Feb 14, 2013
Executives
Tripp Sullivan – Corporate Communications Larry Gellerstedt – President and CEO Gregg Adzema – EVP and CFO
Analysts
John Guinee – Stifel Jamie Feldman – Bank of America Merrill Lynch John Lizani – Green Street Advisors Young Courier – Wells Fargo Dave Rodgers – Robert W Baird
Operator
Cousins Properties Incorporated Fourth Quarter Conference Call. Today’s call is being recorded.
At this time for opening remarks and introductions, I would now like to turn the call over to Tripp Sullivan of Corporate Communications. Please go ahead.
Tripp Sullivan
Good morning. Certain matters that company will be discussing today are forward-looking statements within the meaning of federal securities laws.
For example, the company may provide estimates about expected operating income from properties, as well as certain categories of expenses along with expectations regarding leasing activity, development, acquisition, financing and disposition opportunities. Such forward-looking statements are subject to uncertainties and risk, and 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, 2011 for additional information regarding certain risk and uncertainties. Also, certain items that 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 its website at www.cousinsproperties.com. And now, I’ll turn the call over to Larry Gellerstedt.
Larry Gellerstedt
Good morning, everyone. In January 2012 we presented a straight forward vision for Cousins that concentrated on three things, simply platform, trophy assets and opportunistic investments.
The implementation of these visions was intended to streamline our business model tighten our focus where we are strongest and mostly maximize our ability to generate attractive returns for our shareholders. One year later we can safely say that our fourth quarter and full year results demonstrate significant and consistent progress towards this vision.
A central theme is we execute this strategy will be that of a sharpshooter approach where we continue to leverage our creative deal making capabilities, development skills, relationships, market knowledge and operational expertise. Turning to the first component of the strategy, we had an exceptionally busy year on the disposition front with over $400 million of assets sales at 2012 including $63 million in land.
The fourth quarter was exceptionally active with $277 million in sales. In total we monetized over 20% of our gross asset base primarily comprised of non-core, non-strategic holdings.
83% of our NOI is now derived from our office portfolio compared to 70% one year ago. The ongoing simplification of the platforms provides two important benefits.
First, it enables us to operate more efficiently, which ultimately leads to lower expenses and increased profits. Second the non-core asset sales associated with this process are the primary source of capital for an active investment pipeline.
Now for the second piece, trophy assets, our portfolio is increasingly comprised of Class A urban office assets well located in the best Sun Belt sub markets. We’ve demonstrated that our operational and development expertise along with our strong customer relationships provide us with a meaningful competitive advantage in this arena.
Additionally, it is being consistently demonstrated that high quality well located office towers if properly managed will outperform their markets over the long term. Along those lines I’d like to note the quality of our existing portfolio coupled with our talented team drove another solid leasing performance in 2012.
On a same-property basis, our office assets finished the year 91% lease, up from 89% leased at the beginning of the year while retail improved to 90% lease up from 88%. Most importantly due to a sustained amount of leasing success our 2012 same-store property NOI increased 6.7% on a cash basis.
Our leasing efforts remain principally focused as four key assets, Promenade, 2100 Ross, 191 Peachtree, and American Cancer Society. The team recently made another big stride at Promenade with the execution of the 37,000 square foot lease with Kier taken to building to 77% leased up from 58% at the time of purchase in November of 2011.
Cousins have been a long-term value relationship with us for many years. Promenade continues to receive a lot of interest and we are optimistic about the continued progress in 2013.
Leveraging our redevelopment skills we’ve largely completed the $8 million capital improvement project which includes the fitness center, a bistro and a significant rework of the entrance area, and the upgrades are getting very positive feedback from both existing and prospective tenants. Beside a third-party account JLL and their winner 2013 office market review referred to Promenade as one of the market’s biggest success stories.
The 2100 Ross the team is finalizing an 98,000 square feet lease with a top credit tenant will increase the lease percentage of the building by approximately 10%. We have a long time value relationship of this company in Atlanta and our successful track record with them was the key differentiator and recruiting them to 2100 Ross.
This is another example of market knowledge, relationships and operational expertise working to our advantage. At 191 Peachtree the fourth quarter was fairly slow.
We had a good year overall taking the building from 82% to 87% leased. The team is focused on eclipsing the 90% mark by the end of 2013.
ACSC remains our biggest challenge from a leasing stand point, however, we executed 35,000 square foot renewal in December and are in the process of renewing another tenant for 36,000 feet and with several new prospects entering the mix in recent weeks I am more optimistic about our prospects than I’ve been in quite a while. It’s important to note that the downtown sub market home to both 191 Peachtree and American Cancer Society is seeing a nice resurgence in overall activity.
