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191 Peachtree Street NE, Suite 500
Atlanta, GA 30303-1740
404.407.1000 I cousinsproperties.com
Post Oak Central
H O U S T O N , T X
2100 Ross
D A L L A S , T X
Terminus 100
A T L A N T A , G A
Terminus 200
A T L A N T A , G A
191 Peachtree
A T L A N T A , G A
Promenade
A T L A N T A , G A
SHAREHOLDER
INFORMATION
Independent Registered Public
Accounting Firm
Deloitte & Touche LLP
Counsel
King & Spalding LLP
Troutman Sanders LLP
Transfer Agent and Registrar
American Stock Transfer & Trust Company
6201 15th Avenue
Brooklyn, NY 11219
Telephone Number: 1.800.937.5449
www.amstock.com
Form 10-K Available
The Company's Annual Report on Form 10-K for the year
ended December 31, 2012 forms part of the Annual
Report. Additional copies of the Form 10-K, without
exhibits, are available free of charge upon written request to
the Company at 191 Peachtree Street NE, Suite 500,
Atlanta, Georgia 30303. Exhibits are available if requested.
The Form 10-K is also posted on the Company’s website at
cousinsproperties.com or may be obtained from the SEC’s
website at www.sec.gov.
Investor Relations Contact
Cameron Golden
Vice President, Investor Relations
Telephone Number: 404.407.1984
Fax Number: 404.407.1985
camerongolden@cousinsproperties.com
Gateway Village
C H A R L O T T E , N C
American Cancer Society Center
A T L A N T A , G A
Emory Univ. Hospital Midtown
A T L A N T A , G A
P R I N T E D O N R E C Y C L E D P A P E R
Cousins | 1
Dear Shareholders:
In January 2012, we presented a strategic vision for
Cousins that concentrated on three things: simple
platform, trophy assets and opportunistic investments.
To realize this vision we would streamline our business model with primary focus on top-tier urban office assets in our
Sunbelt markets, while continuing to selectively source and execute development opportunities that play to our strengths.
This approach would leverage our deep knowledge of and relationships in these growth markets - and our creative deal-
making abilities, development skills and operational expertise. As in everything we do, the ultimate goal would be to
generate attractive returns for our shareholders.
A year later, I am pleased to report significant progress. The simplification of the platform is nearly complete, our
portfolio consists primarily of Class-A office assets in prime locations, and we have an active pipeline of opportunistic
investments – consisting of both select development projects and value-add acquisitions.This forward movement drove
positive 2012 results and our share price reflected these results with a 30 percent increase for the year – a top quartile
performance relative to our REIT peers.This progress is accompanied by a rock-solid balance sheet and a portfolio with
very limited lease rollover in the coming years.
In this letter, I will review the strides we have made, where they have taken us and where we intend to go.
SIMPLE PLATFORM
In 2009, the company was in five different product types, carrying significant overhead and capital requirements.
Simplifying the platform would focus our attention and resources on what we do best: 1) developing, acquiring,
managing and leasing Class-A urban office projects with best-in-class amenities; and 2) leveraging our market
knowledge, relationships and development skills to build high-quality new projects.
In more than 30 transactions, we sold over $400 million in non-strategic assets during 2012. Office assets accounted
for 78 percent of our portfolio at the end of 2012, up from 62 percent a year earlier. This ongoing simplification has
not only enabled us to reduce overhead expenses by more than 50 percent from 2008 levels, it has also provided the
capital for our new investments.
TROPHY ASSETS
Underlying urban trophy assets as a pillar of our strategic vision is their historically strong performance through real
estate cycles. High-quality, well-located office towers, when properly managed, have consistently outperformed their
markets. Our current portfolio provides a good example; the average vacancy rate for office assets we have owned for
more than 18 months is less than 9 percent, while the average vacancy rate of the markets in which they compete is 15
percent. Over any period of time, this 40 percent variance drives far superior financial performance.
Cousins | 2
Our focus is on top assets in the best urban submarkets, where rents are highest and the supply/demand characteristics
are strongest. Urban centers are growing faster than their suburban counterparts due to much of the talented young
workforce’s preference for a live/work/play lifestyle. Many companies are locating their offices to appeal to this
preference. Also, under current conditions in most Sunbelt markets, we can typically acquire these buildings for much
less than the cost of developing a new tower. This price advantage allows us to add the best-of-class amenities that a
new building would have, while renting at rates much less expensive than those in a new tower. In the few markets
where rents support new construction, we use these same development skills to build the new product.
A valuable, if sometimes underestimated, advantage is our knowledge of local markets, customers and assets. A small
location difference – sometimes just a couple of blocks, which might seem a nuance to an outsider – can have a huge
impact on performance. We place no faith in first impressions, basing our judgments on an intricate understanding of
the places where we do business.
PROMENADE | ATLANTA
Cousins acquired Promenade – located in
the heart of Midtown Atlanta – in 2011 for
$134.7 million. The 774,000-square-foot
Class-A office building presented an
opportunity not only to acquire a trophy
asset in a coveted submarket, but also for
significant value creation. Having just lost
its 400,000-square-foot anchor tenant the
year before, Promenade was 58 percent
leased at acquisition. Cousins implemented
a significant capital improvement project
that called for a fitness center and bistro
along with a substantial reworking of
the entrance area. Today, the property
is 77 percent leased with strong leasing
momentum. Promenade has been cited by
local brokers as one of the market’s biggest
success stories in recent years.
Cousins | 3
EMORY POINT | ATLANTA
In one of the highest demand, supply
constrained markets in Atlanta, Cousins
was able to secure an off-market mixed-
use development opportunity through its
long-term relationship with Emory
University. In late 2012, Cousins delivered
a $102 million Phase I of Emory Point that
included 82,000 square feet of retail
anchored by national tenants such as CVS,
Jos A. Bank, Marlow’s Tavern and Bonefish
Grill (90 percent committed with only three
vacancies) as well as 443 apartment units,
which have a projected stabilization in
2014. Located adjacent to Emory University
and the Centers for Disease Control,
Emory Point will also welcome a Phase II
that is expected to commence in mid-2013,
bringing an additional 40,000 square feet
of retail and 240 apartment units.
On both acquired and newly developed properties, the clear impact of our team’s strategy and skill captures the benefit
of investing in this asset class:
• In 1990, Cousins co-developed 191 Peachtree Tower in Downtown Atlanta. The project was a great success until
the mid-2000’s when, under a subsequent operator, the building lost several key tenants. In 2006, when occupancy
fell to just 20 percent, we acquired the building for $127 per square foot, or about 30 percent of today’s replacement
cost. While our development team added restaurants, a fitness center, and a 49th floor private club, our leasing
team went to work and has since taken the building to over 87 percent leased.
• In an August 2012 foreclosure auction, we acquired 2100 Ross, a Class-A office tower in the Arts District
submarket of Dallas, sitting adjacent to a new five-acre park connecting the Arts District with Uptown. We
purchased this 67 percent leased building for $70 per square foot, less than 30 percent of replacement cost. We
immediately implemented a comprehensive capital improvement plan to enhance the tenant experience. The
early results are encouraging with the recent execution of a 99,000-square-foot lease with an organization with
which we have a successful long-term relationship, increasing the leased percentage by over 10 percent.
