Cousins Properties Inc (CUZ) 2018 Q2 法說會逐字稿

Good day, and welcome to the Cousins Properties Second Quarter Conference Call and Webcast.

(Operator Instructions) Please note that this event is being recorded.

I would now like to turn the conference over to Pam Roper, Executive Vice President and General Counsel.

Please go ahead.

Thank you.

Good morning, and welcome to Cousins Properties' Second Quarter Earnings Conference Call.

With me today are Larry Gellerstedt, our Chairman and Chief Executive Officer; Colin Connolly, our President and Chief Operating Officer; and Gregg Adzema, our Chief Financial Officer.

The press release and supplemental package were made available on the Investor Relations page of our website yesterday afternoon as well as furnished on Form 8-K.

In the supplemental package, the company has reconciled all non-GAAP financial measures to the most directly comparable GAAP measures in accordance with Reg G requirements.

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 the potential risk is contained in our filings with the SEC.

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

Thanks, Pam.

Good morning, everyone, and thanks for joining us.

As we sit here today midway through 2018 and deep into the economic recovery, I'm pleased to report that business is steady and our teams on the ground are very active.

While we continue to monitor our markets for potential caution lights, the U.S. economy keeps pushing forward, and office fundamentals and the Sun Belt remain healthy.

Supply has stayed relatively in check in our markets, and total job growth is currently outpacing the U.S. average by 100 basis points.

The total employee -- employment base is growing at each of our markets.

However, some of you may have recently seen reports showing a slight decline in office use and job growth in Atlanta.

This was driven by a temporary decline in information services jobs earlier in the year.

It is not reflective of the activity our teams are seeing on the ground.

Over the past year, Atlanta ranked third in the nation in population growth and had added an average of 77,000 jobs annually for the past 5 years.

Through our regular dialogue with the Atlanta Metro Chamber, we believe this decline is temporary and market activity remains elevated with a significant potential for additional corporate relocations on the horizon.

Looking forward, I'm pleased with where Cousins sits at this point in the cycle.

Our balance sheet and capital allocation strategies over the past several years have allowed us to execute on attractive investment opportunities while also putting us in a position to aggressively play off that should the market condition soften.

While we remain patient as it relates to acquisitions, we continued to create significant value for our shareholders through our development platform, one of Cousins' greatest strengths.

This cycle, we have completed $788 million in new developments and today, we have an additional $571 million under construction.

This pipeline includes over 1.1 million square feet of Class A office space that is currently 81% preleased.

I would like to spend the next few minutes giving you an update on each of our active developments and finishing up with a progress report on our land and predevelopment activity.

I'll start with our most recent development announcement, 10000 Avalon, our second office building in the highly successful Avalon mixed-use development in North Atlanta.

We have again teamed up with Hines in a 90-10 venture to develop a 251,000 square foot Class A office tower.

AXIS Capital, a global insurance company with A plus credit is taking 76,000 square feet, and demand is high for the remaining space.

This new development builds on the success of 8000 Avalon, our previous development with Hines, which as of today is 100% leased and generating ramps comparable to Buckhead.

These are the only 2 office sites in Avalon, which allows us to offer a differentiated office product that commands significant REIT premium -- rent premiums to the rest of the North Atlanta submarket.

In Midtown, we are on schedule to deliver the second phase of NCR's global headquarters at 858 Spring Street during the fourth quarter.

When combined with NCR's first phase, the total project includes 766,000 square feet of innovative office space in a compelling urban campus.

The entire NCR development, which is only 2 blocks from the Midtown Atlanta site, which I will discuss in a minute, has been a tremendous success, and we are excited about the positive long-term impact it will have on Tech Square, a rapidly growing area adjacent to Georgia Tech and Midtown.

In Charlotte, we anticipate completing construction of Dimensional Fund Advisors' East Coast Headquarters during the first quarter of 2019, which we are developing in a 50-50 joint venture with DFA.

Cousins has always focused on creating strong lasting relationships with our customers and partners with the hope of earning their trust that may create future opportunities for our company.

The latest project with DFA is a perfect example.

This Charlotte development marks the second regional headquarters which we have developed for DFA over the past 10 years.

Finally, our latest Austin development, 300 Colorado, is on schedule for a fourth quarter construction start and an early 2021 delivery.

You may recall from the last earnings call with Colin that Colin mentioned the potential to upsize this project by approximately 50,000 square feet.

