Earnings Call: Q2 2019

Jul 25, 2019

Quarterly report

Good day, and welcome to the Cousins Properties Second Quarter Conference Call and Webcast. All participants will be in a listen only mode. After today's presentation, there will be an opportunity to ask questions. Please note this event is being recorded. And I would now like to turn the conference over to Pam Roper, General Counsel. Please go ahead. Good morning, and welcome to Cousins Properties' 2nd quarter earnings conference call. With me today are Collyn Connolly, our President and Chief Executive Officer Richard Hixson, our Executive Vice President of Operations and Greg Adzema, our Chief Financial Officer. The press release and supplemental package were distributed yesterday afternoon as well as furnished on Form 8 ks. In the supplemental package, the company has reconciled all non GAAP financial measures to the most directly comparable GAAP measures in accordance with Reg G requirements. If you did not receive a copy, these documents are available through the quarterly disclosures and supplemental SEC information links on the Investor Relations page of our website. Please be aware that certain matters discussed today may constitute forward looking statements within the meaning of federal securities laws and actual results may differ materially from these statements due to a variety of risks and uncertainties and other factors, including the risk factors set forth in our annual report on Form 10 ks and our other SEC filings. The company does not undertake any duty to update any forward looking statements, whether as a result of new information, future events or otherwise. The full declaration regarding forward looking statements is available in the supplemental package posted yesterday, and a detailed discussion of some potential risks is contained in our filings with the SEC. And now I'll turn the call over to Colin Collins. Thank you, Pam, and good morning, everyone. The Q2 was transformational for Cousins Properties. We successfully closed our merger with Tier REIT, delivered strong operating results, advanced strategic property transactions and made great progress on the development pipeline. Let me review the specifics. First, we remain extremely enthusiastic about the TIER merger, which closed on June 14. We have enhanced the company's geographic diversification, including an expansion into Dallas, strengthened our growth profile and maintained a fortress balance sheet. Our team has been hard at work and I am pleased to report that the integration has gone smoothly. In addition, the impact of the merger on 2019 FFO is in line with our original guidance and we are delivering on $18,500,000 of annual G and A synergies. Greg will discuss in more detail. 2nd, our trophy office portfolio continues to outperform. We delivered an increase in cash same property NOI of 5.5% during the Q2. In addition, our team executed approximately 1,100,000 square feet of leasing, including a 561,000 square foot lease at Hearst Tower in Charlotte for the proposed combined corporate headquarters of BB and T and SunTrust. The lease, which highlights the robust demand for leading Sunbelt urban office towers, also includes a one time purchase option at a price of 455,500,000 dollars 3rd, we are under contract to purchase our partners 50% interest in Terminus here in Atlanta in a transaction that values the properties at $503,000,000 or $4.10 per square foot. Closing is scheduled for October. While Midtown Atlanta has generated outsized demand and headlines during recent years, Buckhead continues to perform well with limited new supply and solid demand from high growth companies like Salesforce, Workday and FleetCor Technologies. After adjusting for the CBRE expiration at the end of June, Terminus is approximately 79% occupied, providing a unique opportunity for the Cousins platform to create value through the lease up of vacant space in a trophy property. Given there are few competitive blocks of large contiguous space at Buckhead, we are thrilled to rebuy Terminus, which is one of the most highly amenitized office properties in Buckhead at an attractive value add price well below replacement costs. 4th, momentum remains strong in our development pipeline. As you likely noticed in our financial supplement, pre leasing at 10,000 Avalon in Atlanta increased to 52% at the end of the second quarter and we have a deep pool of additional prospects looking at the remaining space. At Domain 10 in Austin, we are drafting a lease for 104,000 square feet with a Fortune 100 customer, which will increase pre leasing to 98%. I look forward to sharing more details on this when we finalize the lease, which would bring the office component of our $428,000,000 development pipeline to 86% pre leased. With Domain 10 fully committed, our leasing team in Austin has shifted their focus to pre leasing efforts at Domain 9 and we are encouraged by the initial interest. Looking to other future development opportunities, we are making great progress on our 100 Mill project in Tempe. Given the significant level of customer interest, we are likely to