• In Midtown Atlanta we acquired Promenade in November 2011, when it was 58 percent leased. Similar to 2100
Ross, we put our redevelopment and leasing skills to work and have completed a fitness center, bistro, and significant
rework of the entrance area, while increasing leased space to 77 percent. This repositioned building, which is
adjacent to the Woodruff Arts Center and Peachtree Street, is the source of very positive feedback from existing
and prospective tenants.
• Between 2006 and 2009 in the Buckhead area of Atlanta, we developed Terminus 100 and Terminus 200 with 1.1
million square feet of office and 70,000 square feet of retail space. Today the buildings are a combined 94 percent
leased, despite the difficult economic environment since 2008. This contrasts with overall occupancy in Buckhead
of less than 83 percent.
• In February 2013, we entered into a compelling, off-market transaction with J.P. Morgan Asset Management
( JPM) that both provided an attractive entry into the Houston market and fortified the ownership structure of
our Terminus towers in Atlanta. We acquired from JPM the Post Oak Central development in Houston’s strongest
office submarket, at a price we estimate at 45 percent below replacement cost. The complex encompasses three
office towers that are 92 percent occupied with a 5.5-year average remaining lease term. Also included, and by no
means insignificantly to us, are two acres of undeveloped land, one of the last remaining parcels with Post Oak
Boulevard frontage. As part of the overall transaction, we also entered into a 50-50 joint venture with JPM for
both Terminus office towers, ensuring these buildings will continue to reap the benefits of top-notch sponsorship.
Cousins | 4
POST OAK CENTRAL | HOUSTON
Cousins secured yet another off-market
transaction with the acquisition of a three-
tower Class-A office complex totaling
1.3 million square feet for $232.6 million in
early 2013. Post Oak Central – located in
Houston’s Galleria submarket – was 92
percent leased at acquisition and included a
two-acre development parcel that represents
one of the last remaining sites with frontage
on Post Oak Boulevard. This trophy asset –
purchased at a significant discount to
replacement cost – provides Cousins with a
very attractive entry into the Houston market.
OPPORTUNISTIC INVESTMENTS
The country has been emerging from the economic downturn slowly, but there is reason for optimism – especially in
our primary markets. Moody’s projects Texas, Georgia and North Carolina among the top four states for population
growth through 2020. Atlanta, Dallas and Houston consistently rank in the top four metropolitan areas for low business
costs, best places for business and careers, and number of Fortune 500 headquarters. The employment growth rate for
Atlanta, Austin, Charlotte, Dallas, Houston and Raleigh is expected to exceed the projected national rate by more than
50 percent through 2017, according to Property and Portfolio Research. These demographic tailwinds – while not
critical to the execution of our strategy – would certainly be a welcome companion in the coming months and years.
We had great results in the opportunistic investment area in 2012:
• Mahan Village, our Publix Super Market-anchored shopping center development in Tallahassee, Florida, opened
during 2012 and is 90 percent leased. We now have five high-quality centers anchored by Publix, all of which were
sourced through off-market, relationship driven transactions.
• In Atlanta, the $102 million Emory Point mixed-use development, adjacent to Emory University and the Centers
for Disease Control, is open for business. Retail space is 90 percent committed and apartment leasing is ahead of
schedule. A second phase, comprising 240 additional apartments and 40,000 square feet of retail space, is
anticipated to begin later this year. We are thrilled to continue our long-term relationship with Emory.
• Construction of 123 West Franklin, our mixed-use development at the University of North Carolina, is on track
for a 2014 start. As was the case with Mahan Village and Emory Point, the opportunity was the result of our
relationships and reputation in the market.
• In Austin, Texas, we expect to launch development this year on 3rd and Colorado, 372,000-square-foot office
tower in a prime central business district location. We developed Frost Bank Tower almost a decade ago, which
was the last tower built in Austin. Our team has the track record and relationships to provide prospective customers
the confidence to make the early commitments necessary to start the building.
Cousins | 5
2100 ROSS | DALLAS
Acquired in late 2012 for $59.2 million at a foreclosure
auction, 2100 Ross represents another significant value
creation opportunity for Cousins. The 884,000-square-foot
Class-A office building – 67 percent leased at the time of
purchase – is located in the Arts District submarket of Dallas
and sits adjacent to a new five-acre park connecting the Arts
District with Uptown. With a cost basis less than 30 percent
of replacement cost and a capital improvement plan that
will greatly enhance the tenant experience, Cousins is
already generating significant tenant interest. The building
is now 77 percent leased with strong momentum.
We believe that substantial value creation opportunities exist in
both our existing portfolio and in our development pipeline. We
can generate significant additional net operating income by
further increasing the combined occupancy of four key assets –
Promenade, 191 Peachtree, the American Cancer Society
Center and 2100 Ross – to 90 percent. This embedded NOI
opportunity, combined with the value creation potential of our
$400 million development pipeline - which currently includes
Mahan Village, Emory Point I and II, 3rd and Colorado and
123 West Franklin – leaves us very optimistic about our
prospects for the future.
Further leveraging our development expertise, we are proud to be
developing, on a fee basis, three of Atlanta’s most high-profile
projects: the new $83 million College Football Hall of Fame, the
new $65 million Center for Civil and Human Rights and a new
600,000 square-foot corporate headquarters tower for Cox
Enterprises - the third tower we have developed on their campus.
In closing, I want to give special credit to the entire Cousins
team, both in the field and in support roles, that has dedicated
itself so successfully to repositioning our company under the
strategic vision. There have been a lot of moving pieces to manage – non-core asset sales, new asset acquisitions, leasing
of space, property development and management – and the team has handled them with agility, creativity and
characteristic skill. They have maintained focus and effectively moved us from defense to offense – a transition that
we are all very excited about.
In these ways 2012 was a culmination and a turning point, leaving your company very well positioned for the months
and years ahead.
Sincerely,
Larry L. Gellerstedt III
President and Chief Executive Officer
Cousins | 6
DIRECTORS
S. Taylor Glover
Non-executive Chairman of the
Board of Directors,
Cousins Properties
Incorporated; President
and Chief Executive Officer,
Turner Enterprises, Inc.
Tom G. Charlesworth
Former Chief Investment Officer,
Chief Financial Officer and
General Counsel, Cousins
Properties Incorporated
EXECUTIVE OFFICERS
Larry L. Gellerstedt III
President and
Chief Executive Officer
Gregg D. Adzema
Executive Vice President and
Chief Financial Officer
William Porter Payne
Chairman, Centennial
Holdings Co., Inc.
R. Dary Stone
President and Chief Executive
Officer, R.D. Stone Interests
Thomas G. Cousins
Chairman Emeritus
James D. Edwards
Former Managing Partner
Global Markets,
Arthur Andersen LLP
Larry L. Gellerstedt III
President and Chief Executive
Officer, Cousins Properties
Incorporated
Lillian C. Giornelli
Chairman, Chief Executive
Officer and Trustee, The
Cousins Foundation, Inc.
James H. Hance, Jr.
Former Vice Chairman,
Bank of America Corporation
Michael I. Cohn
Executive Vice President
John S. McColl
Executive Vice President
J. Thad Ellis III
Senior Vice President
John D. Harris, Jr.
Senior Vice President,
Chief Accounting Officer and
Assistant Corporate Secretary
Pamela F. Roper
Senior Vice President, General
Counsel and Corporate Secretary
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
_______________________________________________________________________
FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 2012
or
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
Commission file number 001-11312
___________________________________________________
COUSINS PROPERTIES INCORPORATED
(Exact name of registrant as specified in its charter)
Georgia
(State or other jurisdiction
of incorporation or organization)
191 Peachtree Street NE, Suite 500, Atlanta, Georgia
(Address of principal executive offices)
58-0869052
(I.R.S. Employer
Identification No.)
