Cousins Properties Inc (CUZ) 2014 Q2 法說會逐字稿

Good day and welcome to the Cousins Properties Second 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 Mr. Eddie Jones of Corporate Communications. Please go ahead sir.

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 expectations regarding leasing activity, rental rates, leasing expenses, development, acquisition financing and disposition opportunities and expectations regarding the demographic and economic trends in 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 filed on July 29, 2014 for additional information regarding certain risks and uncertainties.

Also, certain items the company may refer to today are considered non-GAAP financial measures within the meaning of Regulation G as promulgated by the SEC. For these items the comparable GAAP measures and related reconciliations may be found through the correlated disclosures and supplemental SEC information links on the investor relations page of its website at www.cousinsproperties.com. I will now turn the call over to Larry Gellerstedt.

Good afternoon everyone and thanks for joining us today. Joining me are Gregg Adzema, Chief Financial Officer and Colin Connolly, Cousins' Chief Investment Officer.

It's been a great year. We continue to make significant progress with our long term strategic plan. The second quarter in particular was highlighted by strong operational performance and prudent balance sheet management. Our markets continued to lead the nation in terms of job growth and net absorption and our urban sub-markets generally lead in each of our cities. Texas is further along in the cycle and is seeing some supply growth, but to date the majority of this supply has been suburban and has not impacted our urban locations. In Atlanta and Charlotte, new supply is almost nonexistent with the exception of a few build to suits and therefore, the outlook for rental rates and customer demand remain strong for the next couple of years.

Our strong operational performance was driven by the performance of our team which leased or renewed 416,000 square feet of space during the quarter with deal terms that continue to trend in our favor. Same property net operating income was up 7.7% during the quarter driven by outstanding expense control and we made considerable progress on our properties with imbedded NOI potential. As for prudent balance sheet management, we replaced our last remaining tranche of preferred equity with common equity and we recast our credit facility on significantly more favorable terms. We have an industry leading balance sheet which is well positioned for what lies ahead.

I'm really proud of our team and what we've accomplished not only this past quarter but over the last few years. What we've done is truly transformational. We didn't just identify a compelling strategy, we implemented it both quickly and efficiently but we're not finished. For evidence look no further than our announcement yesterday to acquire Fifth Third Center, a Class A officer tower in Charlotte, North Carolina for $215,000,000. We are excited to add this trophy asset to our portfolio, increasing our presence in uptown Charlotte where we also co-own Gateway Village, a 1 million square foot office property. Colin will provide additional details on Fifth Third Center, which similar to 191 Peach Street, my company built in 1997 when I ran Beers Construction.

Let me take a minute now to explain why I believe this acquisition is such a good fit for us. Fifth Third Center is an iconic office tower in the best sub-market in Charlotte. It provides value-add potential through lease up of vacant space. And we purchased it at a discount to replacement cost. Charlotte has emerged from the recession as a dynamic city with robust, rapidly diversifying economy. Banking remains important, but other industries are recognizing the economic advantages of Charlotte as well. For the banks after giving back 1.2 million square feet of office space from 2009 to 2012 in an effort to become more efficient, they are now starting to actually add back some office space. Much important, they aren't absorbing is being taken by corporate relocations. A very recent example is Sealed Air Corporation announced last week that it plans to relocate its headquarters from New Jersey to Charlotte bringing about 1,300 jobs.

Employment in Charlotte has grown by 16% since 2010 with uptown employment jumping 23% during that period. Over 2.3 million square feet of Class A office space has been absorbed in Charlotte since 2012 bringing overall vacancy down to 10.8%. Stronger still, Class A vacancy in uptown is now only 9.7%. 24 development projects are proposed or under construction in uptown Charlotte with only one slated as an office project. What we like about those numbers is that development projects are predominantly multi-family and hotel, which adds to the already dynamic amenity base in uptown. Limited office supply and the rebounding demand in uptown Charlotte makes uptown Charlotte a top sub-market in the Sun Belt.

Moving on to our Texas markets, the Houston economy remains hot. The office market continues to see record absorption, over 4.7 million square feet already this year and job growth ranks second fastest among the country's 20 largest metro areas rising 3.3% over the past 12 months. Not surprisingly the number one large market in the country for job growth is also in Texas. Dallas unemployment has grown 3.9% over the past 12 months driven by a diverse economic base and corporate relocations, most recently Toyota and Active Network out of California. Office demand also remains strong in Dallas with over 2.5 million square feet absorbed this year alone.