Georgia State University now requires its freshmen to live on campus brining 4000 new full time residents to the sub market. The new Atlanta street car will begin service within the year.
The Atlanta Falcons have announced a new $1 billion downtown stadium which will start in the next year or so and two projects we’re developing on a fee basis to College for Ball Hall of Fame and the Center for Civil and Human Right are now under construction. Finally to our favorite topic opportunistic investments.
In most of our target markets we’re seeing opportunities to acquire trophy towers at a significantly discount to replacement cost. We believe this presents a very compelling opportunity for those with the ability to both acquire the right asset and to successfully reposition them.
To put the economics in simple terms if you buy trophy asset at 50% of replacement cost not only do you have an attractive basis relative to the bulk of the existing competition rental rates effectively would need double before new development becomes viable. This inherent cost advantage provides a very attractive risk reward profile for the qualified buyer.
However, I should point out while these the opportunities are out there they are almost never sitting on a tee. Sourcing and ultimately executing these opportunities takes a significant amount of creativity, market knowledge and operational expertise.
Our two most recent acquisitions provide good examples of these dynamics with 2100 Ross we used a B note to ultimately gain control. And with Post Oak Central we correlate the terminals re-capitalization into a compelling off market transaction with JPMorgan Asset Management.
Another key dynamic of the low barrier suburban markets, and one that we feel is often overlooked among the investment community is the dichotomy between suburb and commodity office buildings and urban in-fill office towers. The suburban commodity product can be duplicated usually in about a 12 to 18-month period at a relatively low cost around $200 per square foot.
Specialized in-fill tower takes a minimum of three years to execute and typically cost approximately $350 towers to build, far above what current lease economics are in most of our markets. The overall risk profile of a well located trophy tower is therefore far different from that the suburban commodity counterparts.
In short we are very optimistic about the prospects for well located and inbuilt towers in the strong markets they can be acquired at significant discounts to replacement cost. As I’ve mentioned we have managed a couple of these over the past six months and we certainly have our focus on several more for 2013.
On that note 2013 is off to an exciting start with our announcement of the Post Oak Terminus transaction which includes the acquisition of Post Oak Central in Houston from JPMorgan Asset Management and a 50:50 venture with JPMorgan Asset Management for Terminus 100 and Terminus 200 in Atlanta. As I’ve mentioned earlier off market transactions like these aren’t just sitting on tees for us to purse.
Sourcing and ultimately executing these opportunities takes a significant amount of creativity, market knowledge and operational expertise. In this case when the opportunity to recapitalize Terminus 200 arose we proactively and directly reached out to JP Morgan Asset Management to gain their interest and structuring a large transaction.
We knew they had the targeting trophy office assets in Buckhead and equally important we knew they owned an asset at Houston that we liked. Our team saw the genesis of a win-win transaction and immediately pursued it.
This is another excellent example of creativity and deep market knowledge working to our advantage. To expand a bit on the transaction we acquired Post Oak Central a 1.3 million square foot office complex in a great location in the Gallaria sub market for a purchase price of $232.6 million or $182 a square foot and approximately 45% below our estimate of replacement cost.
The project is 92% leased with an average remaining lease term of over five years. A two acre develop parcel one of the last remaining sites with frontage on Post Oak Central was included in the deal as well.
While we have no immediate plans for the site there are no zoning restrictions and we believe it could support a variety of uses including retail, multi-family or additional office. The ownership change at Terminus announced an overall reduction in Cousins ownerships of the two assets from 65% to 50%.
We effectively increased our Terminus 200 stay at a value of $290 per square foot by reducing our Terminus 100 stay at a value of $320 per square foot. We are excited to maintain a substantial ownership in what we view as two of the best office buildings in the Southeast.
We’ve had some questions related to pricing and comps for the Terminus transaction, so I will give a bit more color. We feel the pricing at Terminus 100 of $320 a square foot adjusting for a few assets specific new offices compares favorably to the recent high watermark in Buckhead the $340 to $350 a foot.
First if you exclude the 70,000 square feet of retail the office specific valuation increases to $327 a foot. Second, the average remaining lease term is approximately five years.
And third the $136 million mortgage on Terminus 100 is significantly above market with a rate of 5.25% in 10 years of remaining term. At Terminus 200 we built the pricing at a gross valuation of $290 a foot was a very attractive investment.
Through Alliance Center the most relevant comps sold for gross valuation of $310 a square foot last year. The two buildings deliver within a few months of each other and have very similar rates and are both comparable overall quality.
