Cousins Properties Inc (CUZ) 2012 Q4 法說會逐字稿

Good day and welcome to the Cousins Properties, Incorporated fourth quarter conference call. Today's call is being recorded. At this time for opening remarks and introductions I would now like to turn the call over to Tripp Sullivan of Corporate Communications.

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 the expectations regarding leasing activity, development, acquisition, financing, 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, 2012, 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.

Now I will turn the call over to Larry Gellerstedt.

Good morning, everyone. In January 2012 we presented a straightforward vision for Cousins that concentrated on three things. Simple platform, trophy assets, and opportunistic investments. The implementation of this vision was intended to streamline our business model, tighten our focus where we're strongest, and most importantly maximize our ability to generate attractive returns for our shareholders. One year later, we can safely say that our fourth quarter and full-year results demonstrate significant and consistent progress towards this vision. The central theme as we execute the strategy will be that of a sharp shooter approach where we continue to leverage our creative deal making capabilities, development skills, relationships, market knowledge, and operational expertise.

Turning to the first component of the strategy, we had an exceptionally busy year on the disposition front with over $400 million of asset sales in 2012 including $63 million in land. The fourth quarter was exceptionally active with $277 million in sales. In total, we monetized over 20% of our gross asset base, primarily comprised of non core, non strategic holdings. 83% of our NOI is now derived from our office portfolio compared to 70% one year ago. The ongoing simplification of the platform provides two important benefits. First, it enables to us operate more efficiently, which ultimately leads to lower expenses and increased profits. Second, the non core asset sales associated with this process are the primary source of capital for an active investment pipeline.

Now for the second piece, trophy assets. Our portfolio is increasingly comprised of Class-A urban office assets well locate in the best Sun Belt sub markets. We have demonstrated that our operational and development expertise, along with our strong customer relationships provide us with a meaningful competitive advantage in this arena. Additionally, it has been consistently demonstrated that high quality well located office towers, if properly managed, will outperform their markets over the long term. Along those lines, I would like to note the quality of our existing portfolio, coupled with our talented team drove another solid leasing performance in 2012. On a same property basis, our office assets finished the year 91% leased, up from 89% leased at the beginning of the year, while retail improved to 90% leased, up from 88%. Most importantly, due to a sustained run of leasing success our 2012 same-store property NOI increased 6.7% on a cash basis.

Our leasing efforts remain principally focused on four key assets. Promenade, 2100 Ross, 191 Peachtree, and American Cancer Society. The team recently made another big stride in Promenade with the execution of a 37,000-square-foot lease with Colliers taking the building to 77% leased, up from 58% at the time of purchase in November 2011. Cousins has been a long-term valued relationship with us for many years. Promenade continues to receive a lot of interest, and we're optimistic about the continued progress in 2013. Leveraging our redevelopment skills we've largely completed the $8 million capital improvement project which includes a fitness center, a bistro, and a significant rework of the entrance area, and the upgrades are getting very positive feedback from both existing and prospective tenants. To cite a third-party account, JLL in their winter 2013 office market review referred to Promenade as one of the market's biggest success stories.

In 2100 Ross the team is finalizing an 88,000-square-foot lease with a top credit tenant, will increase the lease percentage by approximately 10%. We have a longtime valued relationship with this company in Atlanta, and our successful track record with them was a key differentiator in recruiting them to 2100 Ross. This is another example of market knowledge, relationships, and operational expertise working to our advantage. At 191 Peachtree, the fourth quarter was fairly slow. We had a good year overall, taking the building from 82% to 87% leased. The team is focused on eclipsing the 90% mark by the end of 2013. ACSC remains our biggest challenge from a leasing standpoint. However, we executed a 35,000-square-foot renewal in December and are in the process of renewing another tenant for 36,000 feet. With several new prospects entering the mix in recent weeks, I'm more optimistic about our prospects than I've been in quite awhile.

It's Important to note that the downtown sub market, home to both 191 Peachtree and American Cancer Society, is seeing a nice resurgence in overall activity. Georgia state university now requires its freshmen to live on campus, bringing 4,000 new full-time residents to the sub market. The new Atlanta street car will begin service within the year. The Atlanta Falcons have announced a new $1 billion downtown stadium which will start in the next year or so, and two projects we're developing on a fee basis, the College Football Hall of Fame and the Center for Civil and Human Rights are now under construction.