break ground this fall with meaningful pre leasing. Like our Avalon project in Atlanta, we will develop this 288,000 square foot trophy office property with a total cost of approximately $150,000,000 in a ninety-ten joint venture with Hines. Overall, demand for office space in Tempe remains robust as technology companies see growth opportunities outside of California. The walkable urban environment along with the engineering talent at Arizona State are strong growth drivers for Downtown Tempe. Stepping back, we have been exceptionally busy at Cousins throughout 2019. We have announced a series of exciting transactions, including the Norfolk Southern Headquarters project, the Gulch Air Right sale, the TIER merger, the BB and T lease and the Terminus acquisition. We appreciate that this creates complexity for our investors, especially considering significant one time gains in 2019 from land sales and development fees. However, I want to reiterate the following three messages. 1st, each of these transactions is uniquely positive on a standalone basis. 2nd, the underlying performance of our existing portfolio remains strong. 3rd, we intend to maintain our leverage profile within our target range of 4x to 4.5x net debt to EBITDA. At Cousins, we strive to be the preeminent Sunbelt office REIT. While this goal might sound simple, we believe it is compelling and puts us at the intersection of 2 powerful long term trends, ongoing migration of the Sunbelt and urbanization in our targeted submarkets. With these supporting tailwinds, the company is exceptionally positioned for the future. Our markets are healthy. The balance sheet is strong. The portfolio is best in class. And importantly, we have an excellent growth profile with both increasing same property NOI and a well leased development pipeline. Before turning the call over to Richard, I want to express my thanks and admiration to the Cousins team. Your tireless work and passion for the company is recognized and appreciated. Richard? Thanks, Colin. I'm pleased to report that our strong Q1 operational performance continued in the Q2. As a reminder, given we closed our merger with TI REIT in mid June, many of the operating metrics that I will cover include the effect of the TIER operating portfolio. As Colin referenced, at the portfolio level, we completed nearly 1,100,000 square feet of leasing this quarter. Our quarterly leasing volume was our highest since 2015, And I would note that only about 8% of our total leasing this quarter came from the TIER portfolio. Rent growth was also strong with 2nd generation net rents increasing 21.5 percent on a GAAP basis and 4.9% on a cash basis. However, when excluding the sizable and unique BB and T lease, which represented a modest increase in net rent, 2nd generation net rents increased 26% on a GAAP basis and 11.9% on a cash basis. With this solid leasing activity and including the addition of TIER's operating properties, our total portfolio weighted average occupancy for the quarter was 91.1 percent and we ended the quarter at 93.7 percent leased. Our same property portfolio was slightly higher than our total portfolio, with weighted average occupancy of 91.8% and ending the quarter at 93.9 percent leased. Before moving to some market specifics, I want to briefly highlight the favorable rankings of our core Sunbelt markets in CBRE's recently published 2019 Tech Talent Scorecard. This is an annual survey that ranks major U. S. And Canadian markets based on their ability to attract and grow tech talent. All 6 of our core markets screened well with both Austin and Atlanta in the top 10. CBRE also cited that Atlanta is the 4th fastest growing market for technology jobs, adding over 32,000 jobs in the past 5 years. Given how critical demand from technology sector has become, these survey results are very encouraging for the continued strength of our core markets and the Sunbelt overall. I'll now turn to some details about our 2 largest markets in terms of NOI, Atlanta and Austin. First in Atlanta, the overall market continues to be healthy and active in all respects. According to JLL, Atlanta Class A Asking Rental rates continued their growth in the 2nd quarter, increasing 5.2% year over year. CoStar recently noted that rent growth in Buckhead and Midtown in particular, where about 75% of our portfolio is located, has materially outpaced other Atlanta submarkets, citing that rents in these 2 prominent submarkets on a combined basis are now 50% above where they were in 2010. The trend of solid absorption has continued as well, with JLL noting that year to date net absorption in the Class A office segment stood at over 1,000,000 square feet, of which about 60% has been in Midtown. In terms of supply, Atlanta construction activity remains manageable as a percent of inventory, though there is a concentration of new construction in Midtown. Despite this dynamic, we view the supply demand balance as healthy, with active projects in the core of Midtown sitting at over 70% pre leased. This quarter, our Atlanta team executed 251,000 square feet of leases. This solid level of activity spanned