Cousins Properties Inc (CUZ) 2014 Q4 法說會逐字稿

Good morning, and welcome to the Cousins Properties Incorporated 2014 fourth-quarter earnings conference call.

(Operator Instructions )

Please note this event is being recorded. I would now like to turn the conference over to Pam Roper, General Counsel of Cousins Properties. Please go ahead.

Good morning, and welcome to Cousins Properties fourth-quarter earnings conference call. The Press Release and supplemental package distributed last night as well furnished on Form 8-K. If you did not receive a copy, these documents are available through the quarterly disclosures and supplemental SEC information links on the investor relations page of our website at www.cousinsproperties.com. An audio webcast of this call be available for 90 days through a link in the investor relations section of our website.

At this time, we would like to inform you that certain matters we will be discussing today are forward-looking statements within the meaning of federal securities laws. Examples of such statements include estimates about expected ranges of FFO per share and operating income from properties, as well as certain categories of expenses and other income, along with our expectations regarding leasing activity, rental rates including above and below market rental income, 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 risks and uncertainties that could cause actual results to differ materially from our current expectations. The Company does not undertake a duty to update any forward-looking statement. Please refer to our filings for the Securities and Exchange Commission, including our annual report on Form 10-K for the year ended December 31, 2014, for information regarding certain risks and uncertainties.

Also, certain items we 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 our website. With that, I'll turn the call over to our Chief Executive Officer, Larry Gellerstedt.

Thanks, Pam. Good morning, everyone, and thanks for joining us on our year-end 2014 earnings call. I'm joined today by Gregg Adzema, Cousins' Chief Financial Officer, and Colin Connolly, Cousins' Chief Investment Officer. Let me start by saying how proud I am of the Cousins team and the tremendous amount we've accomplished over the past year.

During 2014, we delivered FFO of $0.81 per share compared to $0.53 per share in 2013, an increase of over 50%. Leasing momentum hit an all-time high as we completed 2.2 million square feet of new and renewal leases representing a 57% increase over 2013.

Our second-generation releasing spread was up a very strong 19.7% on a cash basis, and for the fourth consecutive quarter, our same property NOI on a cash basis posted double-digit growth finishing the year up 12.3%. By almost any measure, it was a great year.

Throughout the year, we've been consistent in our strategy to transform the Company by focusing on a simple platform, trophy assets and opportunistic investments, and in 2014 we continued to make significant progress with this strategic plan. First, we acquire trophy assets in Atlanta and Charlotte at the right time in the cycle and at significant discounts to replacement cost. During the quarter -- during the third quarter, we acquired Fifth Third Center, a 698,000 square foot tower located in uptown Charlotte. And in the fourth quarter, we acquired Northpark Town Center, a 1.5 million square foot office complex located in Atlanta central perimeter.

These two acquisitions, totaling $563 million, solidify our position in two of our targeted submarkets and provide a compelling opportunity for the Cousins platform to grow NOI through the lease up of vacant space and the roll-up of below market rents.

Secondly, we strategically ramped up our development pipeline. At year end, we delivered Colorado Tower, a 373,000 square foot office tower, which is the first new office building delivered in the Austin CBD since Cousins developed Frost Bank Tower over a decade ago. We started Colorado Tower with 17% preleasing and just opened at 95% leased at rents above our original underwriting.

We also continued to make progress at our second phase of Emory Point. The second phase will include 307 apartments and 45,000 square feet of retail space. We expect to begin delivery during the second quarter, and if Phase II's performance is anything like Phase I's, the project should be very successful.

Lastly, we started Research Park V in the Northwest submarket of Austin during the fourth quarter. We have a long development history at Research Park and believe this project will be as well received as the previous phases.

Third, we continued to simplify the platform with $[260] million in dispositions during 2014. With these sales, we have now exited Birmingham and Fort Worth, both non-core markets, and have also exited the grocery anchored retail business. As a result, 98% of our net operating income now comes from trophy office towers at our five targeted Sunbelt markets of Atlanta, Austin, Charlotte, Dallas, and Houston.

Moving on to 2015, we are excited and confident about both driving great results in our portfolio and creating additional value in our development portfolio. Overall, with the exception of Houston, office fundamentals in our markets are strong and strengthening. Specifically, the urban submarkets we targeted are expected to see continued strong job growth and limited new supply which should translate into steady absorption and profitive rent growth.

With this as a foundation, let me walk you through a few key strategic priorities for us during 2015. First, we remain very focused on continuing to drive positive results within our existing portfolio. While we have done a terrific job stabilizing our assets, we firmly believe there is still room to run from both an occupancy and rental rate standpoint given the strength of our markets.

Second, we will continue to execute our current development pipeline. In addition to completing Emory Point Phase II and Research Park V, we plan to start our mixed use project in Chapel Hill now named Carolina Square, and a 366 units and 20,000 square feet of retail multi-family project in downtown Decatur.

Both projects are extraordinarily well located and offer compelling value creation opportunities. Colin will provide more details on these projects later.

In addition in November, we announced the formation of a joint venture with Hines to develop Victory Center in the uptown submarket of Dallas. This site is located in the highly amenitized Victory Park in close proximity to the DART rail stop, American Airline Center, and numerous restaurants and hotels.

Camden Property Trust and Novare Group both plan to build high-rise apartment towers in the vicinity and Lennar is expected to announce a new mixed use project in the area as well. We are thrilled to once again partner with Hines, a true global leader in office development and leverage the very best of our respective firms have to offer.