Our third market in Texas is Austin, which although much smaller than Houston or Dallas is widely known for its aggressive pro-business environment, young talent, low taxes and consistently strong economic statistics. Job growth in Austin over the last 12 months has been 3.6% and the office market is healthy, particularly the CBD where Class A vacancy has fallen to 9.3% as demand for space is increasingly coming from companies outside of Austin. I must say it's a great time to own office assets in Texas.

Now a few thoughts on Atlanta, Atlanta was hard hit in the last real estate cycle and has been slower to recover than our Texas market. However, office fundamentals have turned the corner. Year to date, Atlanta has absorbed about 1.5 million square feet of office space and job growth has been 2.5% over the past 12 months. The city's low business cost, high quality of life and young educated talent pool as well as its strong transportation network anchored by the world's largest airport have attracted companies who are relocating -- continue to relocate their headquarters to Atlanta. There are more than 700 tech startups in Atlanta with over $300 million a year of venture capital flowing into town. This is driven by the metro area's 270,000 college students anchored by Georgia Tech's 20,000 students and 11 engineering programs, all of which are ranked in the top ten in their field.

As we move through the second half of 2014 we will continue to monitor our markets, keeping an eye out for compelling investment opportunities. As a reminder, since the fourth quarter of 2011 we've successfully acquired over 9 million square feet of trophy urban office towers across our targeted markets at an average purchase price of less than $200 a square foot, which is about 60% less than we estimate replacement cost. Each of these has significantly strengthened our position in each of our markets. Although we are quickly moving away from the part of the real estate cycle where acquisitions make sense for us and toward the part of the cycle where developments are more likely, we are confident addition compelling investments will emerge on both fronts in the coming months. As I said, we are not finished with our strategy.

Before I turn it over to Colin, let me be the first to welcome the investment community to Atlanta for REITWorld in November. In addition to holding the traditional property tour of our Atlanta assets, we'd like to roll out the red carpet and welcome everyone to our great city with a cocktail reception at the new Center for Civil and Human Rights in downtown Atlanta. Cousins was the fee developer for this recently opened museum which houses many of the personal papers and items of Dr. Martin Luther King in addition to other powerful exhibits. I guarantee this is an event you will not want to miss. More information will be provided on the cocktail party as well as the tour of our Atlanta portfolio in the coming weeks. With that, I'll turn it over to Colin.

Thanks Larry and good afternoon everyone. This was a strong quarter for Cousins. We are in an attractive point in the cycle to be an owner of trophy office towers located in the best urban sub-markets across the Sun Belt and our fantastic property management and leasing team continue to outperform and drive great results within the portfolio. I will start by highlighting some of our key operational and leasing metrics, then provide some color on activity within the leasing portfolio and wrap up with updates on our development and investment activity including our pending acquisition of Fifth Third Center in Charlotte.

As Larry mentioned, our team leased approximately 416,000 square feet during the quarter. While the volume was generally consistent with past quarters, the underlying lease economics were terrific. Our weighted average net effective rent per square foot was over $2 a square foot higher than the results from the previous two quarters. And our second generation cash generation leasing spread was up over 33%. As I mentioned last quarter these metrics can and will be volatile based on the geographic mix of leasing in any given quarter, but directionally we believe that these metrics will continue to trend in a positive direction.

Same store NOI on a cash basis was up 15% and our same store percentage lease end of the quarter at 91%, up 30 basis points from the last quarter. The increase in NOI was primarily driven by the burn off of free rent and operating expense savings. I do think it's important to note that our same store pool only accounts for 31% of our total portfolio and does not include any of our Texas acquisitions which account for a significant percentage of the imbedded growth and below market rents within Cousins' overall portfolio.

Moving on to some specific portfolio updates, as we discussed last quarter Exxon will be vacating its 215,000 square feet of space in 3 Greenway Plaza in February of next year. We have started to pre-market this space and plan to begin construction on a full lobby renovation later this year. Greenway is in an exceptionally tight market today. Our other properties within the complex have a weighted average occupancy of 96.6%. So while there is nothing eminent to announce, we are confident that there will be demand for this block of nine contiguous floors. It is a very unique opportunity in an infill sub-market of Houston today. Staying at Greenway, our team executed an early renewal at attractive economics with Gold South Pipeline for approximately 99,000 square feet at 9 Greenway. Gold South has been a customer in the project since 2007, so we are thrilled that they have chosen to reaffirm their long term commitment and keep their headquarters at Greenway into 2024. A sticky, loyal customer base is one of the hallmarks of Greenway Plaza and this is just the latest example.

