Cousins Properties Inc. Q2 2009 Earnings Call Transcript

Aug.11.09 | About: Cousins Properties (CUZ)

Cousins Properties Inc. (NYSE:CUZ)

Q2 2009 Earnings Call

August 11, 2009; 2.00 am ET


Larry Gellerstedt - President & Chief Executive Officer

Jim Fleming - Chief Financial Officer

Craig Jones - Chief Investment Officer

Steven Yenser - Executive Vice President of Leasing and Asset Management


Dave AuBuchon - Robert W. Baird

John Stewart - Green Street Advisors Incorporated

Sloan Bohlen - Goldman Sachs


Ladies and gentlemen, thank you for standing by. Welcome to the Cousins Properties Incorporated second quarter 2009 conference call. During the presentation, all participants will be in a listen-only mode. Afterwards, we will conduct a question-and-answer session. (Operator Instructions)

As a remainder, this conference is being recorded Tuesday, August 11, 2009. Before we begin certain matters the company will be discussing today are forward-looking statements within the meaning of the federal securities laws. Actual results may differ materially from these statements. Please refer to the company’s filings with the Securities and Exchange Commission, including its Annual Report on Form 10-K for the year ended December 31, 2008 for discussion of the factors that may cause such material differences.

Also certain items the company may refer to today are considered non-GAAP financial measures within the meaning of Regulation G as promulgated by the SEC. For these items, the comparable GAAP measures and related reconciliations may be found through the quarterly disclosures and supplemental SEC information links on the Investor Relations page of our website at

I would now like to turn the conference over to Mr. Larry Gellerstedt, President and Chief Executive Officer. Please go ahead sir.

Larry Gellerstedt

Good afternoon, everyone. I’m Larry Gellerstedt, President and Chief Executive Officer of Cousins Properties. On the phone with me today are Jim Fleming, our Chief Financial Officer; Craig Jones, our Chief Investment officer; and Steve Yenser, our Executive Vice President of Leasing and Asset Management.

Welcome to our second quarter conference call. At this time, I’ll call Jim to review the financial results for the quarter. Jim.

Jim Fleming

Thanks Larry and thank everyone else for your interest in Cousins. This quarter we reported FFO before special charges of $0.45 per share, compared with $0.15 per share last quarter. The primary reason for the increases is the gain on the repurchase of the San Jose mortgage debt that we told you about last quarter, which resulted in a gain of $12.5 million or $0.24 per share.

In addition to this we did a bit better in several areas, which I’ll touch on in a minute. As described in the earnings release, we reported an $88.3 million in impairment valuation and retirement charges during the second quarter. These charges were largely associated with our residential lot and condominium businesses and reflect the challenges we’re seeing in today’s housing markets.

Except for a portion of the retirement charges these were all non-cash charges. The largest impairment was a $34.9 million charge on our 10 Terminus condominium project. Since this project is held for sale, we required to rerecord a fair value for accounting purposes. Condominium sales continue to struggle in Atlanta, as they have across the nation and sales activity at 10 Terminus has been slower than we projected. Our updated analysis reflects the longer sellout period together with a high discount rate on the anticipated cash flows from a project.

In spite of the impairment for accounting purposes, we continue to believe 10 Terminus is a high quality project that provide exceptional value to condominium buyers. Going forward, we will continue to implement innovative sales strategies and an effort to distinguish this project from the rest of the market. Additionally, we took a $28.1 million impairment charge on our investments in residential joint ventures.

Accounting standards require that we like investments in joint ventures down to fair value, if the decline in value is considered to be other than temporary. Given the continued decline in the demand for residential lots and the high discount rates supplied to anticipated cash flows from law and attract investments in today’s market, we concluded that the impairment was other than temporary and recorded this charge in the second quarter.

We did not record impairment charges on our wholly-owned residential projects, even though our discounted cash flow analysis would perhaps show impairments because of the GAAP rules do not allow an impairment charge where the undiscounted expected cash flows of these projects exceed our cost.

