Cousins Properties Inc (CUZ) 2013 Q1 法說會逐字稿

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

Good morning.

Certain matters that 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, and other future financial results, along with expectations regarding intended use of proceeds, 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 that the Company may refer to today are considered non-GAAP financial measures, within the means 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. Thank you for joining us. We're really excited about our first quarter results.

With the acquisition of Post Oak Central in Houston, and solid performance throughout the operating portfolio, we continue to make progress across all fronts. And with three major transactions completed subsequent to quarter end, we continue to move forward aggressively with our strategic plan. Our strategy is centered on three things, simple platform, trophy assets, and opportunistic investments. Our portfolio is increasingly comprised the 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. The first of these items, simplification, drives cost saving and enables us to remain focused where we are strongest. The latter two, leasing and investment, should drive future NAV growth both organically and externally.

I'll briefly provide an update on where we stand with each of these objectives. In terms of simplification, the office portfolio now accounts for over 83% of our net operating income, up from 70% in the first quarter of 2012. We're in the process of marketing two additional retail centers, the Avenue in Murfreesboro and Tiffany Springs Market Center, which will further streamline our operating portfolio. Land holding now account for only 3% of our asset base, down from over 15% a little over a year ago. On the leasing front, the operating portfolio is in good shape, at 91% leased on a same property basis. Year-to-date, overall activity has picked up, while deal economics continue to gradually improve. In our Texas markets, we are seeing some rent growth. In Atlanta, we're seeing tightening on tenant concessions. We are particularly encouraged that some our small or mid-sized tenants are now looking to expand, a trend that we haven't seen in quite some time.

The first quarter leasing activity was very solid, highlighted by a couple of significant leases. Most notably, we signed a 99,000 square foot lease with Lockton Companies at 2100 Ross in Dallas. We also signed a 39,000 square foot lease with Colliers at Promenade in Midtown Atlanta. Colliers cited our significant renovation work and strong relationship as key factors in their decision. We extended leases with the anchor tenants in both of our medical office buildings. Emory Healthcare renewed on 130,000 square feet, through 2032 in our office tower at Emory University Hospital in Midtown. This extension enabled us to refinance the mortgage at very favorable terms which Gregg will highlight in his remarks. We also signed a ten-year renewal with Northside Hospital for 43,000 square feet at Meridian Mark Plaza.

Our leasing efforts are particularly focused on five key office properties, Promenade, 2100 Ross, 816 Congress Avenue, 191 Peachtree Tower, and American Cancer Society Center. The first three are relatively new additions to our portfolio and were acquired with significant vacancy in place. Collectively, these five buildings provide us with a very compelling value creation opportunity. Promenade had a nice pick up with the Colliers lease in the first quarter. On the flip side, as expected, Norfolk Southern vacated their 35,000 square foot short-term space, last month. Norfolk Southern's Atlanta headquarters is next during to Promenade, and we hosted one of their divisions for the past year while they completed some renovation work. We are in advanced discusses with a prospect that would bring our lease percentage to the mid-80%s. As a reminder, the building was just 58% leased when we bought it less than 18 months ago.

2100 Ross finished the quarter at 77% leased, up from 67% leased upon the acquisition late last year. Our capital improvement plan and the vibrancy surrounding the New Park continued to generate significant tenant interest, and we hope to announce additional deals in the coming months. Activity at 191 remains steady, yet moderate. 2012 was a good year for our flagship tower, having increased from 82% to 87% leased, and we're looking to eclipse the 90% mark in 2013. At ACSC, activity has picked up, but there are no significant leases to report at this point. We do expect to finalize a renewal from a 36,000 square foot tenant in the very near future. ACSC was in the hunt for a large space requirement from the Coca Cola Company, but we ended up not having enough space to reach -- to meet their requirement. The good news is they will be occupying 300,000 square feet in the SunTrust Tower in downtown Atlanta, which will bring over 1500 employees downtown from the northwest sub market.

