Cousins Properties Inc (CUZ) 2016 Q3 法說會逐字稿

Good day, and welcome to the Cousins Properties Third Quarter 2016 Earnings Conference Call. (Operator Instructions) Please note, this event is being recorded.

I would now like to turn the conference over to Ms. Pam Roper, Senior Vice President and General Counsel. Please go ahead.

Good morning, and welcome to Cousins Properties third quarter earnings conference call. With me today are Larry Gellerstedt, our Chief Executive Officer; Colin Connolly, our Chief Operating Officer; and Gregg Adzema, our Chief Financial Officer.

The press release and supplemental package were distributed yesterday afternoon, as well as furnished on Form 8-K. In the supplemental package, the Company has reconciled all non-GAAP financial measures to most directly comparable GAAP measures in accordance with Reg G requirements. 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.

Please be aware that certain matters discussed today may constitute forward-looking statements within the meaning of Federal Securities Laws, and actual results may differ materially from these statements due to a variety of risks and uncertainties and other factors.

The Company does not undertake any duty to update any forward-looking statements, whether as a result of new information, future events or otherwise. The full declaration regarding forward-looking statements is available in the press release issued yesterday and a detailed discussion of some potential risks is contained in our filings with the SEC.

With that, I'll turn the call over to Larry Gellerstedt.

Thanks, Pam and good morning, everyone and thanks for joining us today. I'm very excited to discuss the historic transactions Cousins completed last month, as well as the go-forward strategy for the Company. But first I'd like to recognize the team's terrific execution during the third quarter. It was an extraordinary quarter for Cousins on almost every level. We delivered FFO of $0.22 per share, or $0.23 per share before merger costs. Second generation net rents posted positive growth for the 10th consecutive quarter, and our same property portfolio performed exceptionally well.

We have increased our lease percentage 50 basis points and posted positive cash flow NOI growth for the 19th consecutive quarter.

Our strong financial, operational and leasing results underscore the strength of our markets, the quality of our assets and the dedication of our team. I believe this quarter's performance validates our strategic thesis that owning the best assets in the best locations ultimately drives value for our shareholders. More impressively, we accomplished these results during a time when our team was also focused on executing the largest transaction in Cousins' 58-year history.

Subsequent to quarter end, on October 6, Cousins commenced a series of transactions with Parkway Properties. We merged the operations of our two companies and spun off the operations of our combined Houston portfolios into a separately traded public REIT. I'm happy to report the integration of the two companies is progressing well. We are up and running in all six of our markets and we have successfully on-boarded 106 new team members.

I believe Cousins emerge from the transactions as the Sunbelt office REIT to own. Specifically, what distinguishes us from other Sunbelt office owners are three differentiating factors. First, we own an unmatched property portfolio of Class A office assets in six of the leading Sunbelt markets where employment growth is well ahead of the national average. Even more compelling is that 81% of our office portfolio is located in the best urban submarkets in the city.

In addition, the customer base of our assets is stable and diverse, no single industry concentration exceeds 20% and no individual customer exceeds 5% of our portfolio's total annual contractual rent.

Second, we assembled a dominant critical mass of trophy office product in each of our leading submarkets. With at least 20% market share, Cousins is the number one Class A office owner in four out of the six of our submarkets. I believe this critical mass is extraordinarily powerful, it allows us to operate more efficiently and effectively by putting us in a unique position to respond to customer needs, increase our pricing power and attract and retain best-in-class local talent.

And third, Cousins is strategically positioned in each of our markets with a strong operating platform and a seasoned on-the-ground team led by Managing Director. The skilled local sharp shooter approach gives us the capability to drive value in our existing portfolio and to identify opportunities to grow our Company and upgrade our portfolio in the future. The go-forward Cousins is extremely well positioned with a long runway for growth. I believe these three differentiating factors I've outlined, combined with our enhanced scale will present Cousins with better opportunities to increase long-term shareholder value.

However, we are also tasked with some near-term areas of focus, specifically rebalancing our Atlanta concentration and deleveraging our balance sheet. In previous calls, I acknowledged our outside of Atlanta concentration. Atlanta is in a unique position this cycle with limited new supply and a healthy pipeline of demand. However, it is our intent to have no market greater than 40% of our NOI. So while we enjoy tailwinds which propelled record rent growth and occupancy at many of our Atlanta assets, we are taking the necessary steps to reduce our Atlanta concentration.