We also recorded a valuation allowance on our deferred tax asset as of the end of the quarter. Since 2007 we’ve been receiving a benefit for income taxes in our income statement, because our taxable REIT subsidiary Cousins Real Estate Corporation, which we call CREC, has had pre-tax losses over that period.

We’ve been recording the effect of this benefit on our balance sheet as a deferred tax asset. GAAP rules require that companies evaluate whether the price of valuation reserve against deferred tax assets based on their expected ability to take the tax benefit in future periods from the generation income.

Based on CREC’s operating loss history including the impairments taken this quarter on 10 Terminus and our residential ventures, as well as our inability to predict at what point in the future, markets will improve and when CREC will again become profitable we recorded this valuation allowance.

Finally, impairment charges and valuation allowance have reduced our net income and FFO in the second quarter. These non-cash charges do not affect our coverage ratios or leverage covenants under our bank credit facility. Going forward the tax valuation allowance is going to have an effect on our FFO.

If CREC recognizes an operating loss in any quarter, we will no longer record an income tax benefit. Since, any benefit recognized would increase the valuation allowance. Conversely, when CREC generates taxable income no income tax expense will be recorded until CREC reaches several years of sustained profitability. Therefore in the short run this will reduce our FFO, but when CREC returns the profitability it will add to our FFO for several years.

Turning back to FFO, the four special charges, I’d like to highlight the factors contributed to the difference from last quarter. You can follow by looking at our supplemental package on page eight, beginning on page eight.

Rental property revenues, less rental property operating expenses from our properties increased $1.7 million between the first and second quarters. $1.4 million of this increase relates to our office properties. FFO from 191 Peachtree increased 772,000 as a result of additional revenue from the Deloitte & Touche lease, as they began paying rent on additional space where tenant improvement work was complete.

FFO from the American Cancer Society Centre decreased $640,000, as a result of a lease modification and extension, as well as adjustments to operating expense payments by tenants in prior years, and FFO from Terminus 100 increased $1.4 million, as a result of the reversal of bad-debt reserves taken in the first quarter for three tenants.

FFO from our retail properties increased $204,000 between quarters primarily as a result of an increase at Avenue Carriage Crossing related to the collection of previously reserved land. FFO from outparcel sales increased $543,000 between quarters. In the second quarter we sold an outparcel at the Avenue Carriage Crossing, our first quarter gain was from the sale of one outparcel at the Avenue Webb Gin.

FFO from tract sales in the second quarter was generated from the sale of a tract at our North Point West Side property. In the second quarter we sold 48 lots, compared to 25 lots in the first quarter, which generated a slight increase in FFO of $59,000. FFO from other joint ventures decreased $416,000 between quarters because of certain oil and gas royalties and forfeited lot deposits earned in the first quarter.

Leasing fees increased $359,000 between quarters, due to higher third-party leasing fees, as well as additional fees for leasing at unconsolidated joint venture properties. Termination fees increased $738,000 between quarters, as a result of fees earned on Avenue Carriage Crossing and Terminus 100.

General and administrative expenses increased $531,000 between quarters, as a result of a reduction in capitalized salaries, due to lower levels of development activity. We continue to monitor our G&A expenses, and have been successful in significantly reducing many of our discretionary expenditures.

We are employing strategies to further reduce these expenses and continue to monitor our staffing levels to ensure that we are operating as efficiently as possible. Since the beginning of 2008, we’ve reduced our non-property level headcount by 25%, and we’ve reduced our G&A run rate from our 2007 level by over $11 million a year.

So far however, the effect that this has largely been offset by reduction in capitalized salaries, which have gone from over $15 million in 2007 to what we estimate will be about $4 million this year.