We view this as a very attractive investment opportunity and continue to evaluate it with our joint venture partners as we finalize designing cost.

Beyond our active development pipeline, we are focused on positioning the company for additional growth by strategically increasing our land bank.

Our goal is to control the best site available in each of our core submarkets, allowing us to move quickly on development opportunities as they arise.

We currently have 2 land sites under contract: one is Midtown, Atlanta and one in Tempe.

Both sites are within a block of existing Cousins assets and benefit from close proximity to the talent pools at Georgia Tech and Arizona State University, respectively.

We are on schedule to purchase these 2 sites later this year.

When combined with the 2 sites we already have on our land bank, Victory Center in Uptown Dallas and Corporate Center 5 in Tampa, our total land bank will support approximately 1.3 million square feet of future Class A office.

The earliest we would break ground on any of these projects would be early 2019, and our teams are already working to try to identify and secure anchor tenants.

In addition to these 3 -- these projects in predevelopment, we are also actively evaluating several potential build-to-suit opportunities that are in line with our strategy.

I believe our current development pipeline, both active and shadowed, is one of the most compelling we have ever had at Cousins.

And while we are excited about the value that these development opportunities will create, rest assured we remain disciplined and thoughtful with our decisions to proceed, always keeping our shareholders' interest at the forefront.

With that, I'll turn it over to Colin for a review of our leasing and operational performance.

Thanks, Larry, and good morning, everyone.

I'll begin my remarks this morning with an overview of our leasing and operational performance at the portfolio level, and then dive into activity in each of our individual markets.

As Larry mentioned, our teams on the ground remain very active halfway through the year as we continue to see positive fundamentals in our core Sun Belt markets.

Leasing was strong as we executed 328,000 square feet of office leases across our markets with a weighted average lease term of approximately 10 years.

And importantly, new and expansion leasing accounted for more than 70% of this quarter's activity.

As it relates to volume on a quarter-to-quarter basis, please keep in mind that we have limited available space as the portfolio was 94% leased with relatively modest near-term lease expirations in the aggregate.

Drilling into the numbers, our lease economics were also robust.

Our net rental rate, not to be confused with a gross spread, was over $32 per square foot, a 13.3% increase over the same period a year ago.

This compares very favorably to our Sun Belt peers and highlights the trophy quality of our portfolio.

Importantly, our weighted average net effective rent was also up 20.7%.

So while we have seen some upward pressure on TIs, we are maintaining returns through higher base rental rates.

During the second quarter, we rolled out rents on expiring leases 34.2% on a GAAP basis and 13.1% on a cash basis.

This marks our 17th consecutive quarter with positive cash rent rollouts.

I'm extremely pleased with the consistency in which our team executes and delivers strong leasing at impressive economics quarter after quarter.

I'll now turn to our markets, starting with our busiest market, Atlanta.

The city had another positive quarter.

Class A net absorption was 485,000 square feet according to CoStar, and activity across our 6.6 million square foot portfolio was impressive.

Our team signed 231,000 square feet of leases in Atlanta, the largest of these being the recently announced transaction with AXIS Capital to kick off our 10000 Avalon development.

Atlanta leasing was broad-based, with significant activity occurring at 3344 Peachtree, followed by Terminus and Promenade.

We completed some fantastic renewals, including success with the Fifth Third Bank and Hodges Ward Elliott for a combined 38,000 square feet.

Our largest near-term leasing opportunities in Atlanta are in Terminus 100 in Buckhead and Northpark in the Central Perimeter.

To remind you, at Terminus 100, we will get back approximately 46,000 square feet from Bain in April of 2019 and 95,000 square feet from CBRE in July of 2019.

Our leasing pipeline is growing as we finally move closer to lease explorations and potential deals become more actionable for our customers.

Buckhead had a strong momentum as the submarket has absorbed 234,000 square feet through the second quarter of this year.

At Northpark, access to mass transit remains a key differentiator in our discussions with potential customers.

No other asset in the Central Perimeter has direct access to MARTA, and we continue to see it has played a key role in the company's decision-making.

While nothing has been formally announced by our customer, we do believe that AIG will vacate its 105,000 square feet at Northpark and likely relocate to Buckhead in February of 2019.

Throughout AIG's decision process, our team has been hard at work, marking -- marketing opportunities to new customers, and interest is terrific.