Last week we closed the sale of One Ninety One Peachtree at downtown Atlanta for a gross sales price of $268 million. We have also engaged CBRE to sell The Forum, a legacy Parkway asset in Buckhead. The Forum is a fantastic asset and Parkway did a phenomenal job with its lease up and repositioning. However, it is located a few miles from our core Buckhead holdings, and we took this into account as we surveyed our Atlanta portfolio for opportunities to reduce our concentration.

Looking ahead, we will evaluate harvesting some of our non-core Atlanta assets. In the past, we've identified that ACSC, our remaining downtown asset maybe a possibility once the CMBS debt matures in September of 2017. In addition, Emory Point, our apartment and retail project we own in a joint venture with Gables is a likely candidate for disposition as we are nearing stabilization on phase II. Our timing on these potential sales is flexible and we will take a disciplined approach in order to serve the best interest of our shareholders.

Next, we are focused on reducing our post-merger leverage in the intermediate term to around 4.5 times debt to EBITDA. Since I became CEO of Cousins in 2009, our conservative balance sheet policy has been an important principle of our ongoing strategy, and I don't plan on that changing under my watch. Without our rock solid balance sheet, we would not have been in a position to execute the Parkway merger spin. Therefore going forward, we intend to run our leverage low so we will once again be in a position to selectively grow when the opportunity presents itself.

Before I turn the call over to Colin, I'd like to thank Jim Heistand and the Parkway team for working with us to bring the merger spin transactions to a successful conclusion. As a shareholder of New Parkway, I look forward to following the company on its journey.

Next I'd like to acknowledge my fellow Cousins teammates, who have worked tirelessly day in and day out. I'm truly humbled by your dedication and commitment to Cousins. You are the best in the business, and have my personal gratitude and appreciation for your efforts. I'd also like to welcome our new team members who joined us last month. Welcome to the Cousins family, and I look forward to celebrating our future successes with you.

With that, I'll turn the call over to Colin.

Thanks, Larry, and good morning, everyone. I will begin my comments today by briefly highlighting some of our key third quarter leasing and operational metrics. Next I'll spend the remainder of my time providing updates on the operating portfolio in our recent transaction activity.

2016 continues to be a very eventful and productive year for Cousins. And as Larry mentioned, the team performed exceptionally well this quarter. We leased 971,000 square feet during the quarter and increased our percentage leased by 50 basis points in our same property pool.

In addition, second generation rents improved by 9% on a cash basis for the quarter, and leasing costs, after adjusting for first generation space, remain favorable with the exception of the Houston market where concessions continue to increase. Cousins' solid third quarter performance is ideally positioned us to finish the balance of the year strong, and to enter 2017 with increased momentum.

Before I update you on our post-merger portfolio, I'd like to highlight the fantastic execution of our Houston team during the third quarter. Despite softening market conditions, we leased 191,000 square feet of office space to customers representing a wide variety of industries, including financial services, media, healthcare and technology.

To further emphasize the strong performance in Houston, our second generation re-leasing spread posted strong gains of 27% on a GAAP basis and 13% on a cash basis. Going forward, I believe the Parkway team will benefit from owning a well-positioned portfolio that has historically outperformed during all stages of the real estate cycle.

Switching gears, let me provide some color and updates on Cousins' go forward portfolio. The underlying real estate fundamentals across the Sunbelt remain very healthy. Job growth in our six markets continues to outpace the national average by a significant margin, and new supply remains limited. Thus we see additional opportunities to push rental rates, reduce concessions and improve occupancy.

In Atlanta, Cousins as of today owns a $7.1 million square foot office portfolio with a compelling concentration of Class A towers in Buckhead, as well as leading trophy assets in Midtown and the central perimeter. As a whole, our Atlanta portfolio is approximately 92% leased and differentiated by our urban locations and close proximity to MARTA.