We had a strong quarter at 816 Congress in Austin. We leased approximately 47,000 square feet and the property is now over 90% leased, up from 78% when we purchased the building in April of last year. Included in this leasing was a long term extension with the U.S. Attorney's office who is our third largest customer. This, along with last quarter's extension with Texas Teachers, significantly mitigates our near term rollover exposure and allows us to focus on our remaining vacant space. I do want to remind you that Atlassian will be vacating the 18th floor in early 2015 when they move into Colorado Tower on a long term basis. And as expected when we purchased the building, IBC Bank will be vacating its 16,000 square feet at year end. Overall though, customer interest in the building is very good and we remain ahead of our initial lease up schedule. This has been great execution by the team in a very short period of time.

Here in Atlanta, I think it's worth noting that our Terminus project is now 95% leases, which is an all-time high. Of note during the quarter we signed an 8,000 square foot lease with Fidelity and a 14,000 square foot expansion with North Highland. This is not only a great validation of Terminus by both new and existing customers, it highlights that companies are growing in Atlanta again, which is a very positive signal for the improving health of the market. Outside of the office towers, we recently relocated and expanded the fitness center, opened a new restaurant that has been very well received and Crescent Communities has opened the first phase of their 355 unit apartment project. We are thrilled to see our original vision of creating need leading mix use urban development in Buckhead coming to fruition.

Switching gears to the development pipeline, Colorado tower remained 51% preleased at quarter end, but I would characterize the activity on the remaining space as very robust. As we have discussed in the past, our original underwriting assumed that the project would deliver in December of this year at 50% preleased. Given the pipeline in front of us, we believe that we have a great opportunity to significantly to outperform this internal projection. We identified a compelling market opportunity, selected a highly desirable location, designed a cutting edge project and now the market is rewarding our efforts. We are pleased with the progress at Emory Point, which is our mixed use development project across from Emory University and the CDC here in Atlanta. We plan to deliver the first units of phase two which consists of an additional 307 apartment units and 45,000 square feet of retail during the first quarter of 2015. The retail component is now 62% preleased with Earth Fair, which is a leading organic and natural foods grocer anchoring the project. Earth Fair has a great following so this was a big win for Emory Point. Not only were a grocer serve as a great amenity for our apartment residents, Earth Fair will be a significant draw from the surrounding neighborhoods providing a great boost for their retail as a whole. We believe that the additional apartments will be very well received as there is no other multi-family construction in this immediate submarket and rents in phase one have now eclipsed the $2 a square foot mark, which is well ahead of pro forma.

In Chapel Hill, home to the University of North Carolina, 123 West Franklin is on track to begin construction during the first quarter of 2015. This mixed use development is currently slated to include 150,000 of office, over 40,000 square feet of retail and 265 apartment units. Like Emory Point we plan to bring the joint venture partner with deep multi-family experience in this market and hope to have something to share in the near future.

Lastly, I'd like to give you a brief overview of our Fifth Third acquisition which we plan to close no later than August 8th. This 698,000 square foot trophy office tower is well located in the heart of uptown Charlotte and checks all the boxes from a leasing standpoint; beautiful lobby, excellent ingress egress, above market parking ratio and a strong retail and dining amenities including the Capital Grille. We believe that this is truly a top five asset in Charlotte. The property is currently 82% leased with two very attractive blocks of contiguous space in the upper part of the building. This gives us an opportunity to execute on one of the things we do best at Cousins Properties, lease space. The in place rent roll is comprised of a blue chip roster of companies with excellent credit and almost nine years of term, and as Larry mentioned earlier, Cousins has a deep and long relationship with the building a vast majority of this rent roll which gives us a unique perspective into the building. Bank of America is obviously a customer and joint venture partner at Gateway Village in Charlotte. McQuireWoods the second largest customer occupies meaningful space at the Promenade here in Atlanta and 816 Congress in Austin. And lastly, Winstead is a customer at 777 Main and was an anchor in our Frost Bank Tower project in Austin many years back.