I am pleased to report that we are on lease negotiations for a 75,000 square foot lease with a strong growing company to quickly backfill a significant portion of this space.

Over in Austin, Class A vacancy is tight at 7.8%, and our 1.9 million square foot portfolio is nearly 95% leased.

Our team has been very focused on executing key renewals this year, including a 31,000 square foot long-term renewal this quarter with Lloyd Gosselink at 816 Congress.

As previously mentioned, we are on track to start construction on 300 Colorado later this year.

We continue to monitor supply in Austin, but we are confident in the depth of Austin's demand.

Over the past 5 years, Austin has increased supply by approximately 5.8 million square feet but has absorbed 7.6 million square feet, resulting in a net decrease in available inventory by approximately 1.8 million square feet.

The city consistently ranks in the top 5 markets for job growth as it has attracted and expanded large companies like Apple, Amazon, Facebook and Parsley Energy, to name a few.

Moving on to Charlotte.

The market remains healthy, which was reflected in the record-breaking sale this quarter of 615 South College, a Portman Holdings development for $590 per square foot.

This is a tremendous count for our 3.1 million square foot Uptown portfolio.

As for our leasing activity, we had a relatively quiet quarter in Charlotte, which was no surprise since the portfolio is 99% leased and 98% occupied.

Our team is highly focused on the 50,000 square feet Dimensional Fund Advisors space that will be vacated at Fifth Third Center upon completion of our development of Dimensional Place in February 2019.

Activity has picked up on this space, which is one of the best blocks of space in all of Uptown Charlotte.

Nearby in Chapel Hill, we are ready to report that we are in deep discussions with potential customers to take the office portion at Carolina Square to 100% leased.

As is reflected in our portfolio listing, the apartments are now fully stabilized and generating rents well above our original underwriting.

Looking further west, the Phoenix market continues to post positive net absorption, with more than 70% of the total market absorption occurring in Tempe.

Technology and financial services are driving much of the growth in Tempe, with major job announcements from the Bank of the West and Silicon Valley Bank, one of our major customers at Hayden Ferry.

Our portfolio is currently 97% leased and 92.5% occupied.

Our occupancy should move in line with our lease percentage during the third quarter as the Silicon Valley Bank and Symantec occupy expansion space.

Finally, down in Tampa, our team had a solid quarter, signing 46,000 square feet of leases at The Pointe and Corporate Center.

Overall, Tampa posted slightly negative net absorption for the quarter but is very positive for the year, and Class A vacancy remains low at 7.2% for CoStar.

Our team is currently working to identify new customers for the 2 floors that Laser Spine Institute vacated in Harborview earlier this year.

We have strong interest in this space and are in active lease discussions with several potential customers for approximately 50% of that space.

Aside from Harborview, our Tampa portfolio is approximately 98% leased.

In conclusion, we feel great about our leasing opportunities as activity remains robust across all of our markets.

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

Thanks, Colin, and good morning, everyone.

I'll begin my remarks by providing an overview of our financial results, including same property performance, then I'll move on to our balance sheet before closing my remarks with an update to our 2018 earnings guidance.

As you could tell from Larry and Colin's remarks, we have solid, very clean second quarter.

Net income was $0.05 per share, and FFO was $0.15 per share.

Property level performance was outstanding as same property NOI was firmly positive, second-generation leasing spreads continued to roll up and leasing volume was consistent with prior quarters.

During the second quarter, we sold 1 non-core parcel of land, generating a gain of $2.4 million.

We have more noncore land left of on the books, but not much.

The majority of our $19 million land inventory is comprised of the 2 core office sites Larry mentioned earlier, one in Dallas and one in Tampa.

The earnings impact of this land gain was largely offset by a $1.8 million increase in our long-term incentive compensation accrual, which runs through our income statement in the general and administrative expenses line item.

As has been the case for many years, in order to ensure management's interests are aligned with shareholders' interests, the vast majority of our performance-based long-term incentive compensation here at Cousins is determined by our total return performance relative to the SNL office index.

During the second quarter, our total return was 15.5% compared to a 9.3% total return for the index.

Within our same property portfolio, year-over-year cash NOI was up 4.1% during the second quarter, driven by 5% revenue growth.

Year-to-date, cash NOI up -- is up a very healthy 6.7%.

We are leaving our full year cash NOI guidance unchanged at between 3.5% and 5.5% for the year, also a very healthy number, but simple math tells you that we anticipate the second half to come in lower than the first.