across all our submarkets and included a 15,000 square foot expansion and 85,000 square foot extension of 1 Trust at North Park in the central perimeter. Our over 7,000,000 square foot Atlanta portfolio continues to be well positioned at 93% leased as of quarter end. Moving on to Austin, according to JLL, overall asking rental rates once again grew meaningfully, increasing 23% over the Q2 of 2018. CoStar puts overall market Class A vacancy at 6.4% with the North domain submarket running at a remarkable 1.8% vacancy level. The CBD continues to run at under 6% vacancy. Market wide construction activity in Austin is tracking at robust levels with JLL pegging it at 5,200,000 square feet and approximately 56% pre leased. Our portfolio, which through the TIER merger now consists of over 4,000,000 square feet located across the CBD, Domain and Southwest submarkets, ended the quarter at 95.8 percent leased. Across the market, our team signed leases totaling 116,000 square feet during the quarter, including a 47,000 square foot expansion of an energy services company of 111 Congress and a 35,000 square foot renewal of Stitch Fix at 816 Congress. Like last quarter, our existing pipeline of leasing activity continues to be strong in Austin. Our remaining core markets of Charlotte, Tampa, Phoenix and Dallas are also tracking nicely, with all 4 characterized by positive year to date net absorption, steady vacancy, rental rate growth and manageable supply. Our teams in these four markets executed 647,000 square feet of leasing this quarter, including the 561,000 square foot BB and T lease. Note that via the TIER merger, we added the 891,000 Square Foot Bank of America Plaza to our Uptown Charlotte portfolio. As you will recall from our prior discussions around TIER, this property is currently 89.7% leased and Bank of America will vacate approximately 295,000 square feet at the end of 2020. We are aware of this known move out prior to announcing the TIER merger, underwrote the investment with that in mind and view it as a fantastic value add opportunity at a Maine and Maine location. Our primarily Uptown Charlotte portfolio is 95% leased overall with otherwise very few lease expirations over the next couple of years. The TIER merger also provided us an opportunity to establish a larger position in Dallas, adding 516,000 square feet in 2 properties located in the Preston Center and Legacy North Dallas submarkets. 5,950 Sherry Lane and Legacy Union are high quality assets that are currently 97.2% leased. We are thrilled to have a team on the ground and this foothold to build upon in a market that has posted some of the most impressive job growth in the country since 2010 at just over 900,000 jobs. With that, I'll hand it off to Greg. Thanks, Richard, and good morning, everyone. I'll begin my remarks by providing an overview of our financial results, including same property performance. Then I'll move on to our capital markets activity, followed by a discussion of our balance sheet before closing my remarks with an update of our 2019 As a result, our 2nd quarter numbers, including our weighted average share and unit count, only includes 17 days of TIER data. Coincident with the tier closing, we also completed a 1 for 4 reverse stock split. In all second quarter, per share numbers reflect this reverse split. I know that's a lot of moving parts. So just to be clear, we had 114,700,000 weighted average shares and units outstanding during the Q2 and 148,500,000 shares and units outstanding at the end of the Q2. As you can tell from Colin and Richard's comments, it was a solid quarter on many fronts. At $0.71 per share, excluding tiered transaction costs. FFO was up 18% over last year and the important operating metrics that both you and we focus on were very strong. Leasing velocity was outstanding, 2nd generation leasing spreads were positive and same property year over year cash NOI increased for the 30th consecutive quarter. Within our same property portfolio, year over year cash NOI was up a very strong 5.5% during the 2nd quarter, driven by 5.2% revenue growth and 4.6% expense growth. This marks the 2nd quarter in a row that NOI growth has exceeded our expectations. And as a result, we are raising the midpoint of our full year 2019 same property cash NOI projection yet again, this time by 25 basis points. Combined with our 100 basis point increase last quarter, we have now raised the midpoint of our same property cash NOI growth to 100 and by 125 basis points since the beginning of the year. I'll provide specifics on this later. Soon after the TIER closing, we issued $650,000,000 in unsecured debt through a private placement. The issuance was comprised of 3 maturity tranches, 8, 9 10 years, priced at par with a weighted average coupon of 3.88%. Proceeds from this issuance were used to pay off all of TIER's outstanding $575,000,000 in term loans as well as their outstanding credit facility balance. We also assumed 1 non recourse mortgage from TIER associated with the latest union office asset in Dallas. This is a $66,000,000 note with a 4.24 percent coupon that matures in January 