From a financial perspective, we are paying $215,000,000 which translates to $308 per square foot. The going in cap rate is approximately 6% on a cash basis and 7.2% on a GAAP basis. We think now is an attractive time to invest in Charlotte as we see many similarities including both the state of the property fundamentals and the capital markets between Charlotte of today and our Texas market several years ago. Job growth has returned, occupancy levels have stabilized and with little new supply on the horizon, the best assets in the best submarkets in Charlotte are posed to drive both occupancy and rental rate. With that, I'll turn it over to Gregg.

Thanks Colin. Good afternoon everyone. Overall we had a solid and productive second quarter. FFO was $0.18 per share. That's up 50% from the $0.12 per share we reported in the second quarter last year. Excluding a non-cash charge associated with the early redemption of our 7.5% series B cumulative preferred stock this April, which we discussed on last quarter's conference call, FFO this quarter was $0.20 per share. We paid for this preferred redemption with proceeds from the issuance of 8.7 million shares of common stock this past March. With this redemption we have now eliminated preferred equity from our capital stack. We also recast our unsecured credit facility during the second quarter. It was a very successful transaction. We obtained a clear five year commitment, extending the maturity from 2016 to 2019. We increased the size of the facility from $350 million to $500 million and we improved pricing across the board. At our current leverage level, we improved our all-in pricing on the facility by 45 basis points. Putting this important financing to bed on these favorable terms is a terrific win for our shareholders.

Finally we announced the launch of an 18 million share common equity offering last night. The proceeds from this issuance will be used to pay for 100% of the Fifth Third Center acquisition Larry and Colin discussed earlier. Combined, these three transactions lock in the simplicity and the strength of our balance sheet. And by simple, I mean, a balance sheet with a clean capital stack, comprised of only common equity, mortgage and construction debt and an unsecured credit facility. I mean a balance sheet where 87% of our NOI is generated by assets in which we own a 100% interest and a balance sheet where NOI from a single asset class, office, comprises 95% of all NOI. And our balance sheet is strong. As of June 30th debt to total market capitalization was only 26.5%. Debt to EBITDA was 4.48 times. Fixed charge coverage was 4 times. Our weighted average interest rate was only 4.19% and we have no debt maturities of any consequence until 2017.

This approach to balance sheet management is particularly important in light of our investment philosophy. We are not passive owners of stabilized assets. We actively manage our portfolio and have a deep history with value-add acquisitions and new development. These investments offer potentially greater returns but they also come with greater risks. We offset these risks with a very conservative balance sheet. We believe it is a unique and winning combination.

Before moving on to guidance, I wanted to provide an update on our portfolio properties that have in place imbedded 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 Peach Tree here in Atlanta, 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. We purchased 816 Congress during the second quarter of 2013 we moved the number up to five and we added a sixth, 777 Main in the fourth quarter of 2013. We estimate that moving the occupancy on these six assets from where it was at the time we added them until they reach 90% occupancy will generate approximately 18.5 million in imbedded NOI. As of June 30th we have signed net new leases representing about $12.6 million of this total. That's up from $11.7 million last quarter. The amount of annualized revenues we are realizing on these leases was about $6.5 million in the second quarter. We'll add Fifth Third Center to this list next quarter and keep you apprised of our progress.

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 expense. I'm happy to say that for the second quarter in a row no update is necessary. Our properties are performing, our fees are on track and our expenses are under control.

Before closing, I want to take a minute to point out some increased disclosure in our earnings supplement this quarter. We've added a cash basis revenue and expense data to our same property NOI table, which is on page 15 of the supplement. I hope this is helpful. Please keep the suggestions coming. Our goal is provide you with the data that you need in the format that you want. Finally, as I mentioned earlier in the call, we launched a common stock offering late yesterday. As I'm sure you understand, we cannot provide any more information during the Q&A portion of this call other than the information that's already included in the perspective supplements and the associated news releases. But as always, we're happy to address any other questions that you might have. With that, I'll turn it over to the operator.

Thank you. Ladies and gentlemen if you would like to register a question or a comment, you may do so by pressing the one followed by the four on your telephones. Our first question comes from the line of Jamie Feldman of Bank of America, Merrill Lynch. Please proceed with your question.

Great. Thank you and good afternoon. So I guess just starting with Fifth Third Center, can you talk about where you think rents are in the building today versus market?

