Jul 30, 2013
Executives
Tripp Sullivan - Corporate Communications Larry Gellerstedt - President and Chief Executive Officer Gregg Adzema - Chief Financial Officer Colin Connolly - Chief Investment Officer
Analysts
Brendan Maiorana - Wells Fargo Dave Rodgers - Baird Erin Aslakson - Stifel John Bejjani - Green Street Advisors
Operator
Good day, and welcome to the Cousins Properties’ Second Quarter Conference Call. Today’s call is being recorded.
At this time for opening remarks and introductions, I would like to turn the call over to Tripp Sullivan of Corporate Communications. Please go ahead sir.
Tripp Sullivan - Corporate Communications
Thank you. 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 the expectations regarding leasing activity, development, acquisition, financing and disposition opportunities. The company will also provide information about the Texas acquisition, including matters related to the confirmation of the acquisition, the financing of the acquisition, and the effects of acquisition, including its impact on accretion and leverage.
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, 2012 and its current report on Form 8-K filed on July 29, 2013 for additional information regarding certain risks 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 it over to Larry Gellerstedt.
Larry Gellerstedt - President and Chief Executive Officer
Good morning everyone. I am here with Gregg Adzema, our Chief Financial Officer and Colin Connolly, our Chief Investment Officer.
Thank you for joining us on such short notice. We have a lot of exciting things to discuss today and we look forward to getting everyone up its feet on all fronts.
As I am sure you will understand we are under fairly tight time constraints today and I will ask during the Q&A that people limit their questions to one question and one follow-up, so that we can try to get to everybody and maintain our schedule. It was another solid quarter highlighted by the 816 acquisition and the commencement of Colorado Tower in Austin.
We were also pleased with our leasing progress, particularly at Promenade and 2100 Ross. Our portfolio which finished the quarter at 90% occupied up from 87% one year ago continues to benefit from a sustained run of positive leasing momentum.
Our same property net operating income, which increased 5.5% over the prior year in the office portfolio, is perhaps the best reflection of this progress. I will briefly provide some additional color on leasing and investment activity as well as our dispositions in the process.
I will then finish with an overview of the strategy, and while the Texas Office Portfolio transaction presents such a compelling opportunity for Cousins. Leasing activity in our Texas portfolio, our current Texas portfolio remains strong across the board, while overall activity in deal terms continued to improve in Atlanta.
Buckhead and North Point in Atlanta have been particularly vibrant year-to-date with Midtown not too far behind. Downtown, where activity is generally sluggish, remains the one exception.
To give some additional context on why we are focused on Texas? I would like to give some additional context on why we are focused on Texas.
First, we have had a very successful platform in Austin and Dallas for nearly 20 years. So, we know the markets well.
Perhaps even more important are the unraveled economic and demographic tailwinds there. One data point that probably best illustrates the momentum, it sets the beginning of 2009, 43% of the net job gains in the U.S.
have come from Texas, which is pretty remarkable considering the state has less than 7% of the overall U.S. population.
There are no signs that this momentum will slow anytime soon with PPR projecting annual job growth of approximately 3% for Austin, Houston, and Dallas through 2017 compared to the projected national average of 1.9%. Let’s go back to our leasing progress.
At Promenade, the team executed five leases in the second quarter generating 114,000 square feet of incremental leasing activity. The building is now 87% leased, up from 58% at the time of the purchase in late 2011.
At 2100 Ross and Dallas we have signed leases totaling more than 210,000 square feet since acquiring tower less than a year ago. It’s now 82% leased, up from 67% at the time of the purchase.
Our mission isn’t complete, but we certainly like the early results that we have at both of these assets. As I mentioned activity is generally encouraging across the portfolio just lastly last week we signed the tenant for the entire 51,000 square feet at our Westside Parkway building formerly known as Inhabitant.
With the building now 100% leased, we are taking it to market and expect to have it sold by year end. At ACSC and 191 Peachtree our two Downtown Atlanta assets new leasing activity is a bit slower than the rest of the portfolio, but we remain encouraged about the prospects over the next 12 to 18 months.
Moving on to investment as we discussed on our last earnings call, we closed another value add acquisition in the second quarter with the purchase of 816 Congress Avenue in Austin, Texas. We paid $101 million, approximately 30% below replacement cost for this 434,000 square foot Class A-tower located in the heart of the CBD, just a couple of blocks from the Texas Capital building.
Partly due to unstable sponsorship, the building lost some key tenants in recent years and its currently just 75% leased. The CBD sub-market is 90% leased with strong momentum, so we’ll have the benefit of a rising tide as we work to stabilize the building.