It's also worth noting that the downtown sub market will benefit from close to $2 billion in new investment over the next few years, including a new Falcon stadium, a downtown streetcar, the College Football Hall of Fame, The Center for Civil and Human Rights, the Emory Proton Therapy Center, the new law school building for Georgia State, and several additional student housing developments. All of this activity should drive additional tenant interest downtown in the coming years. On the investment front, 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, which is approximately 45% below our estimate of replacement cost. The project was 92% leased at the time of purchase. On -- our development team has already begun implementing improvements throughout the project, and the leasing team has already executed leases that take the building to over 94% leased.

We closed yet another compelling value add acquisition last week, with the purchase of 816 Congress Avenue, in Austin, Texas. We paid $101.5 million, approximately 30% below replacement cost for this 434,000 square foot class-A tower located in the heart of the CBD, just a couple of blocks from the Texas state capitol. Partly due to unstable sponsorship, the building lost some key tenants in recent years and is currently 78% leased. The CBD sub market is 90% leased with strong momentum, so we'll have the benefit of a rising tide as we work to stabilize the building. The 816 purchase is particularly significant because of how we capitalized the transaction. Concurrent with the announcement of the acquisition last month, we launched an overnight equity offering that generated net proceeds of $165 million.

We are pleased with the execution of the offering and the strong demand from institutional and retail investors alike, who recognize the progress we've made over the past two to three years. This was important in many respects. Most important, providing the capital that we were able to immediately deploy to an attractive value-add acquisition such as 816 Congress, and enabling us to redeem our series A preferred stock, which we will do next week. It further serves to enhance our solid balance sheet and provide us with even more flexibility as we continue to execute our strategy. Regarding the prospects for future acquisitions, the volume of opportunities is encouraging, and we hope to execute at least one or two additional deals this year.

Now, moving on to the development pipeline. At Emory Point, the retail space is approximately 90% committed with only three vacant spaces remaining. The apartment component is ahead of schedule, approximately 60% leased with economics that continue to exceed our expectations. Phase 2 is still progressing towards a late summer commencement. Mahan Village, our public anchor development in Tallahassee, finished the quarter at 91% leased and is on track for full stabilization in the coming months. 123 West Franklin, our mixed use development at UNC, Chapel Hill, remains on track for a 2014 start. In Austin, Texas, the pre-development work continues at Third and Colorado, our 370,000 square foot proposed office tower in the central business district. We are confident that we will be announcing construction in the very near term -- the start of construction in the very near term.

Before passing it to Gregg, I wanted to briefly highlight the employment trends in our core markets, which include Charlotte, Raleigh, Atlanta, Dallas, Austin and Houston. Trailing 12 month job growth in these six markets range from 2.5%, to 4%, with Houston and Austin leading the pack at 3.8% and 4.0%, respectively. Compare this to the overall job growth of the United States at 1.4%. Looking forward, PPR is projecting annual employment growth of 2.5% to 3.6% for our markets through 2017, compared to 1.9% for the nation overall. These demographic tail winds, while not essential to the execution of our strategy, are certainly a welcome companion.

In closing, it was a very active and productive first quarter, we remain focused on three objectives, all of which tie directly to our overall strategy, simplification, leasing, and executing investment opportunities. The upside potential associated with each of these is considerable, and we believe we will -- will be the key to driving superior results for our shareholders in the months and years ahead. With that, ail pass it on to Gregg for an overview of the financials.

Thanks, Larry. Good morning, everyone. Overall, we had a very productive first quarter, lots of positive transactions and capital markets activity. From an earnings perspective, FFO was $0.11 per share, and, although all of this activity had an impact on FFO for the quarter, both up and down, there's one item that may not be obvious in the face of our financials that I'd like to point out this morning. A significant portion of our long term compensation here at Cousins is driven by the relative performance of our shares versus our peers' shares.

In that regard, we had a terrific quarter, and our long term compensation accrual reflects that. This entire accrual runs through our G&A line item, and it resulted in a large spike during the first quarter in the G&A expense number on our income statement. Without this non-cash accrual adjustment, G&A would have been about $1.5 million lower, and FFO would have been about $1.5 million higher during the first quarter. FFO would have been $0.12 instead of $0.11. If there was ever a good variance to have in G&A, this is it. Both our shareholders and our employees win, and despite this pop during the quarter, we are still maintaining our prior full year 2013 G&A guidance of between $20 million and $22 million, although we will likely be at the top end of that range for the year.