Finally, to our favorite topic, opportunistic investments. In most of our target markets we're seeing opportunities to acquire trophy towers at a significant discount to replacement costs. We believe this presents a very compelling opportunity for those with the ability to both acquire the right asset and to successfully reposition them. To put the economics in simple terms, if you buy a trophy asset at 50% of replacement have cost, not only do you have an attractive basis relative to the bulk of the existing competition, rental rates effectively would need to double before new development becomes viable. This inherent cost advantage provides a very attractive risk/reward profile for the qualified buyer.

However, I should point out that while these opportunities are out there, they're almost never sitting on a tee. Sourcing and ultimately executing these opportunities takes a significant amount of creativity, market knowledge, and operational expertise. Our two most recent acquisitions provide good examples of these dynamics. With 2100 Ross we used a B-note to ultimately gain control. And with Post Oak Central we parlayed the Terminus recapitalization into a compelling off-market transaction with JPMorgan Asset Management.

Another key dynamic of the low barrier suburban markets, and one that we feel is often overlooked among the investment community is the dichotomy between suburban commodity office buildings and urban infill office towers. The suburban commodity product can be duplicated usually in about a 12 to 18-month period at a relatively low cost, around $200 per square foot. A specialized infill tower takes a minimum of three years to execute and typically costs approximately $350 to build, far above what current lease economics are in most of our markets. The overall risk profile of a well located urban trophy tower is, therefore, far different from that of suburban commodity counterparts. In short, we are very optimistic about the prospects for well located infill towers in the strong markets that can be acquired at significant discounts to replacement costs. As I have mentioned, we've managed a couple of these over the past six months, and we certainly have our focus on several more for 2013.

On that note, 2013 is off to an exciting start with our announcement of the Post Oak Terminus transaction which includes the acquisition of Post Oak Central in Houston from JPMorgan Asset Management, and a 50/50 venture with JPMorgan Asset Management for Terminus 100 and Terminus 200 in Atlanta. As I have mentioned earlier, off-market transactions like these aren't just sitting on tees for us to pursue. Sourcing and ultimately executing these opportunities takes a significant amount of creativity, market knowledge and operational expertise. In this case when the opportunity to recapitalize Terminus 200 arose, we proactively and directly reached out to JPMorgan Asset Management to gauge their interest in structuring a larger transaction. We knew they had been targeting trophy office assets in Buckhead, and equally important, we knew they owned an asset in Houston that we liked. Our team saw the genesis of a win-win transaction and immediately pursued it. This is another excellent example of creativity and deep market knowledge working to our advantage.

To expand a bit on the transaction, we acquired Post Oak Central, a 1.3 million square foot office complex in a great location in the Galleria sub market for a purchase price of $232.6 million, or $182 a square foot. And approximately 45% below our estimate of replacement cost. The project is 92% leased with an average remaining lease term of over five years. A two-acre development parcel, one of the last remaining sites with frontage on Post Oak Central was included in the deal as well. While we have no immediate plans for the site, there are no zoning restrictions, and we believe it could support a variety of uses, including retail, multifamily, or additional office.

The ownership change at Terminus amounts to an overall reduction in Cousins' ownerships of the two assets from 65% to 50%. We effectively increased our Terminus 200 stake at a value of $290 per square foot while reducing our Terminus 100 stake at a value of $320 per square foot. We're excited to maintain a substantial ownership in what we view as two of the best office buildings in the southeast. We've had some questions related to pricing and comp's for the Terminus transaction so I will give a bit more color. We feel the pricing at Terminus 100 of $320 a square foot, adjusting for a few asset specific nuances compares favorably to the recent high watermark in Buckhead of $340 to $350 a foot. First, if you exclude the 70,000 square feet of retail, the office specific valuation increases to $327 a foot. Second, the average remaining lease term is approximately five years. And third, the $136 million mortgage on Terminus 100 is significantly above market with a rate of 5.25% and 10 years of remaining term.

At Terminus 200, we felt the pricing at a gross valuation of $290 a foot was a very attractive investment. Two Alliance Center, the most relevant comp, sold for a gross valuation of $310 a square foot last year. The two buildings delivered within a few months of each other and have very similar rates and are of comparable overall quality.