We are just getting going on this asset, but we feel very good about our prospects. On the development front, the groundbreaking Colorado Tower, our 371,000 square foot Class-A office development in Downtown Austin was a great success.
And as expected the pipeline of prospects has increased a good bit since the formal announcement, and we expect to have some good news to share on the leasing front in the upcoming months. This will be the first high-rise tower built in Austin since we developed Frost Bank Tower in 2003.
Emory Point continues to exceed expectations on both the retail and apartment components of the project. Gregg will provide some details on our progress in his remarks.
Phase II which is expected to comprise 315 additional apartment units and 40,000 square feet of retail is on track for an early fall commencement. Regarding dispositions, the Avenue Murfreesboro and Tiffany Springs are proceeding on schedule and we hope to have both deals closed by the end of the third quarter.
We are also in process of negotiating terms for our two retail joint ventures with Prudential and expect to be in a position to fully exit by the end of the quarter as well. Before moving to the Texas portfolio acquisition, I am going to provide a quick remainder of our strategic plan and where we are in the execution process.
It’s the key part of understanding why this transaction is so compelling. At the beginning of 2012, we presented a straight forward vision for Cousins that concentrated on three things simple platform, trophy assets and opportunistic investments.
The implementation of this vision was intended to streamline our business model, tighten our focus where we are strongest and most importantly maximize our ability to generate attractive returns for our shareholders. I am pleased to report we made significant progress on all fronts.
Our portfolio is increasingly comprised of Class-A trophy assets that are well placed within high growth Sun Belt markets for our expertise and long-term relationships for comparative advantages. Further playing to our strengths, we are using this stable platform to seek additional returns through opportunistic investments.
Over the last two years we have executed four compelling acquisitions representing over 3.3 million square feet of trophy office space and more than $520 million in investment activity. We’ve also delivered two development projects Mahan Village in Emory Point and commenced a third Colorado Tower collectively representing over $220 million of total investments.
As we continue to execute this strategy we remain primarily focused on capturing NOI embedded within our portfolio executing our opportunistic investment opportunities and maintaining a strong balance sheet. We believe the first two items embedded NOI and new investments should drive significant future NAV growth.
The third objective ensures a stable base something we view as critical and generating strong long-term returns. Our planned acquisition of Crescent Texas Office Portfolio provides a very compelling and transformative next step in executing our strategic vision.
In summary, we have entered into a contract to acquire Greenway Plaza, a 10-building, 4.4 million-square-foot office portfolio in Houston, and 777 Main Street, a 980,000-square-foot Class A office tower in Fort Worth, Texas, for a total purchase price of approximately $1.1 billion in cash from a joint venture which has been operated by Crescent Properties. We expect to fund the transaction on a leverage neutral basis through proceeds from a common stock issuance, as well as the sale of non-core assets and mortgage financing.
The acquisition is anticipated to close by mid-September of this year. This transaction provides an outstanding fit on many levels, high-quality urban office assets, and very attractive Sunbelt markets.
A rare combination of an attractive in-place yield embedded NOI growth and future development potential. And not only do we expect this transaction to be accretive we are able to expand our Texas platform and provide substantial geographic diversification at a significant discount to replacement cost.
We also attain notable benefits of scale including a considerable improvement in our G&A expense ratios. This is an attractive opportunity on many levels, and we are very excited about what it means for Cousins in the continued execution of our strategy.
I am now going to hand it over to Gregg for an overview of the second quarter financials and some additional information on the pending acquisition. And then Colin Connolly, our Chief Investment Officer will then provide more detailed overview of Greenway Plaza and 777 Main Street.
Then, we will open it up for questions. Gregg.
Gregg Adzema - Chief Financial Officer
Thanks, Larry. Good morning everyone.
Overall, we had a solid and productive second quarter. From an earnings perspective, FFO was $0.12 per share, $0.14 per share after adjusting for the $2.7 million non-cash cost associated with the early redemption of our 7.75% Series A cumulative preferred stock that I spoke of in the last quarterly conference call.
Beyond earnings, I think the primary theme of the quarter can be wrapped up in three positive events. First, we achieved same property net operating income growth of 4.7% during the second quarter compared to the same period last year.
It was 5.6% on a cash basis. And the most encouraging part was that this growth was driven by our office portfolio, where the same property cash NOI growth was 6%.
Next, as Larry previously discussed, we acquired 816 Congress in the Austin, Texas CBD during the second quarter. Not only was this a strategic fit for us, we funded this acquisition predominantly with a common equity offering in April.
