Oct 31, 2013
Executives
Tripp Sullivan - Corporate Communications Larry Gellerstedt - President and CEO Gregg Adzema - CFO Colin Connolly - CIO
Analysts
Dave Rodgers - Robert W. Baird Jamie Feldman - Bank of America Merrill Lynch Jed Reagan - Green Street Advisors Dave Rodgers - Robert W.
Baird Anthony Paolone - JPMorgan Erin Aslakson - Stifel Nicolaus Young Ku - Wells Fargo Securities
Operator
Good day, and welcome to the Cousins Properties’ Third 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 right ahead.
Tripp Sullivan
Thank you. Certain matters the 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. 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 October 30, 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. I’ll now turn it over to Larry Gellerstedt.
Larry Gellerstedt
Good morning everyone. The team has worked extremely hard over the past 24 months to transform the Company by simplifying the platform.
Focusing on urban trophy assets and sourcing opportunistic value-add acquisitions and developments. This quarter marks an inflection point in that transformation with a compelling portfolio acquisition in Texas the largest in our history, and the disposition of our lifestyle and power center holdings.
Most importantly, with significant value creation opportunities in both our existing portfolio and development pipeline, we feel very confident about the future. Let’s take a quick look at the Cousins’ platform today.
Consistent with the goals laid out 24 months ago and our strategic plan, our Company has over 80% of our NOI coming from urban trophy office buildings. The Texas markets of Austin, Dallas, Fort Worth and Houston represent 50% of our portfolio.
Houston and Atlanta are equal in size and represent over 70% of our square footage. This transformation has involved selling over $900 million and non-core assets and investing over $1.8 billion on strategic office assets and opportunistic developments.
In the process, our balance sheet leverage has been reduced from 45% to 30%. As we move forward, we are primarily focused on capturing NOI embedded within our portfolio, executing our opportunistic investment opportunities and maintaining a very strong balance sheet.
The first two items, embedded NOI and investments should drive significant future NAV growth, the third objective ensures a stable base something we view as critical in generating strong long-term returns. The central theme of our strategy is a sharp shooter approach, targeting Class A office towers that are well placed within urban, high barrier sub-markets in Texas, Georgia and North Carolina.
This is where our creative deal-making capabilities, development skills for relationships and market knowledge provide a competitive advantage. We’ve managed to acquire a number of such towers at a significant discount through replacement cost over the past 24 months and hope to land more in the months ahead.
In the sub-markets where it makes sense, we will also look to develop new towers as we’re doing now in downtown Austin, Texas. We are optimistic that our creative deal-making capabilities will continue to uncover attractive value-add and development opportunities.
Let me briefly expand on our target markets, Austin, Dallas Fort Worth, Houston, Atlanta, Charlotte and Raleigh continue to display some of the most encouraging demographic and economic growth dynamics in the nation. The average 12 month job growth in these markets is 2.7% compared to overall job growth for the U.S.
of 0.8%. And the momentum doesn't appear to be slowing.
PPR's projected job growth through 2017 for these markets exceeds the national rate by more than 50%. Atlanta, our hometown is poised for tremendous positive growth, driven by its diverse economic base, major research universities, talented workforce and overall quality of life.
Atlanta has now reclaimed all of the office jobs it lost during the downturn with 3.8% employment growth, office employment growth over the past 12 months alone. One key advantage that I think is often overlooked in Atlanta is our higher education infrastructure.
Atlanta has over 275,000 college students across 66 colleges and universities, putting it in the top-five in the country. Nearly half of Atlanta's residents hold a Bachelor's Degree or higher compared with this 28% nationally.
Leading companies of all sizes which compete for skilled employs everyday really like being near this deep pool of talent. While it's been a gradual turnaround for the Atlanta office markets, things are certainly going in the right direction and it’s been going that way for longer than you might think.
2013 will mark the fourth consecutive year of positive absorption for the Atlanta market and we see no signs of this trend reversing anytime soon. Houston has added 290,000 jobs since December of 2009 and remains in the top-three of every major economic growth metric.
Not only has Houston emerged as the leading global energy hub, it is home to the largest medical complex in the world, Texas Medical Center and one of the world's busiest seaports which stands to reap significant economic benefits from the pending expansion of the Panama Canal. With the real growth area product projected to more than double from 365 billion to 747 billion by 2030, we believe Houston is in the early innings for the long-term secular expansion.
To give one particularly strong data point on Atlanta and Houston. In the third quarter Class A net absorption in these two markets which comprised 3% of the U.S.
labor force accounted for nearly 25% of the net absorption in the entire country. Dallas Fort Worth is also firing on all cylinders, having added over 100,000 jobs over the past year.
Austin led the nation over the past 12 months in office employment growth and overall employment growth at 4.2% and 3.3% respectively. It continues to reap the benefits of a broad-based economic expansion with 5.1% unemployment rate, 220 basis points below the national average.
While the macro trends are encouraging and we certainly pay attention to them, we’re far more focused on the micro trends. We don't just target cities in a broad sense.
