Cousins Properties Inc (CUZ) 2013 Q3 法說會逐字稿

Good day and welcome to the Cousins Properties third 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. Please, go right ahead.

Thank you. Certain matters the cab company will be discussing today are forward-looking statements within the meaning of federal security laws. For example, the Co. 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, and its current report on form 8K, filed on October 30th, 2013, for additional information regarding certain risks and uncertainties. Also, certain items the Co. may refer to today are considered non-GAAP financial measures within the meaning of Regulation G as promulgated by the SEC. For these items, the comparable GAAP measures and related reconciliations may be found through the quarterly disclosures and supplemental SEC information links on the Investor Relations page of its website at www.cousinsproperties.com. I will now turn it over to Larry Gellerstedt.

Good morning, everyone. The team has worked extremely hard over the past 24 months to transform the company by simplifying the platform, focusing on urban trophy assets and sourcing opportunistic value add acquisitions and developments. This quarter marked an inflection point in that transformation with a compelling portfolio acquisition in Texas, the largest in our history, and the disposition of our Lifestyle and Power Center holdings. Most importantly, with significant value creation opportunities in both our existing portfolio and development pipeline, we feel very confident about the future. Let's take a quick look at the Cousins platform today.

Consistent with the goals laid out 24 months ago and our strategic plan, our Co. has over 80% of our NOI coming from urban trophy office buildings. The Texas markets of Austin, Dallas-Fort Worth and Houston represent 50% of our portfolio. Houston and Atlanta are equal in size and represent over 70% of our square footage. This transformation has involved selling over $900 million in noncore assets, and investing over $1.8 billion on strategic office assets and opportunistic developments.

In the process, our balance sheet leverage has been reduced from 45% to 30%. As we move forward, we are primarily focused on capturing NOI embedded within our portfolio, executing our opportunistic investment opportunities and maintaining a very strong balance sheet. The first two items, embedded NOI and new investments should drive significant future NAV growth. The third objective ensures a stable base, something we view as critical in generating strong long term returns.

The central theme of our strategy is a sharpshooter approach targeting class A office towers that are well placed with an urban, high barrier submarkets in Texas, Georgia and North Carolina. This is where our creative deal making capabilities, development skills, relationships and market knowledge provide a competitive advantage. We've managedto acquire a number of such towers at a significant discount to replacement cost over the past 24 months and hope to land more in the month ahead.

In some markets where it makes sense, we will also look to develop new towers as we're doing now in downtown Austin, Texas. We are optimistic that our creative deal making capabilities will continue to uncover attractive value add and development opportunities. Let me briefly expand on our target markets. Austin, Dallas-Fort Worth, Houston, Atlanta, Charlotte and Raleigh continue to play -- display some of the most encouraging demographic and economic growth dynamics in the nation.

The average 12 month job growth in these markets is 2.7% compared to overall job growth for the U.S. of 0.8% and the momentum doesn't appear to be slowing. PPRs, projected job growth, through 2017 for these markets exceeds the national rate by more than 50%.

Atlanta, our hometown, is poised for tremendous positive growth driven by its diverse economic base, major research universities, talented work force and overall quality of life. Atlanta has now reclaimed all of the office jobs it lost during the downturn with 3.8% employment growth, office employment growth, over the past 12 months alone. One key advantage that I think is often overlooked in Atlanta is our higher education infrastructure. Atlanta has over 275,000 college students across 66 colleges and universities, putting it in the top five in the country. Nearly half of Atlanta's residents hold a bachelor's degree or higher compared with just 28% nationally.

Leading companies of all sizes, which compete for skilled employees every day, really like being near this deep pool of talent. While it's been a gradual turn around for the Atlanta office markets, things are certainly going in the right direction, and it's been going that way for longer than you might think. 2013 will mark the fourth consecutive year of positive absorption for the Atlanta market, and we see know signs of this trend reversing any time soon.

Houston has added 290,000 jobs since December of 2009, and remained in the top three of every major economic growth metric. Not only has Houston emerged as the leading global energy hub, it is home to the largest medical complex in the world, Texas Medical Center, and one of the world's busiest seaports, which stands to reap significant economic benefits from the pending expansion of the Panama Canal. Where the real gross area product projected to more than double from 365 billion to 747 billion by 2030, we believe Houston is in the early innings of a long term secular expansion.

To give one particularly strong data point on Atlanta and Houston, in the third quarter class A net absorption in these two markets, which comprise 3% of the U.S. labor force, accounted for 25% of the net absorption in the country. Dallas-Fort Worth is also firing on all cylinders having added over 100,000 jobs over the past year. Austin led the nation over the past 12 months in office employment growth and overall employment growth at 4.2% and 3.3%, respectively.