During this offering, we also raised additional capital to redeem our Series A preferred stock that I referred to earlier. In total, we raised a $165 million in new equity.
These transactions allowed us to both grow the company and improved the balance sheet at the same time. Finally, we commenced construction on Colorado Tower also in the Austin CBD during the second quarter.
After initially having the landowner as the potential partner, we were able to agree on a ground lease purchase option structure that allowed us to develop this asset as a 100% owner. This means we will develop this asset on balance sheet without third-party construction debt.
It’s a much simpler approach that provides us with all of the economics of the deal. With that, let me move on to providing an update on the embedded NOI associated with our big five assets.
As a quick reminder back in the summer of 2012, we identified three large assets in our portfolio that had significant upside potential due to existing vacancy. Those assets were 191 Peachtree, Promenade, and The American Cancer Society Center.
Upon the purchase of 2100 Ross during the third quarter of 2012, we expanded this list to four assets. And when we purchased 816 Congress during the second quarter of this year, we moved the number to current five.
We estimated that bringing these five assets to 90% occupancy would generate approximately $14.5 million in embedded NOI. As of June 30, we had signed net new leases representing about $9.3 million of this $14.5 million in total.
That $9.3 million is up 60% in the $5.8 million new lease as we reported just three months ago. The amount of revenues we are realizing on these leases remained around $2 million during the quarter reflecting some minor move-in to move-outs.
Bottom line, what this means is that we have executed leases in hand on $7.3 million in incremental NOI that is not yet running through our income statement. Looking forward, we will add 777 Main to this portfolio of assets with embedded NOI potential creating the big six.
We will provide specifics on the impact of this addition on our next quarterly conference call. And overall, we are clearly making progress with unlocking NOI in our value add portfolio, but the story is actually much bigger than that.
While we are consistently eating away at the embedded NOI within these assets, we have also consistently replenished with additional properties. We believe this provides opportunities for continued future earnings growth.
With that, I’d like to update our guidance for 2013. Before starting, I want to remind everyone that we only provide data for specific property assets, where historical performance may not exist or may not be a reasonable guidepost for future performance.
We also provide guidance on fee income as well as G&A expenses when necessary. At 2100 Ross and Dallas in order to accommodate our recently announced 90,000 square foot lease with Netherland, Sewell, we approach another tenant in the building who had some unused space and proposed an early termination.
We received a $1.9 million fee associated with this early termination in the second quarter. Until Netherland, Sewell moves in during the fall of ‘14, quarterly NOI at this property will decline as a result of this temporary vacancy.
The new number at 2100 Ross will range between 8,000 and 9,000 in quarterly NOI for the final two quarters of 2013. The only other property guidance I’d like to provide is at Emory Point, where our recently completed first phase continues replacement.
The retail component of the property, which represents about 20% of the total NOI is rapidly approaching stabilization at 82% leased and 80% occupied at quarter end. The apartments, the other component of the property enjoyed a very strong three months leasing 133 apartments during the second quarter and increasing the lease percentage from 45% to 75%.
Subsequent to quarter end, we have signed an additional 30 leases bringing the apartments to 82% lease. As the year progresses, the NOI will continue to increase, and by the fourth quarter, we expect between the $1.1 million and $1.2 million to combined quarterly NOI in Emory Point.
That’s all the guidance we are providing at this time. Again, other than these specific instances, historical performance of previous guidance is a reasonable guidepost for future cash flows.
So, moving on from the discussion of our second quarter financial highlights, I’d like to review our financing strategy for the Texas acquisition. Overall, our financing plan is straightforward, leverage neutral, and accretive to FFO.
Our current debt to total market capitalizations is approximately 30% and the financing plan we are pursing keeps it there. We will fund the acquisition with the combination of common equity, secured debt, and asset sales.
In an effort to make the financing plan as transparent as possible, I’d like to walk you through each significant assumption within the plan. Hopefully, this provides you with the data that you need, the term of the financial implications of the sources and uses we have identified.
First on the sources side of the ledger, we intend to raise approximately $700 million of new common equity through a follow-on offering. This assumes the exercise of the 15% over-lock.
The $735 number in the sources and uses schedule that was posted on our website assumes 69 million shares at last Friday’s closing share price of $10.65 per share. Next, we intend to obtain secured mortgage debt on two office assets in our existing portfolio, Promenade in Atlanta and Post Oak Central in Houston.
Both assets are stabilizing. Promenade is currently 87% leased, while Post Oak Central is currently 93% leased.