We target specific locations within submarkets that we believe possess the most compelling supply demand characteristics. Our top sub-markets Galloway, Galleria and Greenway in Houston, Buckhead, Midtown and Downtown in Atlanta, the CBD and Southwest in Austin and the Uptown Arts District in Dallas and the Fort Worth CBD together account for 84% of our office portfolio.
These are infill markets where physical and economic barriers to entry are meaningful constrain on new supply. Since 2010 Class A space in these sub-markets has experienced 5.3% positive net absorption, contrast this with the three year future development pipeline, which in total represents less than 2% expansion capacity.
Put it another way, in an environment of steadily increasing demand we anticipate less than 2 million feet of new deliveries in these sub-markets comprising over 92 million feet of Class A space, we like these dynamics. Our infill sub-markets often get lump in the same low barrier bucket as their suburban neighbors, but the data tells a different story.
Moving on to the portfolio, the acquisition of Crescent Texas portfolio, which closed in September provided an outstanding fit on many levels, high-quality urban office assets in the best submarkets, a rare combination of an attractive in-place yield, embedded NOI growth and future development potential in virtually overnight. We considerably expanded our Texas platform at a significant discount to replacement cost.
We also tamed notable benefits of scale with increased liquidity for our shareholders and a significant improvement in our G&A expense ratios. The integration of the Crescent platform is off to a good start and we’re excited about the talented people we’ve added in both Houston and Fort Worth.
Crescent’s reputation has always been first class, its countless high profile development accolades and awards over the years of test and I am happy to report that this Group has already exceeded our lofting expectations. I look forward to introducing you to the key players at our Investor Day in Houston, which we plan to host early next year.
More details to come. Momentum in our office operating portfolio remains positive with our same-property pool now 91% leased, up from 90% the prior quarter.
Our same-property net operating income which increased 4.5% over the prior year is perhaps the best reflection of our progress. We’re encouraged by the ongoing leasing activity across the portfolio both with its existing customers and new prospects and expect to have a strong finish to the year.
We’re also optimistic about our value-add assets, which host the bulk of our embedded NOI opportunity. 2100 Ross and 816 Congress are quite active, while Promenade continues to get a lot of traction.
We’ve also seen a welcome uptick in Downtown Atlanta particularly at 191 Peachtree. Greg will give you more color on the embedded NOI in a few minutes.
Sourcing and ultimately executing these value-add opportunities takes a significant amount of creativity, market knowledge and operational expertise. Thanks to our development skills.
We know how to revitalize these assets and we know where to put the capital to work. On the new development front, the outlook remains very positive at Colorado Tower in Austin.
I would want to know that we had an error in our supplement saying that Colorado Tower is 19% leased versus 17% leased in the prior quarter. The current number is 17 -- the correct number is 17%.
However, the good news is we recently signed a 15,000 square foot lease after the end of the quarter bringing the building to 22% preleased. We’re also in the final lease negotiations with the tenant of similar size and are in discussions with over another 400,000 square feet of prospects at various stages in the process.
At Emory Point, we recently broke around on the $70 million Phase 2 comprising an additional 307 apartment units and approximately 40,000 square feet of retail. The Phase 1 apartment equips 90% occupancy in the third quarter, well ahead of schedule with financial returns comfortably above pro forma.
The retail component has been a success as well, enabling us to be selective with the limited remaining space to ensure we get the right tenant mix. 123 West Franklin, our $100 million mixed use development at the University of North Carolina remains on-track for a late 2014 start.
Regarding dispositions and the simplification effort, with the sale of Avenue Murfreesboro and our two prudential joint ventures, we have successfully exited the lifestyle power center business and have drastically simplified our portfolio. Our only remaining retail component aside from mixed use is our portfolio of five public’s anchored shopping centers, which we opportunistically source through a relationship with the Watkins Group.
It’s been a good investment, but not something we consider a long-term hold. We haven't made a timing decision on these centers yet, but we will probably exit sometime next year.
Our 51,000 square foot Westside Parkway building, now 100% leased is under contract and we hope to close by year-end. We are also in the marketing process of our two Birmingham office assets and expect to be under contract within the next couple of weeks.
In closing, 24 months ago we presented a straight forward vision for Cousins that concentrated on three things, simple platform, trophy assets and opportunistic investments. This strategic transformation has streamlined our business model, tightened our focus and maximized our ability to generate attractive returns for our shareholders.
We are excited about the value creations opportunities in hand and in the field. With that I will pass it on to Greg.
Gregg Adzema
Thanks, Larry. Good morning everyone.
The third quarter continued the string of solid quarters we’ve had throughout 2013. At first glance, it certainly appears to have been a very busy quarter and it was.
But moving down into the actual activity, it was pretty clean and simple. We purchased a large portfolio of office properties in Texas and funded the purchase with a combination of new common equity, debt on existing properties and non-core asset sales.
We purchased 100% interest in the Texas assets with no partners or complex venture structure. We issued straight up common shares through a one-day marketing effort.
We placed long-term fixed rate non-recourse debt on two stabilized assets at attractive rates, and the assets we sold were the majority of our last non-core retail properties, including the dissolution of our two joint ventures with Prudential. That's really it.
