Cousins Properties Inc (CUZ) 2014 Q1 法說會逐字稿

Good day and welcome to the Cousins Properties first-quarter 2014 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. Please go ahead.

Thank you. Certain matters the Company will be discussing today are forward-looking statements within the meaning of federal securities laws. For example, the Company may provide estimates about expected operating income from properties as well as certain categories of expenses along with the expectations regarding leasing activity, rental rates, leasing expenses, development acquisition, financing and disposition opportunities and expectations regarding the demographic and economic trends and markets in which the Company is active.

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, 2013 and its current report on Form 8-K for the quarter ending March 31, 2014 for additional information regarding certain risk and uncertainties.

Also, certain items the Company may refer to today are considered non-GAAP financial measures within the meaning of Regulation G as promulgated by the SEC. For these items to comparable GAAP measures and related reconciliations may be found through the Quarterly Disclosures and Supplemental SEC Information link on the Investor Relations page of its website at www.cousinsproperties.com.

I will now turn the call over to Larry Gellerstedt.

Good morning everyone and thanks for joining us today. With me this morning are Gregg Adzema, our Chief Financial Officer, and Colin Connolly, our Chief Investment Officer.

Strong market dynamics and robust real estate fundamentals continue to propel growth in the Sun Belt and Cousins is at the forefront of this growth with our portfolio of Class A office properties which combine prime urban locations with best-in-class amenities. We remain very confident in our long-term strategy and our portfolio and balance sheet are well positioned to adapt and execute this strategy in all stages of this real estate cycle.

I would like to start the call this morning briefly touching on this long-term strategy and how it layers into the current real estate cycle. Colin is then going to discuss overall performance in the first quarter as well as an update on investment activity. We'll then finish up with Gregg who will provide more detail on our financial results for the quarter.

The Cousins team continues to move forward in 2014 with our long-term strategic plan. We own, acquire and develop well placed trophy assets in the best urban submarkets and high growth Sun Belt cities. We began this strategy at a time when market and economic conditions provided a window of opportunity for compelling value add acquisitions. We focused on our Sun Belt cities where demographic and economic growth projections were positive and then pinpointed high barrier urban submarkets in those cities where companies and their employees wanted to work and live. This is where our creative deal-making capabilities, our development skills, deep relationships and market knowledge provided a key competitive advantage.

We have assembled a portfolio of attractive office assets at values averaging 57% below replacement cost, well placed in walkable communities near public transportation, desirable housing and city parks. Our highly skilled development teams have revitalized and upgraded these properties with best-in-class amenities and technology-efficient creative work spaces. We are confident that these repositions assets will continue to outperform over the cycle and will provide us with a stable platform for new development and investments when and where it makes sense.

Let me briefly expand on the strength of the markets we targeted to give you a deeper understanding of what will continue to drive our results. Job growth and demographic trends towards urban assets drive demand for our office product. According to PPR, job growth in our core markets of Atlanta, Boston, Houston, Dallas-Fort Worth and Charlotte is averaging 2.7% while that of the United States as a whole is only 0.8%. The Houston Metro added approximately 138,000 new residents in 2013, the largest population increase of any US metro area. The Dallas-Fort Worth Metro ranked third, beaten out only by New York, which had the second largest increase.

A particularly powerful point to note -- our core markets, which comprise only 7.7% of the US labor force, accounted for 41% of the total office net absorption in the United States during the first quarter. In addition to appealing demand elements, our infill submarkets provide physical and economic barriers to entry which constrain the potential for new supply.

While new development is underway in some of our Texas markets, the specific submarkets we target have limited new supply and few competitive future sites are available, in large part due to the multifamily sector development boom. It is these compelling supply/demand characteristics along with our creative repositioning efforts on the asset level that provide our current portfolio with a catalyst for solid growth for the next few years.

Moving on to how our strategy fits into the current real estate cycle, as yields have compressed in high barrier coastal markets, we have seen the re-emergence of significant inflows of both equity and debt capital for commercial real estate investment in our markets over the last 12 months.

