Cousins Properties Executive Insights: Mahan Village, Scarce Investment Opportunity

On Thursday, Cousins Properties, Inc. (NYSE:CUZ) reported its first quarter earnings and discussed the following topics in its earnings conference call. Here’s what the C-suite revealed.

Mahan Village

John Guinee – Stifel Nicolaus: Just a couple of housekeeping. On Mahan Village in Tallahassee what are you booking on a current basis as one of these look back deals, so you are probably able to book a fairly high return on invested capital?

Gregg Adzema – EVP and CFO: Mahan Village is a development property so we are not booking any income at this time.

John Guinee – Stifel Nicolaus: So, your preferred return is not being realized at all right now?

Lawrence L. Gellerstedt III – President and CEO: The only thing that’s running through there is running through the balance sheet in terms of (CIP).

John Guinee – Stifel Nicolaus: And then on Page 21 of the sup, you basically have all the lots at Callaway Gardens and Blalock Lakes were sold to a home building venture which is a company as a joint venture partner, et cetera, et cetera. Is this a new structure or the same structure and can you expand on what’s going on in these two particular second home big developments?

Lawrence L. Gellerstedt III – President and CEO: There are no new structures new. On Blalock Lakes in terms of what’s going on, we have the property listed with a broker and so, it’s out to the market and we intend to hopefully get a – get at attractive level of interest and dispose that property. On Callaway Gardens, that one will take a little bit longer that’s inside the development of Callaway Gardens and there is actually some positive things going on in the local market down there with a lot of growth and that will probably take – two to three years before we work our way through that, but we do intend to also exit that as the market improves down there.

John Guinee – Stifel Nicolaus: And then the last question, I had a mistakenly thought that the impairments were all behind us and then the Collierville deal came on. When you look at your disposition plan for the rest of this year and next year, should we sort of be aware that there may be still more impairment charges?

Lawrence L. Gellerstedt III – President and CEO: Well, it’s a – I think if you certainly look at Collierville, as I said it was not one of our strongest centers but the lifestyle portion of our portfolio was developed towards the end of the cycle and the performance of those centers on a square foot basis is fairly uneven. So, Collierville is a little bit at the lower side. If you go back into the Pru assets that are in the mixing bowl those were developed going back to 2000 and so you might just like anything as we dispose of those there might be some gains and some and there may be some losses and others. But we really view the way to – that hopefully the way that most people will look at this as we had – as we look at that forward 12-year NOI – I mean 12-month NOI we saw this is a very, very strong outcome for the sale.

Investment Opportunity

Anthony Paolone – JPMorgan Securities, Inc.: You mentioned the investment opportunity side when you talked about the three items you are judging yourself on as just being scarce. Is that you are not seeing deal flow or is it that you are just not getting to pricing?

Lawrence L. Gellerstedt III – President and CEO: What we have normally seen is the first quarter and the disposition market just across the country is usually a slow quarter and for just in terms of the number of assets that are out there and this first quarter of this year was no exception. So it really wasn’t and in our case the assets that we have targeted in the markets we are looking at it wasn’t a case of going after them and not being successful from a pricing standpoint, it really was a lack of deal flow. Just as we saw last year as we look both on the marketed and non-marketed side, the deal flow is ramping up in the second quarter, and we see that stay in strong through the third quarter. Our look is, is that the market is going to end up being about the same as last year in terms of total dispositions in the key markets that we are looking at. So, it has really been deal flow versus pricing, but we will know. We might be sitting on the next call saying it’s pricing versus deal flow, but we are encouraged with some of the prospects we have in the next couple of quarters.

Anthony Paolone – JPMorgan Securities, Inc.: Is the stuff that you look out and see over these next few quarters, is it more in the lines of development opportunities or is it existing assets?

Lawrence L. Gellerstedt III – President and CEO: Our strategy is certainly looking at both and our focus continues to be over time to work down the percentage of our assets to a lower level that we have in Atlanta. We are focused on primarily on Texas and secondarily on North Carolina in terms of outside of those markets. In Texas, Austin, where we have been for 20 years and Dallas where we have been for 20 years and Houston, are our primary focuses, and the Carolinas, it’s more in the Raleigh, Durham market. At that point, we like Charlotte, but we are sort of little less aggressive about looking at Charlotte, just due to some uncertainty with the two big banks up there. So, on the acquisition side, I think I am optimistic. We will have some good success there in the balance of the year.

Anthony Paolone – JPMorgan Securities, Inc.: On Emory point you mentioned the resi coming in, stronger than expected and having good traction on retail, any updated yield you expect on that project and also just thoughts on where the second phase may pass.

Gregg Adzema – EVP and CFO: Well I would say that we’ve been able to have a fair amount of early indicators that departments are going to be very successful, both in terms of, I think at this point we’ve had just under 500 people sign up for reservations and there is no model to look at yet. We’ve had about 30 of those and we’ve just started leasing in the past couple of weeks. We’ve had about 30 already convert and that’s a very high conversion ratio because there is only so many people we can talk to. And they’re leasing above pro forma, and the retail is leasing above pro forma. We could have the retail leased, we’re just being very selective in terms of tenant mix for the health of the overall development. So I am not going to comment on spreads and those things versus what we’ve said before, but I would certainly say that we’re very encouraged. And our main reason that we have spaced out starting Phase 2, if we just looked at leasing on both the retail and the multi-family side. You certainly have said it was strong enough to start Phase 2 sooner. We have certainly learned from the long term value of mixed used projects it is really good to let our first phase get open and work through any of the operational issues whether it’s parking or signage or traffic flow or those things before you come in with a second Phase 2 quickly. So we are quite optimistic that the second quarter of next year we will have started Emory.

Anthony Paolone – JPMorgan Securities, Inc.: The last question, you took down some very low cost debt with One Ninety One Peachtree and you redid your line. Do you have some preferred stock out there? Any thoughts on could that be something that you’d use proceeds from potential stabilized sales to call in or how are you thinking about the preferreds that are out there?

Gregg Adzema – EVP and CFO: Tony, it’s Gregg. We treat the preferreds as an investment alternative and we compare it to the other alternatives that we had and if and when it becomes the best alternative we have, we’ll take a look at that. As we sit here right now, it’s not our best alternative.