This is not an indication of weakening market fundamentals.

It's simply an issue of timing around various move-ins and moveouts as well as significant expense pressure from property taxes.

To give you some perspective, embedded in our full year same property guidance is an expected 12.6% increase in year-over-year property taxes, which is not an insignificant change.

However, this number can, and it most likely will, move as we receive the 2018 assessments and run them through our expenses.

Bottom line, appreciating property values are a high-class problem to have, but a headwind nonetheless.

Turning to our balance sheet.

As of quarter end, we had nothing drawn on our unsecured credit facility, and we held over $110 million in cash.

Our net debt-to-EBITDA ratio was 3.76x, and our fixed-charge coverage ratio was 5.4x.

The weighted average interest rate on our debt was 3.81%, our weighted average maturity was 5.8 years, and we had no debt maturities of any significance until 2021.

Our only debt maturity this year was the Carolina Square construction financing.

During the second quarter, we executed the first of 2 1-year extensions on this loan, moving the maturity out to May 2019.

Overall, our balance sheet remains rock-solid and among the very best of both our office peers and the entire REIT industry.

I'll wrap up my comments today by updating our 2018 FFO guidance.

As we outlined in our second quarter earnings release, we continue to expect full year 2018 FFO in the range of $0.59 a share to $0.63 per share.

The 3 assumptions we have updated this quarter offset each other: First, we have included an assumption for gain on land sales of approximately $2.8 million to reflect the gain we have already recognized this quarter as well as a small gain we recognized in the first quarter.

Land sales are notoriously difficult to accurately project, so we did not include either of these sales in our original guidance.

Second, we've raised our interest and other expense assumption to between $47 million and $49 million from a previous range of $46 million to $48 million due to several relatively small adjustments.

This assumption directly corresponds with the interest and other expense line item in our quarterly supplement.

Third, we've raised our general and administrative expense assumption to between $25.5 million and $27.5 million from a previous range of $24 million to $26 million due to an increase in the long-term incentive compensation accrual I mentioned earlier.

Before turning the call over to the operator, I'd like to point out some additional detail we have added to our disclosure within the office leasing activity schedule on Page 18 of the supplement.

We are now breaking out free rent and leasing commissions into separate line items.

And inside of our leasing commission numbers, we are including both internal and external commissions.

Previously, we only included external leasing commissions in this schedule.

All prior year periods have been updated to reflect this change.

With that, I'll turn it back over to the operator.

(Operator Instructions) Our first question comes from Jamie Feldman of Bank of America Merrill Lynch.

I want to go back to your comments -- or just to talk a little bit more about Buckhead, which, if you look at your percent lease, that's where more of your buildings -- most of your buildings are that are in the kind of mid- to high 80s.

Can you just talk about the spaces available and how that lines up with the kind of demand you're seeing?

Like, is there any kind of mismatch given you don't have that much space in any of those buildings?

So how should we think about that?

And then I think some of your peers have said it does seem like Buckhead is getting better here on the leasing front.

Just some more comments on that.

Sure, Jamie.

It's Colin.

Thanks for your question.

The activity in Buckhead is -- as we mentioned in our prepared remarks, remains very strong, and absorption for the year has just been very favorably.

And as we drill down into our portfolio, across Buckhead as a whole, we're at just about 90% leased today.

And activity within our properties is very strong.

As I mentioned, at Terminus, where we've got the largest known availabilities, as we get closer to those 2019 maturities, we're starting to see our pipeline pick up materially.

So we're optimistic about better prospects there.

Within some of our other assets that are here within Buckhead, 3348 Peachtree, 3350 Peachtree, as you noted, those are currently in the mid- to high 80s.

And we've got very good activity within those buildings and are optimistic that we'll have some good news to report in the next quarter.

All right.

That's helpful.

And then just broader picture on Atlanta on the supply story.

Just what are your thoughts in terms of submarkets that might be a little bit more at risk than others?

I know you guys have been more active in Midtown building.

How do you think about the competitive supply picture there?

Jamie, this is Larry.

I'm still just amazed that -- in Atlanta how restrained supply has remained a cycle.

And in Midtown is -- to the degree that Atlanta has much new supply, is where you got several projects that are being built that will add just under 2 million square feet of space.

I think that supply is just below 60% preleased, and that it continues to be where you see a lot of large technology company interest.

So we don't see any red flags in Midtown with the amount of supply that's currently being built.