2023. Turning to the balance sheet. Our reported 2nd quarter net debt to EBITDA ratio in the financial supplement is 5.2 times. However, this doesn't reflect the full story. As I mentioned earlier, we closed the TIER transaction in the middle of June and there are only 17 days of TIER EBITDA in our 2nd quarter numbers. In contrast, there's 100% of the associated tiered debt as of June 30. This timing mismatch temporarily skews this ratio. This will resolve itself in the Q3 when we will have a full quarter of tiered data in our numbers. I wrap up my comments today by updating our 2019 FFO guidance. Please note this guidance excludes the costs associated with closing the TIER transaction. We currently anticipate 2019 FFO in the range of $2.81 to $2.93 per share. All of the assumptions behind this guidance are unchanged from the guidance we provided on April 24, except for the following. First, we anticipate year over year same property NOI growth of 3.25% to 5.25% on a cash basis. This is up from our previous guidance of 3% to 5%. Moving on, we anticipate a gain on land sale of $14,500,000 up from $13,100,000 due to a gain recognized on the sale of land in Tempe to the city to widen roads for a new street car line. Next, we anticipate fee and other income of $32,000,000 to $34,000,000 up from the previous range of $28,000,000 to $30,000,000 due to an increase in termination fees at Hearst Tower in connection with the new BB and T lease. We anticipate general and administrative expenses of between $34,000,000 $36,000,000 net of capitalized salaries. This is up $500,000 from our previous guidance of $33,500,000 to 35 point $5 We anticipate interest and other expenses net of capitalized interest of $66,000,000 to $68,000,000 up from the previous range of $50,500,000 to $52,500,000 We anticipate GAAP straight line rental revenue of $28,500,000 to $30,500,000 up from the previous range of $22,500,000 to $24,500,000 We anticipate above and below market rental revenue of between $10,000,000 to $12,000,000 up from the previous range of $5,500,000 to $7,500,000 All of these changes are driven by the closing of the TIER transaction in mid June. Finally, Colin discussed a couple of new property transactions during the second half of twenty nineteen that you should incorporate into your projections. First, on the investment front, we've entered into a contract to acquire our partners 50 percent interest in Terminus. This transaction values both of Terminus assets at $503,000,000 As part of this transaction, we will assume our partner's interest in the Terminus mortgage debt, which currently has a total outstanding balance of approximately $196,000,000 Our purchase represents approximately 50% of both of these numbers. We anticipate closing this transaction early in Q4, but please note this transaction will trigger the consolidation of these two properties at fair value and result recognizing a gain on a stepped up basis in calendar year 2019. But this gain will have no impact on FFO. On the disposition front, we have commenced the process of selling our Woodcrest asset in New Jersey and have classified it as held for sale our Q2 financial statements. We aren't selling this asset to delever and we don't need the proceeds to achieve our targeted leverage levels. Quite simply, this is a non core legacy tier asset in a non core market. We anticipate closing this disposition late in Q4. Some of the assumption changes I just walked you through were driven by the TIER transaction and some of them were not. Specifically, outside of TIER, our same property growth continues to exceed expectations and we've announced several positive leasing and investment transactions. However, now that we have closed here, we think it's important to isolate its earnings impact and compare our current expectations to our original expectations back in March when we announced the deal. In March, we projected the TIER transaction would reduce 2019 FFO by $0.01 or $0.02 a share, which equates to between $0.04 $0.08 per share after adjusting for the reverse stock split. We currently project the reduction will be approximately $0.06 per share after adjusting for the reverse split, right in the middle of our range. Said differently, on an apples to apples basis, we are squarely in the middle of the penny or 2 original range that we announced in March. And overall, the financial implications of the TIER transaction are in line with our expectations. With that, let me turn the call back over to the operator. We will now begin the question and answer session. And the first question comes from the line of Jamie Feldman with Bank of America. Please go ahead. Great. Thank you and good morning. Greg, I guess going back to your in line with the $0.06 that you originally expected from the TIER merger. I know you guys have said over time that starts to burn off based on signed leases that have yet to commence. Can you just talk through how we should think about that ramp to get to a point where it's actually kind of neutral to earnings or even accretive and the timing? Sure. Jamie, good morning. Yes, so as we talked about back