With this influx of capital in the system, a strong recovery in pricing has significantly reduced the opportunity for bargain buys we have executed in the last 24 months. It is at this point in the cycle however where our new development acumen comes into play and we are focused on a good pipeline of opportunities which we look forward to discussing during the balance of the year.

As we have demonstrated this quarter in Austin, this development acumen combined with our financial strengths allows us to create significant value for our shareholders. Our new office building, Colorado Tower, will be the first high-rise office building developed in Austin, a city that is seeing historic office absorption since Cousins built Frost Bank Tower in 2003. After a significant push in leasing during the first quarter of 2014, Colorado Tower has reached 51% leased up from 22% at the end of 2013.

We signed over 110,000 square feet of new leases in the first quarter with companies and prospects remaining very strong. Approximately 500,000 square feet of companies are currently evaluating relocation to the Austin CBD. With a little more than 181,000 square feet remaining available at Colorado Tower, we have positioned our asset as the best choice for companies that desire a prime location, innovative design, best in class amenities, and state-of-the-art technology efficiencies.

We are looking for other similar office opportunities as well as executing our current opportunistic pipeline at Emory Phase Two, UNC and downtown Decatur. These latter developments which our relationships and expertise allowed us to access without competition remain very important sources of value creation.

In addition to development, we remain focused on select acquisition opportunities to upgrade our portfolio and to increase our market concentration. However, in light of current pricing we will remain very disciplined. On a similar note with these pricing levels, we will continue to evaluate additional noncore dispositions to support our investment efforts.

In closing, it's a great time to be at Cousins. Our strong performance and positive prospects are a testimony to the strength of our assets, our brand and our people. With that, I'll turn it over to Colin.

Thanks, Larry, and good morning, everyone. 2014 is off to a great start at Cousins. As Larry mentioned, we are in an attractive point in the market cycle to be an owner-operator of trophy office assets located in the best urban submarkets across the Sun Belt. And these favorable market conditions in conjunction with our best-in-class leasing and property management team continue to drive positive results within the portfolio.

To highlight, same-store NOI growth on a cash basis was up 10.2% in the first quarter of 2014 compared to the first quarter of 2013. The burn-off of free rent associated with prior leasing activity in the Atlanta portfolio accounted for the bulk of this increase. Same-store percent lease ended the quarter at 90.7%, up 20 basis points from the end of the fourth quarter of 2013.

At the heart of this strong operational performance is continued leasing momentum. As Larry touched on earlier, our team executed approximately 454,000 square feet of leases during the quarter with good activity across all of our markets. Second-generation releasing spreads were up by approximately 13% on a GAAP basis although effectively flat on a cash basis.

While on the surface, these metrics might appear to signal some softening within the portfolio, the reality is quite the opposite. Our releasing spreads are heavily influenced by the market mix in any given quarter. In this particular quarter, approximately 50% of our leasing activity was in Atlanta, with only 15% in Houston and Austin. As a comparison, approximately 51% of our leasing activity during the fourth quarter was in Houston and Austin with Atlanta's share totaling 35%.

I mentioned last quarter that we believe that in-place rents within our Texas portfolio range between 10% to 20% below market. We still believe this to be the case and are therefore optimistic that we will continue to see positive cash releasing spreads over the long term but with some volatility quarter to quarter based on geographic mix.

Let me take a moment to highlight some of the key leasing activity within the portfolio. In Austin as Larry mentioned, our team leased approximately 110,000 square feet at Colorado Tower, which brings the project to 51% leased. We are thrilled that Colorado Tower continues to be so well received in the marketplace and are very encouraged by the positive macro trends at play in Austin. Of the 11,000 square feet leased, approximately 90% is associated with new customers to the Austin market. This in-migration of high quality jobs and positive net absorption bodes well for both Colorado Tower and the overall Austin market.

Staying in Austin, 816 Congress is currently 84% leased, which is up from 78% at the time of acquisition about 12 months ago. I think it's important to note that we leased 24,000 square feet during the quarter to Atlassian on a short-term basis through year end at which time they will relocate to Colorado Tower on a long-term basis. This creative deal structure highlights the power of our market concentration which allowed us to provide a unique, multi-building solution to address both the short-term and long-term needs of this important customer.