Hey Jamie, it's Colin. We're not able today to comment specifically on where in place rents are versus market. I guess I could characterize in general where market rents are in uptown Charlotte for the best Class A assets. If you were to go to CoStar for example you'd see that those range from the high 20s on a gross basis upwards in the low $30s a square foot as well.

Okay. And then what did you say or did you say what the actual expirations, one of the biggest leases is coming due?

Sure Jamie. Again the top three customers in the building are Bank of America being the largest, McGuireWoods being the second largest customer and then Fifth Third. Those three customers comprise 74% of the entire square footage, but across the entire building there is roughly nine years of weighted average lease term remaining.

And are there any in the near term?

Excuse me?

Are there any leases expiring in the near term?

There's no material near term lease expiration.

Okay. And then in terms of Charlotte as a market, how do you plan to manage that part of your business? I don't think you have a big concentration there right now. So who's going to run it and do you expect to add more people, and then how do you think longer term about expanding into Charlotte specifically.

Well, we really don't consider it an expansion into Charlotte. We've been in Charlotte for a decade and we developed with our partner, Bank of America, the one million square foot Gateway Village and have co-owned that and done all of the management of that asset since it was developed. So we have a significant team in Charlotte. The Gateway Village for people that aren't familiar with it is a mixed use facility with a million square feet of office, but it's also got retail and multi-family, a very dynamic project. And so we've got a great backbone of people up there and this will absorb well into the talent base we have as well as some of the talent that's been with this property and we'll move forward to that. We have said for the last three or four years that with this strategy that with North Carolina and Charlotte in specific is very much a focus for us and so this was a really something that we have been tracking this potential asset opportunity for a year and when it came available with our history of the building and our knowledge of Charlotte it just was a great fit and we're very excited about it and look forward to growing further in Charlotte as we move forward.

Okay. Thank you. And then looking at some of the big success that it looks like you guys, small but still leasing occupancy or leasing percentage declines at 2100 Ross, 191 Peach Tree and Promenade. Can you guys just give an update at what's going on at those buildings and what your leasing prospects are.

Sure. Jamie you were referring to 2100 Ross, Promenade and the 191 Peach Tree. Again, the activity in 2100 Ross continues to be very strong. The arts district and the uptown market of Dallas there's quite a bit of activity, job growth is strong and so we have a healthy pipeline and I think very much remain on schedule. We do have a very attractive, contiguous two floor, potentially three floor contiguous block of space there. So activity is good. Here in Atlanta at 191 Peach Tree we talked about it in our opening remarks, Atlanta certainly had trailed Texas in terms of the recovery, but we're really starting to see great signs of job growth here. I mentioned we're starting to see customers within our existing portfolio expand. And with little new construction slated to deliver the next couple years I think we think now is an interesting time and a great time to be an owner in Atlanta to continue to drive occupancy.

Yes, Jamie I'll just add on to what Colin said as far as the demand side really on Promenade and 2100 Ross it remains very strong and we remain confident that we'll show good progress during the balance of this year on both those assets. 191 Peach Tree, as we said before, downtown is the slower of the slower markets that we're in but we're continuing to see activity at 191 Peach Tree and I'm optimistic we'll also have some positive results to show here by the end of the year.

Okay. Great. Thank you very much.

Thanks Jamie.

Our next question comes from Brendan Maiorana of Wells Fargo. Please proceed with your question.

Thanks. Good afternoon. Colin, I know you guys are limited in terms of you can say about Fifth Third. Just kind of one question or a clarification, so the spread between the cash cap rate and the GAAP cap rate is that primarily driven by FAS 141 adjustment for mark to market of rents or is there a component or a large component that's kind of free rent or annual bumps that's driving the spread between that 6.0 and the 7.2?

Yes, Brendan I would say there's kind of two components there. I'm a little bit limited in terms of what I can say. I think one thing I would point you towards as I said there's approximately nine years of average lease term in the building. I think that hopefully can.

Okay that helps. And then Colin, how do you think about I think you mentioned that the acquisition environment, it's still pretty challenging out there but you feel like there are still things that you guys can get done. How do you think about deploying capital in acquisitions today? Is there more stuff that you guys can pick off? On another call earlier today it was suggested that even in the past 90 to 120 days in your kind of Sun Belt markets there has been sort of a reacceleration of asset pricing. So is it pretty challenging or do you think you can get some more stuff done?