We have essentially completed our repositioning efforts at Promenade and are therefore pursuing longer term debt on this asset, somewhere between 9 to 12 years. At Post Oak Central, we anticipate some significant value creation opportunities just a few years out and are therefore pursuing shorter term debt on this asset, probably between 5 and 7 years.
We intend to raise approximately $270 million with these two financings. Third, we’ve identified approximately $240 million in non-core assets that we intend to sell.
Net of debt, we expect to raise approximately $190 million of proceeds from these sales. In total, if we achieved the $190 million in proceeds, we will have sold these assets at a 6.5% GAAP yield using second quarter 2013 annualized NOI.
The extent, we raised fewer proceeds than anticipated from these capital sources or the timing of these capital sources extends beyond closing. We have a fully committed $950 million term loan in place with $150 million accordion.
The rate on this loan is similar to certain fixed income secured credit facility currently at LIBOR plus 150 basis points. These capital sources will be used to fund the $1.1 billion purchase price of the portfolio as well as pay the fees associated with all the transactions involved in the acquisition.
We intend to match fund the acquisition as closely as reasonably possible to the extent we’ve raised excess capital it will be used for general corporate purposes but that was not our intent. The potential excess capital is reflected as cash on the sources needs are stable.
Finally, I would like to point out that we expect to absorb this portfolio with no required increase in our G&A expenses. By increasing our assets base by approximately 50% with no corresponding increase in G&A, we’ve reduced the ratio of our G&A expenses to un-depreciated assets from 1.13% to 0.77%.
This is a significant improvement and I believe places us more in line with peers in the office space. One last point, you may have seen our announcement yesterday regarding the launch of our post common equity offering.
As I am sure you understand since we are in the midst of the offering process, we cannot comment further on the potential offering during the Q&A portion of our call, but we are happy to address other questions you may have regarding the second quarter results or the Texas acquisition. With that let me turn the call over to Colin for a more detailed property and market level overview.
Colin Connolly - Chief Investment Officer
Thank you, Gregg and thank you all for participating in today’s call. Greenway Plaza consisted 10 office buildings and a small retail component and all into those 4.4 million square feet over 52 acres.
It is a very unique asset and that it’s effectively a standalone submarket centrally located between Houston’s other leading urban submarkets, which are the Central Business District to the East and the Galleria to the West. The property also benefits from its close proximity to River Oaks, which is one of Houston’s most affluent residential neighborhoods and home to many of the city’s corporate decision-makers.
Greenway Plaza was one of the Houston’s first mix use projects, and today it blends a cohesive campus-like feel with the market leading amenities and conveniences that tenants expect in an urban setting. The project is currently 92% leased to a high quality roster of large corporate users from primarily the energy sector as well as financial services firms and other leading real estate companies.
Occidental and Invesco both A rated by S&P anchored the portfolio and account for approximately 26% of the total rentable square footage. Both tenets have more than 10 years of remaining lease term with Occidental’s next expiration in 2026 and Invesco’s in 2023.
Across the entire Greenway portfolio there is approximately 6.4 years of weighted average lease term which offers a nice balance of stability and some near term opportunity to rollup in place rents which are approximately 90% fully marketed in our estimation. On a go forward basis, we believe that Greenway Plaza will continue to benefit from a loyal customer base that has a demonstrative legacy of organic growth.
As an example Occidental, Invesco and Transocean have all been tenants at Greenway since the 1980’s and collectively have grown by almost 1.4 million square feet over that time. Moving on to valuation we’ve allocated a purchase price of $950 million or $219 a square foot to Greenway Plaza which equates to 7.6% in place annual yield on a GAAP basis assuming only contractual rents.
Said differently, this yield does not include any new speckle of leasing. Based on contractual rents, again not including any speckle of leasing and assuming all year one lease expirations go dark the cash NOI yield is 6.3%.
I would view this as merely as starting point for your analysis as we see meaningful near term upside. As I mentioned previously, the existing occupied space has in-place rents that are approximately 19% below market with several of the largest tenants having contractual rent escalations to market in the not too distant future.
And lastly based on the current leasing pipeline and overall strength of the Houston market, we are confident that we can drive additional occupancy and further enhance NOI on both the cash and GAAP basis. Few more topics I would like to touch on with respect to Greenway Plaza, I think it’s important to point out that Greenway benefits from several sources of material other income, which include a long-term after-hours parking agreement with the adjacent Lakewood Church, chilled water services to an adjacent hotel and residential condominium, and ground leases with a bank and leading Houston restaurant.
Backing up the value of these revenue streams, the valuation of the office buildings is approximately $204 a square foot, which represents a substantial discount to replacement cost and we believe positions us well to compete aggressively in the leasing market. Lastly, I want to highlight some of the development and redevelopment potential at Greenway Plaza.