The 23-story office tower is programmed for approximately for 466,000 square feet and could potentially be ready for a groundbreaking as early as the second half of 2015. We are actively in the market talking to customers and hopeful we can generate some pre-leasing to kick off the project. However, we will remain disciplined in our approach to starting development at Victory and our very attractive land basis affords us the luxury of patience.

Third, planned our strengths. We look to replenish and potentially expand our development pipeline with asset pricing in our targeted submarkets at or above replacement cost and operating fundamental stabilized, acquisitions are less compelling today. Conversely, those same dynamics create interesting development opportunities.

In general, we review the office cycle in our Texas markets to be in the latter stages, so we will place a greater emphasis on identifying office development opportunities in Atlanta and Charlotte. Our development capabilities are a key differentiator for Cousins and we are excited that these opportunities are beginning to emerge in our backyard.

On the capital front, we have decided to hit the pause button on the sale of a joint venture interest in 191 Peachtree. Overall, there was solid interest in the asset from well-respected investors. But as we progressed through the process, we saw the Atlanta market in the CBD in particular, quickly improving around us as evidenced by more than $2.7 billion in new economic development activity currently underway.

We've also seen leasing momentum pick up at 191 with team executing 103,000 square feet of new leases and renewals in 2014, and we are confident that that momentum will carry into 2015. And so, we became less willing to compromise on key joint venture issues like control and leverage, and quite frankly, we got a little greedier on price. Ultimately, we decided that we are a buyer here in Atlanta and that 191 still has additional upside.

Let me address the state of the energy market and then its impact on our Houston portfolio. When we made this strategic decision to enter Houston in early 2013, it was based on the long-term view that it will be a leading growth market in the United States for many decades to come.

The decision, however, was also made with the clear understanding that the energy industry can be highly cyclical, as we are experiencing now. With this in mind, our investment approach in Houston has been highly disciplined and focused on properties that are positioned to outperform through all phases of the market cycle. And we are confident that Greenway Plaza and Post Oak Central, with their attractive urban infill locations, combined with the sponsorship of Cousins platform, will do just that.

An important data point to keep in mind is that since acquisition, our leasing activity in Houston has averaged 15% to 20% above our acquisition underwriting on both assets. Nonetheless, we have clearly entered a different phase of the energy cycle. With a 1.5% surplus in oil market may seem relatively -- like a relatively small imbalance, the impact on prices has been anything but small.

However, the oil market, like any free market, is ultimately self directing. No one, including us, is smart enough to know exactly how long this rebalancing process takes, but while it plays out, we are confident that our Houston portfolio will continue to outperform in this part of the cycle just as it did during the up part of the cycle. I will now turn it over to Colin to provide more specifics.

Thanks, Larry, and good afternoon, everyone. I will highlight some of our key operational and leasing metrics, provide color on activity within the existing portfolio with a particular focus on Houston, and wrap up with updates on our investment, development, and disposition activities.

The team delivered another fantastic leasing quarter. We signed approximately 637,000 square feet of leases at terrific economics. The weighted average net effective rent was $18.56, which is 10% higher than the third quarter and our second-generation releasing spread was up 28% on a cash basis. This success on the leasing front is what ultimately drives NOI, and the same store NOI on a cash basis was up 11%.

Switching gears to the portfolio. Given the rapid changes in the energy industry, we want to provide greater visibility into the composition of our Houston portfolio. Yesterday, we posted a detailed overview on the Cousins website. Hopefully, this transparency is helpful to you and reinforces the strength and durability of Greenway Plaza and Post Oak Central. Let me walk you through the key themes.

First, as you can see on page 3 of our Houston overview, we have created significant value since purchasing these assets in 2013. In aggregate, we have leased approximately 750,000 square feet during our period of ownership including several strategic renewals and/or expansions with key customers like Gulf South Pipeline, Oxy, Apache, and Stewart Title.

And the economic performance on this leasing has been very impressive and well beyond any of our original expectations. On a weighted average basis, both the base rent and net effective rent, which includes leasing costs and free rent, on executed leases has exceeded our acquisition underwriting by over 15%.

And of this 750,000 square feet of leasing in Houston, approximately 93% qualifies for our second-generation roll-up roll-down leasing statistic and the results have been equally powerful, with the weighted average increase of 53% in cash net rent. This has been terrific execution by Bob Boykin and his team on the ground in Houston.

Nonetheless, we recognize that market conditions have clearly changed over the last several months which will have some impact on the overall Houston market. But we are prepared to react accordingly and confident that Greenway Plaza and Post Oak Central are well-positioned to perform during this part of the cycle.

Our 5.6 million square foot Houston portfolio is 92% leased on a pro forma basis to reflect Exxon's move out this month from 3 Greenway Plaza. Trophy quality properties in well located urban submarkets tend to attract the highest quality companies, and Greenway and Post Oak are no different.

To highlight the credit quality within the portfolio, let me walk you through a snapshot of our customer base. As noted on page 4 of the overview, our top 10 customers in Houston account for 53% of our overall Houston portfolio and have approximately seven years of weighted average lease term. Of these 10 customers, eight have an investment grade rating and five are rated A- or higher. Oxy, Apache, Invesco, Stewart Title, GDF Suez, and Camden Property Trust are just a handful of the names on the list. These are extraordinarily well capitalized companies with balance sheets that not only weather a downturn but could potentially emerge stronger.

Next, pages 5 and 6 illustrate that due to accommodation of some strategic early renewals and a little bit of good timing, we have very limited near-term expirations in the Houston portfolio. During 2015, excluding Exxon at 3 Greenway because of their known move out, our expirations totaled just 198,000 square feet or 3.5% of our total Houston portfolio.