30303-1740
(Zip Code)
(404) 407-1000
(Registrant’s telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
Title of each class
Common Stock ($1 par value)
7.75% Series A Cumulative Redeemable
Preferred Stock ($1 par value)
7.50% Series B Cumulative Redeemable
Preferred Stock ($1 par value)
Name of Exchange on which registered
New York Stock Exchange
New York Stock Exchange
New York Stock Exchange
Securities registered pursuant to Section 12(g) of the Act: None
___________________________________________________________
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes No
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Exchange Act. Yes No
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes No
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Website, if any, every Interactive Data File
required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the
registrant was required to submit and post such files). Yes No
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to
the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K.
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company.
See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):
Large accelerated filer
Non-accelerated filer
(Do not check if a smaller reporting company)
Accelerated filer
Smaller reporting company
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes No
As of June 29, 2012, the aggregate market value of the common stock of Cousins Properties Incorporated held by non-affiliates was
$705,136,928 based on the closing sales price as reported on the New York Stock Exchange. As of February 6, 2013, 104,182,579 shares of common
stock were outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Registrant’s proxy statement for the annual stockholders meeting to be held on May 7, 2013 are incorporated by reference into
Part III of this Form 10-K.
FORWARD-LOOKING STATEMENTS
Certain matters contained in this report are “forward-looking statements” within the meaning of the federal securities laws and
are subject to uncertainties and risks, as itemized in Item 1A included in this Form 10-K. These forward-looking statements include
information about possible or assumed future results of the Company's business and the Company's financial condition, liquidity,
results of operations, plans and objectives. They also include, among other things, statements regarding subjects that are forward-
looking by their nature, such as:
the Company's business and financial strategy;
the Company's ability to obtain future financing arrangements;
future acquisitions and future dispositions of operating assets;
future development and redevelopment opportunities;
future dispositions of land and other non-core assets;
•
•
•
•
•
• projected operating results;
• market and industry trends;
•
• projected capital expenditures; and
•
future distributions;
interest rates.
The forward-looking statements are based upon management's beliefs, assumptions and expectations of the Company's future
performance, taking into account information currently available. These beliefs, assumptions and expectations may change as a result
of possible events or factors, not all of which are known. If a change occurs, the Company's business, financial condition, liquidity and
results of operations may vary materially from those expressed in forward-looking statements. Actual results may vary from forward-
looking statements due to, but not limited to, the following:
•
•
•
•
•
the availability and terms of capital and financing;
the ability to refinance indebtedness as it matures;
the failure of purchase, sale or other contracts to ultimately close;
the availability of buyers and adequate pricing with respect to the disposition of assets;
risks and uncertainties related to national and local economic conditions, the real estate industry in general and the
commercial real estate markets in particular;
• changes to the Company's strategy with regard to land and other non-core holdings that require impairment losses to be
•
•
the availability of sufficient investment opportunities;
recognized;
the effects of the sale of the Company's third party management business;
leasing risks, including the ability to obtain new tenants or renew expiring tenants, and the ability to lease newly developed
and/or recently acquired space;
•
the financial condition of existing tenants;
• volatility in interest rates and insurance rates;
•
• competition from other developers or investors;
•
the risks associated with real estate developments and acquisitions (such as construction delays, cost overruns and leasing
risk);
the loss of key personnel;
the potential liability for uninsured losses, condemnation or environmental issues;
the potential liability for a failure to meet regulatory requirements;
the financial condition and liquidity of, or disputes with, joint venture partners;
•
•
•
•
• any failure to comply with debt covenants under credit agreements; and
• any failure to continue to qualify for taxation as a real estate investment trust.
The words “believes,” “expects,” “anticipates,” “estimates,” “plans,” “may,” “intend,” “will,” or similar expressions are
intended to identify forward-looking statements. Although the Company believes its plans, intentions and expectations reflected in any
forward-looking statements are reasonable, the Company can give no assurance that such plans, intentions or expectations will be
achieved. The Company undertakes no obligation to publicly update or revise any forward-looking statement, whether as a result of
future events, new information or otherwise, except as required under U.S. federal securities laws.
2
Item 1. Business
Corporate Profile
PART I
Cousins Properties Incorporated (the “Registrant” or “Cousins”) is a Georgia corporation, which, since 1987, has elected
to be taxed as a real estate investment trust (“REIT”). Cousins Real Estate Corporation, including its subsidiaries, (“CREC”) is
a taxable entity wholly-owned by the Registrant, which is consolidated with the Registrant. CREC owns, develops and
manages its own real estate portfolio and performs certain real estate related services for other parties. The Registrant, its
subsidiaries and CREC combined are hereafter referred to as the “Company.” The Company has been a public company since
1962, and its common stock trades on the New York Stock Exchange under the symbol “CUZ.”
Company Strategy
The Company’s strategy is to generate stockholder returns through the acquisition, development, ownership and
management of high-quality office and retail properties in the Sunbelt with particular focus on Georgia, Texas and North
Carolina. The Company also owns relatively small interests in residential and commercial land tracts held for investment. The
Company intends to focus on increasing the value in its current portfolio through lease-up, cost control and superior customer
service, as well as making opportunistic investments in office properties within its core markets. The Company’s long-term
strategy also includes continuing to recycle capital not invested in its core markets or property types, continuing to reduce its
holdings of residential and commercial land and diversifying its holdings geographically among its core markets. Through this
capital recycling and other capital sources, the Company expects to maintain its leverage near its current levels.
2012 Significant Activities
The following is a summary of the Company’s 2012 activities by business line and in the financing area.
Office
As of December 31, 2012, the Company owned directly, or through joint ventures, 14 operating office properties totaling
7.8 million square feet. The Company maintains expertise in the development of office properties and its strategy is to also seek
to opportunistically acquire operating office properties within its core markets. These acquisitions may take the form of
operationally or financially distressed properties that are well-located and to which the Company’s leasing and management
expertise could add value over time. During 2012, the Company had the following activity in its office property portfolio:
•
•
•
•
•
•
•
•
Executed new or renewed existing leases covering 724,000 square feet.
Acquired 2100 Ross Avenue, a 844,000 square foot Class A office building in the Arts District submarket of
Dallas, Texas for $59.2 million.
Sold Galleria 75, a 111,000 square foot office building in Atlanta, Georgia for $9.2 million, generating a gain of
$569,000.
Sold Cosmopolitan Center, a 51,000 square foot office building in Atlanta, Georgia, for $7.0 million, generating a
gain of $2.1 million.
Through Ten Peachtree Place Associates, sold Ten Peachtree Place, a 260,000 square foot office building in
Atlanta, Georgia. The Company's share of the proceeds from this transaction was $5.1 million, and the Company
recognized a gain of $7.3 million.
Through CP Venture Two LLC, sold Presbyterian Medical Plaza, a 69,000 square foot office building in
Charlotte, North Carolina. The Company's share of the proceeds from this transaction was $450,000, and the
Company recognized a gain of $167,000.
Sold its interest in the joint venture that owns Palisades West, a 373,000 square foot office building in Austin,
Texas, for $64.8 million, generating a gain of $23.3 million.