We do have some leasing opportunities ahead in Atlanta and in particular at Northpark Town Center. We posted a positive leasing quarter at the 1.5 million square foot project, improving the percent lease 200 basis points to 88%. During last quarter's conference call, I mentioned that Equifax plans to vacate 68,000 square feet during the third quarter of 2017. During this past quarter, we learned that URS, which occupies 47,000 square feet, will also vacate North Park at the end of 2016 as a result of their merger with Aecom. This was disappointing news as URS was on the verge of renewing with us prior to the merger announcement. But looking forward, we believe that North Park Town Center is the best located and best monetized property in the Central Perimeter submarket with direct access to MARTA. Our team has a robust pipeline and is actively working to backfill that space.

Turning to the balance of our portfolio, we assembled a tremendous critical mass of trophy office assets in uptown Charlotte, the Austin CBD and the Tempe submarket of Phoenix.

To highlight, let me provide some of the statistics. In Charlotte, today we own a 3.1 million square foot portfolio that is approximately 99% leased. In Austin, we own a 1.9 million square foot portfolio that is now approximately 97% leased as a result of this quarter's terrific leasing success at Research Park V. And in Tempe, we own a 1.3 million square foot portfolio that is approximately 96% leased. Importantly, these three markets as a whole remain strong with single-digit vacancy levels in our particular sub-markets and robust job creation.

In fact, CBRE recently issued a report called the Tech Thirty 2016, which ranks Phoenix, Austin and Charlotte as the number 2, 3 and 4 nationally for high-tech software and services job growth from 2013 through 2015. While our portfolios are essentially full in Charlotte, Austin and Phoenix, we continue to find opportunities to increase value with our local sharp-shooter approach. Post-merger, we signed an agreement with US Airways to terminate their full building lease in Tempe as of October 31, and simultaneously executed a lease with a Fortune 500 company with AA credit rating to backfill the entire building. Rent under the new 11-year lease is expected to commence in early April, 2017.

In addition, as a part of our termination agreement with US Airways, we negotiated the following key points. US Airways will pay $3.8 million termination penalty, which will be recorded in the fourth quarter of 2016. US Airways, as a 25% owner, will pay their pro rata share of the leasing cost for the new customer lease. And three, Cousins will purchase US Airways' approximately 25% ownership interest for $19.6 million by no later than February 28, 2017.

The combination of these transactions creates meaningful value for shareholders, as there is a significant rent roll up with the new lease, a highly attractive purchase price for US Airways' 25% stake, as well as extended lease term, and enhanced credit profile, and the elimination of a complicated tenancy and common structure.

In our new Florida markets, we see near-term opportunities to create value through the lease up a vacant space. Our new Tampa portfolio consists of 1.7 million square feet of leading office product in the Westshore submarket. Westshore, which is located in close proximity to the Tampa airport leads the market with the highest rents and the lowest vacancy levels at approximately 8%.

Our portfolio is 88% leased, with a healthy pipeline of prospects. In Orlando, post-merger Cousins now owns or proximity 1 million square feet of Class A assets in the CBD, which leads the broader market and rental rates as well. Similar to Tampa, Orlando is an opportunity for us to lease up vacant space in a healthy market. While the portfolio was approximately 86% leased at quarter-end, we have approximately 48,000 square feet of known moveouts before year-end, which will push the portfolio to the low 80s on a percentage lease basis. We are confident in our team's ability to back fill the space in coming quarters as economic fundamentals remain very positive, with Orlando continuing to be a leader nationally with job growth of approximately 4.4%.

Now let me provide a brief update on dispositions. In addition to the One Ninety One Peach Street sale and the beginning of our marketing efforts with The Forum, both of which Larry touched on earlier, we also closed on the sale of Two Liberty Plaza, a legacy Parkway asset for a gross purchase price of $219 million.

Cousins hold a 19% interest in the 941,000 square foot office tower located in the Philadelphia CVD via a joint venture with institutional investors.

Lastly, we are under contract to sell Lincoln Place, also in legacy Parkway property, located in the South Beach submarket of Miami. Due to confidentiality provisions I cannot provide any more specifics on the price or the buyer, but I can report that we anticipate closing the transaction early next year.

Before turning the call over to Greg, I'd like to highlight the new additions to our development pipeline in our quarterly supplemental. We have included the second phase of NCR's corporate headquarters in Midtown Atlanta, as well as Dimensional Place in the south end of Charlotte, which is the new East Coast headquarters for Dimensional Fund Advisors.

