Cousins Properties Incorporated (CUZ) Q4 2014 Earnings Report, Transcript and Summary

Good morning and welcome to the Cousins Properties Incorporated, 2014 Fourth Quarter Earnings Conference Call. All participants will be in listen-only mode. [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 were distributed last night, as well as 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 will be available for 90 days through a link in the Investor Relations section on 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 risk 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 reconciliation may be found through the quarterly disclosures and supplemental SEC information links on the Investors 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 am 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 hosted 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. In 2014 we continued to make significant progress with this strategic plan. First, we acquired trophy asset in Atlanta and Charlotte at the right time in the cycle and its significant discounts to replacement costs. 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 sub markets and provide a compelling opportunity for the Cousins platform to grow NOI through the lease up of vacant space and the role 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 prospect tower over a decade ago. We started Colorado Tower with 17% pre-leasing and just opened at 95% leased at rents above our original underwriting. We also continue 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 a phase two’s performance is anything like phase one’s. The project should be very successful. Lastly, we started Research Park V in the Northwest sub market 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 continue to simplify the platform with $216 million in dispositions during 2014. With these sales we have now existed 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 and 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 sub markets we targeted are expected to see continued strong job growth at limited new supply, which should translate into steady absorption and profit of rent growth. With this as the 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 occupancy and rental rates stand point 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 product in Chapel Hill now named Carolina Square and a 366 units and 20,000 square feet of retail multi-family project in down town 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 our joint venture with Hines to develop Victory Center in the uptown sub market 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 Lenora’s expected to announce a new mixed use project in the areas as well. We are thrilled to once again partner with Hines, a true global leader and office development and leverage the very best that our respective firms have to offer. The 23-story office tower is programmed for approximately 466,000 square feet and could potentially be ready for a ground breaking as early as the second half of 2015. We are actively in the market talking to customers and are 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, we planned our strengths. We will look to replenish and potentially expand our development pipeline with asset pricing in our targeted sub markets at or above replacement costs and operating fundamentals stabilized, acquisitions are less compelling today. Conversely those same dynamics create interesting development opportunities. In general, we will view 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 at 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 and 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 191with the team executing a 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 in power here in Atlanta and the 191 still has additional upside. Let me address the state of the energy market and 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 a market cycle and we are confident the Greenway Plaza and Post Oak Central with their attractive urban in-field locations, combined with the sponsorship of Cousins platform will do just that. An important data point to keep in mind is that since the 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 and oil market may seen 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’ll now turn it over to Colin to provide more specific.