During the quarter, we also obtained a $950 million term loan just in case the timing of our sources of capital didn’t match the required purchase date. But in the end, we were able to close on enough sources of capital prior to closing the purchase that we didn’t need to draw on the term loan at all, a terrific outcome considering the fast pace of transaction.
When the dust settles, we have improved geographic diversification. We have focused our portfolio on Class A urban office properties.
We have reduced leverage. We’ve increased the liquidity of our shares.
We’ve reduced G&A as a percentage of our assets and we have greatly simplified the story. When we say transformational, we really mean it.
With that, I would like to quickly review the three special items in this quarter’s earnings release before I jump to the numbers. Consistent with our move towards simplicity, I believe these will likely be the last material special items you see for quite a while.
First, as many of you know, we sold Cousins Property Services during the third quarter of last year. We have now successfully completed a 12 month earn-out on this sale and have recorded an additional $4.5 million in proceeds.
Our former management team, now happily ensconced at Cushman & Wakefield, did a terrific job to capture this extra profit for our shareholders. Second, we completed the purchase of the Crescent Texas portfolio during the third quarter, the largest purchase in our history.
It was a $1.1 billion transaction and obviously required significant costs to complete. In total, the cost to purchase the portfolio that ramped our FFO was approximately $6.9 million.
Finally we also sold the last of our lifestyle and power centers during third quarter which resulted in net severance costs of $520,000. Now to the numbers, for the third quarter we earned $0.11 per share in FFO, $0.12 per share excluding the three non-recurring items I just listed.
Performance was driven by solid same-property operating numbers. NOI was up 4.5% during the quarter and continue to lease up at a portfolio of properties that had in place embedded NOI growth potential.
As a quick reminder, in the summer of 2012 we identified three large assets in our portfolio that had significant NOI upside potential due to existing vacancy, 191 Peachtree, Promenade, and The American Cancer Society all in Atlanta. Upon the purchase of 2100 Ross during the third quarter of 2012, we expanded this list to four assets.
When we purchased 816 Congress during the second quarter of 2013, we moved the number up to five and now we’re adding 777 Maine, a trophy office tower in Fort Worth that was part of the Crescent acquisition to make it six. Although, 777 Maine was 91% occupied at the date we bought it, this will drop to 72% by year-end as Jacobs Engineering plans to downsize at their lease expiration.
This move out and the resulting vacancy was one of the reasons we were able to purchase 777 Maine at such an attractive price, $162 per square foot. It’s also one of the reasons we were interested in the property in the first place.
With the addition of 777 Maine, we estimate that moving the occupancy on these six assets from where it was at the time we added them to this Group until they reached 90% occupancy would generate approximately $18.5 million in embedded NOI. As of September 30, 2013, we have signed net new leases representing about $9.5 million of this total.
The amount of revenues we are realizing on these leases however, was only about $2 million during the third quarter. What this means is that we have fully executed leases in hand of $7.5 million in incremental NOI, that’s not yet running through our income statement.
On top of that we got the additional $9 million in future releasing opportunities from these six assets. These are significant numbers and we are pursuing these leases aggressively.
We will continue to keep you apprised of our progress. With that, I would like to take a few minutes to discuss our strategic transformations impact on earnings.
After several years of relatively flat earnings primarily due to the dilutive impact of our capital recycling efforts, we anticipate FFO to increase going forward. Not only do we expect FFO to increase, we expect it to be higher quality FFO with a much larger percentage coming from property level NOI rather than fee income, land profits and alike.
And as such, it should be easier for you to forecast to understand and to value. In a nutshell, we should be generating more simple and predicable high quality earnings.
And we will be doing it with a strong balance sheet. According to the Green Street, our current debt plus preferred over gross assets is 34%.
Nobody in their coverage universe has lower leverage. The office industry average for Green Street is 47%.
With this leverage profile, we are in an excellent position to move forward and execute the value-add strategy that Larry has laid out. It’s an active not a passive strategy that requires financial flexibility and strength.
And we do not expect to increase our leverage during the execution of this plan. With that, I’d like update our guidance for the remainder of 2013.
Before I start, I want to remind everyone that we don’t provide FFO guidance. We only provide guidance for specific property assets where historical performance maybe not exist or may not be a good guidepost for future performance.
We also provide guidance on fee income as well as G&A expenses. I will start with Promenade, our office tower in Midtown, Atlanta.
We had previously expected quarterly NOI to average $2.25 million during the second half of 2013. And in total, we still believe that will be the case.
However, due to the delay of certain expenses during the third quarter, NOI was a little higher at 2.5 million. And in the fourth quarter, NOI should be a little lower close to the 2, same six month total just a little different timing.
I would also like to provide some initial NOI guidance for our two recent Texas purchases. First, Greenway, during the fourth quarter, our first full quarter of ownership, we expect quarterly NOI between of $18 million and 18.3 million.
At 777 Maine and Fort Worth, we expect fourth quarter NOI between $2.5 million and $2.6 million. As I mentioned previously, occupancy at 777 Maine will move from 91% to 72% during the fourth quarter, so what I've just said is just one quarter guidance only.
We'll update our go forward guidance on 777 Maine, next quarter to reflect this drop in occupancy. That's all the property guidance we're providing at this point.