Post quarter end, we renewed the US Attorney on 32,000 square feet. This, along with the 35,000 square feet Texas Teacher renewal that we announced last quarter addresses the material near-term lease expirations at 816 Congress. With recently upgraded amenities including a new fitness facility and conference center, we are now firmly focused on offense in converting our robust pipeline of leasing prospects.

Moving over to Houston, we had a relatively quiet quarter on the leasing front. This is really a function of our lack of vacant space to lease at our 5.6 million square feet at Greenway Plaza and Post Oak Central, which together are approximately 95% leased. That being said, we are continuing to see demand remain very healthy and the team is focused on some larger renewals of existing customers.

As we have mentioned in the past, Exxon does have two 6-month extensions on their 215,000 square feet lease at 3 Greenway Plaza, which expires in February, 2015. We now believe that it is most likely that Exxon will not trigger those extensions as they go ahead with their relocation to The Woodlands on schedule. We generally view this as a positive for Greenway Plaza. The clarity on timing now allows our team to move ahead with the marketing of this space and we have already received some preliminary interest from several existing customers looking for potential expansion space.

Moving over to Atlanta, we've seen a noticeable pickup in activity in most of our properties. Leasing has strengthened at Terminus and Buckhead as well as Northpoint in Alpharetta and we now believe the market is poised for some meaningful rent growth if there is no speculative new supply under construction.

At Promenade, we have now completed our capital enhancement program that included a new fitness center, cafe, coffee bar and other lobby upgrades. These improvements have been very well received in the market as we are now 92% leased, up from 58% when we purchased the building in November, 2011.

Downtown Atlanta continues to remain soft on a relative basis compared with the other major submarkets in town. Nonetheless, we did make progress during the quarter at both 191 Peachtree and ACSC, where we increased the percentage leased by 60 basis points and 150 basis points, respectively.

We are encouraged that near-term completions of major downtown developments like the College Football Hall of Fame, National Center for Civil and Human Rights, the Atlanta Streetcar and major expansions at neighboring Georgia State University are beginning to create buzz in the city and will hopefully help us draw attention to the opportunity now available downtown.

Moving on to Dallas-Fort Worth, the story playing out at 2100 Ross is very similar to Promenade in Atlanta. The property is now 82% leased which is up from 67% at the time of acquisition in August of 2012.

In aggregate, we have leased over 316,000 square feet since our purchase making 2100 Ross one of the most active buildings in all of Dallas. This success has given us confidence as we near completion of a very significant capital enhancement program to upgrade the building lobby, fitness center, conference facility and other common areas and amenities.

Much like our experience at Promenade, we are optimistic that these improvements will be well received and provide a springboard to push rental rates and complete the lease-up of this exciting repositioning project in the heart of the Arts District of Dallas.

In Fort Worth, new leasing activity at 777 Main is slower than we'd like. That being said, we knew going into the project that this would be a longer-term lease up than some of our other recent value-add acquisitions. This is the first time since 2004 that the Class A [comp set] in downtown Fort Worth has been below 89% leased. So this relatively small market of about 6 million square feet is sometimes overlooked because there is an assumption that no big blocks of space are available. We are working hard to re-educate the marketplace and let both the local and national customers and brokers know that Fort Worth once again has attractive space available in its urban and walkable CBD.

Switching gears to our transaction activity, we closed on the sale of 600 University Park during the first quarter. The sale price was $19.7 million which equates to approximately $161 a square foot. We do own one additional office property in Birmingham, Lakeshore Plaza, which totaled 197,000 square feet and is currently 99% leased. We do not view Lakeshore as a long-term strategic asset, so we will evaluate our options to exit at the right time to maximize value.