Moving on, while our focus today is primarily on acquiring existing towers, we continue to source attractive development opportunities. In Austin, Texas, one of the few markets where office lease economics do support new development, we're making progress at Third and Colorado, our proposed $130 million office tower in downtown Austin. Our track record of having delivered Frost Bank Tower, which is the most recent and best office tower in downtown Austin, provides a high degree of credibility with potential customers and our development team has created a very exciting new product at the best location in downtown Austin. The pipeline of prospects is strong and tenant feedback has been outstanding. We're almost 20% committed at this point, and with a couple of more leases, we hope to be in a position to commence construction by midyear.

At Emory Point, the retail space is now 90% committed. With only three vacant spaces remaining, the majority of the tenants are now open for business, including CVS, Jos. A. Bank, Marlow's Tavern and Bonefish Grill. On the apartment side, leasing activity slowed a little bit during the holidays similar to what all multifamily owners experience at that time of year, but we remain well ahead of plan and pro forma with 156 units leased. The $60 million phase two comprising 240 additional apartments and 40,000 square feet of retail is still progressing towards a summer commencement. Mahan Village, our Publix anchored development in Tallahassee, Florida, finished the year at 88% leased and over 90% committed. Our $100 million mixed use development at the University of North Carolina, now known as 123 Franklin, got unanimous 90 zoning approval just this week and it remains on track for an early 2014 start. I want to point out again that Emory, Mahan Village, and 123 Franklin were non marketed opportunities which were yet again the results of deep relationships and our proven expertise.

I would like to touch quickly on our target markets, particularly Texas, Georgia, and North Carolina, where our brand relationships and market expertise provide a meaningful advantage. These markets not only lay claim to a lot of our history, they possess some of the most encouraging demographic and economic growth dynamics in the nation. To cite a few data points, Texas, Georgia, and North Carolina are projected among the top four states for population growth through 2020 according to Moody's. Atlanta, Dallas, and Houston rank in the top four cities in the country in terms of lowest cost to do business, best places for business and careers, and number of Fortune 500 headquarters. PPR's projected growth rate through 2017 in these markets, together with Austin, Charlotte, and Raleigh, exceeds the projected national rate by more than 50%. These projected tail winds, while not critical to the execution of our strategy, would certainly be a welcome companion in the upcoming months and years.

In summary, it was a very good fourth quarter and year. The team is making considerable progress towards the strategic vision we presented to you one year ago. Simple platform, trophy assets, and opportunistic investments. We're very excited about the prospects that lay ahead.

With that I will pass it on to Gregg for additional overview of the financials.

Thanks, Larry. Good morning, everyone. Overall we had a solid fourth quarter. FFO was $0.14 per share, $0.15 per share excluding a $1 million severance charge. As a quick reminder, we completed a strategic reorganization in 2012. This move was a direct result of the simplification process Larry just discussed. We anticipate this reorganization to reduce our G&A run rate in 2013 and beyond without compromising our ability to complete compelling investment and leasing opportunities. I will provide more details on these savings later in the call.

With that, let me start with an update on the embedded NOI associated with the four key assets Larry mentioned earlier. If you recall, back in the summer of '12, we identified three large office assets in our portfolio that had significant up side potential due to existing vacancy, 191 Peachtree, Promenade, and the American Cancer Society Center. Upon the purchase of 2100 Ross our value add acquisition in Dallas during the third quarter of '12 we expanded this list to four assets, what we like to call the big four. We estimated that bringing these assets to 90% occupied would generate approximately $13 million in embedded NOI. As of December 31, 2012 we had signed 174,000 square feet of net new leases at these assets since the beginning of the measurement period, representing about $4 million of annualized embedded NOI with about $2 million of that actually captured in our fourth quarter numbers. This data is as of year end 2012, it does not include the two large leases we've already tied up with the big four assets in early 2013, 37,000 square feet of Promenade and 88,000 square feet at 2100 Ross. It's also important to remember the embedded NOI growth from our two new developments that are in lease-up, Emory Point here in Atlanta and Mahan Village in Tallahassee. The NOI from these two assets still isn't anywhere near stabilized, but it is growing steadily, moving up from $46,000 in the third quarter to $400,000 in the fourth quarter.