Moving on while our focus today is primarily on acquiring existing towers we continue to source attractive development opportunities. In Austin Texas one of the key markets where office lease economics do support new development we are making progress at 3rd & Colorado, our proposed $130 million office tower in Downtown Austin.
Our track record of having delivered Frost Bank Tower which is the most recent invest office tower in Downtown Austin provides a high degree of credibility with potential customers and our development team has created a very exciting new product at the best location in downtown Austin. The pipeline of prospects is strong and tenant feedback has been outstanding.
We’re almost 20% committed at this point and with a couple of more leases we hope to be in a position to commence construction down midyear. At Emory Point the retail space is now 90% committed.
With only three basic spaces remaining, the majority of the tenants are now open for business including CBS, Joseph Bank, Marlow’s Tavern and Bonefish Grill. On the apartment side leasing activity slowed a little bit during the holidays similar to what all multifamily owners experience at that time of the year but we remain well ahead of plan and pro forma with a 156 units leased.
The $60 million Phase II comprising 240 additional apartments and 40,000 square feet of retail is still progressing towards a summer commencement. Mahan Village our Publix-anchored development in Tallahassee, Florida finished the year at 88% lease and over 90% committed.
Our $100 million mix use development in the University of North Carolina, now known as 123 Franklin got unanimous non zero zoning approval just this week and it remains on track for an early 2014 start. I want to point out again that Emory, Mahan Village and 123 Franklin were non-marketed opportunities which we were yet again but result which were yet again the results of deep relationships and our proven expertise.
I’d like to talk touch quickly on our target markets, particularly Texas, Georgia and North Carolina where our brand relationships and market expertise provided best meaningful advantage. These markets not only lay fame to a lot of history, they possess some of the most encouraging demographic and economic growth dynamics in the nation.
To cite a few data points Texas, Georgia and North Carolina are projected among the top four states for population growth through 2020 according to Moody’s. Atlanta, Dallas and Houston ranked in the top four cities in the country in terms of lowest cost to do business, best places for business and careers and a number of Fortune 500 headquarters.
PPR’s projected growth rate through 2017 in these markets together with Austin, Charlotte and Riley exceeds the projected national rate by more than 50%. These projected tailwinds while not critical to the execution of our strategy would certainly be a welcome companion in the upcoming months and years.
In summary it was a very good fourth quarter and year. The team is making considerable process towards the strategic vision we presented to you one year ago simple platform, trophy assets and opportunistic investments.
We’re very excited about the prospect that lay ahead. With that I’ll pass it on to Gregg for additional overview of the financials.
Gregg Adzema
Thanks Larry. Good morning everyone.
Overall we had solid fourth quarter. FFO was $0.14 per share, $0.15 per share excluding $1 million severance charge.
As a quick reminder we completed a strategic reorganization in 2012. This move was a direct result of the simplification process Larry just discussed.
We anticipate this reorganization to reduce our G&A run rate in 2013 and beyond without compromising our ability to complete compelling investments and leasing opportunity. I’ll provide more details on these savings later in the call.
With that let me start with an update on the embedded NOI associated with the four key assets Larry mentioned earlier. If you recall back in the summer ‘12 we identified three large office assets in our portfolio that had significant upside potential due to existing vacancy, 191 Peachtree, Promenade and the American Cancer Society Center.
Upon the purchase of 2100 Ross our value add acquisition in Dallas during the third quarter of 2012 we expended this list to four assets, what we like to call the big four. We estimated that bring these assets to 95% occupied would generate approximately $13 million in embedded NOI.
As of 20/31/12 we had signed 174,000 square feet of net new leases at these assets since the beginning of the measurement period representing about $4 million of the annualized embedded NOI with about 2 million of that actually captured in our fourth quarter numbers. This data is as of yearend 2012 it does not include the two large leases we’re already tide up with the big four assets in early 2013.
37,000 square feet at Promenade and 88,000 square at 2100 Ross. It’s also important to remember the embedded NOI growth from our two new development that are in lease up, Emory Point here in Atlanta and Mahan Village in Tallahassee.
The NOI from these two assets still within anywhere near stabilized but it is growing steadily moving up from $46,000 in the third quarter to $400,000 in the fourth quarter. The balance sheet remained solid.
Debt to gross asset 35%, our interest coverage is 3.5 times, fixed charge coverage is over 2 and debt to EBITDA is just over 6. As Larry said earlier we had $277 million in asset sales during the fourth quarter.