The story is no different in 2016 as we have only 269,000 square feet of expirations representing 4.8% of our Houston portfolio. Digging a little deeper, I think it's also important to note that expirations from energy-related customers are extraordinarily low during 2015 and 2016.

In aggregate, again excluding Exxon, we have just 71,000 square feet of energy-related tenants expiring during 2015 and 2016, which represents just over 1% of the portfolio. And to be clear, we are not being creative as it relates to defining energy-related companies. The bulk of our expirations are in industries like media, consumer products, healthcare, and not-for-profits.

As you all know, we do have more significant expirations in 2017 and 2018. Transocean and Direct Energy continue to be the material names of note in 2017. While we are not going to comment on the specifics of any lease negotiation, we are hopeful that the quality of our real estate and our attractive basis will make us very competitive as we pursue these renewals.

Apache is obviously the key exposure in 2018. Since purchasing Post Oak Central, we have always assumed Apache would leave for their proposed new development, and we continue to budget that way. Is that certain? No. Will market conditions change their thinking? Essentially.

The reality is it's too early to speculate given their December 2018 expiration is almost four years away. In the meantime, we will continue to work with Apache to address their long-term real estate needs just as we are doing now with the construction of an Apache-specific fitness center and cafeteria.

Switching gears to our other markets, Atlanta continues to strengthen across the board and we are seeing the recovery take hold beyond just Buckhead and the central perimeter in the submarkets like downtown, Midtown, and Alpharetta. Our 6.8 million square foot portfolio in Atlanta is 91% leased, and we think market conditions are ripe to make additional progress.

A couple of things to note. We executed our 68,000 square foot lease with Veritiv, Atlanta's newest Fortune 500 company, at Northpark Town Center. The 10-year lease will commence during second quarter and represents a terrific early win for us at Northpark and a great win overall for Atlanta in attracting such a high profile corporate relocation. We do anticipate that Oracle will vacate Northpark at the expiration of their 70,000 square foot lease in June. This does not come as a big surprise to us as Oracle was in the market looking at consolidation options last summer when we were underwriting the asset for purchase.

Here at 191 Peachtree, you will note in the supplement that the property has dropped to 89% leased. As we discussed in previous quarters, this is driven by Deloitte's 52,000 square foot give back relating to space they never occupied since consolidating into 191 back in 2008. Deloitte remains a fantastic advocate of the building with approximately 260,000 square foot leased through May 2024. Overall, activity at 191 is strong and the strongest it has been in some time, and we are optimistic that we will push back north of 90% leased in very short order.

Over in Dallas, we had another solid quarter at 2100 Ross. The property is now 86% leased after signing expansions with CBRE and a highly regarded national law firm. Our redevelopment of this asset has been extremely well received in the market, and we've been able to push rental rates in addition to occupancy.

Dallas continues to outperform the national economy, and there continues to be a great activity by large corporations looking to relocate jobs into Dallas. As of yet, we haven't seen any impact in the market from the drop in oil prices. Despite its location in Texas, Dallas has a very diverse economy with relatively limited direct exposure to the energy industry but we are keeping a careful eye for any spillover.

Similar story in Austin. We have yet to see in any impact from the falling energy prices. We have received lots of questions around Parsley Energy who was an anchor tenant at the Colorado Tower as they will ultimately occupy approximately 147,000 square feet with the initial 73,000 square foot take starting in March of this year.

Let me provide a little background on Parsley. It's an NYSC-traded company with an equity market capital of over $2 billion with significant liquidity and no near-term debt maturities. The company has positioned itself to be an acquirer of assets in this downturn as it recently did a $200 million plus common stock offering to fund an acquisition. If, however, the role were to be reversed and Parsley became an acquiree, we have a 10-year lease with no termination options and that gives us a lot of comfort.

At 816 Congress, leasing velocity has remained positive as we are currently 90% leased. But as I reminded you last quarter, occupancy is projected to dip back into the low 80% range as IBC Bank vacated 16,000 square feet, and Atlassian will leave us 22,000 square feet of temporary space and relocate to Colorado Tower by April.

Overall, market activity in Austin continues to be very strong, and we believe that there is a great opportunity to push rental rates as we back-fill the space. At Research Park, we do not have any leases to announce as of yet, but the pipeline is strong and the competitive supply in front of us continues to fill up eliminating much of the competition.

Moving on to acquisition and disposition activity. At the beginning of the quarter, we closed on our acquisition of Northpark Town Center in Atlanta's central perimeter submarket for $348 million or $228 a square foot. We believe that this is the best asset in a fantastic submarket and have been eyeing it for some time. Northpark benefits from a fortress location with direct MARTA access, which is unique.

Great access and visibility to Georgia 400 and a blue-chip customer base with 18 Fortune 500 Companies represented on the rent roll. The project has historically led the central perimeter market in rents and occupancy, and we believe this will be an excellent long-term investment for Cousins shareholders.

On the disposition front, as Larry mentioned, we completed the sale of our five-property Publix portfolio at an aggregate gross purchase price of $79.5 million. The net result at Cousins of this well-timed highly structured recapitalization was a levered IRR of 18%.

And just prior to year end, we closed on the sale of 777 Main Street in Fort Worth Texas. The gross purchase price was $167 million or approximately $170 a square foot and generated a gain of $6.5 million. While 777 is a terrific asset, we are pleased to exit Fort Worth and focus our attention on core Cousins markets.