On the development front, we are very pleased with the progress made on our current active projects. As we mentioned earlier, Colorado Tower is now 51% leased and on time and on budget for delivery at year end. Emory Point also continues to perform very well. The apartments in Phase 1 are now 99% leased and the retail is 90% leased, which is a very strong indicator for customer demand in our $73 million Phase 2 which is projected to deliver in the spring of 2015.

121 West Franklin, our mixed-use development project in downtown Chapel Hill is still on schedule to break ground during the first quarter of 2015. The total project cost is just over $100 million. Given the significant residential component in the project, I would anticipate us pursuing a strategy similar to Emory Point where we partnered with a best-in-class multifamily developer with deep local experience.

With that, I will turn the call over to Gregg.

Thanks Colin. Good morning everyone.

Overall, we had a very solid first quarter. FFO was $0.19 per share. This compares to $0.11 per share for the first quarter of 2013 for a year-over-year gain of 70%. Positive momentum in earnings we've enjoyed over the last several quarters persists. It was also a very clean quarter. There were no special or unusual items pushing FFO either up or down.

As I said in our last conference call in February, we've entered a new, constructive period for earnings here at Cousins. The quality of our earnings has significantly increased. 92% of our FFO is now coming from property-level NOI rather than fee income, land profits, and the like, up from 62% four years ago. And 95% of this NOI is coming from a single property type -- office.

In addition, the ownership structure in our portfolio is much improved. 87% of our NOI is now generated by assets in which we own 100%. This change is the result of the strategic plan that Larry had laid out earlier in the call. The benefit to shareholders is an earnings stream that is more focused, easier to understand, easier to forecast and easier to value.

We also continue to take our already strong balance sheet and make it even stronger. Our debt to total market cap is now 25.6%. Fixed charge coverage is 3.6 times and debt to EBITDA is 4.3 times. These are strong balance sheet metrics from any perspective and compare very favorably to not only our office peers, but the entire REIT industry.

Digging a little deeper into our debt profile, the strong story remains the same. 91% of our debt is fixed rate and this fixed rate debt has an average maturity of 6.2 years. And we have no maturities of any significance until 2017. For all of our debt, the weighted average interest rate is below 4.5%. These metrics place us in an excellent position to execute the strategic plan.

We recognized termination fees during the first quarter of approximately $1.8 million. Although termination fees can be a bit lumpy, this amount is not highly unusual. We've averaged $3.3 million in annual termination fees over the past couple of years with a quarterly range of between $19,000 and $3.2 million. In addition, we're now twice as big, so termination fees should in general be larger going forward.

The most significant capital markets transaction during the first quarter was our issuance of 8.7 million shares of common equity at a net price of $11.365 which represented a 1.94% discount to the closing price on the day we announced the issuance. This transaction generated $98.6 million in proceeds, which we used to redeem all of our Series B cumulative preferred shares. This is a terrific trade for our shareholders, but please do note that there will be a $3.5 million noncash charge related to this redemption in our second-quarter earnings.

We also increased our annual dividend rate during the first quarter from $0.18 per share to $0.30 per share, which is a 67% increase. We're excited to be in a position to return capital to our shareholders through an increased dividend.

Before moving on to guidance, I wanted to provide an update on our portfolio properties that have 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 Center.

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 we added a sixth, 777 Main, a trophy office tower in Fort Worth that was part of the Crescent acquisition in the fourth quarter of 2013.

We estimate that moving the occupancy on these six assets from where it was at the time that we added them to this list until they reach 90% occupancy will generate approximately $18.5 million in embedded NOI. As of March 31, we assigned net new leases representing about $11.7 million of this total, up from $10 million last quarter. The amount of annualized revenue we are realizing on these leases was about $3.5 million during the first quarter. We'll continue to keep you apprised of our progress with these properties.

Normally, I'd wrap up my portion of the conference call with an update to our 2014 guidance. As a quick reminder, we typically provide guidance for specific 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'm happy to say that no update is necessary. We currently anticipate hitting all the numbers I provided in our last call. Our properties are performing, our fees are on track, and our expenses are under control.