Balance sheet remains solid. Debt to gross assets is 35%. Our interest coverage is three and a half times. Fixed charge coverage is over two, and debt to EBITDA is just over six. As Larry said earlier, we had $277 million in asset sales during the fourth quarter. After deducting minority interest this generated about $265 million in proceeds. This cash was used to match funds at the 2100 Ross acquisition in the third quarter for $59 million, and the Post Oak Central Terminus transaction that closed last week for $206 million after we close on a pending mortgage at T-200 that I will discuss in a moment. Lo and behold these two transactions sum up to $265 million combined net cash investment, a perfect match with our sources.

Looking forward, we have identified several additional non core assets for potential disposition in 2013. Starting with The Avenue Murfreesboro, a retail and lifestyle center in Nashville, and Tiffany Springs Market Center, a retail power center in Kansas City. Before wrapping up the discussion on our balance sheet, I want to update you on two pieces of debt we're pursuing. First, we've signed an application, and we've locked rates on a new $82 million mortgage on Terminus 200 as part of the larger Post Oak Central Terminus transaction. It has a 10-year maturity and a 3.79% coupon with three years of IO. We should close this loan in the next couple of weeks.

Second, we're in the process of refinancing our Emory Midtown Hospital Medical Office Tower. Emory Healthcare, which leases 48% of this building, just recently agreed to extend much of their lease out to 2032. It's a terrific outcome. And it's a clear sign of commitment to our building. We expect to sign an application and lock rate on a new mortgage for this asset in the next few weeks, and closing should be in the second quarter.

Finally, before providing 2013 guidance I wanted to highlight the progress we've made with our land portfolio in 2012. We started the year with $113 million of land on our books. $49 million of which was residential land. We ended the year with $59 million in land, $21 million of which is residential. That's almost a 60% reduction. We sold all this land in 2012 at or above our carrying costs. Residential land now comprises only 1.2% of our total gross assets.

With that, let me provide an introductory guidance for 2013. Before I start I would 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 guide post for future performance. We also provide guidance on fee income as well as our G&A expenses. So let's start with the big four office properties. At 191 Peachtree, we expect to generate approximately $3.7 million in first quarter NOI, increasing gradually throughout the year as we sign new leases and tenants to take occupancy. At Promenade the starting point will be about $2.3 million in quarterly NOI. Again, increasing as leasing progresses.

At 2100 Ross, we'll start the year at about $1.1 million in quarterly NOI and move up from there. And at the American Cancer Society Center we're being conservative in assuming the current quarterly NOI run rate of approximately $2.7 million to $2.8 million remains flat in 2013. We'll update you on all four of these important assets as our leasing progresses. Post Oak Central, consistent with the 7.5% going in cap rate we announced last week, will generate an average quarterly run rate of $4.25 million to $4.5 million in NOI during 2013. The first quarter will obviously be a bit lower to account for our February closing. Adjusting Terminus 100 and 200 for the new ownership levels, Terminus 100 will generate approximately $1.9 million to $2 million in NOI per quarter and Terminus 200 will be approximately $900,000 to $1 million per quarter. As with Post Oak Central these should be adjusted pro rata for the first quarter transactions. Points at Waterview will have a quarterly run rate in 2013 of $400,000 to $500,000. And North Point Center East will have a quarterly run rate of $1.4 million to $1.5 million in 2013. That's all the property guidance we're providing at this time. Again, other than these specific instances, historical performance is a good guide post for future cash flows.

Regarding G&A, we expect our 2013 net number to be between $20 million and $22 million. This is down about 10% from 2012. As for fee income, we expect the number between $8 million and $9 million in 2013. This number is a slight decrease from '12 driven by the loss of leasing and management fees associated with the sale of unconsolidated assets.

With that summary, let me turn the call back over to the operator for your questions.

(Operator Instructions)

John Guinee, Stifel Nicolaus.

Great, well guys, nice job. You've been busy. Couple minor questions. Gregg, we thought you were paying off the preferreds sooner than later. Can you talk about that? And then two, Larry, could you talk a little bit about Charlotte and how you're thinking about Charlotte and what your thoughts are on Gateway Village?