With that, let me move on to providing an update on the embedded NOI associated with the big four assets. If you recall back in the summer of 2012, we identified three large assets in the portfolio that had significant upside potential due to existing vacancies, 191 Peachtree, Promenade, and American Cancer Society Center. Upon the purchase of 2100 Ross during the third quarter of 2012, we expanded this list to four assets. We estimated that bringing these assets to 90% occupancy would generate approximately $13 million in embedded NOI. As of March 31, we had signed net new leases representing about $5.8 million of this total, and had already begun recognizing revenues on those leases representing about $2.3 million on an annualized basis. With the purchase of 816 Congress after quarter end, as Larry said earlier, we will expand the pool to five properties. This addition will increase our previous $13 million embed NOI goal to $14.5 million going forward.

We also continue to successfully lease up our two new developments in the quarter, Emory Point here in Atlanta and Mahan Village in Tallahassee. The combined NOI from these two assets still hasn't stabilized, but it is growing steadily, moving up from $46,000 in the third quarter of '12, to $400,000 in the fourth quarter, and $700,000 this quarter. Before moving beyond operations I thought it might be helpful to discuss our property operating margins. Since a key part of our strategy is to develop new properties and purchase value add properties, and to oftentimes fund these new investments with the sale of stabilized properties, it's critical to look at our same property pool when analyzing operating margins. And the trend here is very good. Our same property operating margins during the first quarter was 62%, which is an increase both sequentially and on a year-over-year basis. This progress is a testament to the continued implementation of our focused strategy, as well as our hard-working management team.

I'd also like to provide a quick note on the same property reporting schedule on page 14 of our earnings supplement. This schedule had a couple small calculation errors, including not properly adjusting prior periods to reflect our new ownership percentage in Terminus 100 and Terminus 200. With this specific metric, there's no change to current quarter numbers, only previous quarter numbers. After these adjustments, which now provide a true apples to apples comparison, our same property leased percentage in the fourth quarter of '12 is 90%. We have posted an updated page 14 of the supplement on our website.

With that, let me move beyond operations. We've had a very productive year so far in the capital markets area. During the first quarter, we closed on a new mortgage at Terminus 200, as part of the larger Terminus Post Oak transaction Larry discussed. It's an $82 million non-recourse, 10-year, fixed rate mortgage at a rate of 3.79%. Subsequent to quarter end, we also closed on a new $75 million non-recourse 10-year fixed rate mortgage at our Emory Midtown medical office tower at a rate of 3.5%. These are both great pieces of debt that allow us to lock in at attractive long term cost to debt.

Also subsequent to quarter end, as Larry mentioned, we successfully completed a follow on common equity offering where we sold 16.5 million shares, at $10.45 per share, raising about $165 million after fees. This offering was specifically earmarked to fund our purchase of 816 Congress and to redeem all of our expanding series A cumulative preferred stock. This is great long-term execution with positive implications for both our earnings and our already strong balance sheet. Looking forward, as Larry said, we have two large retail assets in the market right now, The Avenue, Murfreesboro and Tiffany Springs Market Center, and we have identified several additional non-core assets for potential disposition in 2013. As we explore and underwrite new investment opportunities, we will evaluate all of our capital options at the time we tie one up, including asset sales, and determine the most appropriate sort at that time.

With that, I'd like to update our guidance for 2013. Before starting 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 reasonable guide post for future performance. We also provide guidance on fee income as well as G&A expenses. At 191 Peachtree, we had a terrific first quarter, exceeding our previous guidance driven by a lot of positive small items that added up to a relatively big beat. Going forward, we expect to generate approximately $4 million in second quarter NOI at this property, increasing to $4.2 million per quarter by the end of the year. At Promenade, we also exceeded our previous guidance in the first quarter, driven primarily by strong parking revenues. However, with Norfolk Southern moving out, as Larry mentioned, we expect a slight down tick in second quarter NOI to approximately $2 million, moving back up to $2.25 million by year end. 816 Congress, our new acquisition, will generate an average quarterly run rate of between $1.4 million and $1.5 million in 2013.