Our team has identified four development sites within the existing footprint that can accommodate approximately 2 million square feet over time. We did not have any specific plans relating to new development at this point and no value was ascribed, but our team is excited about the long-term possibilities for Cousins at Greenway Plaza.
Turning to 777 Main, this asset is a 980,000-square-foot Class A trophy office tower well located within the central business district at Fort Worth, Texas. The property is situated in close proximity to Sundance Square, which is a 35-block commercial, residential entertainment and retail district that has transformed the Forth Worth, CBD into a highly successful mixed use urban environment.
Sundance Square is home to the world-renowned vast performance hall over 500,000 square feet of retail space and an influx of urban residential properties. 777 is currently 91% leased with 5.1 years of weighted average lease term.
And like Greenway, the customer base primarily comprises energy-related users such as Frac Tech Services and XTO, the natural gas subsidiary of Exxon Mobil which together account for 19% in the property’s rentable area. Jacobs Engineering plans to downsize from 330,000 square feet to 67,000 square feet at their exploration in November 2013.
And after accounting for several Jacobs’ subtenants that have signed direct leases that will go into effect, we project the occupancy to fall to 72% by December 2013. The strong historical performance of both 777 Main Street and the overall Forth Worth, CBD in conjunction with our recent success in the Dallas/Forth Worth MSA gives us a lot of confidence in our ability to execute.
777 has averaged 96% occupancy over the last 10 years in Class A office space in the Fort Worth CBD as a whole has averaged 92% since 2004. I think it’s important to note that Jacobs’ decision to downsize was primarily driven by a corporate M&A event versus anything specific to the property, as Jacobs inherited this space as a part of their 2007 acquisition of Carter purchase.
Of the total purchase price, we allocated $160 million to 777, which equates to $162 a square foot and a 6.15% in-place yield on a GAAP basis assuming only contractual rents and excluding the remaining $419,000 of contractual rent associated with the Jacobs space and all other year one explorations. We made this exclusion relating to the Jacobs space in an effort to provide a clean, go-forward starting point.
On a cash basis, again assuming no speculative leasing at 72% occupancy, the NOI yield is approximately 4.6%. We obviously have a lot of confidence in our ability to execute new leasing and renewals that are greater than zero.
The asset and return profile of our investment in 777 is very similar to our recent successful acquisitions including Promenade and Atlanta, which was 58% leased at closing in November 2011 compared to 87% today. 2100 Ross in Dallas which was 67% leased at closing in August 2012 compared to 81% today and more recently 816 Congress which was 74% leased at closing in May 2013.
We see tremendous opportunity at 777 Main to significantly grow NOI through the lease up of vacant space in addition to rolling up in-place rents, which are approximately 15% below market in our estimation. To provide a little color on the economics of the lease up of vacant space close to our “Class-A office rents” in the Fort Worth’s CBD in the high $20 a square foot net of electric.
In conclusion, the strategy on 777 is spot on with our historical value-add strategy of purchasing trophy Class-A office towers in urban submarkets at a substantial discount to replacement cost. I would like to take a few moments now to step back and provide some color on the robust markets of Houston and Fort Worth.
Not only do we believe that we are buying excellent real-estate, we believe that Houston and Fort Worth are two the strongest real-estate markets in the country today. Both markets are huge beneficiaries of the U.S.
energy revolution, which has generated significant job growth. Houston has added 270,000 jobs since 2009 and PPR projects annual job growth of 2.9% through 2017, which compares to the projected national average of 1.9%.
Much of this job growth is centered around the oil and gas industry and a meaningful percentage of those jobs are well paying engineering jobs that utilized significant office space. So, with those strong economic tailwinds, it is no surprise that Houston’s office markets remains one of the healthiest in the country with occupancy approximately 90% and annual rent growth that has averaged 4.5% over the last four years.
Like Houston, the Dallas Fort Worth MSA has been a national leader in job growth. In fact, Dallas Fort Worth led the nation over the past year with a 3.9% job growth rate and PPR projects that this strong growth will continue with an average annual growth rate of 3.1% through 2017.
Fort Worth is often over shadowed on the national basis by its neighboring sister city of Dallas, but the economic climate in Fort Worth is equally the strong. Forth Worth literally sits on top of the Barnett shale, which is a major national gas reservoir.
Advancements in hydraulic fracking and horizontal drilling led the substantial development of the Barnett shale starting in 2001. These technological innovations have provided a significant economic stimulus to the area and created over 100,000 jobs.