I think the question gets to be, does more supply get added?

Relative to Cousins, you won't see us add new supply in Midtown unless we have some significant leasing to support that.

Buckhead is -- got no new supply being added.

The Central Perimeter has no new supply being added.

And then at North Fulton, where we just started Avalon, we really are the only new supply of any significance being added up there as well.

So really across the Atlanta market, when I've talked to people just traveling around the city, as I do, the business environment, just in terms of activity, whether you're talking to brokers or whether you're talking to other corporate leaders, is just very, very strong right now.

Okay, great.

That's helpful.

And then just my final question.

Just you mentioned the higher property taxes.

Is that -- will you get reimbursed for those over time?

Or this is a pure bleed to NOI and margins?

Jamie, we can pass through a lot of that property tax increase to our customers, but not all.

It average -- it depends on buildings.

It depends on markets, leases, obviously.

But give or take 65%, 70% can get passed through.

So we'll absorb some, but some can get passed through.

Okay.

And that -- will that show up more as like a year-end benefit?

You'll start to see -- well, you'll start to see it show up in the third and fourth quarter, as I mentioned earlier, in our expense numbers.

And it will not be a benefit.

I mean, it'll -- we've -- as I mentioned, we've budgeted -- we have anticipated large increases throughout our portfolio, but we're just now starting to get the assessments.

We just got Atlanta's assessment, for example.

And it's -- at this point in the cycle, the municipalities are really oftentimes stretching on valuations.

So when that number could move, we could be -- have overestimated or underestimated.

We'll know in the next quarter and be able to give you a little bit more insight.

Just to add a little bit more color.

In Atlanta, you're seeing -- depending on the property -- and these assessments have just come out the last 30 to 60 days or so.

You're seeing assessments that vary from 30% up, 50% up.

And so obviously, everybody is going to appeal and push those back as far as they can, but it also just reflects the municipalities being able to see what comps are in terms of buildings that are selling and just looking to generate more revenue.

So it is something that we will stay on to push down as much as we can to protect our shareholders and protect our customers.

Our next question comes from Michael Lewis of SunTrust.

Gregg, you mentioned the internal and external leasing costs you put in the supplemental.

Maybe when I take a closer look at that, I'll answer this question myself.

But I wanted to ask about the change in the lease accounting rules and if you have an idea how much capitalized internal leasing costs you might have to expense in 2019.

Sure.

Thanks, Michael.

That's a good question.

So the commissions that we've laid out at our supplement are just that, commissions.

The internal leasing costs that are noncommission-based that we run through our income statement right now are give or take about $2 million.

So when the accounting standards go into place January of '19, all else being equal, you'll see us expense $2 million more of internal leasing costs, excluding commissions through our G&A line item.

Okay, perfect.

That's helpful.

And the interest expense increase in the guidance, you mentioned it was a combination of things.

I imagine interest rates or one of those things.

I also had a note to myself, I thought you might repay the loan on Carolina Square.

It looks like you extended.

Are those kind of the pieces that led to the increase in the interest expense?

No.

We when we provided the original budget, we anticipated the short end of the curve going up, and we only have 25%, 28% exposure to floating rate debt.

So it's not a big number anyway, but those increases were already in the numbers.

And the extension of the Carolina Square construction line was already in our number.

So it's neither of those 2 that drove that interest and other expense item up.

It's really a combination of a half dozen, very small increases here and there.

I can't point to one thing specifically that comprised any significant share of that million dollars.

But the message I want to send you is this is not because of rising short-term interest rates.

Okay, got you.

And then just lastly maybe for Larry or Colin.

I wanted to ask about coworking tenants.

I saw an article that WeWork has 4 locations in Atlanta, but they expect to grow that to like 15 or 20 within a couple of years.

And I just wanted to get your thoughts, not just on underwriting coworking tenants but maybe what you think that means for like the fundamental risk in the market, especially if we go into a recession.

How do you kind of think of those types of firms being such a big part of leasing activity recently?

Yes, Michael, I'll take a stab at it, and Colin can add on.

Certainly, as we look at our current portfolio today, we obviously just opened our first WeWork location at Terminus here in the last quarter.

And they had their grand opening a couple of weeks ago.

And we've got coworkings with several other of the companies out there.

I think it represents about 2% of our portfolio today.

And we actually talked about this a good deal.