After deducting minority interest this generated about $265 million in proceeds. This cash was used to match funds the 2100 Ross acquisition in the third quarter for $59 million and the Post Oak Central Terminus transaction that closed last week for $206 million after we closed an pending mortgage of T 200 that I’ll discuss in a moment.
Lo and behold these two transactions sum up the $265 million combined net cash investment a perfect match with our sources. Looking forward, we’ve identified several additional non-core assets for potential disposition in 2013.
Starting with the avenue Murfreesboro a retail lifestyle center in Nashville and Tiffany Springs Market Center a retail power center in Kansas City. Before ramping up the discussion on our balance sheet, I want to update you on two piece of debt we’re pursuing.
First, we sign an application and we’ve locked rates on a new $82 million mortgage on Terminus 200 as part of the larger Post Oak Central Terminus transaction. It has a 10 year maturity and 3.79% coupon with three years of IO.
We should close this alone in the next couple of weeks. Second we are in the process of re-financing our Emory Midtown Hospital medical office tower, Emory Healthcare which leases 48% of this building just recently agreed to extend much of the release out to 2032.
It’s a terrific outcome and it’s a clear side of commitment to our building. We expect to sign an application and lock rate on a new mortgage for this asset in the next few weeks and closing should be in the second quarter.
Finally for providing 2013 guidance I wanted to highlight the progress we made with our land portfolio in 2012. We started the year with a $113 million land on our books, $49 million of which was residential land.
We ended the year with $59 million in land, $21 million which is residential. It’s almost 60% reduction.
We sold all of this land in 2012 at or above our carrying cost and residential land now comprises only 1.2% of our total gross assets. With that, let me provide you introductory guidance for 2013.
Before I start, I’d like to remind everyone that we only provide data for specific property assets where historical performance may not exist or may not be a good guy post for future performance. We also provide guidance on fee income as well as our G&A expenses.
So let’s start with the big four office properties. At 191 Peachtree we expect to generate approximately $3.7 million in first quarter NOI increasingly gradually throughout the year as we sign new leases in tenants take occupancy.
At Promenade, the starting point will be about $2.3 million in quarterly NOI are getting increasing as leasing progresses. At 2100 Ross, we’ll start the year at about $1.1 million in quarterly NOI and move up from there and that the American Cancer Society Center we’re been conservative and assuming the current quarterly NOI run rate of approximately $2.7 million to $2.8 million remains flat in 2013.
We’ll update you on four of these important assets as our leasing progresses. Post Oak Central consistent with the 7.5% going in cap rate we announced last week will generate an average quarterly run rate of $4.25 to $4.5 million in NOI during 2013.
First quarter will obviously be a bit lower to account for our February closing. Adjusting Terminus 100 and 200 for the new ownership levels, Terminus 100 will generate approximately $1.9 million to $2 million NOI per quarter and Terminus 200 will be approximately 900,000 to 1 million per quarter.
As with Post Oak Central, these should be adjusted program for the first quarter transaction. Points at Waterview we will have quarterly run rate 2013 of 400 to $500,000 and North Point Center East will have quarterly run rate of 1.4 to $1.5 million in 2013.
That’s all the property guidance we are providing at this time again other than the specific instances historical performance is a good guide for us for future cash flows. Regarding G&A we expect that 2013 net number to be between 20 and $22 million.
This is down by about 10% from 2012. As for fee income, we expect the number between $8 million to $9 million in 2013.
These numbers are slight decrease from ‘12 driven by the loss of leasing and management fees associated with the sale of unconsolidated assets. With that’s summary, let me turn the call back over to the operator for your questions.
Operator
(Operator Instructions). Our first question comes from the line of John Guinee with Stifel.
Please proceed.
John Guinee – Stifel
Great, well guys nice job you’ve been busy. Couple of minor questions Greg we thought you were paying off the preferreds sooner than later can you talk about that and then two Larry could you talk a little bit about Charolltte and how you are thinking about Charolette and what’s your thoughts are on gateway that were?
Gregg Adzema
Good morning, John. Concerning the preferreds, we got two series of preferred outstanding our Series A is about $75 million there is a seven and three quarters coupon.
And a Series B is a $100 million that’s a 7.5 coupon. Both series are beyond the five-year lockup period so they are available for prepayment at any time.
John it’s a perfectly good use of capital for us, if we don’t find more attractive investment opportunities. And to date we have found more attractive investment opportunities, Postal Central being the latest.
It will remain a potential source of capital but again it will be measured against other alternative investments. So it’s out there but nothing is imminent.