It continues to reap the benefits of a broad based economic expansion with 5.1% unemployment rate, 220 basis points below the national average. While the macro trends are encouraging, and we certainly pay attention to them, we are far more focused on the micro trends. We don't just target cities in a broad sense. We target specific locations within submarkets that we believe possess the most compelling supply-demand characteristics.

Our top submarkets, Galloway, Galleria and Greenway in Houston, Buckhead, Midtown and Downtown in Atlanta, the CBD in Southwest and Austin, and the Uptown Arch District in Dallas, and the Fort Worth CBD, together account for 84% of our office portfolio. These are infilled markets where physical and economic barriers to entry are meaningful constraint on new supply. Since 2010, class A space in these submarkets has experienced 5.3% positive net absorption. Contrast this with the three-year future development pipeline, which in total represents less than 2% expansion capacity.

Put another way, in an environment of steadily increasing demand, we anticipate less than 2 million feet of new deliveries in these submarkets, comprising over 92 million feet of class A space. We like these dynamics. Our infilled submarkets often get lumped in the same low barrier bucket as their suburban neighbors, but the data tells a different story. Moving on to the portfolio. The acquisition of Crescent's Texas portfolio, which closed in September, provide an outstanding fit on many levels.

High quality urban office assets in the best submarkets, a rare combination of an attractive in place yield, embedded NOI growth, and future development potential, and virtually overnight we considerably expanded our Texas platform at a significant discount to replacement cost. We also obtained notable benefits to scale with increased liquidity for our shareholders, and a significant improvement in our G&A expense ratios. The integration of the Crescent platform is off to a good start, and we're excited about the talented people we've added in both Houston and Fort Worth.

Crescent's reputation has always been first class. Its countless high profile development accolades and awards over the years attest. And I'm happy to report that this group has already exceeded our lofty expectation. I look forward to introducing you to the key players that our Investor Day in Houston, which we plan to host early next year. More details to come.

Momentum in our office operating portfolio remains positive with our same property pool now 91% leased, up from 90% the prior quarter. Our same property net operating income, which increased 4.5% over the prior year, is perhaps the best reflection of our progress. We're encouraged by the ongoing leasing activity across the portfolio, both with existing customers and new prospects and expect to have a strong finish to the year.

We're also optimistic about our value add assets, which host the bulk of our embedded NOI opportunity. 2100 Ross and 816 Congress were quite active, while Promenade continues to get a lot of traction. We've also seen a welcome uptick in downtown Atlanta, particularly at 191 PeachtreeGregg will give you more color on the embedded NOI in a few minutes. Sourcing and ultimately executing these value add opportunities takes a significant amount of creativity, market knowledge and operational expertise.

Thanks to our development skills, we know how to revitalize these assets, and we know where to put the capital to work. On the new development front, the outlook remains very positive at Colorado Tower in Austin. I would want to note that we had an error in our supplement saying that Colorado Tower is 19% leased versus 17% leased in the prior quarter. The current number is 17 -- the correct number is 17%.

However, the good news is we recently signed a 15,000 square foot lease after the end of the quarter, bringing the building to 22% preleased. We're also in the final lease negotiations with a tenant of similar size, and are in discussions with over another 400,000 square feet of prospects in various stages in the process. At Emery Point, we recently broke ground on the $70 million phase 2, comprising an additional 307 apartment units and approximately 40,000square feet of retail.

Phase 1 apartments eclipse 90% occupancy in the third quarter, well ahead of schedule with financial returns comfortably above pro forma. The retail component has been a success as well. Enabling us to be selective with the limited remaining space to ensure we get the right tenant mix. 123 West Franklin, our $100 million mixed use development in the University of North Carolina, remains on track for a late 2014 start.

Regarding dispositions in the simplification effort. With the sale of Avenue Murfreesboro, and our two Prudential joint ventures, we have successfully exited the lifestyle Tower Center business, and have drastically simplified our portfolio. Our only remaining retail component aside from mixed use is our portfolio of five public anchored shopping centers, which we opportunistically source through a relationship with the Watkins Group. It's been a good investment but not something we consider a long-term hold. We haven't made a timely decision on these centers yet, but we'll probably exit sometime next year.

Our 51,000 square foot Westside Parkway building, now 100 percent leased, is under contract and we hope to close by year-end. We're also in the marketing process of our two Birmingham office assets, and expect to be under contract within the next couple of weeks. In closing, 24 months ago, we presented a straightforward vision for Cousins that concentrated on three things, simple platform, trophy assets and opportunistic investments.