in March when we announced the TIER transaction, it will be dilutive to 2019 and generally to 2020 FFO. But beginning in 2021 2022, as you alluded to, the development pipeline starts to produce results from the tier side and the dilution flips and turns into accretion moving out in kind of the second half of twenty twenty one and into twenty twenty two and beyond. Terms of 2020 dilution, it should be similar on a percentage basis to what we thought 2019 would be. So we only have about a half year results here, $0.06 So we're not going to provide you with 2020 guidance yet. But in terms of the impact, the earnings impact of the TIER transaction on 2020 numbers, it should be similar to 2019 on an annualized basis. You're saying $0.12 in $0.20 or $0.06 in $0.20? Closer to $0.12 Closer to $0.12 Okay. I thought you guys had said it starts to kind of burn off throughout the year. It starts to burn off. I mean, the domain properties, as you know, begin to deliver in 2020. People start to move in 2020, but it takes time. So I'd say the impact on 2020 is the back half of 2020 and it's muted. The positive impact really starts to kick in 2021 and then firmly in 'twenty two and beyond. Okay. And then thinking about Buckhead, can you guys just talk about some of the lease expirations in that submarket overall? And then your prospects to fill up Terminus? I mean, my understanding is there's a decent amount of sizable expirations coming. I'm just curious what your outlook is? Jamie, good morning. It's Colin. And we're very excited about the transaction at Terminus. And as I noted in my prepared remarks, we've got a terrific value add acquisition opportunity to put the Cousins platform at work. And as I said, we've got about 20% of the project is currently vacant. And as we look forward, there's roughly 1,000,000 or so square feet according to JLL of demand in the market. And I think importantly, for us at Terminus, outside of our vacancy, we've got about 6.3 years of weighted average term. So we don't have a lot of near term expirations. But as you look at the market as a whole, between now and 2022, there's just over 4,000,000 square feet of space expiring. So as we think about leasing up the balance of Terminus, that will certainly be the list that our team will be focused on. Are there I mean, can you quantify any large chunky explorations that are coming in that market that might be competitive? We certainly can and we do have a list. But I think for competitive reasons, we'd rather not share that on this call. But rest assured, our team knows exactly where those expirations are and we'll have those conversations and as we try to go lease up the balance of that space. We're excited about the opportunity. Okay. And then finally for me, just you mentioned the New Jersey asset for sale. Can you talk about your thoughts on some of the other, whether it's kind of new markets you may not want to stay in or just other assets from TIER that you might or even from Cousins that you might be thinking about selling? Yes, Jamie. And I'm glad you asked that question. And I think as we look at the portfolio, we're clearly doing an analysis of the portfolio going forward and evaluating kind of what's core and non core. But I want to make sure I reinforce the point is, if we do evaluate and decide that there's some additional non core sales, As I said in my prepared remarks, we're committed to keeping the leverage levels within our target of 4 to 4.5 times. So we identify additional non core sales in the future. We're optimistic in the team's ability to source and identify new investment opportunities, whether they be an acquisition like Terminus or potentially a new development start like 100 mill. So I think the net net of that through some capital recycling, we do intend to keep that leverage between 4x to 4.5x. I know there's been some discussion in the investment community where we look to do a big strategic disposition like the Orlando portfolio in post the Parkway transaction that took us down to mid-3s. And we don't see such a strategic move coming. I think you could see some additional sales in non core markets like a Fort Worth, potentially a Houston. Again, those are markets where we don't have platforms, but we think we can balance those with some additional new investment opportunities. And how do you think about managing the dilution? Again, I think The earnings impact? Yes. What I was trying to hit at, Jamie, is we look at some additional future non core sales, there's opportunities for us to reinvest some of that capital in whether it be an acquisition opportunity or a development opportunity, which might have some timing to it if we sell on the front end. But again, I think we're confident we can keep that leverage level in between those long term stated goals of 4 to 4.5 times and recycle capital as needed potentially use some of those non core sales to fund new Heck with Wells Fargo. Please go ahead. Thanks, Glenn. Heck with Wells Fargo. Please go ahead. Thanks. Good morning. Colin, maybe to follow-up on the question on Buckhead move out. Can you also give some color on