Subsequent to year end, purchased the remaining interest in the venture that owns Terminus 200, purchased Post
Oak Central, a 1.3 million square foot Class A office building in Houston Texas, and sold 50% of the Company's
interest in Terminus 100 and Terminus 200. The transactions valued Terminus 100 at $209.2 million, Terminus
200 at $164.0 million and Post Oak Central at $232.6 million.
3
Retail
As of December 31, 2012, the Company owned directly or through joint ventures 16 operating retail centers totaling
3.7 million square feet. The Company developed most of the retail properties it currently owns. Similar to its strategy for office
properties, the Company may seek to opportunistically acquire retail properties within its core markets. During 2012, the
Company had the following activity in its retail property portfolio:
•
•
•
•
•
•
Executed new or renewed existing leases covering 445,000 square feet.
Commenced operations at Mahan Village, a 147,000 square foot shopping center, anchored by Publix and
Academy Sports, in Tallahassee, Florida.
Commenced operations at Emory Point, a mixed-use project in Atlanta, Georgia, which consists of 443 apartment
units and 80,000 square foot of retail space in a joint venture with Gables Residential.
Sold The Avenue Collierville, a 511,000 square foot retail center in Memphis, Tennessee, for $55.0 million. The
Company recorded an impairment loss of $12.2 million on this center prior to the sale.
Sold The Avenue Forsyth, a 524,000 square foot retail center in Atlanta, Georgia, for $119.0 million, generating a
gain of $4.5 million.
Sold The Avenue Webb Gin, a 322,000 square foot retail center in Atlanta, Georgia, for $59.6 million, generating
a gain of $3.6 million.
Third Party Management
During 2012, the Company sold its third party management and leasing business to Cushman & Wakefield. Under the
terms of the agreement, the Company has the potential to receive up to $15.4 million in gross sales proceeds, of which
approximately 63.5% was received at closing. The Company recognized a gain on this transaction of $7.5 million and will
recognize additional gains if and when additional consideration is earned.
Fee Income
The Company generates fee income from development projects with third parties and from management and leasing
agreements with its unconsolidated joint ventures. During 2012, the Company received $4.5 million from a participation
interest related to a contract that the Company assumed in the acquisition of an entity several years ago. Under this contract, the
Company is entitled to receive a portion of the proceeds from the sale of the project and from payments received from a related
seller-financed note.
Residential and Commercial Land
As a result of its decision to effectively exit the residential land business over time, the Company sold the majority of its
interests in CL Realty, L.L.C. ("CL Realty") and Temco Associates, LLC ("Temco") to its partner in these ventures for $23.5
million in 2012. In 2012, the Company also changed is strategy with respect to its commercial land holdings to more
aggressively liquidate these properties. As a result, the Company sold acres of residential and commercial land at 12 locations
for total proceeds of $28.8 million in 2012.
As of December 31, 2012, the Company owned, directly or through joint ventures, 6,162 acres of residential and
commercial land.
Financing Activities
The Company’s financing strategy is to provide capital to fund its investment activities, while maintaining, over time, a
relatively conservative leverage ratio with debt maturity dates which are staggered. Historically, the Company has generated
capital using credit facilities, construction loans or mortgage notes payable secured by underlying properties. The Company has
also raised capital through the sale of assets, the contribution of assets into joint ventures and the issuance of equity securities.
During 2012, the Company had the following financing activities:
•
•
•
•
Amended its $350 million Credit Facility, extending the maturity from August 2012 to February 2016 with a one-
year extension under certain situations and adding an accordion feature that allows it to increase capacity under
the Credit Facility to $500 million.
Obtained a mortgage note payable secured by 191 Peachtree Tower for $100 million, maturing October 1, 2018,
at a 3.35% fixed interest rate.
Prepaid, without penalty, the 100/200 North Point Center East office building mortgage note.
CF Murfreesboro Associates, a joint venture in which the Company has a 50% interest, entered into an agreement
to amend its existing loan to extend the maturity date to December 31, 2013, decrease the capacity of the loan
from $113.2 million to $97.5 million and decrease the interest paid on the loan to LIBOR plus 2.5% beginning
August 2013.
4
Environmental Matters
The Company’s business operations are subject to various federal, state and local environmental laws and regulations
governing land, water and wetlands resources. Among these are certain laws and regulations under which an owner or operator
of real estate could become liable for the costs of removal or remediation of certain hazardous or toxic substances present on or
in such property. Such laws often impose liability without regard to whether the owner knew of, or was responsible for, the
presence of such hazardous or toxic substances. The presence of such substances, or the failure to properly remediate such
substances, may subject the owner to substantial liability and may adversely affect the owner’s ability to develop the property
or to borrow using such real estate as collateral.
The Company typically manages this potential liability through performance of Phase I Environmental Site Assessments
and, as necessary, Phase II environmental sampling, on properties it acquires or develops, although no assurance can be given
that environmental liabilities do not exist, that the reports revealed all environmental liabilities or that no prior owner created
any material environmental condition not known to the Company. In certain situations, the Company has also sought to avail
itself of legal and regulatory protections offered by federal and state authorities to prospective purchasers of property. Where
applicable studies have resulted in the determination that remediation was required by applicable law, the necessary
remediation is typically incorporated into the acquisition or development activity of the relevant property. The Company is not
aware of any environmental liability that the Company’s management believes would have a material adverse effect on the
Company’s business, assets or results of operations.
Certain environmental laws impose liability on a previous owner of a property to the extent that hazardous or toxic
substances were present during the prior ownership period. A transfer of the property does not necessarily relieve an owner of
such liability. Thus, although the Company is not aware of any such situation, the Company may be liable in respect to
properties previously sold. The Company believes that it and its properties are in compliance in all material respects with all
applicable federal, state and local laws, ordinances and regulations governing the environment.
Competition
The Company owns several different real estate products, most of which are located in markets that include other real
estate products of the same or similar type. The Company competes with other real estate owners with similar properties
located in its markets, and distinguishes itself to tenants/buyers primarily on the basis of location, rental rates/sales prices,
services provided, reputation and the design and condition of the facilities. The Company also competes with other real estate
companies, financial institutions, pension funds, partnerships, individual investors and others when attempting to acquire and
develop properties.
Executive Offices; Employees
The Registrant’s executive offices are located at 191 Peachtree Street, Suite 500, Atlanta, Georgia 30303-1740. On
December 31, 2012, the Company employed 159 people.
Available Information
The Company makes available
its website,
www.cousinsproperties.com, its filed and furnished reports on Forms 10-K, 10-Q and 8-K, and all amendments thereto, as soon
as reasonably practicable after the reports are filed with or furnished to the Securities and Exchange Commission (the “SEC”).
the “Investor Relations” page of
free of charge on
The Company’s Corporate Governance Guidelines, Director Independence Standards, Code of Business Conduct and
Ethics, and the Charters of the Audit Committee, the Investment Committee and the Compensation, Succession, Nominating
and Governance Committee of the Board of Directors are also available on the “Investor Relations” page of the Company’s
website. The information contained on the Company’s website is not incorporated herein by reference. Copies of these
documents (without exhibits, when applicable) are also available free of charge upon request to the Company at 191 Peachtree
Street, Suite 500, Atlanta, Georgia 30303-1740, Attention: Cameron Golden, Investor Relations. Mr. Golden may also be
reached by telephone at (404) 407-1984 or by facsimile at (404) 407-1002. In addition, the SEC maintains a website that
contains reports, proxy and information statements, and other information regarding issuers, including the Company, that file
electronically with the SEC at www.sec.gov.