Again, other than these specific instances, historical performance or previous guidance is a reasonable guidepost for future cash flows. Regarding G&A expenses, I’d like to move the full year 2013 range up from between $20 million and $22 million to between $22 million and $24 million.
The driver behind this increase is our strong performance, both short-term for annual bonus purposes and longer term for incentive compensation, both of which are tied to specific objective performance metrics. This is the sole reason for the increase in our forecasted G&A expenses, that's a pretty positive reason for both our employees and our shareholders.
Outside of the bonus and incentive compensation adjustments, we're actually tracking below our original 2013 G&A budget. Using the midpoint of our updated G&A guidance, the ratio of G&A to un-depreciated assets is now 0.8%, down from 1.9% at the beginning of 2010.
Other than that I'm happy to report everything else continues to come in right on plan and we have no other specific changes for '13. I'll provide full year 2014 guidance on our next earnings call in February.
With that, let me turn the call back over to the operator for your questions.
Question
and
Operator
(Operator Instructions) And we'll go with our first question to the line of Jamie Feldman from Bank of America Merrill Lynch, go right ahead.
Jamie Feldman
I'm hoping you can talk a little more about leasing demand in Atlanta, specifically Downtown and Midtown? And then any thoughts on new construction there, maybe I've heard, maybe in Central Perimeter we may start to see some, so just kind of big picture of what's going on in Atlanta, especially in your sub-markets?
Bank of America Merrill Lynch
I'm hoping you can talk a little more about leasing demand in Atlanta, specifically Downtown and Midtown? And then any thoughts on new construction there, maybe I've heard, maybe in Central Perimeter we may start to see some, so just kind of big picture of what's going on in Atlanta, especially in your sub-markets?
Larry Gellerstedt
Sure. Jamie, the Atlanta is this past quarter had over 1 million square feet of absorption and just continues to be very, very strong.
That absorption has really tightened the Central Perimeter market in specific. State Farm has taken well over 1.5 million square feet out of that market in the last 18 months.
You've also seen Buckhead tighten significantly, so those two markets have certainly tightened. State Farm has announced that they're going to build some new product out there that will be built to suit just for them, so you'll have that product being added to the market over the next three years or so.
And the market, the tightening has happened in a pretty fast clip, the key to watch in that market and we certainly are watching it closely is there still is over an $8 a square foot gap between what top of the market rents are in that sub-market and what we would pencil out in terms of new development. So outside the build to suits I think people were positioning for the possibility of new buildings, but the gap is still pretty broad.
Buckhead has tightened significantly, we don't see anybody moving ahead with new product in Buckhead in terms of actually starting to talk about breaking ground or anything, so if there is new development it would be two to three years out before it could get delivered if they started today and there's not been anything announced, but we certainly as you would expect are watching that marker closely. Midtown is beginning to tighten as well, as customers are seeing Central Perimeter and Buckhead has gone -- the vacancy has decreased so much so Midtown is beginning to do well as in addition.
Promenade has just been fantastic for us. I mean we continue to have extraordinarily strong tenant demand, a fair amount of tenant expansion with existing customers in that building.
And then Downtown at well at 191. Downtown has really been impacted in a positive way last quarter when Coca-Cola announced that it was going to move 2,000 employees from the Northwest market into the SunTrust Tower and Downtown, which effectively fills that Tower up to 100%.
So of the three towers, Class A towers in Downtown SunTrust a 100%, we’re just about at, just under 90 and the Georgia Pacific Tower would probably be about in the same range. And we think Downtown will continue both from a price standpoint and the fact that you have got a couple of billion dollars of new development going on, the streetcar project will open in spring of next year will continue to look attractive in the Atlanta area.
But in terms of new supply other than build-to-suits there is really not any new supply that we see is eminent in any of those sub-markets and the other sub-markets North Fulton has tightened as well. But there is -- it has, still has a significant delta even larger than the Central Perimeter before it could support new development.
Jamie Feldman
And then what do you think in terms of rent growth?
Bank of America Merrill Lynch
And then what do you think in terms of rent growth?
Larry Gellerstedt
We certainly…
Jamie Feldman
I guess the matter of fact that rent growth is probably a better very question?
Bank of America Merrill Lynch
I guess the matter of fact that rent growth is probably a better very question?
Larry Gellerstedt
Well, we’re seeing rent growth obviously in the Texas part of the portfolio what you’re seeing in Atlanta is you are seeing concessions come way down much more in line with what you would see, have historically seen in Atlanta. And rents have still been relatively flat, but us and others are beginning to be in a position to try to push rates a little bit.
Operator
And we will go with over next question from the line of Michael Knott from Green Street Advisors. Go right ahead.
Jed Reagan
Jed Reagan here with Michael, you touched on the leasing activity at Colorado Tower. How would you say that leasing progress is pacing relative to expectation?
And then can you talk maybe a little bit too about the leasing pipeline at 816 Congress?
Green Street Advisors
Jed Reagan here with Michael, you touched on the leasing activity at Colorado Tower. How would you say that leasing progress is pacing relative to expectation?