In total, Fort Worth’s office employment has grown by 10.1% on a cumulative basis since 2008. Given the city’s strong economic fundamentals, Fort Worth’s 4.7 million square foot Class-A, CBD inventory has thrived and is currently greater than 90% leased.
While the Dallas/Fort Worth MSA is often characterized as the volatile low-barrier entry market, Fort Worth CBD has maintained occupancy over 90% since 2008 and has significantly outperformed the overall Dallas-Fort Worth MSA. At that point, I could turn it back over to Larry.
Larry Gellerstedt - President and Chief Executive Officer
Okay, so we will open it up for questions and we’ll let operator start. Let them come through.
Operator
Thank you. (Operator Instructions) And our first question comes from Brendan Maiorana of Wells Fargo.
Please go ahead sir.
Brendan Maiorana - Wells Fargo
Thanks, good morning. Colin, good enough to give some of the yields on a gap and cash basis, looking at Greenway Plaza I was just kind of interested in the outlook of how quickly you guys think you can sort of get your – or where you think you can get cash yields over the next few years because if I look at it looks like the occupancy is fairly high at 92% and I think you mentioned there are some large tenants that have some steps in rents, but it doesn’t look like there is a huge amount of role in the near-term.
So, where do you think you kind of get that cash yield over the next say, three years or so?
Colin Connolly
Hey, Brendon, it’s Colin and again appreciate your participation this morning. I don’t know that we can kind of get into the specifics of kind of what our projected yields are over the coming years.
I guess I’d try to provide a little bit of color and visibility to you as I mentioned there are several very significant tenants within the portfolio that you have contractual step-ups in their rent to market that will kick in over the next few years. So, you really don’t actually even need expirations to get a pretty meaningful pick up in yield but again there are also some near-term expirations one of the largest tenants, but we feel that those are below market and again if we got confidence in the strength of the Houston market and our ability to work for those existing tenants to move them up to markets as well.
And again the building is 92% leased as were seeing in Huston today and certainly with our Post Oak investment we do believe we’ve got the ability to drive occupancy further from where it is today.
Brendan Maiorana - Wells Fargo
Okay, that’s helpful. And then may be just a follow-up on that, can you provide a sense of again at Greenway are there any near-term or longer term costs that you think may need to go into that asset to bring it up to kind of the way that Cousins typically likes to run their assets?
Larry Gellerstedt
Sure. I think we were – we have tracked these Greenway assets for quite some time and as I think we actually got into there mid-year, we were pleased and not at all surprised that the condition that were in which is in very good shape.
These assets have obviously been owned by the joint venture between Crescent Real Estate and Barclays for the last several years again very well capitalized owner. And prior to that they were in the public arena owned by Crescent Real Estate equities which was one of our competitor REIT.
So, they have been owned for quite some time by very large institutional oriented owners and as our team spends significant time on these assets I think our view is that the condition today, the systems, the back end house they are very similar to our existing portfolio and how we manage and take care of our assets.
Brendan Maiorana - Wells Fargo
Okay, thanks. I will get back in line.
Operator
Thank you. And our next question comes from Dave Rodgers of Baird.
Please go ahead.
Dave Rodgers - Baird
Yeah, hey good morning guys. Thanks for question – taking the question.
I guess maybe Larry talk a little bit maybe how the Crescent transaction came above maybe any another trigger points that were out to negotiations and any remaining hurdles. And then if you could maybe give a little more detail on your two and your four rollovers at Greenway?
Thanks.
Larry Gellerstedt
You bet. Dave, thanks.
This has really been a fantastic transaction for us and the history of it’s really interesting, so we in 2008, 2009 some of you may remember Cousin’s Properties was hired by at that time Morgan Stanley who was a owner of Crescent after it went private to do evaluation of the entire portfolio. And so during that process we really got a very deep look at every asset both in the office portfolio as well as the other diversified holdings that Cousin had.
And so we been tracking these assets and as a matter of fact it’s interesting that a couple of the assets that were in that portfolio that Crescent spun out before this acquisition we’ve actually required being remaining 816 Congress and Post Oak, so we got to know those assets well during that process. And this process was really not a widely marketed process Barclays and Crescent given the size of the transaction and their desire for speed and certainty and no one could make an offer with any financing contingency, it was a very limited pool.
And it was a very relatively short process which we were pleased with on both fronts. And at the end of the day certainty to close certainly, was as important as price as well as I think in this case, Crescent is a first operation.
They really managed their assets well and take care of their customers well. And we were a very important part of this transaction from our perspective is the team of people that will be joining Cousins Properties that are currently on the Crescent team.