Item 1A. Risk Factors
Set forth below are the risks we believe investors should consider carefully in evaluating an investment in the securities
of Cousins Properties Incorporated.
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General Risks of Owning and Operating Real Estate
Our ownership of commercial real estate involves a number of risks, the effects of which could adversely affect
our business.
General economic and market risks. In periods during, or following, a general economic decline or recessionary climate,
our assets may not generate sufficient cash to pay expenses, service debt or cover maintenance, and, as a result, our results of
operations and cash flows may be adversely affected. Several factors may adversely affect the economic performance and value
of our properties. These factors include, among other things:
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changes in the national, regional and local economic climate;
local real estate conditions such as an oversupply of properties or a reduction in demand for properties;
the attractiveness of our properties to tenants or buyers;
competition from other available properties;
changes in market rental rates and related concessions granted to tenants such as free rent, tenant allowances and
tenant improvement allowances; and
the need to periodically repair, renovate and re-lease space.
While the trends in the real estate industry, and the broader U. S. economy, appear to be showing signs of improvement,
economic conditions within some of our markets, such as unemployment, continue to lag national averages and may, as a
result, adversely affect our business, financial condition, results of operations and the ability of our tenants and other parties to
satisfy their contractual obligations to us. Uncertain economic conditions may adversely impact current tenants in our various
markets and, accordingly, could affect their ability to pay rents owed to us pursuant to their leases. In periods of economic
uncertainty, tenants are more likely to close less profitable locations and/or to declare bankruptcy; and, pursuant to various
bankruptcy laws, leases may be rejected and thereby terminated. Furthermore, our ability to sell or lease our properties at
favorable rates, or at all, may be negatively impacted by general or local economic conditions.
Our ability to collect rent from tenants may affect our ability to pay for adequate maintenance, insurance and other
operating costs (including real estate taxes). Also, the expense of owning and operating a property is not necessarily reduced
when circumstances such as market factors cause a reduction in income from the property. If a property is mortgaged and we
are unable to meet the mortgage payments, the lender could foreclose on the mortgage and take title to the property. In
addition, interest rate levels, the availability of financing, changes in laws and governmental regulations (including those
governing usage, zoning and taxes) may adversely affect our financial condition.
Impairment risks. We regularly review our real estate assets for impairment, and based on these reviews we may record
impairment losses that have an adverse effect on our results of operations. Negative or uncertain market and economic
conditions, as well as market volatility, increase the likelihood of incurring impairment losses. In the current environment, if
management decides to sell a real estate asset or reduces its estimates of future cash flows on a real estate asset, the risk of
impairment increases. The magnitude of and frequency with which these charges occur could materially and adversely affect
our business, financial condition and results of operations.
Leasing risk. Our operating revenues are dependent upon entering into leases with and collecting rents from our tenants.
In uncertain economic times, tenants whose leases are expiring may desire to decrease the space they lease and/or may be
unwilling to continue their lease. When leases expire or are terminated, replacement tenants may not be available upon
acceptable terms and market rental rates may be lower than the previous contractual rental rates. Also, during uncertain
economic conditions, our tenants may approach us for additional concessions in order to remain open and operating. The
granting of these concessions may adversely affect our results of operations and cash flows to the extent that they result in
reduced rental rates, additional capital improvements, or allowances paid to or on behalf of the tenants.
Tenant and property concentration risk. As of December 31, 2012, our top 20 tenants represented approximately 43% of
our annualized base rental revenues. While no single tenant accounts for more than 5% of our annualized base rental revenues,
the loss of one or more of these tenants could have a significant negative impact on our results of operations or financial
condition if a suitable replacement tenant is not secured in a timely fashion.
In addition, for the three months ended December 31, 2012, 56% of the Company’s net operating income was derived
from four properties in Atlanta, Georgia: Terminus 100, 191 Peachtree Tower, The American Cancer Society Center and
Promenade. Subsequent to year end, the Company reduced its exposure to the Atlanta, Georgia market by selling 50% of
Terminus 100 and acquiring Post Oak Central in Houston, Texas. Even with this reduced exposure, any adverse economic
conditions impacting the Atlanta area generally, or in its Downtown, Midtown or Buckhead submarkets specifically, could
adversely affect the operations of one or all of these properties which, in turn, could adversely affect our overall results of
operations and financial condition.
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Uninsured losses and condemnation costs. Accidents, earthquakes, terrorism incidents and other losses at our properties
could adversely affect our operating results. Casualties may occur that significantly damage an operating property, and
insurance proceeds may be less than the total loss incurred by us. Although we maintain casualty insurance under policies we
believe to be adequate and appropriate, including rent loss insurance on operating properties, some types of losses, such as
those related to the termination of longer-term leases and other contracts, generally are not insured. Certain types of insurance
may not be available or may be available on terms that could result in large uninsured losses. Property ownership also involves
potential liability to third parties for such matters as personal injuries occurring on the property. Such losses may not be fully
insured. In addition to uninsured losses, various government authorities may condemn all or parts of operating properties. Such
condemnations could adversely affect the viability of such projects.
Environmental issues. Environmental issues that arise at our properties could have an adverse effect on our financial
condition and results of operations. Federal, state and local laws and regulations relating to the protection of the environment
may require a current or previous owner or operator of real estate to investigate and clean up hazardous or toxic substances or
petroleum product releases at a property. If determined to be liable, the owner or operator may have to pay a governmental
entity or third parties for property damage and for investigation and clean-up costs incurred by such parties in connection with
the contamination, or perform such investigation and clean-up itself. Although certain legal protections may be available to
prospective purchasers of property, these laws typically impose clean-up responsibility and liability without regard to whether
the owner or operator knew of or caused the presence of the regulated substances. Even if more than one person may have been
responsible for the release of regulated substances at the property, each person covered by the environmental laws may be held
responsible for all of the clean-up costs incurred. In addition, third parties may sue the owner or operator of a site for damages
and costs resulting from regulated substances emanating from that site. We are not currently aware of any environmental
liabilities at locations that we believe could have a material adverse effect on our business, assets, financial condition or results
of operations. Unidentified environmental liabilities could arise, however, and could have an adverse effect on our financial
condition and results of operations.
Joint venture structure risks. Similar to other real estate companies, we have interests in various joint ventures (including
partnerships and limited liability companies) and may in the future invest in real estate through such structures. Our venture
partners may have rights to take actions over which we have no control, or the right to withhold approval of actions that we
propose, either of which could adversely affect our interests in the related joint ventures and in some cases our overall financial
condition and results of operations. These structures involve participation by other parties whose interests and rights may not be
the same as ours. For example, a venture partner might have economic and/or other business interests or goals which are
incompatible with our business interests or goals and that venture partner may be in a position to take action contrary to our
interests. In addition, such venture partners may default on their obligations, which could have an adverse impact on the
financial condition and operations of the joint venture. Such defaults may result in our fulfilling their obligations that may, in
some cases, require us to contribute additional capital to the ventures. Furthermore, the success of a project may be dependent
upon the expertise, business judgment, diligence and effectiveness of our venture partners in matters that are outside our
control. Thus, the involvement of venture partners could adversely impact the development, operation, ownership or disposition
of the underlying properties.