As I've said in the past, the size and cost of these projects could change slightly over time, as we finalize plans with the respective customers. We will continue to update our quarterly supplemental if and when any changes are made.

In closing, our current development pipeline now totals approximately 1.4 million square feet of office with some additional multi-family units in the retail space. I'm confident the $506 million we plan to complete over the next two years is in an excellent position to succeed. We have been disciplined and diligent this cycle. And our pipeline statistics clearly reflect with over 84% of the office portion leased with significant time remaining until the delivery of those projects.

With that, I'll turn it over to Gregg.

Thanks, Colin and good morning, everyone. From a reporting perspective, it's a challenging quarter, since the merger and spin-off closed after quarter end, the third quarter financial statements are Cousins' only, they do not reflect the Parkway transactions. But here we sit talking to you after the transactions have actually closed and you are naturally interested in post-merger, post-spin-off Cousins. What is 2017 FFO guidance? What are the assumptions behind it? What does the new balance sheet look like?

If you know anything about us, you know we're transparent. Our numbers are clean, our supplements are robust and our conference calls are thorough. It's our natural inclination to want to answer all of your questions. In that spirit, please note that we are committed to getting you the numbers as soon as practical.

First let's talk about FFO guidance. Similar to many of our peers, we typically provide FFO guidance when we report fourth quarter earnings. We understand this is still quite a ways off and presents a near-term challenge to many analysts and investors. We will do our best to provide FFO guidance by the end of the year.

Concerning the balance sheet, I believe we will be able to provide a little clarity much sooner for our stockholders' agreement executed in connection with the merger, we're required to file an S-3 registration statement on behalf of TPG, previously Parkway's largest shareholder, soon after the merger closes.

The current schedule anticipates us filing this document sometime in mid to late November, although that could slip. This S-3 will have proforma September 30, 2016 financial statements, including the balance sheet, which will reflect the balance sheet of Cousins as if the merger occurred on September 30, 2016. It will also include all estimated merger adjustments, including the costs incurred to close the transactions.

We've already completed two significant dispositions post the quarter-end Two Liberty Place in Philly and One Ninety One Peachtree here in Atlanta. And as Larry and Colin said earlier, we're in the process of executing several more large transactions. So be warned, the 12/31 balance sheet will look significantly different than the September 30 balance sheet. But the proforma financial statements included in the S-3 will provide a good starting point for your analysis, and will be followed by a full set of audited financial statements reflecting all fourth quarter transactions when we file our Form 10-K in early February.

With that out of the way, let's turn our attention to the third quarter. Overall, it was a very clean quarter with strong operating metrics. Other than $1.9 million or about $0.01 per share in merger costs, which accounting rules require us to expenses incurred, there were no significant unusual items or charges.

As Colin just laid out, rents continue to roll up and the leasing velocity accelerated during the quarter. Our same-property portfolio, which comprises approximately 70% of our total NOI, saw cash NOI grow by 4.3% year-over-year during the quarter. Year-to-date, same-property cash NOI has increased healthy 5.6%.

It might be helpful to break this number down by market. Austin same-property cash NOI during the first nine months of 2016 increased by 25.3% year-over-year. Atlanta increased by 5%, and it might surprise you to learn that Houston same-property cash NOI actually increased 4.2% year-over-year during the first nine months of 2016.

We also obtained two large mortgages totaling $270 million during the third quarter in anticipation at closing the merger and spin-off. The first is a 10-year non-recourse mortgage on Fifth Third Center in Charlotte with a 3.37% coupon. The second is a 10-year non-recourse mortgage on Colorado Tower in Austin with a 3.45% coupon.

We've added a page to our third quarter supplemental package that provides information on the legacy Parkway assets that we now own. It's in the very back of the supplement. We've included a significant amount of information on each asset, including quarter-end leased and occupied percentages as well as property level debt. Next quarter, we will fully incorporate these new assets into our supplement, including providing the property-by-property quarterly NOI data that you've grown accustomed to receiving in our supplemental package.