This strategic transformation has streamlined our business model, tightened our focus and maximized our ability to generate attractive returns for our shareholders. We are excited about the value creations opportunities in hand and in the field. With that, I'll pass it on to Gregg.

Thanks, Larry. Good morning, everyone. Third quarter continued a string of solid quarters we've had throughout 2013. At first glance, it certainly appears to have been a very busy quarter, and it was. But moving down into the actual activity, it was pretty clean and simple.

We purchased a large portfolio of office properties in Texas, and funded the purchase with a combination of new common equity, debt on existing properties and noncore asset sales. We purchased a 100% interest in the Texas assets with no partners or complex venture structure. We issued straight up common shares through a one day marketing effort. We placed long-term, fixed-rate, non recourse debt on two stabilized assets at attractive rates. And, the assets we sold were the majority of our last noncore retail properties, including the dissolution of our two joint ventures with Prudential. That's really it.

During the quarter, we also obtained a $950 million term loan just in case the timing of our sources of capital didn't match the required purchase date. But in the end, we were able to close on enough sources of capital prior to closing the purchase that we didn't need to draw on the term loan at all, a terrific outcome considering the fast pace of the transaction. When the dust settles, we have improved geographic diversification. We have focused our portfolio on class A urban office properties. We have reduced leverage. We have increased the liquidity of our shares. We've reduced G&A as a percentage of our assets, and we have greatly simplified the story.

When we say transformational, we really mean it. With that, I'd like to quickly re view the three special items in this quarter's earnings release before I jump to the numbers. Consistent with our move towards simplicity, I believe these will likely with the last material special items you see for quite a while. First, as many of you know, we sold Cousins Property Services during the third quarter of last year. We've now successfully completed a 12 month earn out on this sale and recorded an additional $4.5 million in proceeds.

Our former management team, now happily ensconced at Cushman and Wakefield, did a terrific job to capture this extra profit for our shareholders. Second, we completed the purchase of the Crescent Texas portfolio during the third quarter, the largest purchase in our history. It was a $1.1 billion transaction, and, obviously, required significant costs to complete. In total, the cost to purchase the portfolio that ran [through FFO was approximately $6.9 million.

Finally, we also sold the last of our Lifestyle and Power Centers during the third quarter, which resulted in net severance costs of $520,000. Now, for the numbers. For the third quarter, we earned $0.11 per share in FFO. $0.12 per share, excluding the three nonrecurring items I just listed. Performance was driven by solid same property operating numbers. NOI was up 4.5% during the quarter and continued to lease up at a portfolio properties that had in place embedded NOI growth potential.

As a quick reminder, in the summer of 2012, we identified three large assets in our portfolio that had significant NOI upside potential due to existing vacancy. 191 Peachtree, Promenade and the American Cancer Society, all in Atlanta. Upon the purchase of 2100 Ross during the third quarter of 2012, we expanded this list to four assets. When we purchased 816 Congress during the second quarter of 2013, we moved the number up to five. And now we are adding 777 Main, a trophy office tower in Fort Worth that was part of the Crescent acquisition to make it six.

Although 777 Main was 91% occupied at the date we bought it, this will drop to 72% by year end, as Jacobs Engineering plans to downsize at their lease expiration. This move out and resulting vacancy was one of the reasons we were able to purchase 777 Main at such an attractive price, $162 per square foot. It's also one of the reasons we were interested in the property in the first place. With the addition of 777 Main, we estimate that moving the occupancy on these six assets from where it was from where it was at the time we added them to this group until they reach 90% occupancy, will generate approximately $18.5 million in embedded NOI.

As of September 30th, we have signed net new leases representing about $9.5 million of this total. The amount of revenues we are realizing on these leases; however, was only about $2 million during the third quarter. What this means is that we have fully executed leases in hand of $7.5 million in incremental NOI that's not yet running through our income statement.

On top of that, we've got the additional $9 million in future leasing opportunities from these successes. These are significant numbers, and we're pursuing these leases aggressively. We'll continue to keep you apprised of our progress. With that, I'd like to take a few minutes to discuss our strategic transformations impact on our earnings.

After several years of relatively flat earnings, primarily due to the diluted impact of our capital recycling efforts, we anticipate FFO to increase going forward. Not only do we expect FFO to increase, we expect it to be higher quality FFO with a much larger percentage coming from property level NOI rather than fee income, land profits and the like. And as such, it should be easier for you to forecast, to understand, and to value.