Moving over to the current development pipeline, we hope to start our Carolina Square mixed-use project later this year. Our goal is to sign documents with the University in late March or early April, which would then trigger the University to begin a roughly five-month demolition process of the existing improvements. Based on that schedule, we are targeting a September to October start date for our construction.

As we have previously announced, we plan to form a 50/50 joint venture with Northwood Ravin, a leading multi-family developer with an extensive track record in the Chapel Hill market, to execute this approximately $120 million development. The project mix will consist of 245 apartment units, 158,000 square feet of office, and 43,000 square feet of retail. We are confident that we will have meaningful pre-leasing to announce on the office component when we break ground later this year.

At our Decatur multi-family project, we are planning to partner with AMLI, a leading national multi-family developer with deep experience in urban submarkets of Atlanta. The project, which is currently estimated to cost approximately $70 million, will likely include around 350 apartment units and 20,000 square feet of retail.

The partnership will leverage AMLI's leading multi-family development capabilities while Cousins will oversee the retail leasing effort. Cousins will invest in a minority position, somewhere between 20% and 40% of the equity, and will make that election prior to breaking ground.

With that, I will turn it over to Gregg.

Thanks, Colin. Good morning, everyone. As you can tell from Larry and Colin's comments, it was a solid quarter on many fronts. FFO per share was $0.24, up 33% over last year and the important internal operating metrics that both you and we focus on were also up sharply.

Leasing velocity. Second-generation cash net rents and same property cash NOI were all up double digits over last year. The important external metrics were also very strong. We acquired a $348 million value add office complex. We initiated construction on a $44 million office building, and we sold approximately $260 million in non-core assets. We also obtained a new 10-year mortgage on 816 Congress in Houston at an attractive 3.75% coupon.

To top it all off, we announced a 7% increase in our first quarter common dividend. As we've said, it was a terrific quarter.

Beyond that, I'd prefer not to recite additional data from our financial tables. It's all there in the press release and supplement in a much clearer presentation than I could ever hope to achieve on this call.

I do, however, want to draw your attention to three items that might benefit from some more color. First, as discussed in last quarter's conference call, we received the final payment on a seller note we issued in 2008 associated with the sale of a property in Austin.

The payment was $4.5 million, and it ran through fee income in the fourth-quarter income statement. We paid a $1.4 million commission associated with this payment that ran through other expenses. The net effect of these two offsetting entries was an additional $3.1 million in net fee income during fourth quarter.

Second, we sold a parcel of land that was owned in an unconsolidated 50/50 joint venture with IBM for $3.3 million during the quarter. We realized a $2.1 million gain on this sale, which ran through the income from unconsolidated joint ventures line item on our income statement.

Third, general and administrative expenses during the fourth quarter were a bit below our typical run rate. This was driven by a true-up to our compensation accrual during the quarter. For the year, G&A came in at $19.8 million, slightly better than the bottom end of our previously provided guidance range of $20 million to $22 million for the full year. This is 10% below last year's G&A number, and G&A now represents only 0.6% of our total undepreciated assets. What makes this particularly impressive is that we accomplished this in a year that we increased revenues by over 70%.

Moving on, I'd like to provide an update on our portfolio properties with embedded NOI potential. As a quick reminder, in the summer of 2012, we began tracking several large assets in our portfolio that had significant NOI upside due to potential existing vacancy. This was driven by our strategy of acquiring value-add assets and seeking to be transparent as we unlocked their value. As we continue to purchase assets, this pool increased, ultimately reaching a total of seven assets and a corresponding embedded NOI potential of $19.7 million.

With this report, we are going to provide the final update on these assets. We have essentially reached our goal and with the recent sale of one of these assets, 777 Main in Fort Worth, we worry about the potential confusion going forward around which assets are in the pool and which assets are out. That being said, six assets that remain in the pool were forecast to generate $15.8 million in embedded NOI. As of year end, we have signed net new leases representing about 93% or $14.7 million of this total. The amount of annualized revenues we actually realized was $10.2 million during the fourth quarter.

Our balance sheet remains simple and strong. Our capital stack is comprised of only common equity, mortgage and construction debt, and our unsecured credit facility. That's it. We've no hedges, no preferred equity, no equity forwards, and no convertible debt.

Our debt to total market cap is below 30%. Fixed charge coverage is almost 5 times. Debt to annualized EBITDA is only 4 times. Over 80% of our total debt is fixed rate, and our weighted average interest rate is below 4%. These are strong balance sheet metrics from any perspective.

With the recent decline in our share price, we've been getting a lot of questions about our view on share repurchases, especially in light of our strong balance sheet. We are not averse to repurchasing stock. It's one of several investment alternatives we have.

However, right now for us, development makes the most sense. As Larry and Colin said earlier, this is the part of the real estate cycle where our development capabilities become particularly valuable, and our development team has identified several compelling opportunities. However, we understand that things can change quickly, and we'll continue to monitor the relative attractiveness of our investment alternatives closely, including share repurchases, and we will adjust when necessary.

Before providing guidance, I wanted to discuss our newly revamped earnings supplement. We know how important this document is to the investment community, and so we spend a lot of time trying to make it as helpful as possible. We strive to provide everything you need but we want to intelligently curate the data, not just dump it out there and force you to sift through pages of raw numbers.

We have refined our earnings supplement almost every quarter over the past few years, but this quarter in particular you will see big changes. And next quarter, we hope to make an even more significant step forward in our presentation. As always, don't hesitate to give us a call if you see any opportunity for improvement.