Hey Brendan, let me take a swing at that first and Colin can fill in. We're extraordinarily diligent with very much of a sharp shooter approach. So we haven't acquired anything as a company in a year since we did the Crescent transaction and we really haven't in the Texas markets on the acquisition standpoint we really haven't looked at anything since that period of time just because of the aggressive nature of pricing. The southeast, being Georgia and North Carolina have obviously trailed for reasons we stated in the call, just the impact of the recession has caused the markets to come back slower and the spread has been a little bit wider in terms of capital coming into these markets, although that has changed in the last 12 months and so it has become more aggressive but we still think that there is a spread where we can see specific assets where not just the price we pay but the operating platform that we bring in terms of leasing relationships, client relationships and capital deployment to reposition them. We think there are going to be a few select but we think we're very much in the end of that cycle with just a couple of targets that are potentials left to look at. We much more are looking in our markets at development opportunities and I'm optimistic between now and the end of the year we'll have some more development opportunities to talk about as well.

Okay. Great. So last one is for Gregg. In terms of the balance sheet, just with the raise that was done last night or this morning if we assume that the shoe gets exercised you've sort of over capitalized this transaction and then with additional asset sales that are small but I think are expected for the back half of the year, how should we think about deployment of that capital, which really on a pro forma basis brings you leverage down to a pretty low level after this deal.

Good afternoon Brendan. Hey, first off there's no green shoe. There's no over allotment for this equity raise, so it's a clean 18 million shares. So really when you look at the proceeds from that 18 million share offering it matched funds of the Fifth Third acquisition pretty close to 100%. So that's the first question. Second question is I think kind of a balance sheet management question and are we lowering our leverage strategically on the balance sheet and the answer would be no. We've been running the balance sheet at kind of between 25% and 30% leverage for the last few quarters. This takes us down to the very bottom of that range but it's still generally within the range of where we've been running the balance sheet. The idea with the equity raise was to fund 100% of Fifth Third, that's all.

Okay. Okay. Great. Thanks.

Thanks Brendan.

Our next question comes from Dave Rodgers of Robert W. Baird. Please proceed with your question.

Hey good afternoon. It's Matt here with Dave. Can you maybe talk about the leases that were signed at 777 Main in the quarter and the activity that you're seeing there? I think on the last call activity there was a little bit slow. If you could just provide a little bit more color that would be great.

The activity in Fort Worth is a bit slow. We expected it to be slow. As we have said before the market in the last decade has been over 90% leased and when we bought 777 Main we knew we were buying vacancy due to a corporate M&A transaction that created the vacancy. And so we've been -- we anticipated a slow lease up. It's been slow although new customers tend to come in big blocks in Fort Worth and it remains the best building in the market and Fort Worth is an extraordinarily vibrant city that's growing in amenities. We did do a couple of small deals this quarter and I would tell you in doing the small deals that's the high percentage of the deals done in the market. So we're pleased with the progress, but we do anticipate 777 will continue to be a slow and choppy lease up.

Okay. And then maybe just regarding the $12.6 million that is signed leases and then what the $6.5 million that was actually realized in the second quarter, can you provide any color regarding maybe when we'll start to see that revenues start to show up in earnings, back half 2014, 2015 or maybe even beyond?

Hi, it's Gregg. As we've said in previous quarterly conference calls, most of those leases will run through the income statement by the end of this year. Not all, we've got two or three leases signed that kind of trickle into 2015 and 2016 but the vast majority will run through the income statement by the end of this year and that's consistent with what we said previously.

Alright. Thanks guys.

Our next question comes from the line of Jed Reagan of Green Street Advisors. Please proceed with your question.

Good afternoon guys. You talked about the 6% initial yield at Fifth Third, just wondering if you have a stabilized yield expectation for that building and then also if you anticipate having to put any additional capital into that asset?

As we said earlier, the building was phenomenally well built when it was built and we really don't see a lot of capital being required and Jed, as you know, given the equity offering yesterday there's not a lot more we can say about anticipation of where the project may be. After next week we'll be able to give a lot more color.

Okay. Fair enough. And it sounds like it was a fully marketed deal. I'm guessing competition for the asset was pretty brisk. I'm just curious what made you guys comfortable kind of heavier price per pound, I gather the high water mark in that CBD market and maybe how you thought about that use of capital versus perhaps pursuing a higher risk adjusted return in a development kind of plowing proceeds elsewhere?