In the second quarter, we’ve reduced our quarterly dividend to $0.15 per share and continued the policy of paying part of the dividend in cash and part in common stock. Our intent is to be as conservative as possible with our cash, while paying out all of our taxable income to shareholders. Ultimately, our dividend is a bore decision, but we set the dividend at its current level based on our current projection of taxable income for the remainder of 2009 and into 2010.

We will continue to work with our board to monitor our taxable income and dividend level each quarter to make sure we are conserving as much cash as possible for meeting our REIT dividend requirements. As I addressed in detail on the last call, we don’t have large exposures to maturing debt until 2012, via our credit facility bank term loan and Terminus 100 loans will mature. We hope by that time, the economy will stabilize somewhat and the credit markets will return to a more rational level.

Our leverage level under our bank covenant calculations drop this quarter from 54% to 52%. The maximum allowed is 60% so leverage continues to be higher than we would like, but at quarter end we were still holding over $54 million in cash to cover future funding needs. The other significant covenant in our bank credit facility requires us to maintain at least a 1.5 times fixed charge coverage ratio under the terms of the credit facility our coverage is now two times.

With that I’ll close my remarks and turn it back over to Larry.

Larry Gellerstedt

Thank you, Jim. As most of you know, I became CEO of Cousins on July 1, when Tom Bell retired. I’ve had the pleasure of meeting a number of you in person and many others I’ve been able to speak to on the phone. The rest of you, I look forward to spending sometime with you at NAREIT meetings in November, or whenever we have a chance to get together before that.

Since this is my our first conference call, I want to let you know that, I’m both excited and honored to have an opportunity to lead this extraordinary company. Cousins have an incredible history of performance driven by great assets and exceptional people from the Board and Senior Management throughout the company’s ranks.

In the 1970s, Tom Cousins developed a set of core principles to guide our decision-making. These are listed in our 2001 Annual Report and they still are available on our website and they include basically focusing on value creation, total shareholder return, recycling capital and managing risk. These long held principles have remained relevant throughout the years in both good markets and bad and our strategy will continue to follow these in future years.

We have a strong board and a very talented dedicated team of people at Cousins, rest assured everyone is working with dedication and focus to deliver superior results for our customers and shareholders. Some of you have asked me, what changes my leadership will do to our strategy.

My response generally has been that I’ve been a part of this leadership team for several years and I believe in our overall strategy. We’ll continue to be an opportunistic company focused on value creation. In the current environment we’ll remain very vigorous in our underwriting process for capital deployment.

To the next few year we will probably not be starting many new developments, but we expect to find distressed acquisitions where we can add value primarily in the San Jose markets we know well in that light I think it is important to remember that we sold over $2 billion of assets at the peak of the cycle from 2003 to 2006. This allowed us to pay almost $600 million in special dividends and to reinvest the rest.

Well today would be nice to have the $600 million back in the company to take advantage of the future opportunities clearly selling those assets was the right thing to do for our share holders. In the near term, we may sell a few assets, but is probably not going to do be right time to do much capital recycling given the current market we may meet access other capital sources through joint ventures and equity markets.

However, in the long-term capital recycling will be our preferred approach. I would like to take a minute to give my perspective on the impairments as Jim discussed. In this area I have to say the accounting rules don’t make a whole lot of sense. For wholly-owned rental properties impairments are rare, because you evaluate those using undiscounted cash flows well into the future. Where we and other REITs are seeing impairments is in joint ventures and for sale project such as condos.

The rules require these investments be mark to fair value today using discounted cash flows given the state of the investment markets, we’ve used relatively high discount rates of 20% or more to the value the expected future cash flows and we’ve also try to be conservative and our estimates on lot on residential lot in condominium sales.

I believe we would come up a reasonable numbers for what these investments would be more if we sell them today, but we haven’t made any decisions to liquidate any of our holdings in today’s markets. While I’d like to see a sales of non-income producing properties we are going to be prudent about this and do not intend to give assets away. As a result we should have opportunity to earn back some of these impairments in the future.