Before turning the call over to the operator, I wanted to quickly review our dividend policy. Since 2011, we have targeted a dividend payout ratio of approximately 70% to 75% of FAD. If we err, we err conservatively. Our goal is to pay our shareholders dividend that is fully supported by the underlying core cash flow of our business. We do not rely in gains from the sale of assets or other non-recurring sources of cash to service our dividend. Going forward, we don't anticipate changing this dividend policy. Our Board will approve our fourth quarter dividend at the next meeting in early December, and we will announce it soon or thereafter.

On a per share basis, it is likely to be lower than it was pre-merger, but please remember, our current shareholders, unless they have sold the New Parkway stock they received as a distribution in the spin-off, will now receive two dividends, ours and New Parkway's. You must compare the sum of both dividends to our previous dividend have an accurate comparison. We don't control New Parkway's dividend policy, they're an independent company with an independent Board, but we anticipate the sum of both dividends to equal our previous dividend per share.

With that, I'll turn the call over to the operator for your questions.

(Operator Instructions) Jamie Feldman, Bank of America Merrill Lynch.

So I appreciate the thoughts on the combined company numbers going forward. And in terms of same-store or some of the portfolio metrics, can you provide some color of how the blended portfolio would have been in the third quarter versus just standalone Cousins?

Hey Jamie, it's Gregg, good morning. We're only reporting Cousins data for the third quarter. That wasn't our company, Parkway assets weren't our assets prior to September, 30.

So I guess drilling down a little bit on some of your commentary, the Equifax and URS move outs, can you provide some exact color on timing for those and then the mark-to-market and some of those leases?

Sure, Jamie, it's Colin. The URS move out will be at year-end 2016 and then the Equifax move out at Northpark as well will be at the end of August 2017. As a whole, as we look at North Park, one of the compelling reasons we bought the project is we did view there to be a meaningful mark-to-market in that particular project and we would hope to take advantage of that with these particular opportunities.

Okay. So where would you say rents are versus those leases?

In general, in Atlanta, Jamie, we view our mark-to-market to be approximately 10% or so and I would say that would hold -- that's probably a pretty good metric across the Company, the new combined Company as a whole and it certainly varies market by market, just by way of example, Orlando and Tampa are probably slightly above market. And so as we report our quarterly leasing metrics going forward, it is always lumpy and it will depend on the particular markets in which we execute leases. But in Atlanta, we do view there to be a very strong opportunity.

Okay. And then a similar question on US Air, the timing of that move and backfill?

Sure, and I'm glad that you mentioned that Jamie, because the US Air termination was effective as of October 31 and so we will incur downtime in that particular project over the course of 2016 and the first quarter of 2017. So you should factor that into your models. The new lease with our AA credit customer is projected to start in early April.

Okay. And what's the mark to market on that?

It's significant. It's a 20% plus mark to market.

Then I guess just bigger picture, now that you had even more time to digest the combined portfolio, I guess, Larry, any latest thoughts, markets you like or markets you're more concerned about or if we fast forward a year from now, how might this portfolio look, other than maybe shrinking Atlanta as you've discussed?

Well, Jamie, we are -- certainly the Atlanta market, the Austin market and the Charlotte market, we know well and as we stated in the calls, just the concentrations we have in uptown Charlotte, Buckhead, Atlanta, the CBD of Austin and quite frankly, Tempe that we spent a lot of time at pre-merger just understanding the dynamics of Tempe and Phoenix as a whole and what's going on at Arizona State. We feel very good about those markets, we are less familiar with Orlando and Tampa, but we feel confident in where we are. One, we like the assets concentrations and B; there has been well-run REITs in these markets for a long time and so we can certainly understand and look at the history of the markets as well as the various sub-markets. But I would say, we're still in more of the learning curve role part in Tampa and Orlando, but obviously had confidence in those markets, so we wouldn't have done the transaction.

Michael Lewis, SunTrust.

My first question, how well do you think the One Ninety One Peachtree sale serves as a price point for the rest of your Atlanta portfolio? Looks like it was a mid-six cap. And then along those lines, is there anything you learned through the process in terms of the types of buyers that are out there and the depth of the investor market in Atlanta?