Well, I think if you look at the price in Charlotte a lot of the trophy buildings in Charlotte over the years because they were bank owned have not traded and this isn't that far above some assets that traded a year and a half ago if you just look at the movement that the overall capital markets have made. We are very disciplined in our approach here. We spent, I think if you were to talk to the brokers we spent a lot of time, probably more than anyone, in our diligence beforehand not only on the building but on the market. And as I said we know the customer base because we've done business with a lot of them in other areas, not that we got any special information but just being able to understand their comfort level, how they view the building strategically and then our local operating team in Charlotte actually opened the building when it was built and brought that knowledge to it. So as you know we're very disciplined on the capital side and we did pay market for it but it's very consistent with our strategy. It gives us another foothold in Charlotte which is a very key and important market for us and we're thrilled that we've been able to be successful here.

Okay. Thanks. That's helpful. And I take it there is no end place set for the asset of eventually could you see taking out some mortgage debt on the building?

Yes, no we purchases -- hey Jed, it's Gregg. We purchased the building unencumbered and we don't anticipate putting a mortgage on it in the near future.

Just switching gears, sort of the larger releasing spread that you guys put up last quarter, I gather that's kind of driven by lumpier activity. I wonder if you could just give a little bit of color on what some of those bigger deals that might have pushed the needle up, kind of where they took place, what types of tenants, et cetera?

Hey Jed, it's Colin. As I said earlier and in previous calls we would expect that metric to continue to be fairly volatile and lumpy as you said, but directionally we believe that it will keep moving in a very positive direction. What really is going to drive that quarter to quarter is the geographic mix of the particular leases. I think generally speaking quarters where Texas leads the leasing activity we'll see that to certainly drive those percentages. As I mentioned in my remarks, we did sign a long term extension with Gulf South about 99,000 square feet. That was certainly very impactful this particular quarter.

Okay. Thanks. And maybe one for Gregg on the cash same store NOI number was obviously quite strong and you talked about the cost reductions and the free rent burn off. Should we look for the levels of expense reductions to kind of be maintained through the rest of the year and is it fair to expect that free rent burn off to continue to taper down through the year, any comments you can offer on that regard?

Hey Jed, I hate to be vague and evasive but as you know we don't provide same store guidance. We just provide kind of asset by asset guidance on a quarterly basis and the guidance that I gave back in February is still good guidance today. Sometimes it's flat guidance for the year where we have a stabilized property. Sometimes it's increasing NOI guidance for where we have lease up properties but we can't give you specific same property revenue or expense guidance.

Sure. Figured I'd try to push the envelope anyway. And we saw where Exxon is looking to sell a big development say in Greenway Plaza that could apparently support a $1 billion mixed use project including some office. Are you looking at that opportunity and do you think that could impact the local market dynamics in a meaningful way?

Hey Jed, it?s Colin again. We certainly are aware of the project that you're talking about and we obviously particular in kind of neighboring properties are very focused on understanding what the existing opportunity might be for us from an investment perspective, at the same time understanding what impact that could have on Greenway as a whole. But as you said, it's a very large potential project. We don't see anything near term having any impact on Greenway. Again, we'll continue to follow the transaction and determine if ultimately that's something that makes sense for Cousins but it's still very preliminary.

Do you know how many of the square feet of that project could be office or is it too early to tell?

I think it's way too early to have any idea as to what the overall flight plan could look like there. In many respects it's a teardown. I think you would see a mixed use project. Obviously the multi-family developers have a lot of interest in that site as well as some of the retailers, so way too early to understand what the mix could look like.

Okay. Thanks. And then just last one on the supply issue it sounds like a competitor in Atlanta is moving forward on a spec development and maybe there is some additional spec supply coming in on that and Buckhead this is and just wondering if you feel like the market can absorb that and what's your sort of concern level on that supply coming in?

Well, we've read the same as every else that says that Terminus going to start a half million square foot building on their site and when you look at the size of the Buckhead market and the dynamic of the Buckhead market and the number of few sites that are available in that market, assuming that they start we certainly don't have any concerns about it from a position of our current inventory. It will be a more costly project. Rents would need to be 30 net or so and if you look at where Terminus is there's still a fair value spread there on a property that's only getting better, as Colin said, with the addition with retail and apartments. So we take note of it and but it doesn't really cause it any concern.