Liquidity risk. Real estate investments are relatively illiquid and can be difficult to sell and convert to cash quickly,
especially if market conditions are not favorable. As a result, our ability to sell one or more of our properties, whether in
response to any changes in economic or other conditions or in response to a change in strategy, may be limited. In the event we
want to sell a property, we may not be able to do so in the desired time period, the sales price of the property may not meet our
expectations or requirements, and we may be required to record an impairment loss on the property as a result.
Compliance or failure to comply with federal, state and local regulatory requirements could result in substantial
costs.
Our properties are subject to various federal, state and local regulatory requirements, such as the Americans with
Disabilities Act and state and local fire, health and life safety requirements. Compliance with these regulations may involve
upfront expenditures and/or ongoing costs. If we fail to comply with these requirements, we could incur fines or other monetary
damages. We do not know whether existing requirements will change or whether compliance with existing or future
requirements will require significant unanticipated expenditures that will affect our cash flows and results of operations.
Any failure to timely sell land holdings could result in additional impairment charges and adversely affect our
results of operations.
We maintain holdings of non-income producing land. Our current strategy includes continuing to reduce our holdings of
land. As a part of this strategy, we expect to liquidate land to generate capital as opposed to holding the land for future
development or capital appreciation. This strategy carries the risk that we will sell the land for less than our basis requiring us
to record impairment losses.
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Financing Risks
At certain times, interest rates and other market conditions for obtaining capital are unfavorable, and, as a result,
we may be unable to raise the capital needed to invest in acquisition or development opportunities, maintain our
properties or otherwise satisfy our commitments on a timely basis, or we may be forced to raise capital at a higher cost
or under restrictive terms, which could adversely affect returns on our investments, our cash flows and results of
operations.
We finance our acquisition and development projects through one or more of the following: our Credit Facility,
permanent mortgages, proceeds from the sale of assets, construction loans, joint venture equity, issuance of common stock and
issuance of preferred stock. Each of these sources may be constrained from time to time because of market conditions, and the
related cost of raising this capital may be unfavorable at any given point in time. These sources of capital, and the risks
associated with each, include the following:
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Credit facilities. Terms and conditions available in the marketplace for credit facilities vary over time. We can
provide no assurance that the amount we need from our Credit Facility will be available at any given time, or at
all, or that the rates and fees charged by the lenders will be reasonable. We incur interest under our Credit Facility
at a variable rate. Variable rate debt creates higher debt service requirements if market interest rates increase,
which would adversely affect our cash flow and results of operations. Our Credit Facility contains customary
restrictions, requirements and other limitations on our ability to incur indebtedness, including restrictions on total
debt outstanding, restrictions on secured recourse debt outstanding, and requirements to maintain minimum fixed
charge coverage ratios. Our continued ability to borrow under our Credit Facility is subject to compliance with
these covenants.
Mortgage financing. The availability of financing in the mortgage markets is dependent upon various conditions,
including the willingness of mortgage lenders to lend at any given point in time. Interest rates and loan-to-value
ratios may also be volatile, and we may from time to time elect not to proceed with mortgage financing due to
unfavorable terms offered by lenders. This could adversely affect our ability to finance acquisition or
development activities. In addition, if a property is mortgaged to secure payment of indebtedness and we are
unable to make the mortgage payments, the lender may foreclose, resulting in loss of income and asset value.
We may not be able to refinance debt secured by our properties at the same levels or on the same terms,
which could adversely affect our business, financial condition and results of operations. Further, at the time a loan
matures, the property may be worth less than the loan amount and, as a result, the Company may determine not to
refinance the loan and permit foreclosure, generating a loss to the Company.
Property sales. Real estate markets tend to experience market cycles. Because of such cycles, the potential terms
and conditions of sales, including prices, may be unfavorable for extended periods of time. In addition, our status
as a REIT limits our ability to sell properties, and this may affect our ability to liquidate an investment. As a
result, our ability to raise capital through property sales in order to fund our acquisition and development projects
or other cash needs could be limited. In addition, mortgage financing on a property may prohibit prepayment
and/or impose a prepayment penalty upon the sale of that property, which may decrease the proceeds from a sale
or refinancing or make the sale or refinancing impractical.
Construction loans. Construction loans generally relate to specific assets under construction and fund costs above
an initial equity amount deemed acceptable to the lender. Terms and conditions of construction facilities vary, but
they generally carry a term of two to five years, charge interest at variable rates, require the lender to be satisfied
with the nature and amount of construction costs prior to funding and require the lender to be satisfied with the
level of pre-leasing prior to closing. Construction loans frequently require a portion of the loan to be recourse to
the Company in addition to being recourse to the equity in the asset. While construction lending is generally
competitive and offered by many financial institutions, there may be times when these facilities are not available
or are only available upon unfavorable terms which could have an adverse effect on our ability to fund
development projects or on our ability to achieve the returns we expect.
Joint ventures. Joint ventures, including partnerships or limited liability companies, tend to be complex
arrangements, and there are only a limited number of parties willing to undertake such investment structures.
There is no guarantee that we will be able to undertake these ventures at the times we need capital.
Common stock. We have sold common stock from time to time to raise capital. The market price of our common
stock may decline as a result the sale of our common stock in the market after such offerings, or the perception
that such sales may occur. We can also provide no assurance that conditions will be favorable for future issuances
of common stock when we need the capital, which could have an adverse effect on our ability to fund acquisition
and development activities.
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Preferred stock. The availability of preferred stock at favorable terms and conditions is dependent upon a number
of factors including the general condition of the economy, the overall interest rate environment, the condition of
the capital markets and the demand for this product by potential holders of the securities. We can provide no
assurance that conditions will be favorable for future issuances of preferred stock when we need the capital,
which could have an adverse effect on our ability to fund acquisition and development activities.
Covenants contained in our Credit Facility and mortgages could restrict or hinder our operational flexibility,
which could adversely affect our results of operations.
Our Credit Facility imposes financial and operating covenants on us. These covenants may be modified from time to
time, but covenants of this type typically include restrictions and limitations on our ability to incur debt, as well as limitations
on the amount of our unsecured debt, limitations on distributions to stockholders, and limitations on the amount of joint venture
activity in which we may engage. These covenants may limit our flexibility in making business decisions. In addition, our
Credit Facility contains financial covenants that, among other things, require that our earnings, as defined, exceed our fixed
charges, as defined, by a specified amount and a covenant that requires our net worth, as defined, to be above a specified dollar
amount. If we incur significant losses, such as impairment losses, we are at greater risk of violating our net worth covenant. If
we fail to comply with these covenants, our ability to borrow may be impaired, which could potentially make it more difficult
to fund our capital and operating needs. Our failure to comply with such covenants could cause a default, and we may then be
required to repay our outstanding debt with capital from other sources. Under those circumstances, other sources of capital may
not be available to us or may be available only on unattractive terms, which could materially and adversely affect our financial
condition and results of operations. In addition, the cross default provision on the Credit Facility may affect business decisions
on other mortgage debt.
Some of our property mortgages contain customary negative covenants, including limitations on our ability, without the
lender’s prior consent, to further mortgage that property, to modify existing leases or to sell that property. Compliance with
these covenants and requirements could harm our operational flexibility and financial condition.
Our degree of leverage could limit our ability to obtain additional financing or affect the market price of our
securities.