In a nutshell, we should be generating more simple and predictable high quality earnings, and we'll be doing it with a strong balance sheet. According to Greenstreet, our current debt plus preferred over gross assets is 34%. Nobody in their coverage universe has lower leverage. The office industry average per Greenstreet is 47%.

With this leverage profile, we are in an excellent position to move forward and execute the value added strategy that Larry has laid out. It's an active, not a passive strategy that requires financial flexibility and strength. And we do not expect to increase our leverage during the execution of this plan. With that, I'd like to update our guidance for the remainder of 2013.

Before I start, I want to remind everyone that we don't provide FFO guidance. We only provide guidance for specific property assets where historical performance may not exist, or may not be a good guidepost for future performance. We also provide guidance on fee income, as well as G&A expenses. I'll start with Promenade, our office tower in mid-town Atlanta.

We had previously expected quarterly NOI to average $2.25 million dollars during the second half of 2013, and in total we still believe that will be the caseHowever, due to the delay of certain expenses during the third quarter, NOI was a little higher at $2.5 million. And in the fourth quarter, NOI should be a little lower, closer to $2 million. Same six month total, just a little different timing.

I'd also like to provide some initial NOI guidance for our two recent Texas purchases. First Greenway. During the fourth quarter, our first full quarter of ownership, we expect quarterly NOI of between $18 and $18.3 million. At 777 Main in Fort Worth, we expect fourth quarter NOI of between $2.5 million and $2.6 million.

As I mentioned previously, occupancy at 777 Main will move from 91% to 72% during the fourth quarter, so what I've just said is just one quarter guidance only. We'll update our go forward guidance on 777 Main next quarter to reflect this drop in occupancy. That's all the property guidance we're providing at this point. Again, other than these specific instances, historical performance or previous guidances or reasonable guidance [post future cash flows.

Regarding G&A expenses, I'd like to move the full year 2013 range up from between $20 million and $22 million to between $22 million and $24 million. The driver behind this increase is our strong performance, both short term for annual bonus purposes and longer term for incentive compensation, both of which are tied to specific objective performance metrics. This is the sole reason for the increase in our forecasted G&A expenses. That's a pretty positive reason for both our employees and our shareholders.

Outside of the bonus and insensitive compensation adjustments, we're actually tracking below our original 2013 G&A budget. Using the midpoint of our updated G&A guidance the ratio of G&A to undepreciated asset is 0.8%, down from 1.9% at the beginning of 2010 Other than that, I'm happy to report everything else continues to come in right on plan, and we have no other specific changes for 2013. I'll provide full year 2014 guidance on our next earnings call in February. With that we turn the call back over to the operator for your questions.

Absolutely. Thank you. (Operator Instructions). We'll go with the first line the line of Jamie Feldman Bank of America Merrill Lynch. Go right ahead.

Great. Thank you. I'm hoping you can talk a little bit more about leasing demand in Atlanta, specifically downtown and mid-town and then any thoughts on new construction there. Maybe, I've heard maybe in the central perimeter we may start to see some. So just kind of a big picture of what's going on in Atlanta, especially in your submarkets.

Sure, Jamie. The Atlanta is, this past quarter, had over a million square feet of absorption and just continues to be very, very strong. That absorption has really tightened the central perimeter market. In specific State Farm has taken well over a million and a half square feet out of that market in the last 18 months. You've also seen Buckhead tighten significantly. So those two markets have certainly tightened. They are -- State Farm has announced that they're going to build some new product out there that will be build to suit just for them, so you'll have that product being added to the market over the next three years or so. And, you know, the market -- the tightening has happened in a pretty fast clip. The key to watch m that market, and we certainly are watching it closely, is there still is over a $8 a square foot gap between what top of the market rents are in that submarket and what would pencil out in terms of new development.

So outside the build to suits, I think people are positioning for the possibility of new buildings, but the gap still pretty broad. Buckhead has tightened significantly. We don't see anybody moving ahead with new product in Buckhead in terms of actually starting to talk about breaking ground or anything. So if there's new development, it would be, you know, two to three years out before it could get delivered if it started today. And there's not been anything announced, but we certainly, as you would expect, are watching that market closely. Midtown is beginning to tighten, as well, as customers, you know, are seeing Central Perimeter and Buckhead has gone. The occupants -- the vacancy has decreased so much.