Their property management people and leasing people really bring a fantastic depth and experience to bring to our Texas platform. And additionally we will be able to utilize those resources to some of the assets I mentioned earlier that they previously own that we are currently using third party management or leasing folks, we’ll have the opportunity to work at bringing those things in-house.
So, it really is a combination I think in the lot of them that we wanted their people in addition to the financing and price things. I will let Colin address the role in terms of Greenway.
Colin Connolly
Sure. And I think you are looking at the investor presentation in year two say what’s primarily driving that is Exxon Mobil.
And in year four that would primarily be driven by Transocean. I would – I guess point out to give a little bit of color there as I mentioned in my prepared remarks Transocean has been a tenant in Greenway Plaza since the 1980’s and I think really highlights the stickiness and wellness of the tenant base which really enjoys kind of a central location here in between CBD, the Galleria proximity to River Oaks.
And but I think it’s actually often kind of overlooked here. You are also in very close proximity to the Texas Medical Center.
In both cases and kind of both years, the tenants I just mentioned are called less than 50% of that expiration that you see others are made up of kind of smaller much smaller tenants but those would be the two big ones.
Operator
Gentlemen are you ready for the next question.
Larry Gellerstedt
Yes, we are.
Operator
Thank you. (Operator Instructions) And our next question comes from Erin Aslakson of Stifel.
Please go ahead.
Erin Aslakson - Stifel
Hi, good morning. Just I guess given the cyclicality historically of Houston I guess what is your outlook going forward in terms of that market?
Larry Gellerstedt
We’ll, Erin one of the things that really has attracted us and why this Houston is center part of our strategic drive for the last three or four years. It’s really the shift and what’s going on in our country as a whole in terms of energy and Houston is not only oil but its gas and it’s all the engineering support that goes to support those industries.
And in addition all the other forms of energy that alternative sources of energy. So, it’s really now become the global center for energy and the U.S.
obviously is going through a revolutionary change in terms of our energy position relative to the rest of the world. So, we think that if you look at Houston in the last 10-year period it’s been a very strong performer throughout the cycle, it really did not get impacted in any significant way by the recession.
And all projections are that it will continue to do well. And it’s not just totally dependent upon energy, its got one of the largest ports are there in the country, which with the widening of Panama Canal will continue to benefit.
It’s got one of the most largest and most respected medical centers anywhere in the country that’s right near Greenway. So, not that any city is recession cycle proved, but we really think the prospects of Houston continue to be very strong and probably the strongest than any of the markets we currently are in.
Erin Aslakson - Stifel
Thank you.
Operator
And thank you. Our next question comes from Michael Knott, Green Street Advisors.
Please go ahead.
John Bejjani - Green Street Advisors
Good morning guys John Bejjani here. So, a quick question just more strategically previously Larry you mentioned you’re kind of targeting desired concentrations around 40% in Texas, 40% Atlanta and then another 20% North Carolina.
Would you say that basically that’s still the goal following this transaction or is there anything or is there transaction or anything else you see material impact that you are thinking?
Larry Gellerstedt
No, it really hasn’t I mean we obviously if you look at the relative size of those markets, we think the concentration that we currently have in Texas is fantastic and appropriate. And we are just thrilled we have been able to source these opportunities.
If you go through the opportunities this and this one in Post Oak really we are certainly not widely marketed and Post Oak was the market that allows us was a very limited process. And so we’ve been able to source some things in Texas that we think are extraordinarily compelling 2100 Ross also we did very creative deal the new tower in Houston.
So, the only fully marketed deal is 816 Congress which we used to manage and so we know that asset well. So, we like the concentration, we also like Atlanta.
Atlanta is really showing some very strong economic data in terms of job growth and projections expect to be in the top five in the country and it’s had some fantastic corporate relocations and just internal job growth. And we’d love to find some more stuff in Atlanta to add to our platform.
North Carolina continues to be strong. We just did not found something that’s just right for us or that we were able to achieve the pricing that other people in the market were able to underwrite or on some assets there.
So, I really like the blend of where we are and we’ll continue to be more opportunistically driven within those three markets then try to maintain a real tight balance with percentages.
John Bejjani - Green Street Advisors
Okay, that’s helpful. I guess on the funding front you mentioned non-core asset sales, so just a quick question given the rise in interest rates that we’ve seen lately.
Are you seeing, are you expecting to see any impact on pricing for any of those assets.
Larry Gellerstedt
The – thus far, I think the sales that we’ve been doing, we have not seen an impact on them. And I think that’s really a combination of the tight product that was and the location it was as well as we took these assets to market really before the lightest little spike in interest rates.