Jim commented on our debt maturities and we are fortunate not to have any short term issues. We have a very favorable line of credit with the good that have term left. However, I believe the market sentiment that we are seeing developed since last October, towards lower debt levels as probably right and ultimately I’d like to see as get to a lower leverage and where we are today.

As we have said before, there are three ways to reduce leverage; sell assets, retain earnings or issue equity. We are looking at all three and since we aren’t facing any debt line any time soon, we are going to a very delivered process to figure out what options make the most sense, as well as when and how to implement them.

Tom Bill commented on several of these conference calls about our efforts to find opportunities in distressed real estate. We haven’t seen any big opportunities yet, but these efforts are continuing and we expect to see some good opportunities probably in 2010.

As I’ve told a number of you all, I think we will see assets with debt maturity problems, which I would label as financially challenged, and assets with leasing problems, which I would label operationally challenged. Our suite spot will be assets that have some of both challenges.

What we are looking for, are opportunities like 191 Peachtree and the American Cancer Society Center, situations where we can understand the market and can use our market knowledge and relationships to fill up a quality asset that hasn’t performed well for the current owner.

These could be retail and residential projects anywhere in the Sunbelt, but I think from what we’re seeing thus far, office buildings and our core markets may end up providing the best opportunities. We’ve taken advantage of some smaller opportunities, and I want to mention one of them as an example rather than a significant item by it self.

In the last quarter, we bought a project called the Brownstones at Habersham, 14 town homes and five additional homesites from a bank that had foreclosed on the second phase of a high quality town home development in the heart of Buckhead-Atlanta. The first phase had sold out quickly at prices from $400,000 to over $900,000.

We were able to buy the foreclosed units for an average price of $285,000, and we began marketing units from $359,000 to $559,000. Prices that moved up $30,000 to $50,000 in a few weeks we’ve been marketing these units, and we now have contracts to sell 11 of the 14 units plus we have a contract for all five future homesites.

This shows that even though the housing market is terrible, at the right price there are buyers who are looking for good value. It also shows the importance of understanding local markets. I want to conclude by talking about our most important business issue right now, which is keeping our existing properties full and continuing to make progress leasing our development projects.

Here we’ve made reasonably good success. We had reasonably good success given the state of the markets. We maintained our operating portfolio of office assets at 90% lease this quarter, and our remaining office rollover through 2010 is now down to 9%. We are also spending a lot of time working on 191 Peachtree and Terminus 200 in Atlanta, as well as Palisades in Austin. We’ve made a little progress in Terminus 200 with our 50,000 square foot Firethorn lease, which we announced in April, where we had a lot of work left to do.

We do have several significant prospects, and I hope we’ll have more to talk about later on this year. We made some headway on our industrial portfolio by leasing another 104,000 square feet to Briggs and Stratton and extending the lease on their existing space to July of 2012.

We are continuing to pursue lease prospects aggressively on all of our industrial buildings, and are still our plan to get these properties leased up as soon as possible, so they can be sold. Our retail operating portfolio listing shows our leasing percentage drop from 83% to 82% this quarter, but the reason for the decline is that we are now including the Avenue Forsyth as an operational centre in these numbers. Without that reclassification, the percentage would have gone from 83% up to 87%.

If you look at the individual property numbers, you will see that we made some very good progress. For example bringing Carriage Crossing from 83% to 88% and bringing Murfreesboro from 75% to 84%. We’ve also made some progress at the Avenue Forsyth, which went from 55% lease to 62% lease, although we’ll need to keep focused on finishing leasing this project.

I’m encouraged that we’re now seeing retailers willing to commit to new stores, and as a result our potential co-tenancy issues are declining. We continue to see downward pressure on rental rates and new leases and as a result in some cases we’re choosing to sign leases for the shorter terms.