Well, there -- I think it probably is not the right asset to look at in terms of the Atlanta portfolio, if you look at the rental rates and vacancy rates in downtown for decades have trailed the other strong submarkets in Atlanta, although downtown is getting stronger, but it still trails. And so I think the buyer pool that looked at One Ninety One Peachtree was robust, but it was not as robust as would have found if we were selling one of our assets in Midtown or Buckhead the Central Perimeter. So I would not look at it as a comp, although if you look at what we pay going in and the amount of square footage we'd leased over time and the exit, we're extremely pleased with the outcome that we got.

And Michael, I would just mention a better comp for our go-forward portfolio would be the transaction that just happened at Ten Ten Peachtree, where a large German investor just purchased that asset in Midtown immediately adjacent to MARTA station and that priced well north of $350 a square foot. I think that would be more representative of the type of product we have in Midtown and then certainly in Buckhead as well.

Could you just remind me what's happening with Bank of America that -- we've been talking about it for a while, right, with the option to purchase, and then if they stay in, the bump in the rent. Could you just go through that?

Are you referring to the Gateway Village?

Yes, in Charlotte.

Yes, so we did a large renewal with the bank for roughly 90% of that project on a 10-year basis, and the balance of the space were in the process of converting various subleases to direct leases. So it's a very well leased building and Bank of America continues to be very happy with their 50% ownership in the joint venture with Cousins, its mission critical facility for them from a data center perspective and various other back of the house departments that support their corporate headquarters. And so we continue to view that today as a steady state.

With the lease that we commenced -- that we executed earlier this year, that building will convert -- the structure will convert from that 11% preferred arrangement to a true 50/50 split of cash flow and that will take effect at right around year-end here.

Okay. So you'll get a full year of that next year?

Yes.

And then just my last one, I guess is a question for Gregg about the debt maturities in 2017. You have a couple of mortgages, you'll have a couple that come along with the legacy Parkway portfolio. I'm curious what your plans are for repaying some, what's the refinancing rates might look like (inaudible) refi?

Sure. So on our side, we only have one significant debt maturity in 2017, that's American Cancer Society. And as Larry talked about earlier, we're likely to pursue a disposition of that property coinciding with the maturity of the CMBS debt. So no refinancing risk anticipated there.

In terms of what we're inheriting from Parkway, they've got about -- depending upon how you look at it, around $475 million, $485 million worth of debt that matures in 2017, which we will refinance. And the good news is, the coupons on that debt are significantly higher than current market rate. So there's an opportunity there to lower the stated coupon on net debt with debt refinancing.

In terms of what that refinancing looks like, whether it's a secured refinancing or an unsecured refinancing, we'll take a look at the market when the time comes. But we have an opportunity to prepay those, some of them in the spring, and the balance of them in the summer.

Dave Rodgers, Baird.

Colin, maybe just a quick follow-up, URS, how large is that leased square footage?

Yes, they're roughly 48,000 square feet.

Maybe for Gregg or for Larry on the 4.5 times debt to EBITDA target, obviously, we probably all love know where that is today and if you are unable to provide that, at least can you give the timeframe that you're thinking that you'd like to get back to that number?

Yes, so good morning, it's Gregg. The number of post mergers can be a little over 5 times, which we disclosed and provided in the investor package that we gave you back in April, nothing material has really changed from that. And then in terms of getting it back then to 4.5 times from around 5 times, it's an intermediate-term goal. I think it will take -- it won't take one quarter or two quarters, but it won't take any longer than a year or two year, so I would call it an intermediate-term goal.

And then I guess with your target of 40% Atlanta or no more than 40% in any particular market, I guess, maybe a similar question to that is how long do you want to get down to that? And does that include the two big developments for NCR that you're doing as well in that number or should we expect future sales to continue to kind of mitigate that exposure?

That does not include the developments that are in process right now and we will continue to look at ways to take it down either by growing another markets or asset sales, which is -- we're at this part in the cycle that has the most compelling way to get there right now and we're pretty optimistic about that. The largest development that we have coming on board in Atlanta is the two development phases of NCR. And the great thing about that is we have no partners, we have no debt on it and so we've got tremendous optionality as we get closer to finishing the construction phase of that development in terms of what we do with it. And so just know we look upon that one in specific, as well as some optionality in regards to your question, as those delivery dates get closer.