I'd like to wrap up my portion of the conference call by discussing our initiation of FFO guidance. As you can see in our earnings release, we are now giving annual FFO guidance along with a set of assumptions that should provide the building blocks you need to complete your earnings projections. Since this is the first time we've done this, I'd like to take a moment and walk you through a few of these assumptions. First, all of the assumptions align with the FFO presentation in our earnings supplement, which is located on pages 4 through 7 in the current supplement.

Specifically, this means that we don't break out unconsolidated operations into their own line item as is the case with our GAAP statements. Instead, we include unconsolidated data along with our consolidated data for each assumption. So for example, our interest and other expense assumption includes both consolidated and unconsolidated debt, which is consistent with our supplement. We believe this presentation is more transparent and will be easier to tie back to our reported results will repost them.

Second, within our fee and other income assumption, fees are comprised of development, management, and leasing fees, while other income is predominantly comprised of termination fees for which we have assumed $0 in 2015. This isn't to say we won't potentially receive termination fees for 2015, but they are difficult to predict and consistent with our prior practice, we have not included any in our forecast.

Third, within our interest and other expenses line item, other expenses are primarily comprised of property tax and other holding costs, pre-development expenses, and acquisition expenses. Again, the components for both fee and other income, as well as interest and other expenses, are consistent with the line items in our earnings supplement.

We also providing straight line rent adjustment assumption and an above and below market rent adjustment assumption that should help investors and analysts transition their analysis from earnings to valuation. We are including these two additional data points because these adjustments have significantly increased over the past couple of years driven by our acquisition activity. We will continue to provide these additional data points as long as these numbers remain elevated.

Our guidance does not include any impact from unannounced acquisition, development, or disposition activity. It does include our current development activity, which is outlined in our supplemental information on page 14. Finally, unless there is a material change or event, we anticipate updating our annual guidance only in our quarterly earnings releases. With that, let me turn the call over to the operator for your questions.

(Operator Instructions )

Jamie Feldman, Bank of America Merrill Lynch.

We appreciate the added color in the supplemental in guidance. I guess the first question, just can you give us an update on leasing for the Exxon space in Houston? And a little bit more color on -- we've seen press about more sublease coming on that market. Just kind of what the big block market feels like right now?

Good morning, Jamie. The Exxon space, we've had some really good activity on it, and I think some of that activity is potentially going to be actionable in the near term. We also have some larger prospects that are, you know, kicking the tires on the space. And as you will remember, it's a tremendously attractive block of space at a very attractive price, and we've also received fantastic feedback from the brokerage community on the lobby renovation which will be completed by this fall.

So we think there is some good prospects in the short term for some of it, but clearly the releasing of it in this environment will take longer than we had anticipated. In terms of sublease blocks coming on the market, in the Greenway market, we have most of the market and the market has not had any sublease blocks come on, and the Galleria market has not been impacted to date. Some of the early announcements you've seen of space coming back are partly in other submarkets.

Okay. So when you say actionable near term and from your comments, it sounds like you'd be breaking it up into -- like what's kind of the demand for that kind of space right now, what are the sizes that you seem to be talking to? And how deep is the pool?

I'm not going to comment on specific leases but it's a significant block, so it's very easy to break up for 25,000- or 50,000-type customers as well as the larger customers. We've got both looking at it. In the short run, I would say that more of the interests are in smaller pieces of that overall block, and we are encouraged to see that kind of activity.

And do you have a sense of where rents are right now?

All of the things that have happened in Houston, we have to remember are on a very, very short time frame in terms of where things have moved to, and I would tell you that we haven't seen any drastic change in quoted rents. You are clearly going to see some increases and concessions in base rent.

Particularly we expect that to come out of a lot of the new product that's being delivered, and we think that you'll see -- all submarkets will be impacted but we think you will initially see that more out of the energy corridor and then secondarily in our markets. But to date, we haven't seen any significant amount of that, but it's also been a very short period of time.

Okay. That's helpful. And then can you talk about for the Victory Tower, what's the timing? How soon would you guys get started? How should we think about the capital costs? And what do you want to get done before you get started in terms of leasing?

We have just started our marketing campaign, literally, in the last week. We had a big presentation to pick a potential user this week. And so our plan with Hines, as we stated, is we'll have construction documents and everything ready to go, if we land a sizable customer so that we could start in the second half of the year. But we're going to be driven by preleasing.

We were able to close on the site at a very attractive price in the fourth quarter, and that site is going to be terrific and allows us the opportunity to not be in a hurry. If we can't get enough preleasing, we won't start the building and we'll have a tremendous site for whenever the demand is there. The uptown market in Dallas with the Katy Trail and the new parks and all the activity in the multi-family side going there, some which is immediately adjacent to us, makes us very optimistic but we are going to let that translate into preleasing before we start.

Okay. And do you have a hurdle for preleasing?

We are not going to state a hurdle. It's just going to depend on two things. One, we want some actual hard leasing; and, second, we're going to constantly monitor where the pipeline is both on leasing prospects for us, as well as monitor the vacancy in the market with the new supply that is being delivered.

Okay, and then last question on that. What do you think your total investment will be there when it gets going?

Jamie, we are still in the process of finalizing the design of the project but I would say it's approximately $180 million of total project costs.

Split between the [two] of you?

In aggregate.

In aggregate. Okay. All right. Great. Thanks, guys.

Tom Lesnick, Capital One Securities.