We had a special segment on coworking in our board meeting this Monday and Tuesday.

And we really look at it on a building-by-building basis.

As far as -- is the way we currently look at it is it's an appropriate additive feature, not only in terms of just getting a lease but in terms of making sure that the resources are there on building, we've gotten an elevator, air conditioning, parking and that we feel like it fits in with the customer base that those particular buildings attract.

So we really look at it on a project-by-project basis.

I think as we look at the industry overall, one of the things that we're starting to get a little bit of experience on is how much of the operations are detracting to our existing customer base.

We have not found that to be the case in any of our locations.

So that was a question we had a year ago.

Secondly, as this business get cannibalized, that we otherwise will get from their enterprise customers, or do we get spin-out business that maybe we wouldn't have gotten because of that.

We're in the early innings there.

We have not experienced sort of any cannibalization, where we look at a lease and say that one of their enterprise customers, that -- then doing that lease would be in lieu of opportunity for us.

It's not to say that won't happen.

We have experienced some opportunities where we see some customers that we've gotten that wouldn't necessarily have come our way just in the traditional sense.

And I'm not talking about customers within WeWork.

I'm talking about [core spaces] or the other folks, some customers that have spun out and grown.

So listen, like everybody else, I think you -- we look at it tactically, as I just laid out, in terms of strategically how that industry performs whenever the economy turns.

I think we'll just have to see.

And we're just sort of taking it one building at a time.

We think it's where we have added it.

We think it's been a really positive feature to our customer base as well as our building features.

But we remain cautious in terms of our own approach to it.

Colin, I don't know if you want to add anything.

Yes.

Again, as Larry mentioned, it's about 1.5% of our portfolio, and this current economy, this current cycle has very much been a positive.

We've had some great experience at Terminus, where Mercedes-Benz moved their innovation center into that building, which has been fantastic for us and the building.

And there were of such a size that wouldn't have otherwise been a viable lease for us at Terminus.

We've just had a great experience down at Promenade this quarter.

A WeWork customer grew out of their space in Midtown and signed a long-term lease with us.

So -- and the current cycle, it's been great.

We're obviously cautious as to the -- as to how that business works in the down cycle, so we're watching our overall exposure.

And we're also watching just the market exposure to that space.

I think in Atlanta today, they represent about 1.5% to 2% of the Buckhead and Midtown submarkets.

So we'll continue to keep an eye on that and be very focused and cautious.

Our next question comes from Blaine Heck of Wells Fargo.

Colin, good to hear about the potential backfill at Northpark.

I know it's still in negotiation, but can you comment at all on how much downtime you would expect there if all goes to plan and maybe the potential mark-to-market on that space?

Yes.

It -- Blaine, I appreciate the question.

And our hope would be -- obviously, we got to build out the space, and that typically can take 3 months or so to effectuate that work.

And our hope, it would be as quickly as AIG moves out and we can complete the build-out.

We're confident that lease can start within that time frame.

As it relates to the mark-to-market, we do believe there'll be a positive mark-to-market on that.

We never give specifics on any particular lease.

But as we've said in the past, we remain confident that kind of 8% to 10% average -- that we'll continue to deliver on that over quarters.

It could change depending on the particular mix in any quarter, but we still feel very confident in that over the long term.

All right, great.

That's helpful.

And then I just wanted to touch on the Wildwood land sale.

It looks like you guys still have some land left there, but is that also up for sale?

And then more generally, you guys added some land earlier this year, but are there any markets that you guys are targeting to increase your land bank at this point?

The -- we have one parcel left at Wildwood, and we do not consider any of the land there to be strategic.

So those -- that parcel is on the market at the right use and the right price.

In terms of our plans to add land, as you -- as we currently have progressed, we've got now a great site under control in Tempe right next to our assets there.

We are very bullish on what we think the demand will be for that building now that we largely completed the zoning process and can get active in the market after Labor Day with that.

Our interest on our Victory project, our land site in Dallas, remains good.

We are a little bit -- we're going to be very conservative in Dallas.

There's a fair number -- amount of space has been added, but you continue to see large corporate users considering Dallas as a new market.

We're really pleased that land -- and added this site in Midtown right there in the NCR that allows us to build up to 500,000 square feet there.

And we're just down to design, but we've got some great interest in it already.

We've got a terrific site in Tampa.

We now are just beginning to get into the marketing phase for Corporate Center 5, and the dynamics there are strong.