Good morning, John. Concerning the preferreds, we've got two series of preferreds outstanding. Our series A, is about $75 million, has a 7.75% coupon. And our series B is $100 million, has a 7.5% coupon. Both series are beyond the five-year lockout period so they are available for prepayment at any time. John, it's a perfectly good use of capital for us if we don't find more attractive investment opportunities. And to date we have found more attractive investment opportunities, Post Oak Central being the latest. It will remain a potential source of capital, but again it will be measured against other alternative investments. So it's out there but nothing is imminent.

And John, on Gateway Village, let me start with Charlotte overall. We certainly have been continuing to track Charlotte and are optimistic about where Charlotte is. Clearly when you look at their -- the numbers there, the banking situation seems to have stabilized and Wells Fargo is even upping its employee commitment. They're certainly finding a great source of well qualified talent in Charlotte so we are positive about where Charlotte was, is, particularly relative to where it was a couple of years ago.

Gateway Village, as you know, is a little bit complicated. I think it's probably the last thing on our Company assets that is still relatively complicated to understand, but as you know that is 100% leased to BofA, and the mortgage on that building is guaranteed by BofA, and fully amortizes over the term of the lease. And BofA's lease goes through 2016. And we're basically receiving about 11.5 preferred return on our initial investment which was $10 million. So -- and then if they wanted to buy out our ownership, then there's a 17% IRR on our initial investment.

So, if we look at that asset as 2016 approaches, it is really primarily going to be driven on what BofA's intent is. As you know, they've been selling real estate overall. They have not indicated their position on Gateway Village as our partner in terms of what they want to do, and how they want -- may want to proceed with that asset. But we are -- we've got a team that's going to be meeting with them on Friday. Just for one of our regular meetings and talk about the asset, and obviously we developed the asset and like it. So we'll keep looking at it, but BofA will sort of make that decision as to what the next step might be.

It appears to us that BofA is, they own about 4 million square feet in market. They also occupy about 4 million square feet. Do you have a sense for whether they are going to continue to have an employee commitment to that location, or are they going to be downsizing? Second, how efficiently are they use Gateway Village right now?

We don't have a feel about that. I will tell you the employee base, the space is fully utilized, and they really have, for lack of a better term, what we would call their mission critical stuff at Gateway Village. And so it's a significant amount of their IT infrastructure and support for the whole platform is headquartered out of that building. But clearly, as their space needs have changed and moved around in Charlotte, we're just not sure how they would look at that building. I think that they certainly are going to want to keep a presence in that building, just given the nature of the space that's there, which is expensive and high-tech. A fair amount of it is expensive and high-tech space. Whether they may want to cut back their percentage some, we don't know. Whether they want to sell the building, or have us buy it or extend the partnership, we'll probably start to see that with more clarity over the balance of this year.

Great. Thank you very much.

Thanks, John.

Jamie Feldman, Bank of America Merrill Lynch.

Great. Thanks. I was hoping you could talk a little bit more about Houston and your plans for expansion there and just what the platform will look like for you guys and personnel needs.

Sure, Jamie. As you know, we've been looking at Houston in a pretty intense way for the last couple of years, but we also have been very disciplined in looking at it and had found that the fully marketed transactions that were going on in Houston, we just couldn't ever get a winning position, then as we really looked at yield versus risk and what we were good at. But we've concentrated almost exclusively on the Galleria sub market as where we wanted to enter, and the Galleria has just got some extraordinarily compelling components to it. It's a very much of a preferred sub market. There's a lot of continued development going on, particularly in the retail and multifamily area, a fair amount of that right next to Post Oak Central.

There are actually two -- it's an 18 million square foot sub market, and there are two buildings under construction, new office buildings right now. Those are the first office buildings built in the sub market since 1984. And they total 600,000 feet out of 18 million, and one of them, which is next to Post Oak Central, is 80% leased at this point. And there are really, at most, only about three potential office development sites left in the core of the sub market. So being able to come in and buy an asset off market that has the pricing and the yield going in that we've been able to do, we really see this as just a perfect launching pad for Houston and our efforts there.