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 effect of rent was $18.56, which is 10% higher than the third quarter and our second generation re-leasing 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 three 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 our 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 effected rent which includes leasing cost 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 role-up, role-down leasing statistic and the results have been equally powerful with the weighted average increase of 52% in cash net rent. This has been terrific execution by Bob Boykin and his team on the ground in Houston. Nonetheless, we recognized that market condition had clearly changed over the last several months, which will have some impact on the overall Houston markets, but we are prepared to react accordingly and confident that Greenway Plaza and Post Oak Central are well positioned for enjoying 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 Three Greenway Plaza. Trophy quality properties and well-located urban sub markets trend to track 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 four of the overview, our top ten customers in Houston account for 53% of our overall Houston portfolio and have approximately seven years of weighted average lease term. And of these ten customers, eight have an investment grade rating and five are rated A-minus or higher. Oxy, Apache, West Coast, Stewart Title, [Indiscernible] and Camden Property Trust are just a handful of the names on the list. These are extraordinarily well-capitalized companies with balance sheet to not only weather a downturn, but to potentially emerge stronger. Next, pages five and six illustrate that due to a combination 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 Tree Greenway, because of their know 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 not being creative as it relates to defining energy related companies. The bulk of our explorations 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 ‘17. Well, we are not going to comment on this specific to 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? Potentially. The reality is it’s too early to speculate given their December 2018 expiration is almost four years away. In the mean time 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 in the center parameter, in the sub markets like Downtown, Midtown and Alpharetta. Our 6.8 million square foot portfolio in Atlanta is 91% leased and we think market conditions are right to make additional progress. A couple of things to note. We executed our 68,000 square feet lease with [indiscernible], Atlanta’s newest Fortune 500 Company at the Northpark Town Center. The 10 year lease will commence during the second quarter and represented 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 least in June. This does not come as a big surprise to us as Oracle was in the market looking a 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 in the 191 back in 2008. Deloitte remains a fantastic advocate of the buildings with approximately 260,000 square foot leased through May 2024. Overall activity at 191 is strong and as strong as it has been in sometime and we are optimistic that we will pushback north of 90% leased in a very short order. Over in Dallas we had another solid quarter at 2100 Ross. The property is now 86% leased after signing expansion to CBRE and a highly regarding National Law firm. Our redevelopment of this asset has been extremely well received in the market and we have been able to push rental rates in addition to occupancy. Dallas continues to outperform the national economy and there continues to be great activity by large corporations looking a relocate jobs into Dallas. As of yet we haven’t seen any impact in the market from the drop in oil prices. In spite of 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’ve yet to have seen any impact from the falling energy prices. We’ve received lots of questions around Parsley Energy. He was an anchor tenant at Colorado Tower, as they will ultimately occupy approximately 147,000 square feet with the initial 73,000 square feet take starting in March of this year. Let me provide a little back background on Parsley. Its an NYSE trade 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 dollars common stock offering to fund an acquisition. If however the roll were to be reversed and Parsley became in an acquiree, we had a ten 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 a get back into the low 80% range as IBC Bank vacated 16,000 square feet and that leaves you in the lead of 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 backed on 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 close on our acquisition of Northpark Town Center in Atlanta Central Premier sub market for $348 million or $228 a square foot. We believe that this is the best asset in a fantastic sub market and have been eyeing it for some time. Northpark benefits from a fortress location, with direct mode of 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 role. The project has historically led the Central Perimeter market, the rents and occupancy and we believe that this will be an excellent long-term investments for Cousin shareholders. On the disposition front, as Larry mentioned we completed the sale of our five property public portfolio at an aggregate gross purchase price of $79.5 million. The net resulted Cousins of this well timed, highly structured recapitalization with 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 early April, which will then trigger the University to begin a roughly five month demolishing process of the existing improvements. Based on the schedule we are targeting at September to October start date for our constructions. As we have previously announce we planned to form a 50/50 joint venture with Northwood Ravin, a leading multi-family developer with a extensive track record in the Chapel Hill market to execute this approximately $120 million development. The project mix will consist of a 245 apartment units 158,000 square feet of office and 43,000 square feet of retail. We are confident that we have meaningful pre-leasing to announce on the office component when we break ground later this year. And on Decatur multi-family project we are planning to partner with Amway [ph] a leading national multi-family developer with deep experience in urban sub markets 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 Amway’s [ph] leading multi-family developing capabilities while Cousins will over see the retail leasing effect. Cousins will invest in a minority positions somewhere between 20% to 40% of the equity and will make that election prior to breaking ground. With that I’ll 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 me focus on were also up shapely. Leasing velocity. Second generation cash net rents, 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 ten-year mortgage on 816 Congress in Houston at an attractive 3.75% combined. 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 prefer not to reside additional data from our financial tables. Its all there in the press release and supplement in a much clear 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 small collar. First, as discussed in last quarter’s conference call, we received the final payment on a seller note we issued in 2008 associated with a 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 the 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 and 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 years G&A number and G&A now represents only 0.6% of our total updepreciated assets. What makes this particularly impressive is that we accomplish this in a year that we increased revenues by over 70%. Moving on, I’d like to provide an update on our portfolio of properties with embedded NOI potential. As a quick reminder, in the summer of 2012 we began tracking several large assets in our portfolio and 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 decreased, 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’ve essentially reached our goal and with the recent sale of one of these assets 777 Main and Fort Worth, we worry about the potential confusion going forward around which assets are in the pool and which assets are out. That bring said, the six assets that remain in the pool were forecast to generate $15.8 million in embedded NOI. As of year-end, we’ve 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. There are 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 five times; debt to annualized EBITDA is only four 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 adverse 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 the 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 want 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’ve 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 the assumptions. First, all of the assumptions are aligned with the FFO presentation in our earnings supplement, which is located on pages four through seven in the current supplement. Specifically, this mean 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 in 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 when we post 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 zero in 2015. This isn’t to say we won’t potentially receive termination fees in 2015, but they are difficult to predict and consistent with our prior practice and 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, predevelopment 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 are also providing straight line rent adjustment assumption and an above and below market rent adjustment assumption that you help investors and analysts transition their analysis from earnings to evaluation. 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’ll 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 supplement 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] The first question is from Jamie Feldman of Bank of America Merrill Lynch. Please go ahead.