I’ll finish with the brief comment on the overall real estate markets. Clearly the housing markets are very challenged and will remain so for sometime. This includes the apartments although my stance is that apartments will recover quickly once the economy gets back on its feet.

The office and retail markets are both perfect right now due to the state of the overall economy, but on the retail side despite the pressures on rents I’m encouraged to see that there is demand for space and proven quality centers. We’ll continue to put a lot of effort into maintaining tenants, and increasing occupancy at our retail centers.

On the office side, the combination of our recent over building and job losses is significantly affecting demand and there will be a big difference over the next 12 months to 24 months between buildings that are well leased and those that aren’t. We feel very good about the high occupancy and low level of lease rollovers in our operating portfolio.

So our challenge is leasing up our development projects. You should expect to see us be aggressive in our efforts to lease up vacant space because I am convinced we are better off leasing space even at somewhat reduced rates than keeping space of the market. We will keep you posted on our progress.

With that I’ll conclude my remarks and turn the call over for any questions.

Question-and-Answer Session


(Operator Instructions) Your first question comes from Dave AuBuchon - Robert W. Baird.

Dave AuBuchon - Robert W. Baird

I want to ask whether or not you feel like we should assume that you really scrubbed the portfolio here and you’ve done with most of the impairments going forward?

Jim Fleming

I wish I could give you a definitive answer. I’m sure everybody that goes through the process as wish as they could. I will tell you, we’ve been very thorough. We worked with our auditors at Deloitte. We’ve done a lot work internally and we think we’ve been conservative as we gone through the stuff. Some of these things kept over this quarter for instance, the residential joint ventures we determined are other than temporary impairment.

So we had to record in this quarter, but this is an ongoing process for the joint ventures, for the condominium products those now have to be mark to fair value and we have to do that analysis every quarter. So the answer really is as the market gets materially worse, we would have to do this again we hopefully gotten at all and we’ve really tried, but you just can have any absolute assurance on that.

Larry Gellerstedt

I might just add to what Jim had said, that as I mentioned briefly before there are very specific accounting rules and guidelines that we have to follow and more than 50 REITs have taken impairments in the last three quarters. We certainly value having our outside auditors, Deloitte come in every quarter and we really on them to provide guidance, so that we’re making every effort to be very transparent, very conservative than what we’re showing on the books. As Jim said, this is just some we have to look at on a quarter-by-quarter basis.

Dave AuBuchon - Robert W. Baird

Then Larry you mentioned the Brownstone example, as an example of an opportunity that you guys have pursued in and let’s say you’ve been successful. Did you mention the profits perhaps that you’ve made in selling 11 out of the 14 units in the five home sites?

Larry Gellerstedt

You can generally see the expectations that we’ve had from the sales price versus the average price that we bought them. We underwrote the project with IRR and excess of 25% and we certainly think we’re on board to hit that. I would comment on the residential side, one of the things we found particularly attractive about this project was not just the location and the track record that the first stage it had.

The fact that at the right price we could make an acquisition and see the benefits of that acquisition and relatively short order, we have found that type of acquisition. This is the only one that we’ve actually done, but as we look that type of residential acquisition is generally more attractive to us than either they’re buying undeveloped lots, because of the uncertainty over the time period that it may take to get a return.

Dave AuBuchon - Robert W. Baird

Should we read your comments about the multifamily segments perhaps responding quicker than others Larry, to that’s a property class that Cousins will pursue?

Larry Gellerstedt

I think Cousins is one of the strengths that we have is, we’ve always been driven by value and a lot of flexibility, but I would not rate that to say that we’re going to become one of your major multifamily apartment developers. We do have several developments were in the future, particularly our development out at Emory that has a significant apartment component where we have Gables as our partners. So, we certainly are following that, but really just mentioned that more for our guidance on where we think you might see some recovery first.

Dave AuBuchon - Robert W. Baird

On the industrial side, do you believe that leasing is sustainable? Can you kind of give some more detail behind the space that you leased in the quarter?