So Midtown is beginning to do well, in addition. Promenade has just been fantastic for us. I mean we continue to have extraordinarily strong tenant demand, a fair amount of tenant expansion with existing customers in that building. And then downtown, well at 191, you know, downtown has really been impacted in a positive way. Last quarter when Coca-Cola announced that it was going to move 2,000 employees from the Northwest Market into the SunTrust Tower in downtown, which effectively fills that tower up to 100 %. So of the three towers, class A towers in downtown, SunTrust is 100%.

We're just about at just under 90 %, and the Georgia Pacific Tower would probably be about in the same range. And we think downtown will continue both from a price standpoint and the fact that you've got a couple billion dollars of new development going on on. A street car project will open in the spring of next year, will continue to look attractive in the Atlanta areaBut in terms of new supply other than build to suits, there's really not any new supply that we see is imminent in any of those submarkets. And the other submarkets, North Fulton has tightened, as well, but there's -- it still has a significant delta, even larger than the central perimeter before it could support new development.

Okay. And then what do you think in terms of rent growth?

You know, what -- we certainly are seeing --

I guess effective rent growth is probably a better question.

Well, we're seeing rent growth, obviously, in the Texas part of the portfolio. What you're seeing in Atlanta is you're seeing concessions come way down, much more in line with what you would see, you know, have historically seen in Atlanta. And rents has still been relatively flat. But us and others are beginning to be in a position to try to push rates a little bit.

Okay. Great. Thank you.

Thanks, Jamie.

Thank you very much, and we'll go with our next question from the line of Michael Knott from Greenstreet Advisors. Go right ahead.

Good morning, guys. Jed Reagan here with Michael. You touched on the lease activity at Colorado Tower. How would you say that leasing progress is pacing relative to expectations, and then can you talk a little bit too about leasing pipeline at 816 Congress?

You bet, Jed, thanks for that question. The Colorado Tower project, we are even more optimistic about that project than when we started construction. And when we underwrote the project, we didn't underwrite it to being up to 90% leased until the end of 2016. So we were pretty conservative about the lease up, and we're wanting to make sure that we get the right customers in and maintain our pricing expectation. So that 400,000 square feet of prospects are very real prospects, and, you know, we're still well over a year from delivering the project.

As I said, I think we'll have another lease to announce here by the -- by the end of the year. So I feel, you know, very good about Colorado Tower. We are -- you know, in that submarket market there's one other building that's under construction that's 195,000 square feet that's actually not in the true CBD area, and we really haven't felt much impact from that building as we have leased up Colorado Towers.

So Colorado Tower is going well. 816 is also going well. The deals we've done are certainly ahead of our pro forma. We're beginning to get our capital plan executed there, which is -- which is important to do. And our primary focus has certainly been on a couple of big renewals that we have with the U.S. Attorney's office, as well as the Texas Retirement Fund. We feel very good about where those renewals are moving. And we see good demand at 816. So Austin continues the CBD to be, from our standpoint, a very good market to be in.

When do you expect to stabilize 816 again?

Sure. Hey, Jed. It's Colin. We, as we underwrote 816, it was similar to, you know, Larry related or lease up on Colorado Tower. We always take a pretty conservative view from from an underwriting standpoint. That being said, I think the demand that we're starting to see, especially as we begin to work through our capitol plan, I think we feel very optimistic. We won't provide specific guidance, but based on the pipeline of leasing -- leases out there relative to our current occupancy, we feel very confident.

Okay. Great. And can you also talk about the business plan for American Cancer Center at this point, and are you getting any traction on data center demand that you previously talked about?

You know, Jed, there's no question that American Cancer Society has been, over the years, a fantastic investment for Cousins Properties. If you look at what we bought it for originally and then our refinance on it. It certainly has been a home run. But we have been -- have not gotten the take-up from the data center new demand. Although the data center customers that are there are certainly renewing and staying, we have not gotten the demand that we hoped to. And what we're really looking at on the American Cancer Society is, you know, we are [stuck -- we're following very, very closely, really, on the value analysis of what we think that building is worth, and whether or not it's a long-term hold. We're not saying that we're going to sell the building. But I would say that it's one that's on our question mark as we look to, you know, fund future activities here. As whether or not that's going to be a long-term hold just given the nature of where we think the tenant demand's going to be in the future.

Okay. That's helpful. And last one, if I may, just if you could talk a little bit about the Houston supply picture. It does seem like a fair bit of supplies are kind of creeping into the market. Can you talk about any risk this might pose for your portfolio, and any specific competitor projects that you're focused on?