Great. Thanks and good morning and we appreciate the added color in the supplement and guidance. I guess first question, just can you give us an update on leasing for the Exxon space in Huston and a little bit more color on – I mean we’ve seen some press about more sublease coming on that market. Just kind of what the big buck 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 kicking the tires on this space and as you remember, I mean 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’s 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 that much today. Some of the early announcement you’ve seen of space coming back are apparently in other sub markets.

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

Well, I might have commented on specific leases, but it’s a significant block, so its very easy to break up for 25,000 or 50,000 foot customers, as well as the larger customers and we are both looking at it. So in the short run, I would say that more they are interested 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 the things that have happened in Houston, we have to remember are on a very, very short timeframe in terms of where things have moved to and I will tell you that we haven’t seen any drastic change in quoted rents or your clearly going to see some increases in concessions and base rent. I think we expect that to come out a lot of the new product that’s been delivered and we think that you’ll see – all the sub markets will be impacted, but and we think you’ll initially probably see that more out of the energy corner and then secondarily in our markets, but today we haven’t seen any significant amount of that, but its 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? Like how soon would you guys get started and how should we think about the capital costs and what are the kind of – what do you want to get done before you get started in terms of leasing?

Well, we have just started our marketing campaign. Literally in the last week we had a big presentation to 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, something we could start in the second half of the year, but we are going to be driven by pre leasing. We weren’t 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 pre leasing and we won’t start the building and we’ll have a tremendous site for whenever the demand is there. But the uptown market in Dallas with the Katy trail and the new parks and all the activity on the multi-family side going there, some which is immediately adjacent to us makes us very optimistic that we are going to let that translate into pre leasing before we start.

Okay, and do you have a hurdle for pre leasing?

We’re not going to state our hurdles. Its just going to turn on two things. One, we want some actual hard leasing and second we are 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. Just what do you think your total investment will be there assuming it gets going?

Jamie, we’re still in the process of finalizing the design and the project, but I would say its approximately $180 million in total project costs.

What, between the two of you?

In aggregate.

In aggregate, okay. All right, great. Thanks guys.

Thanks Jamie.

The next question is from Tom Lesnick of Capital One Securities. Please go ahead.

Hi, good morning and thanks for taking my questions. I just want to talk about leasing velocity for a second. Obviously its been accelerating over the last couple of quarters, but it looks like same store revenues fell sequentially. So I was just wondering if there is maybe a widening spread there between signed and commenced or whether the book of leasing has occurred outside in the same circle.

The leasing activity, a big chunk of it, as you’ve seen in some of the results is a lot of its taking place in Texas and Houston and so that is outside of the same store pool. Over in 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 transparency as that same store pool will increase to north of 70%.

Okay, that’s helpful, thank you. And then I’m just curious, on 77 Main, given FGS International and the petroleum [indiscernible] worth being there, did underwriting change at all throughout 4Q and the oil fell off before closing, either on year-end or on the buyers.

No, we ultimately negotiated and agreed on a price there in late October and November and 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 older market.

Okay, I appreciate that. And then on the Houston explorations or ’15 and ’16, I know you 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. Greg, do you want to…

No, I think we do a great job of providing NOI by asset. We don’t take the next step and then start to grow that asset by tenant, NOI by tenant.