Okay. Terrific. Thank you guys.

Ladies and gentlemen, once again as a reminder to register your questions or comments please press one four on your telephone keypad. Our next question comes from the line of John Guinee of Stifel Nicolaus. Please proceed with your question.

Okay. John Guinee here. Thank you very much. Hey just a little bit so we understand how you're thinking about replacement cost, Larry. Colorado Tower looks like it's going to cost you about $340 a square foot to build. Do you think that's an appropriate number for midtown Buckhead or uptown Charlotte?

John, I think that's a little low. In Colorado Tower that's on a ground lease and so there's no land in that. I saw that there was report that one of the analysts put out that speculated that new supply would be in the $350 a square foot. We think it's probably a little bit north of that. We certainly think if you started Colorado Tower today and put land in it and just where construction costs have moved, it would be more in the $360 or $370 range would be more where we would see it in our markets.

Okay. And then just maybe Colin or maybe Gregg I'm just looking and this is just purely curiosity, it looks like your Colorado Tower has initial occupancy in the fourth quarter of 2014 but project costs incurred today are only $57 million of the $126 million total project cost. Can you really get people in that quickly if you've spent less than half the money?

John, it's funny that you asked that question because when I saw the preliminary numbers is asked the same exact question and the answer is that number is accurate and we'll get people moved in at the end of the year.

I was hoping you knew the answer because I sure didn't. Okay. And then refresh our memory now that you bring up Charlotte again, what is the status of Gateway Village' When does that buy sell kick in? When does that mature? When is the lease expiration et cetera?

Debt matures coincident with the lease expiration in 2016 and so Colin has been talking to Bank of America and we've got to figure out something before 2016.

And John we have ongoing conversations with BofA about it and what their long term space needs are. I think it's fair to say that they view Gateway as a mission critical facility but over the coming year or so I think we'll gain more clarity on exactly how much space or all that they decide to keep.

Is that for additional Texas buy sell or is there something complicated in the unwinding of it?

It's a little more complicated than that because one of the choices that they can make is to buy us out and provide a return over the period of our investment to us at 17%. So that's actually I think what most people have in their earnings models for us is the assumption of that as a base case and that could happen, but there's a lot of other things that could happen along the way too. Specifically I didn't say it. It's a December 2016 maturity, so end of the year 2016, John.

Okay. Great. Thank you very much.

Thanks John.

We have a follow-up question from the line of Jamie Feldman of Bank of America, Merrill Lynch. Please proceed with your question.

Thank you. I know you guys mentioned a couple, but can you walk us through your largest expirations in 2015?

Sure. Jamie, it's Colin. In terms of the large expirations in 2015 kind of really anything over 75,000 square feet or so it's really Exxon Mobil, which we talked about, the 215,000 square feet and then Mid Assets is a customer at North Point 100 and 200. They're roughly 121,000 square feet and they have an expiration in mid 2015.

And that's it for greater than 75,000?

Yes.

That's correct.

And do you have a sense of your mark to market on your leases at this point?

We do. In general we don't provide specific metrics on that but I think it's fair to say the expirations are below market. Again, there's a significant component of the material expirations next year, Exxon would be a big chunk of that. That's a Texas asset. In general those rents have been characterized as below market.

And then how long do you think for the Exxon space, how long do you think you could have it back in service?

I mentioned in my remarks we're in the process. Later this year we're going to start a full lobby renovation. Again, we're premarketing that space and I think we're excited to get that renovation up and running. We think that's really going to help us drive the market rent there. But we could start to potentially later part of 2015.

You could actually have someone moving in by late 2015.

In late 2015.

Okay. Great. Thank you guys.

Thanks Jamie.

Ladies and gentlemen once again as a final reminder to register your questions or comments please press one four on your telephone keypads. There appear to be no further questions in the queue. Mr. Gellerstedt, I'll now turn the call back to you, please continue with your presentation or closing remarks.

Well, we appreciate everybody attending the call today. We continue to be very excited about where we sit in our markets and our opportunities. Hope everybody has a great summer, rest of summer and please know that we're available to talk whenever you want to reach out to us. Thanks very much.

Thank you ladies and gentlemen. That does conclude today's presentation. We thank you for your participation and ask that you please disconnect your lines. Have a good afternoon everyone.