Yeah. We certainly, you know, are following that very, very closely, and it's one of the reasons that we really focused on the submarkets that we focused on. So in the Galleria submarket, there are two buildings that have been delivered that total 600,000 square feet. They were the first two buildings to be added in that 18 million-foot submarket since 1984, and they're both now over 90% leased. There's not any other speculative development. There's some build to suits being discussed, and one build to suit actually being done in that submarket. But there's nothing imminent in terms of new speculative development of any scale that we're aware of.

The other thing that's happened in that submarket, as well, is a lot of these urban markets is you have a fair amount of future office sites and all these markets being taken by multifamily over the last couple of years, which is a great thing from the defensive standpoint. So in the Galleria we only see a couple of other office sites really available in that submarket, and so we feel very good about the supply and demand there. Galleria -- the Greenway submarket, as well.

There are a couple of buildings that add up to about 600,000 square feet in that submarket that we're aware of that some folks are trying to get off the ground, but there's been, you know, no ground breakings announced, no major tenant activity announced. We certainly are hard at work in looking and determining exactly what our next expansion, when the market supports it at Greenway will be just in terms of where it will be, which pad we will put it on, so we can offer our customers expansion opportunity there.

So in our two submarkets that we're in Houston, new supply is not really a material threat. Where we see the new supply is there's some new supply being discussed in the CBD, and then there's, obviously, a ton of new supply out on the energy corridor. And the main thing that we have to watch there is customers that are in these submarkets that may elect to take part of their -- their employees out to the energy corridor, but that has not been a major issue in our Houston portfolio to date.

Okay. Great. Thank you.

Thanks, Jed.

And we'll go with our next question. It is from the line of Dave Rodgers from Robert W. Baird. Go right ahead with your question.

Hi. Good morning. Larry may be from you, you know, from the camp of what have you done for me lately, can you talk about the acquisition opportunities that you're seeing in the market right now. You know, what's happened to pricing since several large transactions kind of throughout those southeast markets priced, and do you continue to be active there or really will it be a shift for Cousins towards development.

Well, that's a great question, Dave, and I think as we, you know, look at our opportunity subset, the value add acquisition opportunity, certainly the second half of this year outside of the Crescent deal, has been slower than has previously taken place. And the truth is a lot of these value add opportunities of the type assets that we would want have traded, and so I think it's going to be much more of a sharp shooter opportunity where maybe we can use our creative skills like we did on 2100 Ross or some others to get access to some assets other than through the traditional marketing process.

We certainly look at stuff that comes on marketing and is marketed, not to say that we won't find something attractive to go after. But it's a -- it's certainly something where we've seen some pricing that just gets beyond what we think makes sense so -- for us, on some of the acquisitions we're looking at. So new development is becoming more and more of where we see opportunities. And, of course, that really plays to our strengths. And so whether it's the, you know, the Greenway submarket, the Galleria submarket, Buckhead and Atlanta, etc., we certainly are doing work to make sure we're positioned to take advantage of new development when it makes sense there.

And if you were to go forward, let's say in the Texas markets, now especially in Houston, how long before you could start coming out of the ground just given (article) for a while, but in terms of Greenway, it's so new. How long would it take you to get some shovels in the ground and moving vertical on projects there?

Well, that's what we're hard at work at. You've got the ability to add 2 million feet at Greenway and that probably would be four projects of a half million square feet each, so we're going through each of those and determining, one, what they would cost and, two, how long they would take to deliver because in many cases you've got to displace some parking to be able to add that. We're also certainly staying on top of some sites that are (inaudible) right next to Greenway that may also be trading that can give us an opportunity to add footage there. You know, ballpark, if you, you know, decided to pull the trigger on something today, you'd be, you know, 36 -- 30 to 36 months out before delivery. But, you know, that's a reasonable time frame given the size of the customers out there and where the demand might be.

Great. And then last question on leasing, you talked about kind of a good backlog, good showing volume. It seemed like leasing was just done a little bit from the average in the current quarter. Do you think there was a distraction from the acquisitions and the amount of closings you were doing? Were customers just making decision as little bit slowly, and do you really feel the backlog would kind of push you back up, you know, above that average, you know, moving into the fourth and first quarters?

You know, I certainly don't think it was a distraction, because our leasing teams, you know, our very assets specific, and so they wouldn't have been distracted. We just traditionally have seen the third quarter being a little bit slower. If we look historically since it covers the summer months, you know, just folks tend to not make decisions unless they have to. We feel pretty good about the fourth quarter in terms of where our leasing opportunities are, and what we'll be able to deliver there. So we just -- we just think it was a slightly slower third quarter, but it certainly doesn't signal anything of where we see demand.