Okay, that’s fair. And then last question, just on G&A I know you guys have the true up in 4Q. I was just curious, excluding that what the run rate would be, I know you’ve obviously provided 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 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, its generally a good run rate each quarter.

Okay, thanks guys. I appreciate it. Nice quarter.

The next question comes from Dave Rodgers of Baird. Please go a head.

Yes, good morning guys. Larry, maybe a question for you. I think during Greg’s comment you talked about the attractiveness of the development and how you really wanted to focus on development, but you could have done a pretty aggressive acquire in the last several quarters; Charlotte, Atlanta and the like. So maybe talking about how you see acquisitions in 2015 and is that going to be a big piece of the year or are there assets that your underwriting currently to bring in the fold or are we really moving fully to development?

Good morning Dave. I think we will continue to look at acquisitions, but as I said in my comments, the pricing is just generally is 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’re 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’re going to be very disciplined as Greg said when he talked about the repurchase of stock, which we always remain open to, but the leverage is something we’re going to be very disciplined about in this development cycle. But we are encouraged not only about the announced pipeline, but also about the perspective pipeline of projects and are optimistic that we are going to have one or two exciting things to announce this year that we haven’t been able to. They just aren’t far enough along to talk about it. 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 you know a couple of parts for Larry and Greg. As you talk about these potential announcements this year, can you kind of put a bracket around kind of what those announcements could look like in terms of total dollars. And then Greg I know there is a little bit of range there, but in terms of total dollar spending and your guidance for development this year.

Well, I think we can’t do that, because then we’re far enough along to where we feel comfortable giving numbers and they are 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 what companies announce buildings or intentions to move employees were typically one of several that are in the hunt to do that and so that will play out this year. We’re 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 stages during the balance of this year in most likelihood and so I don’t think there is any significant cash assumptions in terms of what the company would have done this year. Greg, you want to add anything to that?

Anything that we would announce in ’15, it would have very minimal impact if any at all on earnings. So there’s not a big – I know you guys want to feel like your models and in the out years that might help you, but in terms of ’15 and the guidance that we provided for ’15, anything that we’ve just talked about in terms of new developments we had minimal if any impact.

Okay, and maybe for Colin, with regard to Houston I know you don’t feel free, but I know you don’t want to comment on the lease negotiation, 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?

Well, first on Transocean as you said, we’re not going to comment specifically on any particular customer, but again I would just point out on Transocean, they’ve been the customer at Greenway going back to 1989 and we’d certainly be thrilled to keep it that way. I assure you 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. So I think our view is they are going to look to make a consolidation plan and I think that can hopefully and 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 are essentially an unregulated utility company, but a wholly owned subsidiary of a very large UK based company, so while they have any in energy in their name, they really aren’t materially impacted by falling oil prices. I just wanted to clear that up. We developed a very, very good relationship with Direct Energy. When we purchased Greenway, Direct Energy wasn’t the electricity provider of the property. They are now and that’s not an insignificant contract. So we think there is a great opportunity for Cousins and Direct Energy to continue to grow their relationship in the near term, both as it relates to real estate needs and on the utility front its in the real properties.

Okay great, thank you.

The next question is from Michael Lewis of SunTrust. Please go ahead.

Hi, thank you. So I thought the idea to monetize some core assets and redeploy the proceeds into development, was it a good one and I understand with 191 Peachtree, your decision to – that markets doing a little better than maybe you saw it and you want to keep some of that upside for yourself. But are there other assets in the portfolio, maybe where you could sell in interest and kind of 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 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 they’re 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, 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 exploration. Is that correct and then when you talk about competing to keep Apache, your 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’re 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’re pleased that 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 ’17 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] The next question comes from Glenn Reagan of Green Street Advisors.

Good morning guys, Jed Reagan here. I know its still very much a fluid situation, but what are your current expectations for how Houston mark around 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?