And maybe last Colin, coming back to you, maybe just talk a little bit more about what you're seeing out there in the leasing market. I know kind of mid-year (inaudible) so you talked about kind of slower decision making, et cetera. Leasing activity was much better in the quarter this quarter, are you seeing any reversal in that or does it continue to be sluggish, but things just kind of hit well this quarter?

Yes. It -- overall fundamentals across Sunbelt and certainly in our particular sub-markets that we said in the past, continue to be very, very favorable. There's, I'd say, steady demand, not extraordinarily strong demand but very steady demand with the backdrop of very little new supply creating a very friendly landlord environment. As we got through the summer into the fall, we have seen a pickup in activity and that was just attributed to a similar kind of slow down, but our pipeline certainly has picked up across all of our markets in terms of our leasing velocity going forward, if the scenario where we're challenged, markets like Charlotte, Austin, and Tempe are essentially full, but where we do have vacancy at North Park and Orlando and Tampa, there is very, very healthy pipelines of activity. In general, though we continue to see corporate America just taking a little bit longer than they have in the past to make decisions, and that can be frustrating but overall demand remains very solid.

John Guinee, Stifel.

Three questions. First, can you discuss American Cancer Society and $127 million of debt that I think matures sometime in 2017?

Second, Larry, you haven't been -- your timing for acquisitions has been exquisite, you haven't been in the acquisition market except for this merger in a long time. How far do you think pricing has to correct for you to be back in the acquisition game?

And then three, maybe Gregg, you probably have some significant gains on Lincoln maybe Forum, maybe Peachtree, can you shelter those gains or do you need to shelter those gains as you seem to redeploy the capital to either develop or pay down debt?

John, it's Colin. I'll start with your first question. And so you mentioned American Cancer Society that does have approximately $127 million of debt and as Larry and Gregg alluded to earlier, as that loan expires in the September of next year, it's certainly a very good candidate for a disposition. The team has done a fantastic job over the last few quarters pushing that building's occupancy upwards of 87%.

And so we have incoming inquiries about that building. We think there will be demand, in addition to be an office building, a significant portion of it is leased to data center users that have data center type rents in it. So we're optimistic that when the time comes that we'll find demand in a disposition for that particular project.

And John, good morning, thanks for the congratulations. It was a phenomenal amount of work on the teams of both companies. But the question about acquisitions, we certainly don't see acquisition window in any of our markets right now. This opportunity, just in terms of the concentrations that allowed us to get in these high barrier sub-markets was very compelling. But in terms of the one-off market, in terms of what banks are trading at that we see, we're still -- as I outlined in the call, more of a net seller. And I don't see that window really opening until we see some significant adjustments in the overall economy and the amount of money related real estate.

On the development front, we also think we're probably near the end of the cycle in terms of what we're looking at, but there -- you're always open to opportunistic stuff, we were delighted when NCR decided to do the second phase, we had not anticipated that they would do that this quickly, but their Company has really got some great momentum behind it.

Yes, we're virtually down to just one floor at North Carolina with the leases we have and some LOIs that we have, and Avalon continues to do great. But we think that the next 6 months to12 months at Cousins are going to be concentrating on what we outlined in the call. The balance sheet, the Atlanta concentration, making sure our new team members and new markets are well integrated, and that we execute really well on that. And Gregg, I'll let you take the last one.

Sure. Good morning, John. So I think the question is, we're selling a bunch of stuff, does that mean -- and we're not buying anything, does that mean we're going to have to pay a special dividend or some -- or the like. And the answer to that question, short version to the answer to that question is no. We've done a terrific job in tax planning here at Cousins. For example, as you pointed out, we haven't bought anything since 2014, but we sold almost $0.25 billion worth assets in 2015, with no [10/31] like on exchangers, and we're able to do that and absorb the gain and not pay any type of special dividend. We anticipate being able to do that again in 2016 and in 2017. The plan that we've laid out for you here today on this call, we do not anticipate driving a special dividend in the near term.

Are you able, Gregg, just curiosity, are you able to do a temporary (inaudible) exchange into any of your development deals or is this just all tax planning?

Once in a while, we might buy the land through a 1031, but we have not 1031 into the any of the development spending itself. It's been tax planning, I think we've done a good job of it.