So, what impact it has on go forward sales, it will have to have some to the levered buyers and I’m sure that that we will see that, but we haven’t seen in any of that in our current asset sales that we mentioned.
John Bejjani - Green Street Advisors
Great, thanks guys.
Larry Gellerstedt
Thanks for waking up early.
Operator
Thank you. And our next question is a follow-up from Brendan Maiorana of Wells Fargo.
Please go ahead.
Brendan Maiorana - Wells Fargo
Thanks. Larry, you mentioned that you guys have been really good at harvesting value and it’s – when it’s presented itself.
When you look at Greenway, I mean, there will still be about a third of the asset value of the new Cousins, but it’s a portfolio and I think historically it’s been a portfolio that’s probably difficult to breakup and may be something that you don’t want to breakup, how do you think about the long-term hold of Greenway and do you think that there are opportunities to harvest value in that portfolio maybe sometime in the more near-term versus maybe holding it very, very long-time?
Larry Gellerstedt
Well, we really look at Greenway as a very much of a 20-year project in terms of the redevelopment opportunity and it was a real driver for us looking at it and I think probably distinguish the underwriting which we did. So, we don’t – we are not going in with an expectation that we are going to do a lot of new development right off with that, but we did as you’d expect Brendon just given our history we do in a fairly deep dive into what the development opportunities there are that Colin mentioned in his talk.
And it’s not as complicated as it would look. Some of the buildings are relatively small, old or vintage buildings, but also the 2 million square feet that Colin mentioned a fair amount of those buildings 0.5 million square foot first couple of buildings.
The pads had really become available just by building additional parking, then freeze up the space that currently is covered with parking for the future powers. And if you look at the cost of that since we didn’t attribute any value to the pads because of making those pads ready on a (FIR) basis are very much in line with what you’d go out and buy a site that like.
So, we look at the new development aspect of Greenway more in that 5 to 10 to 15 year perspective, it is a very much part of our thought process in terms of looking at it. Colin, I’ll let you address some of the shorter term facts.
Colin Connolly
Sure, Brendon, it historically Greenway has held as a single asset. One of the things that really attracts us to Greenway is the optionality and embedded flexibility that’s within the portfolio.
We obviously spend a lot of time during our diligence. Directionally, it’s a pretty straightforward simple process.
Ultimately, if you did want to breakup Greenway and we could look at harvesting different buildings, I think we’ll go through and try to figure out what our master plan long-term, how we view that. We haven’t made any decisions, but again that kind of built in optionality both on how we work with certain assets whether as to redevelop those, keep as it is.
And then also from the leasing perspective, I think that the flexibility has been just a tremendous advantage for Greenway having different buildings in close proximity to offer growth and expansion space in different price points. It really helps Greenway over the years.
Brendan Maiorana - Wells Fargo
Okay, that’s great color. And then just last follow-up from me, Larry, with Greenway and then Post Oak Houston is, I think it’s about 44% of your asset base now.
And did I hear you correctly, no increase in G&A and I gather you are bringing on the Crescent folks into the Cousins fold, so are there longer term plans to maybe add some additional staff in Houston over time?
Larry Gellerstedt
The percentage actually at Houston will be 37%, which will be Houston and Atlanta will be roughly the same in terms of our percentage ownership. And initially what we look forward to having in Houston is there is just a fantastic property management and very experienced leasing team and asset management team that’s been covering not only Houston, but Dallas and Austin and some other markets for Crescent.
As you know, Crescent also over the years has been a developer. And so there are certainly development knowledge and expertise and history within the Crescent folks.
So, we may also be able to add some development expertise in Texas as well that will be something we will determine a little bit more between now and closing, but the people, the platform, the experience of those people will be extremely beneficial to not just Houston, but just our entire Texas operation.
Brendan Maiorana - Wells Fargo
Sure. Okay, thank you.
Larry Gellerstedt
Thanks Brendon.
Operator
Thank you. We have no further questions at this time.
Mr. Gellerstedt, I will turn the call back over to you for any closing remarks.
Larry Gellerstedt - President and Chief Executive Officer
Well, we very much appreciate everybody being here on short notice and at an early hour. This is something that we obviously are extraordinarily excited about.
It’s one of the most compelling opportunities that I have seen in quite a while and we will be hard at work today doing the rest of the equity raise. And we look forward to talking to you all anytime today or in the future.
Thanks so much.
Operator
Thank you, ladies and gentlemen. That does conclude the conference call for today.
We thank you for your participation and ask that you please disconnect all lines. Thank you and have a good day.