Second quarter will be a bit lower, due to the April closing. That's all the property guidance we're providing at this time. Again, other than these specific instances, historical performance or previous guidance is a reasonable guide post for future cash flows. Regarding G&A expenses, as I said earlier, the range for 2013 remains unchanged between $20 million and $22 million with our current forecast putting it at the top end of this range driven by non-cash compensation accruals tied to a relative total return. Finally, if you don't have it in your earnings estimates already, please remember that per GAAP, the preferred redemption, which closes next week will result in a non-cash charge of the original underwriting costs, which equals $2.8 million, and that will happen in the second quarter.

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

Thank you.

(Operator Instructions)

John Guinee, Stifel Nicolaus.

Well, congratulations. You guys are becoming very boring and mundane, this is great. Wow. (laughter). So I think what's going on right now in the southeast is everybody's kind of figured out that the blue state/red state thing is for real, and that the real job growth in this country is going to be in the sun belt, in the red states right to work states, et cetera. That's great news. The bad news is that everybody and their brother is looking for deals, and there's no more acorns on the ground, the 2100 Rosses are long gone. You made a great purchase, et cetera. So the question I would ask, two questions, one, what do you think of the multitude of markets down in Florida? And two, where are there still some untapped opportunities?

Good morning, John. I think you must have been talking to my wife, because I've got my 35th anniversary next week, and boring and mundane would probably be her lead title on me, so I hate you starting out with a personal question. But in all seriousness, I think your observations in terms of the markets and the job growth as I highlight in my speech are right on point. And the type of opportunities on acquisitions that we look for in terms of the value-add with the vacancy, or the repositioning are getting harder to find, particularly in the Texas markets, and I'm sure that's no surprise. We still think we have our eye on some stuff, nothing that is in process, but we think there's still some opportunity in Atlanta for something to look at. And we still have our eye on some things up in North Carolina.

In terms of expanding to new markets, we constantly are looking at markets throughout the southeast, including Florida, but we really, if we go to a new market, we want to be thoughtful about that, and make sure it's a market that we are looking at, and not just for a transaction, but for longer term. Because so much of our platform performance depends upon having boots on the ground and having relationships in those markets. So I'm not discouraged with the acquisition pipeline right now, but I think you are right on point in terms of a lot more interest than a year ago, and pricing in certain markets getting pushed up beyond levels we're comfortable with.

Talk to you in a few months. Thanks.

Brendan Maiorana, Wells Fargo.

So, Larry, I guess if I did the math on 816 Congress right, it looks like on a stabilized basis, if you get an additional $1.5 million, it's probably high 6%s, cap rate yield on cost. And then you've probably got some rent growth on top of that, because I think rents are below market. So that's sort of the world that you guys are looking at in terms of return expectation that we should look for for the new deals you're looking at as well?

Brendan, it's Gregg. The built in cap rate on 816 Congress is actually high 5%s. So not high 6%s, high 5%s if you just --

Yes. Yes, sorry, I was kind of giving you credit for the $1.5 million of taking the difference between the $13 million of NOI growth on your big four assets, and then $14.5 million on your big five, I guess, so giving you $1.5 million of credit, stabilized, no rent growth. It was sort of how I was coming up with high 6%s. So I was wondering if that is, let's say high 5%s going in, high 6%s maybe stabilized before rent growth, is that sort of the deal parameters that you guys still think hold in the markets you're looking at?

Brendan, I can't disagree with your numbers, but let me take a step back and tell you kind of how we look at it. We underwrite -- when we've got a building like 816, we underwrite the in place rents, as a core investment for us, right? And so we look at that relative to the other core investments available in that market. And then we underwrite the vacancy much like we'd underwrite a development opportunity with a lot less risk, because you don't have any construction risk.

The building exists, you just have to lease it up. So we get comparable returns on the vacant space as we get with the development oftentimes. And then if the mix, the weighted average of those two where we arrive at an acceptable return on the investment. So that's how we're approaching these assets, and 816 penciled out just like all the previous ones have. And when you push all those together, because of the vacancy, it's really important to look beyond the cap rates. We look at an unlevered IRR, of what we believe to be a reasonable hold periods, and 816 is generating very reasonable return in that regard.