Jed Reagan, Green Street Advisors.

How is the supply pipeline looking in Atlanta these days overall and are you seeing anything kind of ramping across the market that might raise concern levels at all?

We really are Jed, Buckhead has the one 0.5 million square foot tower, the Tishman (inaudible) that we think has some prospects that they're getting pretty close with, with probably between 150,000 square feet and 200,000 square feet of that. There is some activity, Highwoods has a project that started with significant pre-leasing in the Northwest, which is not a submarket that we're in and then there are couple of smaller buildings in various little of pocket areas of Atlanta, but there really has not been anything significant that has started and we're competing against or see ourselves competing against in the next couple of years in Atlanta outside a build-to-suit or a significant corporate relocation that's unannounced at this point.

And then for Gregg, maybe how much of the remaining merger expense could we expect to see attributed to Cousins in the fourth quarter? Is it too early to draw a line in the sand on that?

Jed, so when we provided back in April in our investor package was an estimate of $85 million in total merger costs. We've incurred a few million dollars of that which we disclosed in our earnings each quarter prior to the actual transaction taking place. Yes, transaction took place in the fourth quarter and that's where the vast majority of that $85 million will hit. Now remember, some of it was incurred by Parkway prior to the transaction, some of it was incurred by us prior to the transactions, some of it's incurred by both of those at the transaction. So it's going to be located in several different spots. But the number in the fourth quarter will be significant and it will primarily run through Cousins' income statement. There will be some trailing expenses though that trickle into the first half of 2017 as well.

Should we think of that split between Cousins and New Parkway as sort of pro rata based on size of the companies or --?

No, their portion is significant, but our portion will be larger than our pro rata ownership, mostly.

Tom Lesnick, Capital One.

I guess, first I'm looking at Colorado Center and the financing you put on that, the $120 million, you guys developed the entire asset, I believe for roughly $126 million just one year or two years ago. What was the assumed loan to value ratio on that mortgage?

Tom, it's Gregg, I don't think that's something that I'm comfortable disclosing. It would imply, kind of what we believe our NAV to be on that asset, which we, as you know we don't talk about. But you're right, I mean the property was worth -- is worth a lot more than what it cost us to build in the ground and so the financing is a terrific financing, it's 10-year financing, it has low 3 coupon, it's going to be good on our balance sheet for an extended period of time.

It seems like a very healthy profit margin, so congrats on that. With respect --.

This is Larry, let me just say that, another way to look at it is the similar comps in the Austin CBD and that's not the basis (inaudible) $585 a square foot, $580 a square foot, so that might be helpful.

And then, turning back to the investor presentation from the merger back in April. On page 33, the sources and uses, just curious with respect to the new Cousins mortgages, was that fulfilled, that $135 million that was outlined, was that fulfilled by the 53rd mortgage?

It was fulfilled by both of those mortgages. I got more mortgages than I really needed and that was just -- it was an insurance policy, just in case there are lot of asset sales for example that were tied to the merger, some of them did close, some of them are not closing in the fourth quarter. So I got one more mortgage than I needed as an insurance policy to make sure that we could show up to the closing table with funds that were required and everything worked out just fine.

That makes sense. And then just lastly, the $300 million Parkway cash balance at closing, inclusive of the plan of Jacksonville sales proceeds, given that the Jacksonville assets closed just prior to merger, how did those prices compare to your expectations going into the merger?

I'm letting Colin answer that.

Yes, as we went in and ultimately the execution (inaudible) say it was a little bit disappointing in terms of where Jacksonville shook out relative to, I think Parkway's expectations, and therefore our expectations. We continue to see a bifurcation in the investment market in terms of urban assets and suburban assets and the type of interest that this garner. And then I think additionally just Jacksonville as a secondary, tertiary market it -- the number of buyers for those type of assets is -- was less than we would have hoped.

Ladies and gentlemen, this will conclude our question-and-answer session. I would like to turn the conference back over to Mr. Larry Gellerstedt for any closing remarks.

Well, we are extraordinarily excited at Cousins about the opportunities that we have, and our investors have for the future of this Company. I don't think the future is ever looked brighter. And we appreciate your interest and look forward to our continuing discussions over the next few quarters. Thank you.

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