bit about kind of what the key drivers of the expense reductions were?

Yes. Obviously on the expense side there can be a lot of moving parts. But I would clump it into two primary things, Jed. First, I think that our team's doing a great job on just keeping a lid on operating expenses. It's a focus and they're doing a terrific job in executing it.

Secondarily, though, what's also driving the numbers a good bit is that we've been very successful with tax appeals. And so we've seen some reductions in tax bills that are flowing now through the income statement.

Okay. Great. And sorry, just last one from me -- do you guys have an estimate on mark-to-market rents for your portfolio today?

Yes, I don't have that off the top of my list, Jed. I don't have that number.

No problem. Thank you.

Jamie Feldman; Bank of America Merrill Lynch.

Just a quick question on your discussion of having excess cash. Given your FAD payout I think in the quarter was, like, 50%, how are you guys thinking about the dividend, and then maybe even a special dividend with the portfolio restructuring and the current NOI stream?

I'll start out with the special dividend, Jamie. We've managed our tax exposure very carefully, so there's no need for a special dividend in the foreseeable future unless something were to change. So we've done a good job with that.

And then in terms of just the raw dividend, the recurring common dividend, you're right, our FAD during the quarter was $0.09, our dividend's $0.045, so we're only paying out about 50% of our FAD. The Board will make the ultimate decision about what the dividend policy is. But as Larry and I have talked about the last little bit, this capital recycling effort comes with some dilution exposure from an earnings perspective as stuff works through.

And so we want to make sure that we're always in the position that we adequately cover our core quarterly dividend, no matter what the capital recycling program generates. And when the time comes that we get kind of through the highest velocity period for our capital recycling, which is this kind of '12, '13 kind of period, I think it will be easier for us to take a look at that and maybe not leave quite as much buffer in between our FAD and our dividend.

Okay. So basically you kind of feel like the current level makes sense and then you'll see where you can put capital to work?

Yes. Let's play out the end of '12 and '13 in terms of capital recycling. And then I think we'll be able to really start to, like I said, reduce that contingency in '14 going forward.

Okay, great. Thank you.

There are no further questions at this time. I would not like to turn the conference back to Mr. Larry Gellerstedt.

Well, we just appreciate people being on the line. And, once again, those up the Eastern Seaboard, I hope you know that we're very sincere in our hopes and thoughts being with you all, that that area recovers quickly and that things return to normal as soon as possible.

Thanks for joining the call today.

Thank you. Ladies and gentlemen, that does conclude today's conference call. We thank you for your participation and ask that you please disconnect your lines.