I just want to talk about leasing velocity for a second. Obviously, it's been accelerating over the last couple of quarters, but it looks like same-store revenues fell sequentially. I was just wondering if there's maybe a widening of spread there between signed and commenced or whether there's the bulk of the leasing has occurred outside of the same-store pool?

The leasing activity, a big chunk of it, as you've seen in some of our results, a lot of it's taken place in Texas and Houston so that is outside the same-store pool. Over 2014, that same-store pool accounted for roughly 35% or so. I think as we look forward to 2015, you'll start to see a lot more transparencies that that same-store pool will increase to north of 70%.

Okay. That's helpful. Thank you. And then I'm just curious, on 777 Main, given FTS International and the Petroleum Club of Fort Worth being there, did underwriting change at all throughout 4Q in the oil selloff before closing? Either on your end or on the buyers?

No. We ultimately negotiated and agreed on a price there in late October/November. Signed a contract and the buyer completed their diligence in December, and there was never any change in price throughout that process despite, obviously, the changes in the oil market.

Okay. Appreciate that. And then on the Houston expirations for 2015 and 2016, I know you've got them outlined there in terms of square feet but could you potentially comment on the exposure by NOI instead?

We don't give color or specific guidance on that NOI expiring in any particular year. Gregg, do you want to?

I think we do a great job of providing NOI by asset. We don't take the next step and then start to provide asset by tenant.

Okay. That's fair.

NOI by tenant.

That's fair. And then last question just on G&A. I know you guys who had a true-up in 4Q. I'm just curious, excluding out what the run rate would be, I know you've obviously providing guidance but as we think about the seasonality of G&A, how should we be thinking about that for 2015?

In an ideal world, it would be generally evenly spaced amongst the four quarters. We just had an accrual true-up that happened in the fourth quarter this past year that changed that typical run rate. But if you go back and look at our years prior to 2014, it's a generally a good run rate each quarter.

Okay. Thanks, guys. Appreciate it. Nice quarter.

Dave Rodgers, Baird.

Larry, maybe a question for you. I think during Gregg's comments, you talked about the attractiveness of development and how you really wanted to focus on development but you've clearly been a pretty aggressive acquirer in the last several quarters, Charlotte, Atlanta, and the like. So maybe talk about how you see acquisitions in 2015. Is that going to be a big piece of the year or are there assets that you're underwriting currently to bring in the fold or are we really moving fully to development?

I think we will continue to look at acquisitions, but as I said in my comments, the pricing is just generally at a level for the type of assets that we would want. They are getting at or above replacement cost and that's just not typically where we can drive value. We are always opportunistically looking where we solidify a land position or solidify a market concentration. But I would not look for us to be much of an acquirer in 2015. We are going to be very disciplined, as Gregg said when he talked about the repurchase of stock, which we always remained open to.

But the leverage is something we are going to very disciplined about in this development cycle. But we are encouraged not only about the announced pipeline, but also about the prospective pipeline of projects, and are our optimistic that we're going to have one or two exciting things to announce this year that we haven't been able to -- that just aren't far enough along to talk about. So I think we are much more in the development side of the cycle in terms of where we see opportunities.

Maybe the next one in a couple of parts for Larry and Gregg. As you talk about these potential announcements this year, could you kind of put a bracket around what those announcements could look like in terms of total dollars? And then, Gregg, I know there's a big range there, but in terms of total dollars spending in your guidance for development this year?

Well, we can't do that because if they were far enough along to where we felt comfortable giving numbers, then they're far enough along that we're moving ahead. Many of them are still in the competitive stages. There have been some nice announcements that you've seen in Atlanta and Charlotte and when companies announce buildings or intentions to move employees, we're typically one of several that are in the hunt to do that, and so that will play out this year.

We are more just looking at it from a pipeline perspective. In terms of the spend rate of that this year, things that we would be announcing this year would be in the design phases during the balance of this year in most likelihood and so I don't think there's any significant cash assumptions in terms of what the Company would spend this year on them. Gregg, do you want to add anything here?

Anything that we would announce in 2015, it would have very minimal impact, if any at all, on 2015 earnings. So there is not a big -- I know you guys want to fill out your models, and in the out years that might help you, but in terms of 2015 and the guidance that we provided for 2015, anything that we've just talked about in terms of new developments would have minimal, if any, impact.

Okay. Maybe for Colin with regard to Houston, earlier you don't feel free, but I know you don't want to comment on the lease negotiations so maybe I'll take a different angle on Transocean and Direct Energy. Can you talk about their space utilization currently as you kind of walk their space and think about those two blocks?

Yes, well, first on Transocean, as you said, we're not going to comment specifically on any particular customer, but I would just point out on Transocean, they've been a customer at Greenway all the way back to 1989, and we'd certainly be thrilled to keep it that way. I can assure you that the team in Houston is very focused on it and very much engaged, but Transocean obviously has a lot on their plate right now and real estate is probably not at the top of the list.

But they'll have options but we've got a lot going for us on this opportunity. Large corporate moves can be expensive and disruptive, and we own a terrific asset and attractive basis and I think that will allow us to be aggressive and flexible, so hopefully that will carry the day. In terms of their space needs, I think it's a part of their transaction. They actually have a significant amount of employees out in some of the western suburbs. I think our view is they are going to look to make a consolidation plan, and I think that could hopefully positively impact things at Greenway.

As far as Direct Energy goes, let me first give you a little bit of color on Direct Energy. They are actually one of the largest retail providers of electricity and natural gas in North America. They're essentially an unregulated utility company. It's a wholly-owned subsidiary of a very large UK-based company. While they have the name energy in their name, they really aren't materially impacted by falling oil prices. I just wanted to clear that up.