And we'll look to add a site in Charlotte.

And we've looked at several, but like everything we do, we'll be patient to find just the right site.

But the goal has been to have a site, whether it's this cycle or next cycle, right near our core holdings in each of these submarkets in these cities so that we can have the ability to expand with our customers, renew customers at the right time.

And I guess, just as a follow-up to that, can you just talk about the movement you've seen in land costs and construction costs in general?

Whether there are any markets out there or within your portfolio that costs might have gotten too high to justify construction based on kind of the current market rents?

The -- there's been pressure on construction prices for the last 5 years throughout this cycle.

The multifamily construction boom has certainly cost construction prices across the board.

Labor, as you read, is in tight demand.

But as long as you've got tailwinds that are leading to strong demand, you're underwriting those construction cost as you underwrite a project and that making sure that your anchor tenants are able to absorb and pay those.

So that is I think -- our folks would say they're going up about 6% a year right now, which has been fairly consistent, and we haven't seen any particular change in that pace of construction.

But so far, I can't -- I'm not aware of a deal either at Cousins or just other ones in the markets that we're in that could pinpoint and say we couldn't underwrite a deal because of construction prices.

I think that's happened in some of the multifamily side, but I'm not aware of having it happen in our markets on the office side.

Our next question comes from John Guinee of Stifel.

A couple questions have been answered, but just out of curiosity, and maybe you addressed this and I missed it.

Regus is in for about 170,000 square feet.

Where are they?

And how does the Regus model -- business model compare with WeWork?

And then just second, purely out of Amazon HQ2 interest, where does Amazon occupy space in your portfolio?

John, it's Colin.

The -- I'll take the first part of the question there with Regus.

They are spread out throughout the portfolio.

I'd say they're typically anywhere from 25,000 to 35,000 feet type spaces, and we've got one at Northpark Town Center here in Atlanta.

They're a customer of ours down in Tampa corporate center.

We've got some exposure with them in downtown Austin as well as out in Hayden Ferry in Tempe.

So I think the -- obviously, that -- the coworking model continues to evolve, and there's certainly still some need for that traditional office space.

But we certainly have lots of discussions with the parent company there at Regus, and we see them continuing to evolve their traditional Regus spaces to -- or traditional Regus locations into their spaces concept.

And we would expect that to continue.

Okay.

And Amazon, where are they located?

So within our portfolio, John, they're here in Atlanta at Terminus 200.

They've got 50,000 feet with us there.

And then they're also a large customer out at Hayden Ferry.

They started in that project probably 5 years ago at roughly 25,000 feet.

And today, they're upwards of 100,000 feet, have been growing that consistently over time.

Okay.

And then the last question, you addressed a little bit of this.

But we noticed that often, your development cost looks like about $560 a square foot.

What's driving that to that level?

That's a big number almost anywhere.

John, you've got sort of all of the above that's driving that.

You've got land prices.

They've gotten very expensive.

Construction costs there are obviously under a lot of pressure, probably more so than the other markets we're in.

And you got a lot of supply being added.

So it's just sort of a combination of all those factors.

We opened Colorado Tower in 2013 I think at $330 a foot.

So it does show -- to make your point, it's all those various things that have gone together that happened in Austin.

The amazing story, as Colin said, with all those things going, you still got a lot more absorption than new supply and the cost being something that the customers are willing to pay for.

Our next question comes from Jed Reagan of Green Street Advisors.

Maybe just a follow-up to that question from John.

So 10000 Avalon is going to cost almost $400 per foot to build, which would imply you'd have to achieve a historic price per pound for suburban Atlanta to get an attractive developmental return there.

Can you just talk a little bit about kind of what gives you comfort on the risk return profile and what kind of market rents you think you might achieve on that project?

Yes.

Jed, it's Colin.

The -- we were -- we continue to be very bullish and excited about Avalon, and you mentioned that the construction cost on 10000, which is a little bit higher than what we had on 8000.

And I'd say that's primarily been driven by some of the cartography issues on that site that's driven the parking cost up a little bit higher.

But as we look at the market and certainly what we then have experienced at those -- the recent leasing at 8000 Avalon to bring that up to 100%.

And the lease that we did with AXIS, we're certainly achieving kind of Buckhead-type rents, north of $40 on a gross basis.

So we feel like the investment return is very compelling.

We obviously are focused on what our exit could be, and you're right.