Larry Gellerstedt
And John, on Gateway Village let me start with Charlotte overall. We’ve certainly have been continuing to drive Charlotte and are optimistic about where Charlotte is, it clearly when you look at their the numbers there the banking situations seems to have stabilized and Wells Fargo is even upping its employee commitment, we’re certainly timing a great source of well qualified talent in Charlotte so we are positive about where Charlotte was, is particularly relative to where it was a couple of years ago.
Gateway Village as you know it’s a little bit complicated I think it’s probably the last thing on our company assets that is still relatively complicated to understand but you know with that is 100% leads to BoA and the mortgage on that building is guaranteed by BoA and fully amortized as long as the term of the lease and BoA lease got to 2016 and we’re basically receiving about 11.5 preferred return on our initial investment which was 10 million and then if they wanted to buy out our ownership then there is a 17% ROR on our initial investment. So if we look at that asset as 2016 approaches it’s really primarily going to be driven on what BoA’s intend is, as you know they’ve been selling real estate overall, they have not indicated their position on Gateway Village as our partner in terms of what they want to do and how they want to proceed with that asset but we got to change this.
We’re meeting with them on Friday, just one of our regular meetings and talk about the asset and obviously we develop the asset and like it. So we’ll keep looking at it but BoA will sort to make that decision as to what the next step might be.
John Guinee – Stifel
It appears to us that BoA is or they are about 4 million square feet in that market they also occupy about 4 million square feet, but do you have sense whether they are going to continue to have a employee commitment to that location or are they going to be downsizing? And then second is how efficiently are they using Gateway Village right now?
Larry Gellerstedt
We don’t have a feel about that, I will tell you the employee base the place is fully utilized and they really have for lack of a better term what we would call their mission critical stuff at Gateway Village and so it’s a significant amount of their key infrastructure and support for the whole platform is headquartered out of that building. But clearly as their space needs to change to move around in Charlotte.
We’re just not sure how they would look at building. I think that they certainly don’t want to keep a presence in that building just given the nature of the spaces there which is expensive in hi-tech fair amount of it is expensive in hi-tech space whether than they want to cut back their percentages on, we don’t know whether they want to sell the building, have us buy at or extend the partnership, we’re probably start to see that with more clarity over the balance of this year.
John Guinee – Stifel
Great. Thank you very much.
Larry Gellerstedt
Thanks, John.
Operator
The next question comes from the line of Jamie Feldman with Bank of America Merrill Lynch. Please proceed.
Jamie Feldman – Bank of America Merrill Lynch
Great, thanks. I was hoping you could talk a little bit more about Houston and your plans for expansion there and just, just what the platform will look like for you guys and personnel needs?
Gregg Adzema
Sure, Jamie. As you know we’ve been looking at Houston in a pretty intense way for the last couple of years.
The results that we’ve been very disciplined and looking at, and had found the fully marketed transactions that were going on at Houston, we just couldn’t ever get to the winning position and as we really look to yield versus risk and what we were good at. And but we concentrate that almost exclusively on the gallery of submarket is where we want to in and the gallery has just got some extraordinary compelling components to it, it’s a very much of a preferred submarket.
There is a lot of continued development going on particularly in the retail and multi-family area, a fair amount of that right next to post of central. There are actually two, it’s an $18 million square foot submarket and their two buildings under construction new office building right now, also the first office building build in the submarket since 1984 and they totaled 600,000 on a 18 million and one of them is which is next to Post Oak Central about 80%.
Leased at this point and they really at most only about three potential office development sites left in the core of the submarket. So being able to come on and buy an asset in a off markets that has the, pricing and the yield going in there, we’ve been able to do we really see this not just the perfect launching pad for, for Houston and our efforts there.
The 2.5 acre site on Post Oak Central there is very huge sites left on Post Oak Central and so that place our development skills. And then we think there is re-development opportunity down the road on Post Oak Central.
The largest tenant at Post Oak Central is Apache for about 470,000 feet and they had, they have bought a site next door and has indicated that to the market that they may get, they can build a new tower in 2018 which certainly gives us a lot of time to work with them as well as, as we look at that and in fact all that enter underwriting and we, we actually saw that as a real potential positive for some other re-development stuff which we do. So we, to answer your question we think Post Oak is a great entry point we will, we will start the project with a third-party management and leasing since its relatively little leasing to be done right out of the gate but we certainly don’t expect this to be our only acquisition in Houston.
We’ll continue to be focused on the Galleria market, the downtown market and to a lesser degree the West Chase market. And, the objective will be to get another asset and then get a market leader in there are internalized management but that’s another thing that we discount very compelling about Post Oak is the redevelopment opportunity the value creation opportunity is something that’s far enough down the road that we can use it just as a base to build our business off of.