The two and a half acre site on Post Oak Central, there are very few sites left on Post Oak Central, so that plays to our development skills. And then we think there's some redevelopment opportunity down the road on Post Oak Central. The largest tenant at Post Oak Central is Apache, for about 470,000 feet, and they have bought a site next-door and have indicated to the market that they may be going to build a new tower in 2018, which is -- certainly gives us a lot of time to work with them as well as look at that, and we factored all that into our underwriting and we actually saw that as a real potential positive for some other redevelopment stuff we should do.

So to answer your question, we think Post Oak is a great entry point. We will start the project with third-party management and leasing. Since there's relatively little leasing to be done right out of the gate, but we certainly don't expect this to be our only acquisition in Houston. We'll continue to be focused on the Galleria market, the downtown market, and to a lesser degree the Westchase market. And the objective will be to get another asset and then get a market leader in there and internalize management. But that's another thing that we just found very compelling about Post Oak is the redevelopment opportunity, the value creation opportunity is something that's far enough down the road that we can use it just as a base to build our business off of.

Okay. Then I guess, bigger picture on acquisitions, Houston has been a pretty hot market for development and acquisitions. Where would you say is the best opportunity for you guys right now? Is it existing markets digging deeper, or is it trying to find stuff in new markets? And then similarly, kind of with Cousins' history you guys have always done a good job of selling fully leased assets or stabilized assets and buying stuff with lease-up. What's left in the portfolio that you could even offer to a transaction like you just did with JPMorgan on the sale side?

Well, you know, we're traders by nature so we obviously -- those things evolve as opportunities arise. But we clearly, as Gregg said in the call, we're getting ready to continue to sell two retail assets. We've got a couple of office assets that we still consider to be non core, we've got a couple over in Birmingham which are great assets, well leased, but at some point we'll probably move on with using those as a source of recycled capital. And in terms of the markets, you're right, you just to have go market by market and that's why our small size, although in some ways people point out the disadvantages of it, the advantagement is we can just be a sharp shooter and we don't have to just back up the truck for marketed transactions just to get scale.

So even though Houston is a hot market, we were able to do an off market deal like Post Oak. We've got some other targets in Dallas, Houston, Austin, as well. And for a compelling enough transaction, Atlanta is looking more positive, and we wouldn't turn down doing something in Atlanta or Charlotte. So we are not feeling opportunity constrained at this point., But if we did, we certainly are comfortable branching out a little bit in the same Southeastern footprint, but we really want to try to do some additive acquisitions in some of the cities that we just have one asset in, to really address your first question, so that we can build out a little bit of our Company talent that are local.

Okay, great, thank you.

Thanks, Jamie.

Michael Knott, Green Street Advisors.

Hey, guys, John Bejjani here. Just following up on the Houston and Texas question, how large do you see, and how large would you like your Texas concentration to ultimately be?

Well, that's going to be opportunity driven, just because we're -- that's the way we think. But we would like, over time, to work the Atlanta concentration down closer to that 40% mark, and we would see Texas as being potentially an equal size component to Atlanta and North Carolina, maybe 20%. But that's theoretical discussion. We have to be driven by the economics and the opportunity of those. But that would be sort of an ideal thing if we could get to, but that's a two or three-year plan to get there.

Okay. And you mentioned a couple of planned retail sales and the Birmingham non core office. So I guess as far as financing future external growth, do you see -- do you plan to extend the capital recycling program, or do you see yourselves tapping the debt market or equity market or some combination?

Well, I think obviously as we've done our cash planning and we look at our development and acquisition opportunities very carefully, capital recycling has been and continues to be an important part driving that move. Gregg mentioned in the call, we obviously are where we can take advantage of the debt markets. We're putting very attractive long-term debt on assets that are stabilized. And on our development work, we're using construction loans on those to help underwrite or keep our cash commitments balanced on those. But debt, asset sales, and obviously capital markets are an alternative as we balance and look at acquisitions and where we are on a cash basis. That's something we don't have immediate plans for but we look at it. That's an alternative.

All right, great. Thanks, guys.

Thank you.

(Operator Instructions)

Young Ku, Wells Fargo.

Great, thank you. Just want to go back to your non core asset sales in 2013. I know you guys previously talked about selling North Point assets, I was just wondering how that is coming along and whether you're expecting to sell those in 2013.