Yes. Are you guys pushing the IRRs down at all just because it's gotten more competitive out there?

We haven't had to yet.

Okay. And then Gregg, would you -- I think you or Larry mentioned that you'd like to get one or two more deals done this year. It seemed like the execution of 816 along with taking out the preferred and raising equity worked really well for you. You still have the series-B out there? Would that be something that would be under consideration for part of the capital stack that may come out in the future?

Absolutely. No commitment here. We've got to play the hand that's dealt to us at the time that it's dealt, and so we're monitoring that. But our series-B preferred is beyond its five year lockout. It has an above market coupon, and so I think it's absolutely a potential use of proceeds, whether we use common equity issuance or other sources of capital to take it out.

And just last one, so I appreciate sort of all the detailed guidance that you give and the detailed disclosure in the supplemental. I think if I went back to your guidance at the beginning of the year, or when you reported Q4 results, so it seems like 191, not only were you better in the quarter, but you're projects that will be better for the remainder of the year. But then also Prom 2, it was better this quarter, but I gather that the Norfolk Southern move out was a little unexpected, because I think the forward guidance on that one is lower than what you had provided previously?

Yes, that's right. There was an adjustment to our previous guidance. We weren't sure on Norfolk Southern, to be honest. And we are confident -- Norfolk Southern kind of used it as temporary space as they renovate their headquarters next door, and there's the potential they come back to us and continue to take more space down as they renovate other floors. But you're right, we had a terrific first quarter, but the balance of the guidance was adjusted primarily driven by the Norfolk Southern lease.

And the better outlook on 191, is there anything specific on that? Or just the expense controls have been maybe better than expected.

That's exactly -- as I said, it was a lot of little things that actually add up to a pretty good number, and a big part of that is expense control.

Great, thank you.

Michael Knott, Green Street Advisors.

Just wanted to ask Larry about your comment on 3rd and Colorado. I seemed to recall that your pre-leasing target had moved around a little bit over some of the last calls, so I presume you'll announce construction, and there will also be some level pre-leasing along with that?

Yes. I think that's -- you can count on there will be a level of pre-releasing. And the thing that I think is very compelling in Austin is, when you look at the job growth that the market has been having, not just what is looked forward, but what it had throughout the dip. And then I know you guys spent some time in Austin, but if you look at the rent structure of the top markets and the top buildings in the market, which are at or above replacement cost, it's a pretty compelling value proposition for customers as well as the underwriting spreads that we think we will be able to generate between our development yield and what reasonable exit caps this type of market will generate. So we feel good about it, and as I said, we could feel like we'll be announcing something very shortly on getting started on that.

And any ability to comment on whether that pre-releasing that we'll see is towards the upper end. I think the maximum range you said before was 50%, and maybe on the lower end, 20% to 30%, but I could be off on that. Any comment on where that might shake out when we see it? Close to the one or the other?

I would really let us get the announcement out. We have got some negotiations going on, and, as I said, we'll give full color on exactly where everything is when we announce it.

Fair enough. And how do you feel about the vacancy at 816 obviously will be a bit different than at 3rd and Colorado ar that space you'll have to lease there? Can you comment on how you think about how those two buildings may be contrast with each other in terms of what tenants you'll be attracting, or who might lease the space there?

Sure. We -- it's an interesting history at 816, because actually our team in Texas redeveloped this building in the '90s, and really turned the building around, and managed it for a number of years. So we know the asset really well with our team on the ground there in Austin. And what this really does is we went after this, we looked at it from a stand alone standpoint of why did 816 have the vacancy in it? And we think a large reason for the vacancy in it was it had an unstable ownership structure the last two or three years, and that ownership structure just led to some tenants leaving the building. And so we think, one, just being local and knowing the building, knowing the market, will greatly increase the tenant interest in that building. And secondarily, we think that because of that ownership structure, maybe the, they were a little aggressive in asking rents, so we've underwritten obviously what we think is market.