You know, we've developed a very, very good relationship with Direct Energy. When we purchased Greenway, Direct Energy wasn't the electricity provider at the property. They are now, and that's not an insignificant contract. We think there's a great opportunity for Cousins and Direct Energy and to continue to grow the relationship in the near term, both as it relates to real estate needs and on the utility front at some of our properties.

Okay. Great. Thank you.

Michael Lewis, SunTrust.

I thought the idea to monetize some core assets and redeploy the proceeds into development was a good one and I understand with 191 Peachtree your decision to -- that market's doing a little better than maybe you thought and you want to keep some of that upside for yourself. But are there other assets in the portfolio maybe where you could sell an interest and carry out that strategy?

Well, Michael, if you look at our stated strategy and then you look at our assets, you can pretty quickly see which ones we would probably look first at to harvest as we move along. We've got still some suburban office product, which is terrific product, but that's something that we look at. We've got opportunities, if needed, to put property level debt on unencumbered assets.

We are delivering some opportunistic investments just like we did on the grocery stores that probably aren't long-term holds, but are terrific opportunities for us and we'll make those decisions. So the great news about where we sit is we've got a tremendous amount of flexibility is, hopefully, as the development pipeline ramps up to look for sources of funds for our properties.

Thanks. Do you have any debt or equity issuance assumptions in your 2015 plan?

No. There are no assumptions in there.

Okay, and then just lastly. My understanding on Apache was that they have basically decided not to go ahead and construct their own facility to match up with that 2018 expiration. Is that correct and then when you talk about competing to keep Apache, are you really talking about competing with other existing landlords and sites?

I don't think that Apache has made any type of official announcements in terms of what we have seen. As you know, their lease expires in December of 2018. As we said in our last call, they have taken additional space at Post Oak. We are in the process of building cafeterias and fitness centers for them in that space, and so we're pleased with the discussions we're having with Apache, we are pleased they are expanding their presence at Post Oak, and we're hopeful that that will increase our likelihood, when they get closer to making that decision in 2017 or so, to stay at Post Oak. But I haven't heard anything officially on them new building one way or another.

Okay. Thank you.

(Operator Instructions)

Glenn Reagan, Green Street Advisors.

Jed Reagan, here. I know it's still very much a fluid situation, but what are your current expectations for how Houston [mark arounds] and occupancy levels might be impacted in the next year or two, and are you concerned at all about a bankruptcy or an early lease termination that could impact your portfolio there?

Hello, Jed. I think the way that you outlined the question is the exact right way to look at Houston, is that you segment it with limited amount of rollover and the credit quality of our customers, we're in a -- and the attractiveness of our assets. We're in a very good position in Houston for the next couple of years and even beyond that, but assuming that if you said the next couple of years will be a tougher environment. The wild card is clearly if you've had M&A activity, bankruptcies, et cetera, that you didn't expect that could come in. We feel good about our position, just given the credit quality that we have, but you just never know in an environment like that. So that would be the wild card.

In terms of the impact of those type activities that happen in other buildings may have, clearly it's going to put pressure on rate in the next few years, but we've got a lot of room to move, if necessary, on that, just given how far over our underwriting that we've been able to achieve. But I think it's very early in Houston to try to reach long-term conclusions about where the market's going to go and the impact of the selloff. And I'm just glad that we're in a very good defensive position for the next 12 to 24 months as that plays out.

Okay. That's helpful, and just related to that, I know there's been very little transacting in Houston since the oil price dropped. I was just wondering what you're seeing or hearing on the ground in terms of changes in buyers' underwriting expectations and like if there's been any cap rate changes that have been discernable over the last several months.

Hello, Jed, its Colin. And obviously the oil market moves a whole lot faster than the real estate market so there just hasn't been a lot of time to have many data points. The one that we know that's out there in terms of a significant transaction, 1000 Main in Downtown Houston. It's about an 800,000 square foot trophy office tower, good credit. It was originally priced before really the rapid decline in the market and was put under a contract kind of late fall, November time frame, and that fell out in December.

It was a large US pension fund and clearly with the rapid change in the price, they walked away. Actually, good market rumor now, it's been put back under agreement. It was recently called 10 days ago under contract with hard earnest money and the visibility that we've seen in terms of pricing is the change in price from last year to this year was a little over 3%. So it wasn't a significant move in pricing. Still well over $500 a foot is what we are hearing, which would be almost record level from a multi-tenant office building perspective in Houston, and that's really the only data point that we've got so far.

Okay. Thanks. And then just last one. I appreciate the FFO and same-store NOI guidance. We are just thinking about the same-store NOI guidance on a cash basis. Would it to be reasonable to expect something similar to the GAAP outlook or maybe can you just talk about that a little bit?

Yes. Hello, Jed. It's Gregg. I think we're going to stick with the guidance that we provided and just give you the building blocks that you need to solve for -- [may reach] standard FFO.

Okay. Fair enough. All right, thanks, guys.

Young Ku, Wells Fargo.

I just want to go back to 191 Peachtree a little bit maybe. Maybe Larry can comment on this one. The decision to hold on to 191 Peachtree, what has really changed since the last quarter when you guys were considering putting it into [GB]. Is it more kind of higher net absorption targets or higher rent or has the value really changed over that time period?

No. Let's talk about a little more color on our view of 191. When we announced that we were looking at a potential sale, we were always clear that it wasn't an outright sale, that we were looking for a joint venture partner. And the reality is we didn't find the right partner and sure, the price was one factor.