We certainly have not -- as we have indicated before, we certainly have not made any decision to sell North Point assets. Those assets actually are staying very well leased, and we've had some vacancy actually by moving a customer to Terminus 200 that we have largely back-filled. So I'm not sure where we might have indicated that they were on the list, but they're not the on the list at this time. We actually have a couple of opportunities there with additional development sites if we wanted to expand at North Point. So at this point, we like where we are at North Point and like the economics of what we're able to drive with our customers.

Okay, got it. In terms of the Murfreesboro and Tiffany Springs sales, what kind of proceeds are you guys expecting?

Well, you know, we haven't engaged a broker yet. We haven't taken it up to market so it's hard for me to tell you exactly what the proceeds we're going get. But we own half of Murfreesboro so we'll get half of the proceeds from that. It has a $92 million mortgage attached so there aren't a lot of cash proceeds that will kick out of Murfreesboro.

Tiffany Springs is owned in our Prudential joint venture. We own 88.5% of Tiffany Springs through that joint venture. Tiffany Springs is unencumbered so the proceeds from Tiffany Springs will come -- 88.5% of those will come directly to us. So the cash proceeds on Tiffany Springs, although it's a much smaller asset, almost half the size of Murfreesboro, the cash proceeds we get will be much larger.

Okay. Fair enough. And just going back to Houston a little bit, the Post Oak Central asset, it seems like it's 45% discount to replacement, certainly attractive. Just wondering how JPMorgan came in to sell the asset. I know they were trying to get to Atlanta, but given the pricing, it must have been tough for them to let it go. I was just wondering how you guys got them to sell the asset.

Well, I think, listen, JPMorgan, they're very capable, and we're thrilled to have them as a partner, so I think their underwriting was very much arm's length between the Houston transaction and the Atlanta transaction, and I wouldn't want to put myself in a position of commenting on how they might have looked at it. I think one of the things you have to -- you do to have keep in mind as you look at comps, and we're very pleased with where we are on a comp basis, but this building does have -- these buildings do have below market rents to the market, which is an opportunity for us but would be reflected even if they had gone through a marketed process on this. So I would never wanted to indicate on a call that we felt we out traded JPMorgan, because we think this is a win-win for both parties.

Okay. I mean this is somewhat related, but how would you compare the IR potential from purchasing Post Oak versus if you were to hold on to T-100 and 200?

Can you ask that question again so we make sure we understand it?

Yes. I'm just trying to compare what you guys underwrote in terms of IR potential from purchasing Post Oak Central versus if you were to -- if you had held on to T-100 and T-200.

On an unlevered IRR basis, which I think is what you are asking, clearly the Terminus complex is essential stabilized, where as Post Oak Central, as Larry said, has a big lease maturity in 2018. So they were under -- and at below market rents, so they were underwritten appropriately. There's a little more risk to that cash flow at Post Oak Central than there would be at the stabilized Terminus assets and you would expect a little higher IRR because of that.

Okay, do you expect to increase occupancy above current 92%, and how much higher do you think you could get there?

Do we expect to increase occupancy? Absolutely. Normally you look at these buildings and you say you're stabilized at 90%, but that doesn't mean we don't want to get into between 95% and 100%. One of our -- I'm optimistic in the next few quarters you will see the building move up from 92%.

We're already getting -- the building is essentially stabilized in Houston. We're already getting strong interest from potential tenants. So it feels like we could take it higher.

Got it, Gregg. Thank you.

Yes.

Dave Rodgers, Robert W. Baird.

Good morning guys, a follow up to the retail sales update that you provided earlier, and thank you for the color on what you are expecting to sell, I thought if memory served there was more that perhaps matured in terms of the JV exposure mid this year. Can you correct me if I'm wrong on that, and if I'm right, can you talk about where you might be in the marketing process with some of the larger portfolio components there?

Thanks, Dave. Good question. You are right. We've got a fair number of retail assets that are in joint ventures with Prudential. These were two separate ventures that were set up. They were mixing bowl type structures, and we are the -- Prudential ownership is 88%, and we're about 11%, 11% to 12%. So the larger of those two, the tax lock-up burns off this summer, and so as we look at those, the joint ventures are set up so that Prudential has the opportunity, should we want to sell, Prudential has the opportunity to buy our interest out, or they can look at another way of exiting that venture.