To wrap up, we believe we've created a unique and compelling investment opportunity here at Cousins. We have an irreplaceable portfolio of properties in our rapidly improving Sun Belt markets. We have proven development expertise at the right point in the cycle and we have the balance sheet to support our strategy. We've planted the seeds for this success over the last three years and now is the time to begin harvesting them for our shareholders. We look forward to reporting our progress as we move through 2014. With that, let me turn the call over to the operator for your questions.

(Operator Instructions) And our first question comes from Jamie Feldman of Bank of America Merrill Lynch. Please go ahead, sir.

Great. Thank you and good morning. Can you guys talk a little bit about what kind of rent growth you're seeing across your markets in terms of market asking rents?

Sure. Hey, Jamie, it's Colin. It really varies market by market. Certainly in Houston over the last two, three, four years we've seen very significant rent growth totaling upwards of 30% over that timeframe. We started to see as the markets in Dallas and Atlanta and Charlotte have begun to stabilize, we believe that we're at an inflection point where over the last 12 months, the tightening was really in the form of concessions, TIs and free rent starting to come down. We're now at an inflection point where we're re really starting to see, as you said, kind of [face] rent start to move. So we would anticipate in those markets, Dallas, Atlanta, Charlotte to really start to see that movement over the course of the next 12 months.

So I guess even in terms of net effective rents, where would you say they are year over year?

You know, I think in Atlanta, for example, when we look at net effective rents including concessions, we've seen changes of, call it, 10% or so within our particular portfolio.

Okay. And then I know there's talk of potentially new supply in Buckhead and maybe Central Perimeter. Can you guys talk about the supply side across your markets and which ones -- I mean I know it takes a while to build an office building, but where you're more concerned or less concerned or maybe you're not concerned at all at this point?

I'll take a first stab at that, Jamie. And then I'll let Colin jump in if he wants to add some color. If we just sort of start through our markets, in Atlanta there's talk about Tishman may be starting a building in Buckhead. I don't really have any insight on that. I don't know of any leasing they've done, but they have said they're going to start this year for 0.5 million feet. That's the only new supply that we're aware of that might come on this year in the market other than some selective build-to-suit.

You know, a lot of folks, including us, want to make sure we've got attractive sites in other areas. We announced one this past quarter in the Central Perimeter that we ventured with a developer here where we've got a site tied up and are looking for a build-to-suit type of opportunity. But the rest are still significantly below replacement cost rents in really all the submarkets in Atlanta. So we don't anticipate any significant new supply for at least the next year to year and a half being announced or coming out of the ground.

We are seeing a fair amount of new supply in Houston. There's about 14 million feet of new supply. About 70% of that is preleased. And then you're continuing to hear starts of new developments. So we're keeping our eye on Houston pretty closely in terms of new supply, but there's no new supply that is either in place or under construction that we see as a level of concern yet. But we certainly are keeping our eye on Houston.

Austin we feel great about. You know, we were the first strike in downtown and that obviously is going very well. We've heard rumors of some more new supply possibly getting started in the CBD of Austin. But I couldn't really comment on how valid that is. Nothing has started other than the one other building that started the same time that we started Colorado Tower.

And then, you know, Dallas around the uptown market where we have 2100 Ross, you have one new building that has started that's doing very well in terms of the preleasing. And then there are a couple of others there that are making noise like they'll start here in the next six to 12 months. But if you look at it on a big context, it's still very manageable new supply and not anything at this point that we're concerned about, although Houston would be the one we're watching most closely.

Okay. That's very helpful. Thank you.

You bet.

Thank you. Our next question comes from Brendan Maiorana at Wells Fargo. Please go ahead, sir.

Thanks. Good morning. And this may be for Coliin. You guys did a great job in repositioning Promenade and got that asset leased up and is sort of in a stabilized form now. It seems like maybe you're in a comparable position at 2100 Ross and 816 Congress now given the improvements in each of those buildings. Just wondering if you could kind of talk about maybe the time period that we could expect those assets to get leased up to stabilization in that sort of 90%-plus range.