Total debt as a percentage of either total asset value or total market capitalization is often used by analysts to gauge the
financial health of equity REITs such as us. If our degree of leverage is viewed unfavorably by lenders or potential joint
venture partners, it could affect our ability to obtain additional financing. In general, our degree of leverage could also make us
more vulnerable to a downturn in business or the economy. In addition, changes in our debt to market capitalization ratio,
which is in part a function of our stock price, or to other measures of asset value used by financial analysts, may have an
adverse effect on the market price of our equity securities.
Real Estate Acquisition and Development Risks
We face risks associated with the development of real estate, such as delay, cost overruns and the possibility that
we are unable to lease a portion of the space that we build, which could adversely affect our results.
While our overall development activities are lower than in past years, we currently have two active development projects.
Development activities contain certain inherent risks. Although we seek to minimize risks from commercial development
through various management controls and procedures, development risks cannot be eliminated. Some of the key factors
affecting development of commercial property are as follows:
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The availability of sufficient development opportunities. Absence of sufficient development opportunities could
result in our experiencing slower growth in earnings and cash flows. Development opportunities are dependent
upon a wide variety of factors. Availability of these opportunities can be volatile as a result of, among other
things, economic conditions and product supply/demand characteristics in a particular market.
Abandoned predevelopment costs. The development process inherently requires that a large number of
opportunities be pursued with only a few actually being developed and constructed. We may incur significant
costs for predevelopment activity for projects that are later abandoned, which would directly affect our results of
operations. For projects that are later abandoned, the Company must expense certain costs, such as salaries, that
would have otherwise been capitalized. We have procedures and controls in place that are intended to minimize
this risk, but it is likely that we will incur predevelopment expense on subsequently abandoned projects on an
ongoing basis.
Project costs. Construction and leasing of a project involves a variety of costs that cannot always be identified at
the beginning of a project. Costs may arise that have not been anticipated or actual costs may exceed estimated
costs. These additional costs can be significant and could adversely impact our return on a project and the
expected results of operations upon completion of the project. Also, construction costs vary over time based upon
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many factors, including the demand for building materials. We attempt to mitigate the risk of unanticipated
increases in construction costs on our development projects through guaranteed maximum price contracts and pre-
ordering of certain materials, but we may be adversely affected by increased construction costs on our current and
future projects.
Leasing risk. The success of a commercial real estate development project is heavily dependent upon entering into
leases with acceptable terms within a predefined lease-up period. Although our policy is to achieve pre-leasing
goals (which vary by market, product type and circumstances) before committing to a project, it is expected that
not all the space in a project will be leased at the time we commit to the project. If the additional space is not
leased on schedule and upon the expected terms and conditions, our returns, future earnings and results of
operations from the project could be adversely impacted. Whether or not tenants are willing to enter into leases on
the terms and conditions we project and on the timetable we expect will depend upon a number of factors, many
of which are outside our control. These factors may include:
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general business conditions in the local or broader economy or in the tenants’ or prospective tenants’
industries;
supply and demand conditions for space in the marketplace; and
level of competition in the marketplace.
Reputation risks. We have historically developed and managed our real estate portfolio and believe that we have
built a positive reputation for quality and service with our lenders, joint venture partners and tenants. If we were
viewed as developing underperforming properties, suffered sustained losses on our investments, defaulted on a
significant level of loans or experienced significant foreclosure or deed in lieu of foreclosure of our properties,
our reputation could be damaged. In addition, our strategic disposition of many of our retail projects may
negatively impact our relationships with retail tenants in other parts of our portfolio. Damage to our reputation
could make it more difficult to successfully develop or acquire properties in the future and to continue to grow
and expand our relationships with our lenders, joint venture partners and tenants, which could adversely affect our
business, financial condition and results of operations.
Governmental approvals. All necessary zoning, land-use, building, occupancy and other required governmental
permits and authorization may not be obtained, may only be obtained subject to onerous conditions or may not be
obtained on a timely basis resulting in possible delays, decreased profitability and increased management time
and attention.
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We may face risks associated with property acquisitions.
In the current market environment, development opportunities may be limited. Therefore, we may invest more heavily in
property acquisitions, including the acquisition and redevelopment of operationally or financially distressed properties. The
risks associated with property acquisitions are generally the same as those described above for real estate development.
However, certain additional risks may be present for property acquisitions and redevelopment projects, including:
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we may have difficulty finding properties that are consistent with our strategy and that meet our standards;
we may have difficulty negotiating with new or existing tenants;
the extent of competition for a particular market for attractive acquisitions may hinder our desired level of
property acquisitions or redevelopment projects;
the actual costs and timing of repositioning or redeveloping acquired properties may be greater than our estimates;
the occupancy levels, lease-up timing and rental rates may not meet our expectations;
the acquired property may be in a market that is unfamiliar to us and could present additional unforeseen business
challenges;
acquired properties may fail to perform as expected;
the timing of property acquisitions may lag the timing of property dispositions, leading to periods of time where
projects proceeds are not invested as profitably as we desire;
we may be unable to obtain financing for acquisitions on favorable terms or at all; and
we may be unable to quickly and efficiently integrate new acquisitions into our existing operations, and
significant levels of management’s time and attention could be involved in these projects, diverting their time
from our day-to-day operations.
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Any of these risks could have an adverse effect on our results of operations and financial condition. In addition, we may
acquire properties subject to liabilities, and with no or limited recourse against the prior owners or other third parties. As a
result, if a liability were asserted against us based upon ownership of those properties, we might have to pay substantial sums to
settle or contest it, which could adversely affect our business, results of operations and cash flow.
General Business Risks
We are dependent upon the services of certain key personnel, the loss of any of whom could adversely impair our
ability to execute our business.
One of our objectives is to develop and maintain a strong management group at all levels. At any given time, we could
lose the services of key executives and other employees. None of our key executives or other employees is subject to
employment contracts. Further, we do not carry key person insurance on any of our executive officers or other key employees.
The loss of services of any of our key employees could have an adverse effect upon our results of operations, financial
condition and our ability to execute our business strategy.
In addition, we have reduced our personnel over the past three years as we implement our strategy of simplification and
focus on core office assets in our primary markets. In the second half of 2012, 20 individuals were terminated or retired,
including two Vice Presidents, six Senior Vice Presidents and one Executive Vice President. While we believe that the
workload and institutional knowledge held by these individuals will be absorbed by existing personnel, and we have changed
roles, policies and procedures to minimize the risk that the departure of these individuals will have an adverse impact on
operations, we can provide no assurance that the departure of these individuals will not adversely impact our results of
operations and financial condition.
Our restated and amended articles of incorporation contain limitations on ownership of our stock, which may
prevent a change in control that might otherwise be in the best interests of our stockholders.
Our restated and amended articles of incorporation impose limitations on the ownership of our stock. In general, except
for certain individuals who owned stock at the time of adoption of these limitations, and except for persons that are granted
waivers by our Board of Directors, no individual or entity may own more than 3.9% of the value of our outstanding stock. The
ownership limitation may have the effect of delaying, inhibiting or preventing a transaction or a change in control that might
involve a premium price for our stock or otherwise be in the best interest of our stockholders.
We experience fluctuations and variability in our operating results on a quarterly basis and in the market price of
our common stock and, as a result, our historical performance may not be a meaningful indicator of future results.