But we were certainly focused, as you are in any joint venture, on looking at things like the cultural fit, the structure those partners would want, the amount of leverage that those partners will want. So that was one part of the decision. The other part is a lot has changed in Atlanta since last summer when we starting looking at that. As I've said, we've leased over 100,000 feet of 191 last year, and the vast majority of that was in the second half of the year, and we see a similar opportunity as I look at our leasing pipeline to do that again in 2015.

You got a lot of things trending to the positive for downtown right now, and so what we saw was additional upside at 191 that wasn't as evident when we looked at it in late summer. And the great news is we have the -- fortunate to have a balance sheet that allows us to be patient and see that. And so although we would have liked to have found the right partner and the right structure, we really aren't disappointed either that with our prospects at 191 and just keeping it part of Cousins.

Okay. Thank you for the color. On the 50,000 square foot Deloitte space, I think you guys have said you are seeing pretty good recovery there back from that space?

I could not hear your question, Young.

I'm sorry. The 50,000 square foot Deloitte space, so is it fair to say that you're going to backfill that space up pretty soon?

Yes, this was space that they took in their original lease that they never built out, and they had the ability to give it back, which they did. We've already made great progress with having that space to lease. And, as I said, we see momentum there to continue to move 191 in the right direction and that space will be part of it.

Okay. And the 70,000 square foot at Northpark, I was wondering if you could just provide some color regarding the Oracle space?

Sure. It's 70,000 square feet that expires in June. As I said in my comments, as we underwrote the asset and priced it, they were out in the market at that time looking for consolidation options in various buildings around Atlanta. I think our expectation now is they will leave, which as I said, wasn't a bit surprise to us. But Northpark and the central perimeter in total has a lot of activity.

I'm sure you've seen the recent Mercedes announcement. Their CEO made a comment I think really played well to our thesis at Northpark, which is it's so centrally located and the older demographic of workers who are focused on schools and housing had great access, vehicular access on 400, and the younger demographic who wants to live in a more urban environment can hop on MARTA and come directly to the area. So we feel very, very confident about kind of what the prospects look like at Northpark.

Okay, thank you, Colin. Gregg, just one additional question regarding guidance. The 2.5% to 3.5% GAAP same-store NOI guidance, what kind of occupancy upside or rent spread are you guys expecting within that range?

Young, that's all the guidance we are going to provide around same property NOI. It's just that range. We are not going to provide the building blocks up into that range. But as Colin said, it's an important number. Our same property pool, unlike 2014 and 2015, will comprise three quarters or so of our total NOI. That's a significant number driving it to fill in 2015.

Okay. Got it.

Thank you.

John Guinee, Stifel.

Larry, is it safe to say that you want to remind people that you do own great assets in Houston and you've got great leadership and a great team down there?

Absolutely, John. I couldn't have said it better myself.

And one thing I want to make sure I do on behalf of everybody is you guys have done a phenomenal job keeping your G&A down, and in this world where we're seeing a lot of management teams and their Boards blatantly taking advantage of shareholders, I want to congratulate you on keeping your G&A down.

Okay. Thanks, John. We will continue to do that.

All right. Then switching a little bit, you guys had great same-store NOI and great mark-to-market. That usually comes from three different factors. It's either occupancy, it's just below-market rents, or it's paying a lot of dollars in TIs and concessions to get the tenant in. How would you break down what you guys have done to get these pretty strong numbers? How much of it is just big TI dollars?

John, this is Colin. I think it's really the first two rather than the third in terms of being able to drive occupancy. I think if you look at the acquisitions that we've made to date, we also look at our acquisition scorecard and how we've been able to drive occupancy at Promenade, 2100 Ross, 816 Congress, just fantastic success there on the velocity side. And then a significant amount of the activity -- the portfolio has rents below market.

I think across the whole portfolio, we've indicated for us roughly 10% and that's a wider spread. Obviously, in Texas with a higher percentage, a little bit less so here in Atlanta, but I think it's really taking advantage of that lease rollover and moving rents up.

Okay, great. And then, Larry, refresh my memory, how long has it been since you've been in this chair?

I started in mid-2009.

Wow. Okay. I remember back then, there was a lot of land on the balance sheet. I think you've got it down to some residential Paulding, Callaway, Blalock Lakes, and then some commercial. Congratulations, first. Any status update on what you think's going to happen to that land portfolio in the next year or two?

John, the residential land portfolio will continue to be something that we sell, and we be -- out of that business and we've just been waiting for the market to improve, which it is, and so we are optimistic that we will continue to see opportunities to take that down. I would say that the thing that we hope to find an opportunity to do in the next year or two is to make some strategic land acquisitions that fit our core business, and the multi-family cycle has just made that unrealistic for us to do thus far.

But the acquisition that we did at Victory Center in the fourth quarter would be an example of that, where you're buying land at $70 a foot that was put under option before the market in that submarket in Dallas got as hot as it is today, and you're probably buying that at $30 or $40 easy below current market. And so I do expect, assuming that the multi-family market cools off a little bit in the next couple of years, for us to be looking to add a few strategic pieces in our core submarkets.

Great. Thank you.

Thanks, John.

There are no questions at this time. This concludes our question-and-answer session. I would like to turn the conference back over to Larry Gellerstedt for any closing remarks.

We very much appreciate everybody joining for the call today. We hope that the additional information that we provided, both in the revised supplement as well as the package on Houston, has been helpful. And please let us know if you have any questions, and we're off to a great start in 2015. Thanks.

The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.