All right. Great. Thank you

Thanks, Dave.

Thank you very much. (Operator Instructions). And will go with our next question to the line of Anthony Paolone with JPMorgan. Go right ahead with your question.

Thanks. Good morning, guys. Gregg, just a couple clarifying ones to start. On the NOI that you talked about that $18.5 million, I assume as it relates to 777, that's off the 72% base, not the starting point here.

Yes, that's right, Tony.

Okay. And then of the remaining $7.5 million that has yet to come in to earnings, is that mostly related to 816? I mean is just looking at your occupancy listing kind of that sort of suggests

Actually, I'm sitting here looking at the schedule, Tony. And just eyeballing it, I would say the biggest delta is between leases signed and NOI running through the actual income statements is at Promenade and at 2100 Ross.

Okay. And any sense of timing as to when that -- if you did nothing else when that $7.5 million comes in?

We don't, as you know, provide specific guidance here, but I can tell you at Promenade a big part of that lease is a single lease that we signed that kind of has a stepped occupancy that takes place, and that takes place through 2016. So at Promenade it will take a little while. 2100 Ross is much more traditional. We've signed leases. People are going to move in, and, you know, you should see 2100 Ross happen in the next 12 months.

Okay. And then on the 300,000 some odd square feet of leasing in the quarter, I may have missed this, did you give leasing spreads?

We did not provide leasing spreads. That's data that's, as we talked about in previous conference calls, we track internally and starting with next quarter, we're going to start to provide externally. He know it's something a lot of people want. And for us as we get more of a core office portfolio that we're operating, we want to provide more core office portfolio statistics. And so you'll see that coming out in the next quarterly earnings supplement. But I can tell you, anecdotally, that our leasing spreads are positive, and in general in the office portfolio, which, you know, is over 90% of the total portfolio, now, the positive (inaudible) high single digits to low double digits.

Okay. And then now, that the acquisition's done, you've got Transocean, next on Mobile, you know, it's pretty big tenants with, call it more shorter term, intermediate term expirations. Just any initial thoughts on those leases, as you look out the next few years, and perhaps their plans or how you think about them

Sure. This is Colin. As it relates to Exxon, at the time of the transaction, I think we announced that our -- that we anticipate Exxon moving out in 2015. It's about 215,000 square feet. That's part of their, Exxon's national consolidation to the wood lands. You know, there's some potential that they can hold over a little bit longer, but that's certainly our expectation, and we've underwritten the transaction. Transocean is a little bit further out in 2017, January of 2017, a little over 300,000 square feet, and we certainly our team in Houston is actively engaged with Transocean. It's probably a little bit on the early side, but we're in front of them and now and we'll stay in front of them over the next 12 months or so.

Okay. And then just last question, I know that the numbers aren't that big anymore, but any thoughts on the rest of the residential land given housing's in a pretty different place than a year or two ago it seems?

Yeah. Certainly, we've been pretty clear that the residential land is something we're just waiting for the market to come back, and the market is coming back. We're beginning to -- the little bit we have left, we're beginning to be able to sell tracts, and we're also beginning to get some offers, you know, to come in and take out, you know, entire positions. So you'll just continue to see us work that residential portfolio down, and I think you'll see movement on that over the next 12 to 24 months just given the recovery that you referenced in your call.

Okay. Great. Thank you.

Thanks.

Thank you very much. I will go with our next question, the line of John Guinee from Stifel. Go ride ahead with your question.

Good morning. It's Erin Aslakson, actually in John's stead. But in terms of the other major land positions that you cite there on page 21 on the commercial side, I guess, Avenue Forsyth and Peachtree Street what's the status of those parcels?

Forsyth, the Forsyth parcel is just an additional parcel. Avenue Forsyth was a lifestyle property we owned in north Atlanta. We sold the property and there was another parcel of land that was adjacent to it. There's no immediate plans to development it, or to sell it to the other people that bought the other park. It's just kind of sitting there. The site on Peachtree Street is right our Emory Midtown MOB that we had that we own at a 50/50 joint venture with Emory. It's a terrific piece of land, right where you want to be in Midtown, and we think at some point in the future that's going to prove to be a critical parcel as Emory continues to expand its Midtown campus

Okay. So the idea would be to exit Forsyth at some point, but then monetize, maybe, the development the Peachtree land.

The Peachtree land is certainly land that we look forward to the development potential of that and we'll continue to hold it.

Okay. Okay. And then just a clarification point on the G&A increase. I might have missed it. Just the $22 million to $24 million, I guess, for the year, is that a permanent increase, or is that just a 4Q, you know, pop for bonuses and then it drops back down in 2014?