Larry Gellerstedt

I wouldn’t, I wish I can tell you that the space we had leased in the quarter was the start of the trend. We are seeing a lot of activity, but so far that activity has been slow to commit and so we’re pleased to get that list, but I wouldn’t read any momentum trends into that.

Dave AuBuchon - Robert W. Baird

My last question Jim, I think when you went through the property by property changes from Q1, you mentioned in Terminus 100 there was a bad debt reversal can you talk about that again?

Jim Fleming

There were three tenants that we reserved rent on, Dave and we reverse those reserves, we worked out the issues with those three tenants to where those reserves have come off. We’ve also had that with a few other properties, we had that with some retail properties I think I commented it a couple of quarters ago, that we had put in some bad debt reserves, where we weren’t sure whether we can collect the rents. We did that in the fourth quarter, we did in the first quarter. We are going to continue to be conservative as we go forward on those, and then as we’re able to collect them, we’ll reverse the reserves.

Dave AuBuchon - Robert W. Baird

The tenants are still in the building? Have they taken less space?

Jim Fleming

No, they’re still on the building.


Your next question comes from John Stewart - Green Street Advisors Incorporated.

John Stewart - Green Street Advisors Incorporated

Jim, just a follow up on that point so, was it not a credit issue I don’t understand why would have taken the reserve and then reversed it. Can you help us understand it?

Jim Fleming

It was a concern about credit, which we no longer have and these fall in two categories we either will workout situation where we’ll collect rent. Where we’ll work our situation where the rent will be payable in later period and this was some of both in the current quarter, but we no longer have the credit concern about whether the rents going to be paid.

John Stewart - Green Street Advisors Incorporated

Looking at the land schedule, it looks like Handy Road moved from outdated to consolidated and also look like the basis and 615 Peachtree went up a couple of million bucks. Can you shed some light on some of the major changes on the land schedule?

Jim Fleming

I can’t on that. John the 615, we had some pre-development cost, which were shown in other assets. Previously, we’ve rolled that into the land schedule. So that’s really a not a change on our balance sheet, it’s just a reclassification on our supplemental of where we’re showing that.

The Handy Road we have had a partner and we still have a partner in that deal. There is a debt on that property that Cousins has no liability on, but the partner has seized making payments on that debt. We’ve really stepped into control of that and I think the likely outcome is going to be that will just be the come out property and we are not committed to this, but it’s likely that we will ultimately pay that debt off. So we’re now showing that on the property schedule as a consolidated property rather than it’s a joint venture investment.

John Stewart - Green Street Advisors Incorporated

Larry you referenced towards the tail end of your comments that, you think you’re better off leasing space just taking the market clearing rent in this environment. How does the impairment at 10 Terminus give you the flexibility you think to reduce the condos to a price that’s going to clear the market? Or how do you put your philosophy there?

Larry Gellerstedt

We certainly have priced it at a level that we think would clear the market. As know, we did and I think this was a innovative type of thing that we did on the value assurance program that we’ve been offer in the last couple of quarters, which we saw a lot of increase in traffic. We have actually had a couple of contracts under that program, but what we and other folks are seeing is that the main drivers in this market for the condos are priced right now.

Although, our product, we are very, very confident in. We can’t set the market. We have to respond to the market, and we think we’ll get better than the market clearing price, but we still have to react to that price. So, we have been, I think prudent as the accounting standard would have us be in pricing those and to this impairment at a level that we believe we clear the market.

That doesn’t mean that we will have a sales strategy. As a matter of fact that’s not going to be our sales strategy to try to instantaneously drop price and sell this on a bulk basis. You’ll see is coming out in the next few months, as we have in past months, with I think some innovative sales approach. Some price change will be a part of that thing. We still plan to sale these out over a period of time in a prudent way and hopefully we will be able to see some improvement from the current level of impairment that we have taken today.