some of the major upcoming expirations you guys listed associated with peer in the supplement, Bank of America 300,000 square feet next year in Charlotte, obviously, being the largest one. Conduent, I guess, should be Conduent, I guess, should be sold by then and then Time Warner 112,000 Square Feet next year in Austin? Yes. Blaine, happy to answer that and good morning. The Bank of America exploration that you referenced approximately 300,000 feet in December of next year, Richard touched on that in his prepared remarks that, that is a known move out. We knew that going into the TIER transaction and price that accordingly into the overall merger. So we feel like that's a fabulous value add acquisition opportunity for us similar to what we're doing at Terminus. We've got a terrific team in Charlotte. They've just demonstrated their ability to backfill a significant block of space also vacated by Bank of America. So we're we look forward to that opportunity and I'm confident in time as we get the space back, we'll do quite well. The rents are a fair bit below market at the Bank of America space. So we feel like that again gives us a great opportunity. Looking towards the other 2, you touched on the conduit is our goal is to have that project sold by August of 2020. Over in Austin with Time Warner Cable just over 100,000 feet at Jermaine Point, I'd say it's a bit premature. We have no reason at this point to think that that's not an opportunity to renew, but it's still very early in the process. Okay. That's fair. And then on the Bank of America space, what type of kind of tenant profile will you guys be targeting for Abbacco? Well, look, I think the some recent announcements in Charlotte give us quite a bit of confidence and encouragement that there's going to be a pretty diverse set of customers who will look at that space. Obviously, Charlotte is geared towards financial services companies and large banks and we've seen them be quite active. But at the same time, we've seen some really terrific announcements, new move ins to Uptown Charlotte from more diversified companies. Honeywell has just announced they're going to move their corporate headquarters from New Jersey to Uptown. Lowe's, which has historically been a suburban Charlotte company has elected to take quite a bit of space in Uptown Charlotte. So again, as we look at the pool of potential customers, we're optimistic that it will be a diverse set across a wide ranging industries. Okay, great. And then lastly, it looked like CapEx per square foot in concessions in general were higher this quarter. Can you just talk about whether that was a mix issue with the BB and T lease this quarter and more generally what you're seeing with respect to TIs and free rent in your markets? Yes. You hit it, Blaine, in terms of the tick up there. That was, I'd say, directly associated with the BB and T lease, which was a 15 year lease with, I'd say, a typical amount of capital in the TIs associated with that. In addition to that, we did have some buyouts that we had to do that we had discussed previously to put together that 500,000 square foot block of space. So you see some of those costs aggregated and capitalized into that number. So I think that skewed it upwards of where it's typically been. I think as we look across our markets as a whole and think about concessions, both TIs and free rent, As I said on previous calls, construction costs continue to kind of inch up and so we've seen TIs inch up accordingly. 12 months ago, 18 months ago, they were $5 per square foot per year. Today, maybe they've inched up to 5.5 dollars per square foot per year. But at the same time, we've seen net rents, base rents continue to inch up and we've actually seen free rent moderate in some markets actually decline. So overall net effective rents in our markets continue to move up. Thanks, Collin. Thank you, Blayne. Next question comes from the line of John Guinee with Stifel. Please go ahead. Great. You guys have been busy. This is more of a 2 curiosity questions. The first one is a Hearst tower, 966,000 square feet, 97% occupied per year sup. How on earth does one generate 561,000 square feet of available space instantaneously Were the tenants just not occupying the space and just ready to leave? John, all the various customers were occupying the vast majority of their space. I'd say it took a lot of ingenuity and hard work and relationships amongst the team. I think the biggest block of that space, roughly 300,000 square feet was Bank of America. And as we've discussed on previous calls, we're moving to a new building where they were consolidating several different locations into one space. So that was the vast majority of it and it certainly helped give us a leg up that there was a path there. And then we had to really work it with a few other customers. And as I mentioned, there were some fees, termination fees that we paid as a part of that to help make that possible. And as we said, those were capitalized into the overall deals and I think explains why our costs inched up slightly this quarter. Great. Okay. And then the second, looks