Jamie Feldman – Bank of America Merrill Lynch
Okay, and then I guess just a bigger picture on acquisitions, I mean Houston has been a pretty hot market for development and acquisitions, what, where would you say is the best opportunity for you guys right now, is it existing market picking deeper or is it trying to find something in new market? And then similarly I mean kind of with Cousins essentially you guys have always done a good job of selling some of these assets or stabilize assets then buying separate lease up.
What’s less than a portfolio that you could even offer to a transaction like you just did with JPMorgan on the sales side?
Larry Gellerstedt
Well, we’re traders by nature, so we obviously those signs evolve as opportunities arise but we clearly as Gregg said in the call, we’re get ready to, continue to sell two retail assets, we got couple of office assets that we still consider to be non-core, we got a couple over in Birmingham that which are great assets and well leased but at some point we’ll probably move on with using those as a source of recycled capital. And in terms of the markets, you’re right, you just have to go to market-by-market and that’s why our small sized although in some ways people point out the disadvantages rather the advantage when if we can just be a sharpshooter and we don’t have to just backup the truck for marketed transactions just to get scale.
So even though Houston is a hot market, we were able to do an off-market deal like Post Oak. We’ve got some other targets in Dallas, Houston, Austin as well.
And for a compelling enough transaction Atlantis looking more positive and we wouldn’t turn down doing something in Atlanta or Charlotte. So, we were not feeling opportunity constrained at this point, but if we did we certainly are comfortable branching out a little bit in the same Southeastern footprint, but we really want to try to do some additive acquisitions in some of the cities that we have one asset and to really address your first question so that we can build out a little bit of our company talent that are local.
Jamie Feldman – Bank of America Merrill Lynch
Okay, great. Thank you.
Larry Gellerstedt
Thanks, Jamie.
Operator
The next question comes from the line of Michael Knott from Green Street Advisors. Please proceed.
John Lizani – Green Street Advisors
Hey guys. John Lizani here.
Just following up on the Houston and Texas question, how large do you see and how large would you like your Texas concentration there ultimately be?
Gregg Adzema
Well, that’s going be opportunity driven just because we’re, that’s the way we think. But we would, we would like overtime to work the Atlanta concentration down closer to that 40% mark and we would see Texas been potentially equal size component to Atlanta and North Carolina may be 20% but that’s theoretical discussion we have to be driven by the economics and the opportunity of those, but that would be sort of an ideal plan if we get through but that’s a two or three year plan to get there.
John Lizani – Green Street Advisors
Okay and you mentioned in couple plan retail sales and the Birmingham non-core office so I guess as far as financing future strong growth do you plan to expand the capital recycling program or do you see yourselves tapping the debt market equity market or some combination?
Larry Gellerstedt
Well, I think the obviously as we’ve done our cash planning and we look at our development and acquisition opportunities very carefully capital recycling has been and continues to be you know a important part driving that move. Gregg mentioned in the call we obviously are where we can taken advantage of the debt markets.
We are putting very attractive long-term debt on assets that are stabilized and on our development work we are using construction loans on those to help underwrite our cash commitments balanced on those. But so with that our assets sales and obviously our capital markets and alternatives as we balance to look at acquisitions and where we are on cash basis that something we don’t have immediate plans but we look at it, that’s an alternative.
John Lizani – Green Street Advisors
All right, great, thanks guys.
Larry Gellerstedt
Thank you.
Operator
(Operator Instructions). The next question comes from the line of Young Courier with Wells Fargo.
Please proceed.
Young Courier – Wells Fargo
Yeah, great, thank you. I just want to go back to your non-core assets sale in 2013, I know you guys previously talked about selling North Point assets, just wondering how that’s coming along and whether you are expecting to sell those in 2013?
Larry Gellerstedt
We certainly have not as we’ve indicated before we certainly have not made any decision to sell North Point assets, those assets actually are staying very well leased and we’ve had some vacancy actually by moving a customer to Terminus 200 that we have largely back filled, so I am not sure where we have might have indicated that they were on the list but they are not on the list. At this time we actually have a couple of opportunities there with additional development sites that we wanted to do expand at North Point.
So at this point we like where we are at North Point and like the economics of what we are able to drive with our customers.
Young Courier – Wells Fargo
Okay got it. In terms of Murfreesboro and Tiffany Springs what kind of proceeds are you expecting?
Larry Gellerstedt
Well, you know we haven’t engaged a broker we haven’t taken it up to market so it’s hard for me to tell you, you know exactly what the proceeds we are going to get. But we own half of Murfreesboro so we will get half of the proceeds from that.