Hey Jed. I think the way that the duet [ph] along the question is the exact right way to look at Houston, is that you segment it with limited amount of roll over and the credit quality of our customers 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 kept M&A activity, bankruptcies, etcetera 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 and other buildings may have, clearly its going to be 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 its very early in Houston to try to reach long term conclusions about where the markets going to go and the impact of the sell off 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 I guess 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 I think if there’s been any cap rate changes that have been discernable over the last several months.

Hey Jed, its Colin and obviously the old market moves are a whole lot faster than the real-estate markets and 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 Huston. Its been a 1,000 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 timeframe and that fell out in December. It was a large U.S. pension fund and clearly with the rapid change in the price they walked away. Actually that market rumor now has been put back under agreement. It was recently called 10 days ago under contract with hard earnest money and the visibility that we’re 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. Well over $500 a foot is what we are hearing, which would be almost record level from a multi tenant office building perspective in Huston, and that’s really the only data point that we 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. For it to be reasonable we expect something slimier to the GAAP outlook or maybe can you just talk about that a little bit.

Yes, hey Jed, its Gregg. I think we are going to stick with the guidance that we provided and just give you the building blocks that you needed to solve for – maybe reach standard FFO.

Okay, fair enough, thanks guys.

The next question is from Young Ku of Wells Fargo. Please go ahead.

Great. Thank you. 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 [ph]. Is it more kind of higher net absorption targets or higher rent or has this value really changed over that time period?

No. Lets talk about a little more color on our view of 191. When we announced it 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 of 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 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 fortune kind of 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, that 191 are just keeping it part of Cousins.

Okay, thank you for the color. So the 50,000 square foot diluted space, I think you guys said there that you’re seeing pretty good recovery there back from that space.

I couldn’t hear your question.

Couldn’t hear the question Young.

I’m sorry, the 50,000 square foot diluted space, is it fair to say that you are going to backfill that space up pretty soon.

Yes I mean, this was space that they took in their original lease and 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. We continue to move 191 in the right direction that space will be part of it.

Okay, and the 70,000 space foot at Northpark, I was wondering if you can just provide some color regarding the Oracle space.

Sure its 70,000 square feet that expires in June. As I said in my comments, as we underwrite the asset and priced it, they were out in the market at that time looking for consolidation options and various buildings around Atlanta. I think our expectation now is they will leave. As I said it wasn’t a bit surprise to us. But the Northpark and the Central Perimeter in total has a lot of activity. I’m sure you have seen the recent Mercedes announcement, their CEO made a comment and I think it really played well to our thesis at Northpark, which is its 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 onboard 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%, 3.5% GAAP same store NOI guidance, what kind of occupancy upside or rent spreads are you guys expecting within that range.

Young, that’s all the guidance we are going to provide around same property NOIs, just that range. We are not going to provide the building blocks up in to that range. But as Colin said, its an important number. Our same property pool unlike ‘14, and ‘15 will comprise three quarters or so of our total NOI. So that’s a significant number driving it as we go into ’15.

Okay. Got it. Thank you.

The next question is from John Guinee from Stifel. Please go ahead.

Great, great. Larry, is it safe to say that you want to remind people that you do own great assets in Huston, and you’ve got great leadership and a great team down there.

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

Okay 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 are seeing a lot of management teams and their broads blatantly taking advantage of shareholders, I want to congratulate you on keeping the G&D down.

Thanks John, we’ll continue to do that.

Then switching a little bit, you guys had a great same store NOI and a great mark-to-market. That usually comes from there different factors. Its either occupancy, its just below market ramps or its paying a lot of dollars in TIs and concessions to get the tenant it. 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?

Hey John, this is Colin. I think its really the first two rather than the third in terms of being able to drive occupancy and if you look at the acquisitions that we made to date, we often look at our acquisitions score card and how we have been able to drive occupancy and 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 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 its 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 chare.

I started 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 is 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 being out of that business and we just didn’t wait 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 acquisition 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 are buying land at $70 a foot that was put under option before the market in that sub market in Dallas got it. It was hot as it is today and you are probably buying that $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 peaces in our core sub-markets.

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 the Huston 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.