And then can you talk maybe a little bit too about the leasing pipeline at 816 Congress?
Larry Gellerstedt
The Colorado Tower project, we are even more optimistic about that project than when we started construction. And when we underwrote the project, we didn’t underwrite it to being up to 90% leased until the end of 2016, so we were pretty conservative about the lease up and we wanted to make sure that we get the right customers in and maintain our pricing expectation.
So that 400,000 square feet of prospects are very real prospects and we’re still well over a year from delivering the project. As I have said I think we’ll have another lease to announce here by the end of the year.
So I feel very good about Colorado Tower. We are in that sub-market there is one other building that’s under construction that’s 195,000 feet that is actually not in the true CBD area.
And we really haven’t felt much impact from that building as we have leased up Colorado Tower. So Colorado Tower is going well.
A16 is also going well the deals we’ve done are certainly ahead of our pro forma we’re beginning to get our capital plan and executed there which is important to do. And our primary focus has certainly been on a couple of big renewals that we have with the U.S.
Attorney's office as well as the Texas Retirement Fund. And we feel very good about where those renewals are moving, and we see good demand at 816.
So Austin continues the CBD to be from our standpoint a very good market to be in.
Jed Reagan
When do you expect to stabilize 816 again?
Green Street Advisors
When do you expect to stabilize 816 again?
Colin Connolly
Sure, hey Jed it is Colin, as we underwrote 816 similar to Larry alluded to our lease up on Colorado Tower, we always take a pretty conservative view from an underwriting standpoint. That being said, I think the demand that we’re starting to see especially as we begin to work through our capital plan, I think we feel very optimistic.
We won't provide specific guidance, but based on the pipeline of leases out there relative to our current occupancy, we feel very confident.
Jed Reagan
And can you also talk about the business plan for American Cancer Center at this point and are you getting any traction on datacenter demand that you had previously talked about?
Green Street Advisors
And can you also talk about the business plan for American Cancer Center at this point and are you getting any traction on datacenter demand that you had previously talked about?
Larry Gellerstedt
Jed there is no question that American Cancer Society has been over the years a fantastic investment for Cousins Properties, if you look at what we bought it for originally and then our refinance on it. It certainly has been a home run.
But we have been -- have not gotten the take up from the datacenter new demand. Although the datacenter customers that are there are certainly renewing and staying we have not gotten the demand that we hoped to.
And what we’re really looking at on American Cancer Society is we’re following very, very closely really on the value analysis of what we think that building is worth and whether or not it's a long-term hold. We’re not saying that we're going to sell the building, but I would say that it's one that's on our question mark as we look to fund future activities here, as whether or not that’s going to be a long-term hold, just given the nature of where we think the tenant demand is going to be in the future.
Jed Reagan
And last one if I may, just if you can just talk a little bit about the Houston supply picture does seem like a fair bit of supply is kind of creeping into the market. Can you talk about any risk that might pose for your portfolio and maybe any specific competitor projects that you’re focused on?
Green Street Advisors
And last one if I may, just if you can just talk a little bit about the Houston supply picture does seem like a fair bit of supply is kind of creeping into the market. Can you talk about any risk that might pose for your portfolio and maybe any specific competitor projects that you’re focused on?
Larry Gellerstedt
We certainly are following that very, very closely and it's one of the reasons that we really focused on the sub-markets that we focused on. So in the Galleria sub-market there are two buildings that have been delivered, the total 600,000 square feet, they were the first two buildings to be added in that 18 million foot sub-markets since 1984.
And they are both now over 90% leased. There is not any other speculative development, there is some build to suits being discussed and one build to suit actually being done in that sub-market.
But there is nothing eminent in terms of this speculative development of any scale that we're aware of. The other thing that's happened in that sub-market as well a lot of these urban markets is it had a fair amount of future office sites and all these markets being taken by multifamily over the last couple of years, which is a great thing from a defensive standpoint.
And so on the Galleria we only see a couple of other office sites really available in that sub-market, and so we feel very good about the supply demand there. The Greenway sub-market as well, there are a couple of buildings that add-up to about 600,000 square feet in that sub-market that we're aware of, that some folks are trying to get off the ground but there has been no ground breakings announced, no major tenant activity announced.
We certainly are hard at work and looking and determining exactly what our next expansion when the market supports at Greenway will be just in terms of where it will, which path we’ll put it on so that we can offer our customers on expansion opportunity there. So, in our two sub-markets that we’re in Houston new supply is not really a material threat.
Where we see the new supply is -- there is some new supply being discussed in the CBD and then there is obviously a tonne of new supply out on the energy corridor. And the main thing that we have to watch is customers that are in these sub-markets that may elect to take part of their employees out to the energy corridor but that has not been a major issue in our Houston portfolio to-date.
Operator
And we’ll go with our next question. It is from the line of Dave Rodgers with Robert W.
Baird. Go right ahead with your question.
Dave Rodgers
Larry maybe for you -- from the camp of what you’ve done for me lately, can you talk about kind of the acquisition opportunities that you’re seeing in the market right now. What’s happened to pricing since several large transactions kind of throughout those southeast markets priced and you continue to be active there or really will it be a shift for Cousins toward development?