So we have been in discussions with Prudential about what their view would be in terms of their assets of those joint ventures as to whether they want to be long-term owners or how that venture may work. And we think that Prudential has been a great partner with Cousins for years and years on numerous transactions. And we would expect this summer that you would see some type of resolution to those mixing bowl ventures, and when you work through the way those things work, there would be -- it would be not a huge amount of cash coming to Cousins as we would possibly sell our 11% interest to Prudential.

Would there be any related G&A savings or overhead savings by cleaning that up a little bit, or not really?

There would be. There might be.

And I guess maybe going back to something that was discussed on the last call, the Austin development, and any updates on the marketing there, any potential interest in what's been active in and around Austin related to that project?

I was out there two weeks ago, and we are, as I said in my remarks, we're just under 20% committed at this point, which is fantastic. It's -- that downtown market is a fascinating market in that we're offering a brand-new building in a fantastic location at or below rents in the existing Class-A buildings in downtown. We're certainly used to when we build towers, prospective tenants having to pay a little more in rent than they're paying. And so I think the combination of our track record, the building, and the location, it's a very compelling thing. Just to give you a data point, if you wanted 50,000 feet in downtown Austin today, it doesn't exist. And so it remains a very tight market. We just want to make sure that we have gotten enough pre leasing done that it's a prudent risk on a go forward basis, and we're optimistic that we'll be able to do that.

Great. Thank you.

Thanks.

John Guinee, Stifel.

This may be something you want to do off-line, but can you walk through, Gregg, what would you think about as the fourth quarter core FFO after taking out all one-time items including gains on sale?

No, happy to talk about it. We reported $0.14 a share, reported FFO, you add back $0.01 for severance, you're at $0.15 a share. We had about $4 million in gains on land during the quarter. So you knock that down, and you're at $0.11 a share core FFO run rate.

Perfect. Thank you.

Jamie Feldman, Bank of America Merrill Lynch.

Just a follow-up on Austin. What are you guys targeting as a projected yield? And would you go in -- would you be 100% or JV that asset?

The way we structured the deal there is the landowner, we have -- the landowner will be our partner, and they have the right to go up to 35% of the ownership structure. They don't have the obligation to go up that high. So at the time that we decide to go, we could have a partner up to 35%, and in that case it would be the land partner, and they put the land in, and then any additional equity to get to that level.

Jamie, since we're very competitive in the market right now with some other companies that have a fair amount of ownership in downtown Austin, I don't want to get too deep on our economics. But you would -- we've always said you could expect us to underwrite at least a 200-basis-point spread between what we think would be a conservative exit cap and what our development yield would be. And we certainly expect to stay very disciplined in that approach, and I think you could conservatively say that we would certainly be looking at something 8.5 or higher going in, at a minimum.

Okay. Then just a big picture leasing question. Atlanta has had a pretty good run here the last several quarters. Sounds like more of the activity has been more to the northern sub markets and Buckhead. Can you just talk about what you're seeing downtown, and since the beginning of the year, what's changed in terms of tenant sentiment and activity?

Jamie, I think the market overall in Atlanta obviously did have a good year last year, and I think a fair amount of the activity did occur in the northern part of the city, and some of it, like State Farm who has taken a lot of space, a lot of it is there are substantial vacancy out there and the cost of that space was just very compelling for them and other corporations to take up. The urban markets have typically been driven more with the services type providers, the accountants, the lawyers, the private wealth management folks and those. And so obviously growth anywhere in the city sort of helps the typical profile of your -- more of your urban typical tenant, and Buckhead certainly has benefited from that.

Most of the local prognosticators think that midtown will be a real beneficiary over the next couple of years. And downtown, there's a lot going on in downtown, but downtown is still the harder sub market to attract new tenants to. What you tend to get in downtown is you get tenant movement that are downtown tenants moving to a building like 191 because of the value proposition. We have had some success recruiting businesses to 191, but it's still a challenge.

Okay, great. Thank you.

And Mr. Gellerstedt, there are no further questions at this time. I will now turn the call back to you. Please continue your presentation or closing remarks.

Well, we appreciate everybody being on the call today. It's been a really fun and exciting 2012, and we're very excited about 2013. We look forward to talking to you. And as always, if you've got any questions at any time, don't hesitate to call Gregg or I or Cameron. We'd be thrilled to talk to you. Thank you very much.

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