John Stewart - Green Street Advisors Incorporated

It just seems a little bit that adds with the experience that you had on the Brownstones?

Larry Gellerstedt

That’s a good question John. I would point to this, I think that what we seen on the Brownstones is in today’s markets, both from the buyer’s perspective and from the mortgage perspective its, when you get above the confirming mortgage standard, finding mortgages particularly in condos is a challenging thing to do.

If you look at absolute price with this impairment, we began to get about the same in terms of square foot sales per square foot as the Brownstones. So, it gets to be an absolute price that these things began to clear in today’s market. So, I think the Brownstone thing really supports what we are doing on 10 Terminus, if we wanted to try to clear the market right now with those units.

John Stewart - Green Street Advisors Incorporated

Just one more point, you referenced three ways of de-leveraging with asset sales, retained earnings and issuing equity. Can you talk specifically about asset sales and equity? With that process, there is specifically what may be in the market today? You also touched on joint ventures, 191 Peachtree and American Cancer Society are those at the point were you’d look to do the joint venture today?

Jim Fleming

Well that’s good about five questions rolled into one. So, can I just pick the one that’s easiest to answer and do that, I think in terms of asset sales, we absolutely are looking at asset sales. We mentioned before, with the when we purchased the debt on San Jose that we would go to the market and both look at what type of debt, third-party debt that we might be able to put on that asset, as well as what type of sales price we might be able to get.

That asset is currently being marketed and we expect to get some feedback on it this month. We’ve got some other debt. We’ve been looking at the debt on the Meridian Mark, our medical office build in here in Atlanta, that’s been a real positive owner for us and has a relatively low level of debt of these would be the value.

We’re similar to San Jose. We’ve gotten some feedback on what the debt extension may be to role that debt over and push it out for two or three years, which is certainly an option that we have. We’re also looking at the, what it might bring in terms of sales. So, it’s great to have the flexibility to look at that.

Currently, we don’t want to do that on a wholesale basis, because this is certain a good market to Augustine. I think in terms of the equity markets, we certainly have followed with a lot of interest, would a lot of our peers have done, in that regard and I certainly want us to remain focused on deleveraging our balance sheet, and not just from the leverage that we currently have, but to make sure we’ve got the capital in place to go after what I think it will be unprecedented opportunities on the distress.

So we’re being in a very thoughtful right now going through of the company’s model as we looking and go forward years and really studying the fact that were fortunate enough not to have maturities driving us to a quick decision, but we certainly want to deliver the balance sheet to position ourselves better.

I think an equity rise is something that you’ll see is given a lot of consideration to and probably be ready to talk about on the next quarter or two. So we’re really looking at all of those options and being very serious about that look and we’re just not pressured to have to do some right at the moment other than the couple of asset sales and there are few other outparcel sales and some other things that we’re looking at.


Our next question comes from Sloan Bohlen - Goldman Sachs.

Sloan Bohlen - Goldman Sachs

First, Larry that I just had follow-on on John’s plan about, how we should think about framing what the correct level of leverages going forward and what the correct amount of capital on hand for opportunistic acquisitions? Could you maybe give us a though on how to think about that and as a follow-on to that would you consider using joint ventures as a source for potentially fund for being opportunistic going forward?

Larry Gellerstedt

I let that out in my response to the questions that John asked me. Joint venture is certainly avenue and we’ve got discussions going with several parties. I expect we’ll have them with were actually looking at how the structure those might be in terms of the equity contributions splits etc. I think that I feel confident you’ll see both some activity of the asset sales side, we’ll see it on. I think we’ll seriously consider the equity side. I’m sure that joint ventures just based on discussions we’ll have will find attractive for a certain opportunities as well.

I think that our current level of leverage is higher than we wanted to be. I’ve heard on these calls, other calls where folks have talked about where that the new going forward right level of leverage is. I don’t really have the crystal ball on that. As I look at Cousins we generally operated in that 30% to 45% leverage and that’s probably the right range on a go forward basis.