Robert W. Baird
Larry maybe for you -- from the camp of what you’ve done for me lately, can you talk about kind of the acquisition opportunities that you’re seeing in the market right now. What’s happened to pricing since several large transactions kind of throughout those southeast markets priced and you continue to be active there or really will it be a shift for Cousins toward development?
Larry Gellerstedt
Well that’s a great question Dave and I think as we look at our opportunity subset the value-add acquisition opportunity certainly the second half of this year outside of the Crescent deal has been slower than has previously taken place. And the truth is a lot of these value-add opportunities of type assets that we would want have traded and so I think it’s going to be much more of a sharp shooter opportunity where maybe we can use our creative skills like we did on 2100 Ross or some others to get access to some assets other than through the traditional marketing process.
We certainly look at stuff that comes on marketing and is marketed, not to say that we won’t find something attractive to go after, but it’s certainly something where we’ve seen some pricing that just gets beyond what we think makes sense for us on some of the acquisitions we’re looking at. So, new development is becoming more-and-more of where we see opportunities and of course that really plays to our strength.
And so whether it’s the Greenway submarket, the Galleria submarket, Buckhead and Atlanta et cetera, we certainly are doing work to make sure we’re positioned to take advantage of new development when it makes sense there.
Dave Rodgers
And if you were to go forward let’s say in the Texas markets now especially in Houston, how long before you could start coming out of the ground just given I guess you don’t post out for a while but in terms of Greenway it’s so new -- how long would it take you to get some shovels in the ground and move in vertical on projects there?
Robert W. Baird
And if you were to go forward let’s say in the Texas markets now especially in Houston, how long before you could start coming out of the ground just given I guess you don’t post out for a while but in terms of Greenway it’s so new -- how long would it take you to get some shovels in the ground and move in vertical on projects there?
Larry Gellerstedt
Well, that’s where we’re hard at work at, you’ve got the ability to add 2 million feet at Greenway and that probably is -- would be four projects of the 0.5 million square feet each so we’re going through each of those and determining; one, what they would cost; and two, how long they would take to deliver because in many cases you’ve got to display some parking to be able to add that. We’re also certainly staying on top of some sites that are contend right next to Greenway that may also be trading that could give us an opportunity to add footage there.
Ballpark, if you decided to pull the trigger on something today you’d be, 30 to 36 months out before delivery but that’s a reasonable timeframe given the size of the customers out there and where the demand might be.
Dave Rodgers
Then last question on leasing, you talked about kind of a good backlog, good showing volume it seems like leasing was just down a little bit from the average in the current quarter, do you think there was a distraction from the acquisitions and the amount of closings that you were doing, or customer is just making decisions a little bit more slowly and you really feel like that backlog had kind of push you back up, but above that average moving into the fourth and first quarters?
Robert W. Baird
Then last question on leasing, you talked about kind of a good backlog, good showing volume it seems like leasing was just down a little bit from the average in the current quarter, do you think there was a distraction from the acquisitions and the amount of closings that you were doing, or customer is just making decisions a little bit more slowly and you really feel like that backlog had kind of push you back up, but above that average moving into the fourth and first quarters?
Larry Gellerstedt
I certainly don’t think it was a distraction because our leasing teams are very asset specific. And so they wouldn’t have been distracted.
We just traditionally have seen the third quarter being a little bit slower. We look historically since it covers the summer months just folks tend to not make decisions unless they have to.
We feel pretty good about the fourth quarter in terms of where our leasing opportunities are and what we will be able to deliver there. So we just make it.
This was a slightly slower third quarter. But it certainly doesn’t signal anything of where we see demand.
Operator
(Operator Instructions) And we will go to our next question from the line of Anthony Paolone with JPMorgan. Go right ahead with your question.
Anthony Paolone
Gregg just a couple of clarifying one to start, on the NOI that you talked about that 18.5 million, I assume as it relates to 777 that’s off the 72% base, not the starting point here?
JPMorgan
Gregg just a couple of clarifying one to start, on the NOI that you talked about that 18.5 million, I assume as it relates to 777 that’s off the 72% base, not the starting point here?
Gregg Adzema
Yes, that’s right Tony.
Anthony Paolone
And then of the remaining 7.5 million that has yet to come in to earnings, is that mostly related to 816, I mean it’s just looking at your occupancy listing kind of that’s what it suggests?
JPMorgan
And then of the remaining 7.5 million that has yet to come in to earnings, is that mostly related to 816, I mean it’s just looking at your occupancy listing kind of that’s what it suggests?
Gregg Adzema
Actually I was sitting here looking at the schedule, Tony, and just eye-balling it, I would say that the biggest deltas between leases signed and NOI running through the actual income statements, is it Promenade and at 2100 Ross.
Anthony Paolone
And any sense of timing as to when that and if you did nothing else, like when that 7.5 million comes in?
JPMorgan
And any sense of timing as to when that and if you did nothing else, like when that 7.5 million comes in?
Gregg Adzema
We don’t provide specific guidance here, but I can tell you, Promenade, a big part of that lease is a single lease that we signed and it kind of has stepped occupancy that takes place. And that takes place through ’16.