Hey, Brendan. This is Larry. Once again, I'll sort of give a high level and let Colin jump in with anything that I might have missed. 2100 Ross is really a great story because that starting lease level that we had, we've also had a 50,000 square foot termination that we took on that building. And so we have had tremendous success leasing that up and have been able to push rate from the initial lease we did a good deal. So we aren't really worried about leasing up 2100. We're just trying to make sure that we lease it up at the most favorable rate.

And the amenities that just have opened in the last 30 days are just remarkable when you go and see them and the customer feedback, both from existing customers and new prospects. So we feel pretty bullish between now and the end of this year. You'll continue to see some meaningful leases that will push that number up, you know, towards the high 80's or 90's.

816 Congress is very similar. We have just opened this past month the new amenities and, once again, we're just getting unsolicited comments from existing customers and prospects about the difference that those have made.

There's a little bit more vacancy in downtown Austin sort of at the Class A level that 816 is competing against. But just given the demand, particularly the thing I've been so encouraged about in Austin in the last six months is the out-of-market demand in the overall Austin marketplace. It's just palpable in terms of the companies looking to relocate there. Although I wouldn't want to put a timeframe on leasing up 816, you're right in terms of just how positive we feel about the prospects for continuing to move that lease percentage up.

Okay. And then (multiple speakers) -- sorry. Go ahead, Colin.

I was just going to say in terms of the assets, I think they are -- they're very good comparisons. We bought Promenade in November of 2011. So we've stabilized that asset in a little under two and a half years. And really as we bought that, the playbook was to establish some early momentum. Really began at that point to implement some enhancements to the project that we really listened to the customer to provide that direction and what they wanted. And again as I mentioned in my prepared remarks, that really provided catalyst as to really complete the stabilization of that project.

As we looked at 2100 Ross and 816, I think we were very much looking at a similar playbook and underwritten it in a very similar manner and we feel very good about kind of where we are relative to the original underwriting at acquisition and where we are in the execution.

Okay. That's helpful. And I guess if we think about -- and 191 you guys have done a nice job over the past several years, kind of moving that up. So you're pretty close to stabilization there. ACSC, it looked like it moved up a little bit in the quarter. And just wondering if there's maybe some more activity and if you're a little bit more optimistic about being able to drive occupancy higher in that asset now than maybe over the past six months or so?

Yes. Hey Brendan. We have, as I said earlier, overall downtown relative to kind of the robust activity in some of the other sub-markets has lagged a little bit. That being said, over the last, I'd say over the last quarter or so, we've begun to see that start to filter into downtown and we have seen some increased activity that's showing up in this quarter's results. And it's been active both on the renewal side as well as some new customers looking at the project.

Okay. That's helpful. And this last couple of ones for Gregg. Any color that you can provide or guidance on what the straight-line rent impact may migrate to during this year? I know it picked up. It seems like that was probably largely from all the good leasing activity you're done and probably free rent periods that are there now. But I would imagine that that number migrates downward during the year. But if you could provide some color, that would be helpful.

In general, you've got direction correct, Brendan. But, you know, we provide asset-by-asset GAAP NOI guidance and I'm just going to kind of stick to that.

Okay. And then just finally the Exxon lease ---- is the mark-to-market on that if you relet that space comparable to kind of those overall terms of Houston that you provided previously?

It is, Brendan.

Okay. Great. Thank you.

Thank you. Our next question comes from Dave Rodgers of Baird. Please go ahead, sir.

I just wanted to follow up a little bit more on Exxon. And now that you have I guess a specific time and you're able to have discussions, what do you think down time is on that space? And given the quality in the tenants that you might either be having discussions with or that would fit in that space, can you put a band not only around the time but maybe the capital needed to get that space up and running?

Sure. I think as we look at 3 Greenway Plaza now with Exxon most likely leaving in early February, is cannily a very similar playbook to what we've done at Promenade, 2100 Ross and 816. There's a great re-leasing opportunity for us there. As just mentioned, those rents are below market today. So we are going to aggressively look at some upgrades to that building from a capital perspective, lobby upgrades, etc. And we'd anticipate -- I don't want to put a specific timeframe, Dave, in terms of the lease up, but as I said in my prepared remarks we have begun to see some activity as that space -- it's gotten out in the market that it's going to become available, we've had some incoming from existing customers who are looking for expansion. So we're certainly pleased by that activity and optimistic with what we can do there.