It’s not something that we have to do in an emergency way to get there, but we’re going to look at all of these avenues and both in terms of the timing and how much of each one we pick and try to drive those ratios down in that regard. The thing about the distressed opportunities and the 191s of the future that we find, I think the key thing there is we don’t have to time the market perfectly there, what we’re seeing is the depth of these problems and it’s still probably 2010.

We’re seeing the spread between the bid and as narrowed, but the sellers I think are figuring out, what they’re willing to pay. The buyers are figured out, what they’re willing to pay the sellers are not quite come to match that. So we’ve got some time to address that. I want to make sure we have the capital there, but we don’t need to be a market timer and being perfect on that. So I hope that gives you some guidance on that Sloan.

Sloan Bohlen - Goldman Sachs

Just a couple of quick ones for Jim, the lease up in the retail developments had. Are those leases have they commenced that didn’t see quite the pickup in the NOI quarter-over-quarter?

Jim Fleming

Sloan, that’s always a difficult one for us because our schedule that shows leasing percentages. The NOI that you look at for our properties is going to be based on the occupancy, in other words for us to get an NOI pickup from a tenant, we’re going to have them actually in place and there’s generally going to be a lag, it will vary from property-to-property, but it can be from ninety days to nine months.

So I’d say on average there’s probably a quarter or may be 120 days of lag between those two. So, where we’ve got some good pick in places like Murfreesboro and Carriage Crossing it’s going to be probably next quarter and may be even the quarter after that before you will see that.

Sloan Bohlen - Goldman Sachs

Along those lines maybe there’s a question for Steve, which is on that retail leasing in the quarter was it a lot, it seems like there is better activity from the retailers themselves, but have that terms changed from maybe beginning of the year or what you guys are giving up in terms of concessions?

Steven Yenser

I think we’re seeing it be very similar as it was in the beginning of the year. Our retailers are clearly being opportunistic, but we’re also finding opportunity in doing shorter term leases with them as we kind of deal with the market conditions and the rent. So, I think we’re pleased with the increase in activity and are happy to see the retailers in the market place for quality improvement centers, such as our portfolio.

Sloan Bohlen - Goldman Sachs

Then one last one, just on that few lease term fees at Terminus 100, I think it was the Avenue Carriage Crossing. Do you guys have a sense of what the perspective kind of mark-to-market on those rents would be going out again in the market?

Craig Jones

I think your question Sloan is when we really space that we terminated or we’re going to have a roll down, and the answer is yes. If we lease it in today’s market which is what our game plan is and I think that roll down level will depend on a number of things whether we go to a national retailer that’s being that’s really trying to expand aggressively and has got good credit and there you are going to have a significant roll down.

Steve can comment on that. We also might do some deals with more of local or regional tenants. We’re seeing some of those and those generally involve somewhat of a roll down, but much less of the roll down.

Steven Yenser

The cost plus specifically encourage Carriage being a box rent was a lower rent to begin with. So, we will see some roll down to that. We’ve seen anywhere from a 15% to 25% specific to that case, but over the portfolio is we’re having rents rollout.


There are no further questions at this time. I’ll now turn the call back over to you. Please continue with your presentation or your closing remarks.

Larry Gellerstedt

Well, I know its August and vacation time. So, those that have been on the call, we appreciate your continued interest at Cousins. This is a period of time for your, I have a lot of confidence in the team we have and the folks that are supported this company in the past, and we have some opportunities to work through, but I think they are manageable and the opportunities that we look forward to we think are significant and we think we are well positioned to take advantage of those.

I appreciate your interest in Cousins and anything that we can do in terms of being available to talk or answer any other questions, as always just give us a call and we will make ourselves available. Thank you very much.


Ladies and gentlemen that does conclude the conference call for today. We thank you for your participation and ask that you please disconnect your line.

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