But we also looked at it from a standpoint of if we go with 3rd and Colorado, does that change our view? And it really was a positive on both fronts, because what it does, it gives us two price points in the Austin market. So we'll be the local player in the market with the new building going up, and we also will have a very attractive asset in the market that will be at a different price point. So we see them as being extraordinarily complimentary.

Thanks for that. And there's obviously one of your peers marketing an opportunity in the suburbs. Any interest in expanding beyond the CBD in a more sizable way than you are right now?

And are you talking about in Austin?

Yes, in Austin, yes.

No, not at this time.

Okay. And if I can ask one more, just about Atlanta, I think you had said before you're still working on bringing that concentration down to maybe 40% over time. It sounds like maybe there's a couple other opportunities in the near term in Atlanta. Can you talk about how you're feeling about Atlanta over all? What inning the market is in generally, there in Atlanta?

You bet. The concentration issue we really said that Atlanta would always be at least in the foreseeable future, it would be 50% plus of what we do. We just were trying to take that concentration down from what we had. And we have largely, we have done a lot of that and continue to do a lot of that, particularly with the sales we've had on our retail centers. But the Atlanta market is obviously because of housing and some other things, -- dipped a lot lower than it traditionally has in the down part of the cycle, but the market is really coming back in a pretty strong way. There's still a good deal of room before rents and vacancy get at the point that any kind of new construction is a threat, but you are seeing a lot of tightening.

The Buckhead -- the four office buildings at Buckhead that got so much attention when two million square feet was added in that market, are all over 85% leased at this point, and space is actually getting a little tight in those buildings for somebody that wants 50,000 or 60,000 square feet of contiguous space. The central perimeter market, you've had a lot of tightening going on in there, and we're seeing a lot of tenant interest in midtown as well. And it's both expansions, and it's relocations from outside. So State Farm has added over a million square feet in the last year here. You've got a lot of other expansions going on, and you've got -- we feel positive about Atlanta, and, because it's further behind the recovery cycle, we're still with our sharpshooter hat on, are just looking at a couple specific assets that may or may not trade, but we wouldn't hesitate at the right price to add a little bit more concentration to Atlanta.

Thanks, and nice work on the balance sheet and acquisitions so far this year.

Thanks, Michael.

(Operator Instructions)

Dave Rodgers, Robert W Baird.

I missed some of the call, but Gregg, if you wouldn't mind giving a little bit more color on retail versus office leasing, maybe new and renewal activity and breaking those out? And I guess maybe even more specifically, diving down into some of the margins on a sequential or year-over-year basis. Is leasing getting better not only in volume, and in terms of price? And if you could give us color on that, that would be great?

I'll start with the new versus renewal and the office versus retail, and we can go from there. Office total for the quarter was 397,000 square feet. The retail total for the quarter was 130,000. The net of those two is the 527,000 square feet we reported. So within the 397,000 square feet of office, 171,000 square feet was new, 226,000 square feet was renewal. And within the 130,000 square feet of retail, 54,000 square feet was new, 76,000 square feet was renewal. So those are the numbers. And then in terms of the margin discussion, as I kind of talked about in my prepared remarks, our strategy is to buy assets with vacancy, and to buy value-add opportunities and a lot of, as you know, you look at these office towers, a lot of the expenses are fixed. So when we're buying assets, oftentimes we're buying them at very low operating margins for the first year or two until they're stabilized.

Margins sometimes sub 50%, even down to the 30% area. I think we bought 2100 Ross at first it had a 37% operating margin day one. So that's why it's critical that if we're going to talk about margins, we have got to peel out all of those and just talk about kind of the stabilized same property pool. In that regard the margins are at 62% on an apple to apples basis. And that's up slightly from sequential, and it's up over last year as well. And it's actually something that we're going to start to put -- as we have a larger same property pool and larger stabilized portion of our portfolio, it becomes more important. We're going to go ahead and start to provide that margin information in our supplement. So you'll see that if not in the next supplement, certainly the one following that. And when we do provide that, we'll provide historical context as well.

Okay. That's great, thank you. I think so that's with regard to the proposed sales, I think you said, Murfreesboro and Tiffany. Any expectation for timing and demand around those? Is it too early, or do you have any good clarity around those transactions?