like you're going to buy your way into Terminus at about $410 a square foot and likely sell first at $471 a Foot. What do you think it costs to build new product in both of those markets right now? John, in kind of the urban areas to build large towers, I'd say it's plus or minus $500 a square foot. And it can depend based on land and TIs or a particular customer, but I'd say that's a pretty down the middle estimate. Great. Thank you very much. Thank you, John. The next question comes from the line of Dave Rodgers with Baird. Please go ahead. Yes, good morning. Colin, you talked a little bit earlier about DomainPoint and obviously TIER had some aggressive development, redevelopment plans for the entire domain. But as you looked at it, I think you mentioned potential renewal with Time Warner. So I guess maybe give us a little more thought on what thoughts are on domain and kind of how you might view the pace of development or redevelopment there versus maybe what had been communicated with TIER previously? Yes, Dave, it's I'd say the plans that TIER had for the long term redevelopment of that project, we share those plans. And as we continue to look at the opportunity, I think our enthusiasm about the domain as a whole continues to rise as we get under the hood. And I referenced the lease that we're in process of doing at Domain 10. The demand for space in the domain is strong. I would say that if we move forward with a renewal of Time Warner at Domain Point, it doesn't necessarily preclude the redevelopment of the site. There's some adjacent land, there's some things you can do with the parking garages. So by signing that renewal doesn't necessarily preclude some redevelopment on a portion of that site. And then maybe just sticking with Austin, I mean now with the domain with the CBD assets that you previously owned and then some of the assets that they had owned in the Southwest submarkets in the suburbs. How do you view Austin? And is that all kind of a core holding for you now? Or can you rank those in terms of how you think and feel about Austin in the various submarkets? Yes. Austin as a whole is a market that Cousins has been in for plus years and a market that we continue to see a fantastic growth profile. I think again, if you back up prior to the TIER merger is our management team and Board put together our strategic plan for the company. We had absolutely identified the Southwest and domain as submarkets that we wanted to be invested and active in. And again, I think the TIER transaction presented us an opportunity to advance that strategic plan and we feel like we now have a fortress asset with the domain and the potential to add to that over time as the demand continues to grow. And then maybe for Greg, Colin talked about the potential development start in the second half of the year and continued activity in discussions. I mean, do you kind of view asset sales as primary source of funding for the development spending as you go forward? And how aggressive do you feel like you'd need to be to sell assets to fund the growth? Well, every time we've got a use of proceeds today, we look at the most cost efficient source of capital. And so right now, the most cost efficient source of capital for us would be asset sales. And then you layer on top of that the strategic reasons behind that, I. E, we've acquired some assets through the TIER transaction that are in non core markets for us. And it makes asset sales by far the most likely source of capital for any incremental investments in the second half of twenty nineteen. Remind me what you said part of your question? I think you addressed it. I guess part of it is you'll use some of the proceeds from Hearst, it sounds like, assuming that happens to fund in reverse, Terminus. So I guess maybe the second part would be how much do you feel like you'd need to sell starting new developments? Or do you feel pretty well positioned at least for the near term with those 2 events? Yes. Dave, I think the way to think about that, it's a great question, the way to think about that is from a leverage certainly the way we think about it. I mean, we've said it several times in this call and we mean it. I mean, our targeted leverage level is between 4 to 4.5 times net debt to EBITDA. We've essentially been running the company in that range since 2014, so for almost 6 straight years. So we're not just saying it, we're actually doing it. And so we'll adjust our asset sales accordingly to make sure that we stay within that range. Okay, great. Thank you. Next question comes from the line of Daniel Ismail with Green Street Advisors. Please go ahead. Hi guys. Good morning. Can you maybe describe the decision to consolidate Terminus? Was this the JV partner looking to exit or you approach them and maybe the appetite to consolidate other JV and Trippin portfolio? Good morning, Danny. At Terminus, again, I think we've always, as we look at Buckhead, felt like there's a terrific opportunity. And then in conversations with our partner, which is a multi $1,000,000,000 fund. They were making some of their own fund level decisions and we saw