Okay. And maybe for Gregg, I think both 2100 Ross and Promenade have fairly large leased-versus-occupied spreads still embedded there. Can you talk about when those larger leases do begin to affect the economics both on a GAAP and a cash basis?

Yes. So we'll just talk on a GAAP basis. At 2100 Ross, we've got three big leases that are signed and represent approximately -- I'm doing the math in my head -- about 100,000 square feet. And all those tenants will move in before the end of 2014. So you'll see that lease-to-occupancy number compressed by the end of this year.

At Promenade, the delta is even wider. As you know, the total number is probably closer to 115 -- again I'm trying to add it in my head -- 115,000-ish. That'll take a little bit longer because the largest chunk of that 115,000 is a lease that we signed with Frazier Deeter. It has kind of a two-step move-in. Two-thirds of it they move in at the end of 2014. The other third they moved in at the end of 2016. So you'll get about -- and I'm rounding here, Brendan -- you'll get about 80% of the existing leases at Prom moving in by the end of 2014 with the balance moving in in 2016.

And then just going back to the directionality of the straight line rents without giving the guidance, the move-ins by the end of 2014 shouldn't offset the improvements that you're seeing from the beginning of the year?

Oh, to be candid, Brendan, I don't have that math in front of me. So I don't -- I'm sorry, Dave -- I don't want to guess because I just don't have that math in front of me.

Okay. No problem. Thank you.

And maybe for Larry, talk a little bit more on the development side, I think, you know, previously it seems like maybe Galleria, Houston, CBD, Austin Suburban seem to be kind of areas where you felt there were good economic returns in development. I guess, one, maybe talk about what's happening in development returns. Are they getting tighter? And two, are there other areas that you're focused on as well or should we kind of continue to focus around your core portfolio today?

Well, I think development spreads -- you know, we remain disciplined in our development spreads where we look for 150 basis points to 200 basis points spread over what we think are conservative exit caps. Those spreads will vary a little bit depending on how big the project is and how much preleasing there is or isn't in it.

But in terms of the specific opportunities that we're looking at, we continue to see opportunities in our core markets. And so we haven't been pursuing anything outside of those core markets. We think that, although the Central Perimeter in Atlanta is a ways off from new development, it has gotten tight and it continues to be an area that big corporations like their headquarters. And so we think we've got a fantastic site there. We're actively marketing it. We've got a couple of sites up in North Point that would be nice smaller buildings. And that market has also gotten tight so we're marketing those. And we are active looking at opportunities in the Buckhead market, Atlanta.

In Houston, we're really watching that new supply coming in. And I would tell you we're being very conservative just in terms of our underwriting of the new development opportunities we see. Not that we aren't looking at them, but we're just trying to watch the new supply pretty closely. We're looking at some things in Dallas, once again in the core area that we like. And then we've got some good opportunities in Austin. I think we've given color that we have another site out in the Northwest market at Research Park that we're feeling positive about. And we've also got some land that we're working to see if we can get entitled in the Southwest submarket which has tightened a great deal.

So the good news is we see plenty of opportunities in places that we have assets and have great people on the ground and that's where we're staying.

Okay. Great. Thank you.

You bet.

Thank you ladies and gentlemen. (Operator Instructions) Our next question comes from Jed Reagan of Green Street Advisors. Please go ahead, sir.

Morning guys. Just curious if you're seeing changes in cap rates and values in your core markets so far this year and if there's any specific recent comps that you can point to that might demonstrate value in your portfolio?

Jed, its Colin. We've certainly seen I'd say as we've rolled into 2014 a compression of cap rates. I'd say it's been more pronounced in some of the value-add type acquisitions that we've seen that are more heavily relying upon what's become more abundant in attractively priced leverage. But we're certainly seeing it in the core assets as well. I'd hate to kind of speculate on a specific cap rate change. From a range standpoint, I'd say it's been anywhere from 25 to 50 bps in some cases in terms of what that compression looks like, call it year over year.