It has a $92 million mortgage attaches to it so they aren’t a lot of cash proceeds that will pick out of Murfreesboro. Tiffany Springs is owned enough predental joint venture we own 88.5% of the Tiffany Springs of that joint venture.
Tiffany Springs is unencumbered and so the proceeds from Tiffany Springs will come, 88.5% of those will come directly to us. So cash proceeds of Tiffany Springs although it’s a much smaller assets almost half the size of Murfreesboro the cash proceeds we’ll get will be much larger.
Young Courier – Wells Fargo
Okay, fair enough. And just going back to Houston a little bit the Post Oak Central asset it’s seems like it’s 45% discount replacement certainly attractive just wondering how JPMorgan came to agreeing to sell the asset I know they were trying to get into (inaudible) but, given the pricing, it must have been tough for them to let it go so I am just wondering how you guys got interest out of the asset?
Gregg Adzema
Well, I think I mean listen JPMorgan, they are very capable and we’re thrilled to have them as a partner. So I think their underwriting was very much arms length between the Houston transaction and the Atlanta transaction and I wouldn’t want to put myself in a position of committing on how they might have looked at it.
I think one other things you have to you do have to keep in mind as you, as you look a comps and we, we’re very pleased with where we are on a comp basis, but this building does have, these buildings do have the below market rates through the market which is an opportunity for us but would be reflected even if they gone through a marketed process on this. And so, I would never want to indicate on a call that we felt that we are great to JPMorgan because we think this is win-win for both parties.
Young Courier – Wells Fargo
Okay. I mean this is somewhat related but how would you compare the IRR potential from purchasing Post Oak versus if you would to hold on to 200 to 100?
Larry Gellerstedt
Can you ask that question again so we make sure we understand it?
Young Courier – Wells Fargo
Yeah, so I mean I’m just trying to compare what you guys undergo in terms of IR potential from purchasing Post Oak Central versus if you were to, if you had hold on to T 100 and T 200?
Larry Gellerstedt
Well, on an unlevered IRR basis which I think is what you’re asking, clearly, Terminus, Terminus Complex has substantially stabilized whereas the Post Oak Central as Larry said has a big lease maturity in 2018. And so, they were under an- below market rent.
And so they were underwritten appropriately. There’s little more risk to that cash flow Post Oak Central than it would be stabilized Terminus assets and you would expect a little higher IRR because of that.
Young Courier – Wells Fargo
Okay, do you expect to increase occupancy above current 92% and, how much higher do you think you can get there?
Larry Gellerstedt
Do we expect to increase occupancy, absolutely and normally you look at these buildings and you saying you’re stabilized it 90 but that doesn’t mean we don’t want to get it to between 95 and 100, one of our, I am optimistic and the next few quarters you’ll see the building move up from 92.
Gregg Adzema
We’re already getting, building potentially stabilized in Houston and we’re ready getting strong interest from potential tenants. So it feels like we can take it higher.
Larry Gellerstedt
Yeah.
Young Courier – Wells Fargo
Got it. Great, thank you.
Operator
Your next question comes from the line of Dave Rodgers, Robert W Baird. Please proceed.
Dave Rodgers – Robert W Baird
Hey good morning guys. A follow-up to the retail sales update that you provided earlier and thank you for the color on kind of what you expecting to sell.
I thought if my memory served there was more that perhaps matured in terms of JV exposure mid this year, can you correct me, if I am wrong on that and if I am right, can you talk about where you might be in the marketing process with some of the larger portfolio components there?
Larry Gellerstedt
Thanks David and good question. And you’re right we’ve got a fair number of retail assets that are in joint ventures with Prudential.
These were two separate ventures that were set-up they were mixing bowl pipe structures and we’re the Prudential ownership is 88% and we’re about 11%, 12%, so the larger of those two the tax lock-up burns off this summer and so as we look at those the joint ventures are set-up so that Prudential has the opportunity should we want to sell, Prudential has the opportunity to buy our interest out or they can look at another way of existing that ventures. So we’ve been discussions with Prudential about what their view would be in terms of their assets of those joint ventures as to whether they want to be long-term owners or how that venture may work.
And we think that Prudential’s been a great partner with Cousins for year and years and years on numerous transaction and we would expect this summer that you would see some type of resolution to those mixing bowl ventures and when you work through the way those things work there would be it would be not a huge amount of cash coming to Cousins as we would possibly sell our 11% interest to Prudential.
Dave Rodgers – Robert W Baird
And would there be any related G&A savings or overhead savings by cleaning that a little bit or not really?