That is a big per pound for a project outside of the perimeter here at Atlanta.

What's given us a lot of comfort is we've really taken a deep dive on a lot of these highly amenitized mixed-use projects in these suburban/urban fortress locations.

You're seeing something similar to Legacy in Dallas at the domain in Austin.

And as you look at those particular submarkets and projects where we've seen very similar rents to what we're achieving at Avalon, you've seen those exits, very significant exits support that underlying basis going in.

So we're very excited about what's in front of us there.

Okay, that's helpful.

And can you just remind us what the OpEx might be plus taxes out at that location?

I'd said it's kind of $9 to $10 a foot.

Okay.

And then can you remind us also the background of the relationship with Hines there and why it makes sense to do that project through a venture rather than 100% on your own?

The Hines had the site under control and brought the opportunity to us to consider being their equity and leasing partner on it.

We found that to be very compelling.

It's the same structure, Jed, that happened at Victory at Dallas.

Hines controlled the site.

They had not closed on either of these sites.

And because of our long relationship we've had with Hines that goes back to 191 Peachtree, we formed a similar partnership with them there.

And in both cases, they had the land under control.

And our skill sets are very complementary, and it worked really well at 8000 Avalon.

And we're very comfortable working with them.

One of the interesting things to me, going back to your question with Colin, has really been on the -- at Avalon, and I think it's very similar to what the folks are experiencing at the domain and Austin.

Really the -- from a customer standpoint, the pricing -- the rent is really not where the pressure point is in those discussions.

The level of customer you're talking to wouldn't be looking at it as they already have and said for their businesses paying that to be a part of that type of environment and [you've got] the return, many ways, with their employee, recruitment and retention.

So it's really -- it's one of those things, as we often said.

You sort of have to go see these highly urban -- amenitized suburban locations to get it.

At least that's what it took me.

Okay.

Appreciate that.

One last one for me.

You guys mentioned some new build-to-suit opportunities in the opening remarks.

Can you talk about which markets those are concentrated in and then the size of those requirements?

Well, I can't get into the specific ones, but we do see really in the Atlanta, Charlotte and Austin markets -- you see a fair number of relocations with Atlanta, Charlotte, in particular, sort of the Northeast, Midwest corporations that, for various reasons, are looking at a relocation.

Obviously, in Austin and Tempe, it is primarily from the West Coast that we're seeing these relocations.

And Dallas is a little bit of both.

Their mid-country location really allows them to play on both sides of that.

So it's fairly broad-based.

We have seen in the last 6 to 12 months the Atlanta prospect list of those type corporate relocations grow some.

We don't have any color on how many might materialize.

But based on past experience, I'd be optimistic that a few of them would.

And hopefully, we'll be able to participate, but you never know.

(Operator Instructions) Our next question is a follow-up from Jamie Feldman of Bank of America Merrill Lynch.

Colin, I just wanted to follow up from a conversation we had at our NAREIT Meeting.

You talked about Cousins' thoughts on potential new markets to expand into and what the characteristics would be in terms of potential population growth and workforce -- employable workforce.

I'm just curious, as you guys think about it more, I mean, is it realistic to think you will expand into more markets in the next year or so?

Or was this more just kind of thinking about long, longer term?

Jamie, this is Larry.

And you've been great following our company for 2 years now, and you know how locked in we are to having a very clear strategic plan that shows where we want to go over the next 5 to 7 years.

And that's really -- was the -- has been the focus of our strategic plan update that we did over the last 12 months, was recognizing this isn't probably going to be an opportune time to go into new markets that we found attractive.

It is a very opportune time to study those markets and get familiar with the players and watch who the customer base is and see who the potential competitors are.

So I think your point is right, that we see a line of sight going into one of these markets.

As a customer relationship that asked us to go, and they're a unique situation, now that opportunity, we think, will present itself when the market cools off a little bit and we can be strategic and make some good purchases.

We also are very driven by our model, which is not just go in and buy a building and to see it halfway to make sure we could put our team -- a full team in place full time to build that Cousins brand.

This concludes our question-and-answer session.

I would like to turn the conference back over to Larry Gellerstedt for any closing remarks.

We appreciate everybody being on the call this morning.

We hope you're having a good summer, and we look forward to talking to you all next quarter.

If you have any questions in the meantime, as always, please give any of us a call.

Thank you.

The conference has now concluded.

Thank you for attending today's presentation.

You may now disconnect.