We took those out to market in April, and there is a tremendous amount of interest, as you would expect. These are fantastic assets, well leased in great locations. And just as we were answering the question earlier on the buy side, on the sell side, you have got a lot of demand. And so we think we'll see pricing come in over the next few weeks, and we're very encouraged by just the level of interest and sort of some preliminary indications of where that might come out.

And then last one, going back to Gregg, do you have any outstanding 1031, or reverse 1031 transactions that you're looking at or credits that you have to use up? Or with these two sales, do you expect to have any that you'd have to deploy back into new properties?

None that I have to use up, and neither of these sales will generate the need to do any. It's nice and clean.

All right, great, thank you.

Michael Knott, Green Street Advisors.

Are you guys able to just comment on overall current mark-to-market on across the overall office portfolio?

Well, Michael, it's Gregg, you know the mark-to-market is included on our balance sheet, and so it's hard to get to it. But I can tell you on our balance sheet, we've got $54 million of mark-to-market that runs through our other assets line item. So out of the $85 million in other assets that we had on our balance sheet as of March 31, $54 million of that is the mark-to-market for the recent acquisitions.

That's accounting, right? That's not at the time of acquisition?

Exactly.

Any sense of where your rents are versus today's market?

Well, let me see if this answers the question. In Atlanta, as we have talked before, rents never go up that much, and never go down that much on face rents. And so I would say the mark-to-market if you spread it out all of our Atlanta portfolio wouldn't be very big, in one direction or another. We have a couple of buildings that rents maybe a little bit over market, the newer buildings to current rate, but we also have buildings that it's under. In the Texas markets you're seeing very solid rent growth going on in those buildings, and so we've been able to push rate a little bit on 2100 Ross from our initial underwriting. We've done -- actually done about 30,000 plus square feet of leasing and Post Oak Central just in the few months we've owned that, and those spreads have been nice as well. Too early to tell on Texas, so rents are in the right sub markets in Texas, rolling up some, and the -- in Atlanta, they are stable, but still relatively flat. But the tenant improvements and pre-rent are tightening in Atlanta.

Michael, I'm going to try to -- maybe it helps and maybe it doesn't. But I think it will give you an good relative sizing. Our most recent acquisition before the subsequent one, 816, but the one that's on our books Post Oak Central, which we bought stabilized at 92%, but which we believe and the market believes has many rents below market. Of that $85 million I just quoted you, $28 million of that is attributable to the Post Oak Central mark-to-market, so I know it's hard to put that in your mind, it just tells us on a relative basis that those rents were, are and were materially below market.

Right. Okay. That's helpful from both of you. Thanks. Any update on Birmingham, the couple office properties there? Are you still looking to shed those?

You know, Birmingham is not a strategic market for us. We are going to be generating a fair amount of proceeds from the sales of these -- of some of our retail portfolio. So we'll just match where we see opportunity, and use for those proceeds as well as what our balance sheet needs might be. But they are on the radar, but not anything that we've got in motion right now.

Thanks. And then Larry, I think you mentioned that tenants, you'd seen some tenants starting to expands, which was something new in this cycle. Is that -- did that pertain just to Texas or was that an overall comment?

No, that actually, they have been expanding in Texas. That really was more of an Atlanta comment is that, as I look at our book of leasing this quarter, it's really encouraging that you're beginning to see that our small and midsize tenants start to talk, start to expands some. And it's not a huge number today, but a growing number, and that's encouraging for a lot of reasons.

Are you guys seeing any real dense vacation among tenants in your markets? Or is that not a trend that's really hit your markets where rents are lower, et cetera.

No, I think the -- if you take a -- in any of our markets, if you take a tenant today that is looking at their space that they had signed a lease on 10 years ago, if their business is the same, and they hadn't changed the number of employees, and they decide to move, they are generally going to take less space. It just depends upon the type of tenant, but it is a looking at more, dense use of their spaces just like our other peers are seeing.

Okay. Thank you.

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

Once again, it's been a fun quarter, and lot of exciting things going on here at Cousins. We very much appreciate you all joining us this morning, and we look forward to seeing you or talking to you soon. As always, Gregg, and the rest of us are available any time for any questions or thoughts you may have. Thanks 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 line.