So at Promenade it will take a little while. 2100 Ross is much more traditional.
We’ve signed leases. People are going to move in and so you should see 2100 Ross happen in the next 12 months.
Anthony Paolone
And then on the 300 and somewhat thousand square feet of leasing in the quarter, I may have missed this did you give leasing spreads?
JPMorgan
And then on the 300 and somewhat thousand square feet of leasing in the quarter, I may have missed this did you give leasing spreads?
Gregg Adzema
We did not provide leasing spreads. That’s data that as we talked about in previous conference calls, we track internally and starting next quarter we are going to start to provide externally.
I know it’s something that a lot of people want. And for us as we get more of core office portfolio that we are operating, we want to provide more core office portfolio statistics.
And so you will see that coming out in the next quarterly earnings supplement. But I can tell you anecdotally that our leasing spreads are positive and in general in the office portfolio which is over 90% of the total portfolio now, deposits of high single-digits to low double-digits.
Anthony Paolone
And then now that the acquisition is done, you've got Transocean, ExxonMobil it was some pretty big tenants with I will call it more shorter term and intermediate term expirations. Just any initial thoughts on those leases as you look out the next few years and perhaps their plans or how you think about them?
JP Morgan
And then now that the acquisition is done, you've got Transocean, ExxonMobil it was some pretty big tenants with I will call it more shorter term and intermediate term expirations. Just any initial thoughts on those leases as you look out the next few years and perhaps their plans or how you think about them?
Colin Connolly
This is Colin, as it relates to Exxon, at the time of the transaction I think we announced that there are -- that we anticipate Exxon moving out in 2015. It’s about 215,000 square feet.
That’s part of their Exxon’s national consolidation to The Woodlands. There is some potential that they could hold over a little bit longer.
But that’s certainly our expectation and the way we’ve underwritten transaction. Transocean is a little bit further out in 2017, January of ’17 about little over 300,000 square feet and we are certainly -- our team in Houston is actively engaged with transition it’s probably a little bit on the early side, but we’re in front them now and will stay in front of them over the next 12 months or so.
Anthony Paolone
And then just last question, I know the numbers aren’t that big anymore, but any thoughts on the rest of residential land given housing is in a pretty different place than a year or two ago it seems?
JP Morgan
And then just last question, I know the numbers aren’t that big anymore, but any thoughts on the rest of residential land given housing is in a pretty different place than a year or two ago it seems?
Larry Gellerstedt
Yes, certainly the, we have been pretty clear that the residential land is something we are just waiting for the market to come back and the market is coming back. And we’re beginning to -- the little bit we have left, we’re beginning to be able to sell tracks and we’re also beginning to get some offers to come in and take out, entire positions.
So you will just continue to see us work that residential portfolio down. And I think you will movement on that over the next 12 to 24 months just given the recovery that you referred in your call.
Operator
And I will go with our next question from the line of John Guinee from Stifel. Go right ahead with your question.
Erin Aslakson
It's Erin Aslakson, actually in John's stead. But in terms of the other major land positions that you sight there on page 21 on the commercial side, I guess, Avenue Forsyth and Peachtree Street what's the status of those parcels?
Stifel Nicolaus
It's Erin Aslakson, actually in John's stead. But in terms of the other major land positions that you sight there on page 21 on the commercial side, I guess, Avenue Forsyth and Peachtree Street what's the status of those parcels?
Gregg Adzema
The Forsyth parcel is just an additional parcel. Avenue Forsyth was a lifestyle property that we owned in North Atlanta.
We sold the property and there was another parcel of land that was adjacent to it. There is no immediate plans to develop it, to sell it to the people that bought the other park, it just kind of sitting there.
The site on Peachtree Street is right near our Emory Midtown MOB that we had that we own in a 50-50 joint venture with Emory. It’s a terrific piece of land right where you want to be in Midtown and we think at some in the future that’s going to be prove to be a critical parcel as Emory continues to expense Midtown campus.
Erin Aslakson
So the idea would be the exit Forsyth at some point, but then monetize maybe a development at Peachtree?
Stifel Nicolaus
So the idea would be the exit Forsyth at some point, but then monetize maybe a development at Peachtree?
Gregg Adzema
The Peachtree land is certainly a land that we look forward to the development, potential of that and we will continue to hold it.
Erin Aslakson
And then just a clarification point on the G&A increase, I might have missed it just 22 million to 24 million I guess for the year. Is that a permanent increase or is that just 4Q pop for bonus and then it drops back down in’14?
Stifel Nicolaus
And then just a clarification point on the G&A increase, I might have missed it just 22 million to 24 million I guess for the year. Is that a permanent increase or is that just 4Q pop for bonus and then it drops back down in’14?
Gregg Adzema
Yes, I haven’t given’14 guidance yet on G&A really anything and I will do that next quarter, but the pop that you’re seeing, the reason that we’re increasing the range for ’13 is absolutely only driven by bonuses in the long-term incentive comp accruals that are driven by very objective measurements, they’re not subjective. Larry is not making a decision for us.