Yeah. Well, you know, we don't --We haven't given 2014 guidance yet on G&A, really, or anything I'll do that next quarter, but no. The pop that you're seeing, the reason we're increasing the range for 2013 is absolutely only driven by bonuses and long term incentive comp accruals that are driven by, you know, very objective measurements. Day are not subjective. Larry is not making a decision for us. These are objective measurements for annual bonus and long term compensation, and we've had a good year on both counts.

Okay. So they're semi permanent increases.

Well, no, they're not. I mean it's incentive comp that's driving it. So, as Gregg said, without the incentive comp, we would have been at the low end of the range for the year. So, you know, we'd love for them to be permanent.

Okay.

That would be a good thing because it's all based upon total shareholder return, and same property NOI growth, all performance based stuff that we've had a very good year and the team has delivered fantastic results.

If those numbers go up our shareholders are also enjoying that, as well, so it's not just an internal win. It's an internal and an external win.

Right. Right. Okay. Great. Thank you, guys.

Thank you very much and we'll proceed with our final question from the line (inaudible) from Wells FargoWells Fargo. Go right ahead with your question.

Great. Thank you. Just a quick question on the same-store poolCould you remind us when 2100 Ross and Prom gets out of the same circle.

Our policy on the same store pool is it has to be -- we do it once a year at the beginning of the calendar year, and it has to be stable -- stabilized at the beginning of that year. So, for next year, January 1, 2014, something had to have been owned by us and stabilized, as of January 1, 2013. And let's see. You had asked about 816. 816, we didn't purchase until April so that will not be in --

Actually, it was 2100 Ross prom.

2100 Ross is still not stabilized, and so it will not be in the same property pool for 2014. It depends on when it's stabilized, whether it rolls in in 2015 or 2016.

Okay. Great that's helpful. And --

And (inaudible) you asked about Promenade, as well. It's the story for Promenade, although Promenade is much more likely to stabilize before 2100 Ross. But I need those properties to stabilize and have 12 full months of operations before I can enroll them in the same property pool and have good year-over-year comps.

Okay. Good. Thank you. And a question on Greenway Plaza. It looks like you had pretty good activity. Occupancy went up around 300 basis points. How were the lease rates compared to your underwriting?I believe you said the mark to market previous year was around 19%. Just wondering how that compared to your original expectations.

Sure. This is Colin. Again, the increase m that occupancy, a lot of that happened it was kind of either some customers who we thought might leave or some leases that were in the pipeline in between when we announced the deal until closing that all had favorable outcomes. And in terms of from an economic standpoint, I think we continued to be very pleasantly surprised at those economics and rents, etc., relative to how we underwrote the transaction

Okay. That's helpful. And my last question regarding a patch you had Post Oak Central. Are there any decision that's been made there. We've been hearing they might be building their own tower.

Well, they have -- they have announced that they have bought some land in the Galleria market, and that they're looking at the possibility of building a tower. The thing that's important to note is that lease doesn't expire until 2018, so there's a fair amount of term left on it, and we certainly have a really good open dialogue with Apache. They've been at Post Oak for a long time, and I think they'll make that decision in 12 to 18 months. When we underwrote the purchase, we underwrote with the expectation that they would leave. But, you know, they're in a -- they're in a cyclical business and they won't make that decision probably for another year, year and a half.

And if how much were the rents below market?

When we -- you're talking about specifically Apache or -- ?

Apache.

The overall Post Open Central, I guess,, you know, we don't normally provide specific guidance about a specific lease. But when we announced the transaction back in February, we disclosed that our management's estimates was that rents were 19% below market. At Post Oak Central across the three buildings, again, similar to my comments on Greenway. I think we've been very, very pleasantly surprised at where base rents have moved at POC, relative to how we underwrote the transaction.

Okay. Got you. Great. Thank you.

Thank you very much. And, Mr. Gellerstedt, we have no further questions at this time. I'll turn the call back to you.

Well, we appreciate everyone joining us today, and I want to end the call with a special shout out to the Cousins' team members. When you look at the repositioning that we've done in the Company in the last 24 months, and specifically this year, all the asset sales, the acquisitions, the leasing results, etc., this has just been a phenomenal team effort and I want to give a shout out to them and thank them on this call. We appreciate everybody joining us today and we look forward to talking to you at the next quarter. Thanks.

Thank you very much. And, ladies and gentlemen this concludes the call for today. We thank you for your participation, and ask for you to disconnect your lines. Have a great day, everyone.