an opportunity to put together the transaction and move forward with again what we think is going to be a terrific kind of value add opportunity. But I think there were certain fund level decisions that they were making and again created a good opportunity. And I think more broadly speaking as we look at other joint venture interests, we're we've got some and are fortunate to have some terrific partners that we've worked very well with and created value with. And I think at times where it makes sense for those parties to exit, and we think it's a good investment opportunity going forward. We're always interested in pursuing those. But as we sit here today, again, I think we've got some great partners that we're working very, very well together. On future dispositions or potential dispositions, any potential consequences from say a sale of First Tower or any of the Medici Cheer assets? Danny, it's Greg. Good morning. No, we have a clear line of sight to be able to sell the assets that we've talked about and then some without the requirement of special distribution or a 1031. Okay. And just last one for me. It looks like there were some modest cost savings in the domain developments. Any of those relating to just accounting differences or anything we should be aware of in terms of synergies relating to the TIER transaction? Yes, Danny, those were more accounting adjustments as you brought it over from TIER to Cousins. Okay, great. Thanks guys. Next question comes from the line of Anthony Paolone with JPMorgan. Please go ahead. Thank you. Good morning. Just looking at the development pipeline in the supplemental and now that you've got this tier projects rolled in, can you give us an update on where the pipeline's expected yield is and how that might compare to where you see the private market? Sure, Tony. The I think as we've rolled TIER into Cousins and their development pipeline, I think it looks very similar the projects that we have, which in total, look at the shadow pipeline could support over 3,500,000 square feet. And we've consistently been able to deliver GAAP yields in a north of an 8% yield. And I think that remains unchanged with the TIER projects now within Cousins. And so I think if you look at the private market for new trophy quality properties, we're seeing cap rates certainly in the fives. And I would tell you in terms of some recent trades, it's been in the very low fives for stabilized properties in Austin. And then as you look at the other markets within our portfolio, they tended to range in that 5.5% to 5.75% range. So there's quite a bit of spread, quite a bit of margin and quite a bit of customer interest in demand. And that's why we remain so encouraged about the opportunities in front of us. Okay. And just maybe this is a great question. Just to understand, as we think about just talking about development yields going forward, if I look at the TIER assets that were added, I think the basis you show was actually a little bit less than where TIER used to show them. And it seemed like you paid a premium to their basis for the entity. So I didn't know if this was an allocation thing or how we should think about that. Tony, you're dead on. We hire a third party as do all companies when they do a transaction like a tiered transaction to provide an independent third party evaluation of what's called a PPA, purchase price allocation. And the numbers that you see in our documents right now are preliminary. They'll actually get finalized in the Q3, but we use Duff and Phelps by Duffin Phelps. You'll see probably see a slight tweak. But yes, the numbers that we put the tier assets on our financial statements at are the results of a purchase price allocation of the macro, the total price that we paid for TIER. Okay. And so but it sounds like between that and Colin's comments, when TIER used to talk about 9% kind of development yields, your yields, given what you think you paid for these assets, will be comparable, like you didn't allocate more money to those and so you're taking an 8 or something like that? Jenny, it ultimately again, regardless of where it gets allocated, whether it's specifically into the land or elsewhere onto the balance sheet, we ultimately paid the premium that we paid. But I would just kind of point you to my earlier comments that we look at our development pipeline and remain confident that we can continue to deliver north of those 8% yields across the entirety of our portfolio. I think Austin included. And we're excited about what's in front of us there. Okay, great. Thank you. This concludes our question and answer session. I would like to turn the conference back over to Colin Connolly for any closing remarks. We appreciate you spending the time with us this morning. As you can tell, we're excited about having the TIER merger behind us and we're excited about the opportunity in front of us for Cousins Properties. We appreciate your interest and we'll look forward to talking to you again next quarter. Ladies and gentlemen, the conference has now concluded. Thank you for attending today's presentation. You may now disconnect.