In terms of assets that are out in the market, I think we're going to see some big sales over the next quarter or so. There are some assets out there -- 3630 here in Atlanta in the Buckhead submarket. Our sense is that will be a fairly big number -- still not done. But we think that you'll continue to see large trades in all of these CBDs. Heritage Plaza in downtown Houston sold for north of $400 a foot just recently -- or a pretty significant stake in it.

So there's healthy demand in the capital markets for high quality, well located assets. And we don't really see that changing over the next 12 months.

Okay. And are you seeing any of that cap rate compression spreading out to some of the more kind of secondary and tertiary locations in the Sun Belt, maybe looking at your Birmingham sale as an example?

Yes. We are seeing compression across all markets. I think the search for yield continues and it certainly started in high barrier markets and we've found it now certainly in major Sun Belt markets like Atlanta and Texas. I think it'll continue into -- and filter down to those markets as well. I think we continue to see it more pronounced in major markets like Atlanta, like Texas, versus as you get into some of the tertiary markets. But I think it's only time.

Okay. That's helpful. Thank you. And just a couple on Austin. Sounds like you guys had underwritten Colorado Tower to be 50% leased by year end and you've obviously hit that target already. So just wondering how much higher you think you could get over the balance of the year and then maybe just how confident are you feeling about today's pipeline at that asset.

The pipeline is fantastic. Our confidence is high. You know, we're in a position with just the quality of the building. You know, the building isn't even topped out yet. The skin's just going on it. A lot of customers, really, once you can take them up and they can visualize the views and just where it sits in Austin, is a very powerful tool to have. And so we really are focused on making sure we get the right customers with the right economics on the balance of the space, and not as focused on velocity. But the pipeline is very, very positive. And we remain very, very bullish on Colorado Tower.

Okay. Great. On 816 Congress, am I correct in thinking that the leasing gains you had there were basically due to that short-term lease? And then, just kind of more broadly, if you could talk about sort of the types of tenants that are looking at that building and how the pipeline's looking and then maybe how you're coming in so far relative to underwriting?

Sure. Jed, yes, you are correct in terms of the move in the first quarter, the short-term lease that we did with Atlassian doesn't count for a big chunk of that. Again, we think that was a great transaction for us. And as I mentioned really allowed us to provide a flexible solution that our competitors couldn't.

That being said, as we look forward to future quarters in terms of the pipeline and not only back-filling that Atlassian space, but continuing to drive occupancy up from where it is today. The pipeline's robust. You know, we think that there are several leases that are very much actionable this quarter. And so we're hopeful and optimistic that you'll see continued progress in that asset next quarter.

It's very positive to have not only the two buildings in Austin but the two price points of the two buildings. And they're very different assets. But as Colin noted in his speech on the Atlassian deal, it's not as though the space that we -- that Atlasian's using on a one-year basis that we were having trouble finding prospects for. It's just it was very compelling to be able to put them in there for a year in order to get them in Colorado Tower. And without that interim bridge strategy they probably would have had to locate it in the existing building of they really wanted to be in Colorado Tower. And we�re optimistic that they�ll grow in Colorado Tower over time.

Okay, and is it a pretty different type of tenant that�s looking at those two assets in Austin?

I'd say they pretty much reflect the market in Austin. I mean, we've got some technology and then a lot of legal and those type folks in both. It's really -- they're just two very different assets, two very different price points, both fabulous assets. And that's what you love to have in a market.

Larry. Thanks. I'll jump back into queue.

Thank you gentlemen. There are no further questions at this time. I'll turn the call back over to Mr. Gellerstedt for any closing remarks.

Once again, we appreciate everybody joining us today. We look forward to talking to you all soon and appreciate your interest in Cousins. Thanks.

Ladies and gentlemen, that does conclude the conference call for today. We thank you for your participation and ask that you please disconnect all lines. Thank you. Have a good day.