These are objective measurements for annual bonus and long-term compensations and we have had a good year in both comps.
Erin Aslakson
So they’re semi-permanent increases?
Stifel Nicolaus
So they’re semi-permanent increases?
Larry Gellerstedt
No they’re not. I mean it is incentive comp that’s driving it.
So as Gregg said, without the incentive comp we would have been at the low-end of the range for the year. So we’d love for them to be permanent.
That’d be a good thing because it’s all based upon total shareholder return and same-property NOI growth. All performance based stuff that we’ve had a very good year and the team has delivered fantastic results.
Gregg Adzema
If those numbers go up, our shareholders are also enjoying?
Larry Gellerstedt
Yes, enjoying that is as well, so it’s not just an internal win, it’s an internal and an external win.
Operator
And we will proceed with our final question from the line of Young Ku from Wells Fargo. Go right ahead with your question.
Young Ku
Just a quick question on the same-store pool, could you remind us when 2100 Ross and Prom gets out of this same-store pool?
Wells Fargo Securities
Just a quick question on the same-store pool, could you remind us when 2100 Ross and Prom gets out of this same-store pool?
Larry Gellerstedt
Our policy on the same-store pool as it has to be, we do it once a year at the beginning of the calendar year and it has to be stabilized at the beginning of that year. So for next year January 1, 2014 something had to have been owned by us and stabilized as of January 1, 2013 and let's see, you'd ask about 816.
816 we didn't purchase until April so that will not be…
Young Ku
Actually it was 2100 Ross and Prom.
Wells Fargo Securities
Actually it was 2100 Ross and Prom.
Larry Gellerstedt
2100 Ross is still not stabilized and so it will not be in the same property pool for '14, I mean it depends on when it stabilizes whether it rolls in '15 or '16.
Young Ku
Okay that's helpful and just to…
Wells Fargo Securities
Okay that's helpful and just to…
Larry Gellerstedt
I'm sorry, you asked about Promenade as well, it’s the same story for Promenade although Promenade is much more likely to stabilize before 2100 Ross, but I need those properties to stabilize and have 12 full months of operations before I can enroll them into the same property pool and have good year-over-year comps.
Young Ku
And a question on Greenway Plaza, it looks like it had pretty good activity, occupancy went around 300 basis points, how are the lease rates kind of compared to your underwriting, I believe you said that the mark-to-market previously was around 19%, just wondering how that compared to your original expectations?
Wells Fargo Securities
And a question on Greenway Plaza, it looks like it had pretty good activity, occupancy went around 300 basis points, how are the lease rates kind of compared to your underwriting, I believe you said that the mark-to-market previously was around 19%, just wondering how that compared to your original expectations?
Colin Connolly
Sure this is Colin, and kind of the increase in that occupancy, a lot of that happened, is kind of either some customers that we thought might leave or some leases that were in the pipeline in between when we announced the deal for closing that all had favorable outcomes. And in terms of from an economic standpoint, I think we continue to be very pleasantly surprised at those economics and rents et cetera relative to how we underwrote the transaction.
Young Ku
And my last question regarding Apache at Post Oak Central, are there any decision that's been made there, I mean we’ve been hearing that they're going to, they might be building their own tower?
Wells Fargo Securities
And my last question regarding Apache at Post Oak Central, are there any decision that's been made there, I mean we’ve been hearing that they're going to, they might be building their own tower?
Larry Gellerstedt
Well, they have announced that they have bought some land in the Galleria market and that they're looking at the possibility of building a tower, the thing that's important to note is that lease doesn't expire till 2018. So there's a fair amount of term left on it and we certainly have a really good open dialogue with Apache, they've been at Post Oak for a long time.
And I think they'll make that decision in 12 to 18 months when we underwrote the purchase we underwrote with the expectation that they would leave, but they’re in a cyclical business and they won’t make that decision probably for another year or year and a half.
Young Ku
And how much were the rents below market?
Wells Fargo Securities
And how much were the rents below market?
Gregg Adzema
When we, you are talking about specifically Apache or…
Young Ku
Yes.
Wells Fargo Securities
Yes.
Gregg Adzema
The overall Post Oak Central I guess, we don't normally provide specific guidance about a specific lease, but when we announced the transaction back in February we disclosed that in our management's estimates the rents were 19% below market, at Post Oak Central, across the three buildings again, similar to my comments on Greenway I think we've been very, very pleasantly surprised at where face rents have moved in at POC relative to how we underwrote the transaction.
Operator
Thank you very much. And Mr.
Gellerstedt we have no further questions at this time, I’ll turn the call back to you.
Larry Gellerstedt
Well, we appreciate everyone joining us today and I want to end the call with a special shout out to the Cousins' team members, when you look at the repositioning that we’ve done in the Company in the last 24 months and specifically this year, all the asset sales, the acquisition the leasing results et cetera, this has just been a phenomenal team effort. And I want to give a shout out to them and thank them on this call.
We appreciate everybody joining us today and we look forward to talking to you at the next quarter. Thanks.
Operator
Thank you very much. And ladies and gentlemen, this concludes the call for today.
We thank you for your participation and ask that you disconnect your lines. Have a great day everyone.