Larry Gellerstedt
It would be, it would be.
Dave Rodgers – Robert W Baird
And I guess maybe going back to something that we discussed on the last call the Austin development and any updates on the marketing there, any potential interest in what’s been active in and around Austin related to that project?
Larry Gellerstedt
Well I was out there two weeks ago and we’re as I said in my remarks, we’re just under 20% committed at this point which is, which is fantastic and but it’s a, that downtown market’s is advanced to any market and that we’re offering a brand new building in a fantastic location at or below rents some of the existing class VIII buildings in downtown we’re certainly used to when we build towers, prospective tenants haven’t to pay a little much more in rent than they are paying. And so I think the combination of our track record, the building and the location it’s a very compelling thing just to give you a data point if you wanted 50,000 feet in downtown Austin today it doesn’t exist and so it remains a very tight market and we just want to make sure that we have gotten enough pre-leasing done that it’s a prudent risk on a go forward basis and we’re optimistic that we’ll be able to do that.
Dave Rodgers – Robert W Baird
Great, thank you.
Larry Gellerstedt
Thanks.
Operator
We have another question from John Guinee with Stifel. Please proceed.
John Guinee – Stifel
Just lately something you wanted to off line but can walk through Gregg what would you think about as the fourth quarter total assets all active taking out all onetime items including gains on sale?
Gregg Adzema
No I am to talk about it. We reported, reported $0.14 a share.
Reported FFO, you add back a penny for severance you have $0.15 per share and we had about $4 million in gains on land during the quarter. So, you knock that down and you are $0.11 a share kind of core FFO run rate.
John Guinee – Stifel
Perfect. Thank you.
Operator
We have another question from Jamie Feldman with Bank of America Merrill Lynch. Please proceed.
Jamie Feldman – Bank of America Merrill Lynch
Just a follow up on Austin, what are you guys targeting as a projected yield and would you go in and would you be 100% or JV that asset?
Larry Gellerstedt
The way we structured the deal there is the landowner, the landowner will be our partner and they have the right to go up to 35% of the ownership structure. They don’t have the obligation to do up that high.
So, at the time that we decide to go, we could have a partner up to 35% and in that case it would be the land partner and they took the land in and then any additional equity to get it to that level. Jamie, we’re since we’re competitive in the market right now with some other companies that have a fair amount of ownership in downtime Austin I don’t want to get too deep on our economics but you would we’ve always said you could expect us to underwrite at least to 200 basis point spread between what we think would be a conservative exit cap and what our development yield would be and we certainly expect to stay very disciplined in that approach and I think you can conservatively say that we would certainly be looking at its something 8.5 or higher going in a minimum.
Jamie Feldman – Bank of America Merrill Lynch
Okay. And then, just a big picture leasing question, I mean Atlanta has had a pretty good run rate in the last several quarters.
It sounds like more of the activities been more to the northern sub-markets and Buckhead. Can you just talk about what you are seeing Downtown and since the beginning of the year kind of what’s changed in terms of tenant sentiment and activity?
Larry Gellerstedt
Jamie I think the market overall at Atlanta obviously didn’t have a good year last year and I think a fair amount of the activity did occur in the northern part of the city. And some of it like State Farm who has taken a lot of space, a lot of their substantial vacancy out there and the cost of that space which is very compelling for them and other corporations to take up.
The urban markets have typically been driven more with the services type providers, the accountants, the lawyers, the private wealth management folks and those and so obviously growth anywhere in the city sort of helps the typical profile of your, more of your urban typical tenant and Buckhead certainly has benefited from that. Most of the local prognosticators think that the Midtown will a real beneficiary over the next couple of years.
And Downtown, there is a lot going on in Downtown, but Downtown is still a harder sub-market to attract new tenants to. Once you tend to get in Downtown as you get tenant movement, better Downtown tenants move into building like 191 because of the value proposition and we have had some success recruiting businesses to 191 but it’s still a challenge.
Jamie Feldman – Bank of America Merrill Lynch
Okay, great. Thank you.
Operator
And Mr. Gellerstedt, there are no further questions at this time.
I will now turn the call back to you. Please continue with your presentation or closing remarks.
Larry Gellerstedt
Well we appreciate everybody being on the call today. It’s been a really fun and exciting 2012 and we’re very excited about 2013.
We look forward to talking to you and it’s always if you got any questions at any time, don’t hesitate to call Gregg or IR Cameron, we will be thrilled to talk to you. Thank you very much.
Operator
Ladies and gentlemen that concludes the conference call for today. We thank you for your participation and ask that you please disconnect.