Our operating results have fluctuated greatly in the past, due to, among other things, volatility in land sales, property
sales, residential lot sales and impairment losses. We are currently engaged in a strategy to simplify our business and focus our
resources on Class A office properties in our primary markets which we expect to make our operating results less volatile over
time. However, in the near term, we continue to anticipate future fluctuations in our quarterly results, which does not allow for
predictability in the market by analysts and investors. Therefore, our historical performance may not be a meaningful indicator
of our future results.
The market prices of shares of our common stock have been, and may continue to be, subject to fluctuation due to many
events and factors such as those described in this report including:
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actual or anticipated variations in our operating results, funds from operations or liquidity;
the general reputation of real estate as an attractive investment in comparison to other equity securities and/or the
reputation of the product types of our assets compared to other sectors of the real estate industry;
the general stock and bond market conditions, including changes in interest rates or fixed income securities;
changes in tax laws;
changes to our dividend policy;
changes in market valuations of our properties;
adverse market reaction to the amount of our outstanding debt at any time, the amount of our maturing debt and
our ability to refinance such debt on favorable terms;
any failure to comply with existing debt covenants;
any foreclosure or deed in lieu of foreclosure of our properties;
additions or departures of key executives and other employees;
actions by institutional stockholders;
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uncertainties in world financial markets;
the realization of any of the other risk factors described in this report; and
general market and economic conditions.
Many of the factors listed above are beyond our control. Those factors may cause market prices of shares of our common
stock to decline, regardless of our financial performance, condition and prospects. The market price of shares of our common
stock may fall significantly in the future, and it may be difficult for our stockholders to resell our common stock at prices they
find attractive, or at all.
If our future operating performance does not meet projections of our analysts or investors, our stock price could
decline.
Several independent securities analysts publish quarterly and annual projections of our financial performance. These
projections are developed independently by third-party securities analysts based on their own analyses, and we undertake no
obligation to monitor, and take no responsibility for, such projections. Such estimates are inherently subject to uncertainty and
should not be relied upon as being indicative of the performance that we anticipate for any applicable period. Our actual
revenues and net income may differ materially from what is projected by securities analysts. If our actual results do not meet
analysts’ guidance, our stock price could decline significantly.
Federal Income Tax Risks
Any failure to continue to qualify as a REIT for federal income tax purposes could have a material adverse impact
on us and our stockholders.
We intend to operate in a manner to qualify as a REIT for federal income tax purposes. Qualification as a REIT involves
the application of highly technical and complex provisions of the Internal Revenue Code (the “Code”), for which there are only
limited judicial or administrative interpretations. Certain facts and circumstances not entirely within our control may affect our
ability to qualify as a REIT. In addition, we can provide no assurance that legislation, new regulations, administrative
interpretations or court decisions will not adversely affect our qualification as a REIT or the federal income tax consequences
of our REIT status.
If we were to fail to qualify as a REIT, we would not be allowed a deduction for distributions to stockholders in
computing our taxable income. In this case, we would be subject to federal income tax (including any applicable alternative
minimum tax) on our taxable income at regular corporate rates. Unless entitled to relief under certain Code provisions, we also
would be disqualified from operating as a REIT for the four taxable years following the year during which qualification was
lost. As a result, we would be subject to federal and state income taxes which could adversely affect our results of operations
and distributions to stockholders. Although we currently intend to operate in a manner designed to qualify as a REIT, it is
possible that future economic, market, legal, tax or other considerations may cause us to revoke the REIT election.
In order to qualify as a REIT, under current law, we generally are required each taxable year to distribute to our
stockholders at least 90% of our net taxable income (excluding any net capital gain). To the extent that we do not distribute all
of our net capital gain or distribute at least 90%, but less than 100%, of our other taxable income, we are subject to tax on the
undistributed amounts at regular corporate rates. In addition, we are subject to a 4% nondeductible excise tax to the extent that
distributions paid by us during the calendar year are less than the sum of the following:
•
•
•
85% of our ordinary income;
95% of our net capital gain income for that year; and
100% of our undistributed taxable income (including any net capital gains) from prior years.
We generally intend to make distributions to our stockholders to comply with the 90% distribution requirement to avoid
corporate-level tax on undistributed taxable income and to avoid the nondeductible excise tax. Distributions could be made in
cash, stock or in a combination of cash and stock. Differences in timing between taxable income and cash available for
distribution could require us to borrow funds to meet the 90% distribution requirement, to avoid corporate-level tax on
undistributed taxable income and to avoid the nondeductible excise tax. Satisfying the distribution requirements may also make
it more difficult to fund new investment or development projects.
Certain property transfers may be characterized as prohibited transactions, resulting in a tax on any gain
attributable to the transaction.
From time to time, we may transfer or otherwise dispose of some of our properties. Under the Code, any gains resulting
from transfers or dispositions, from other than our taxable REIT subsidiary, that are deemed to be prohibited transactions
would be subject to a 100% tax on any gain associated with the transaction. Prohibited transactions generally include sales of
assets that constitute inventory or other property held for sale to customers in the ordinary course of business. Since we acquire
12
properties primarily for investment purposes, we do not believe that our occasional transfers or disposals of property are
deemed to be prohibited transactions. However, whether or not a transfer or sale of property qualifies as a prohibited
transaction depends on all the facts and circumstances surrounding the particular transaction. The Internal Revenue Service
may contend that certain transfers or disposals of properties by us are prohibited transactions. While we believe that the
Internal Revenue Service would not prevail in any such dispute, if the Internal Revenue Service were to argue successfully that
a transfer or disposition of property constituted a prohibited transaction, we would be required to pay a tax equal to 100% of
any gain allocable to us from the prohibited transaction. In addition, income from a prohibited transaction might adversely
affect our ability to satisfy the income tests for qualification as a REIT for federal income tax purposes.
Disclosure Controls and Internal Control over Financial Reporting Risks
Our business could be adversely impacted if we have deficiencies in our disclosure controls and procedures or
internal control over financial reporting.
The design and effectiveness of our disclosure controls and procedures and internal control over financial reporting may
not prevent all errors, misstatements or misrepresentations. While management will continue to review the effectiveness of our
disclosure controls and procedures and internal control over financial reporting, there can be no guarantee that our internal
control over financial reporting will be effective in accomplishing all control objectives at all times. Deficiencies, including any
material weakness, in our internal control over financial reporting which may occur in the future could result in misstatements
of our results of operations, restatements of our financial statements, a decline in our stock price, or otherwise materially
adversely affect our business, reputation, results of operations, financial condition or liquidity.
Item 1B. Unresolved Staff Comments
Not applicable.
13
Item 2. Properties
The following table sets forth certain information related to operating properties in which the Company has an ownership
interest. Information presented in note 5 to the consolidated financial statements provides additional information related to the
Company’s joint ventures. Except as noted, all information presented is as of December 31, 2012 ($ in thousands):
Property Description
I. OFFICE PROPERTIES
191 Peachtree Tower
The American Cancer Society Center
Promenade (5)
Terminus 100
Terminus 200 (3)
North Point Center East (4)
Emory University Hospital Midtown
Medical Office Tower
Meridian Mark Plaza
Inhibitex (6)
GEORGIA
Gateway Village (3)
NORTH CAROLINA
2100 Ross Avenue
The Points at Waterview
TEXAS
Lakeshore Park Plaza (5)
600 University Park Place (5)
ALABAMA
TOTAL OFFICE PROPERTIES
II. RETAIL PROPERTIES
North Point MarketCenter
The Avenue West Cobb
The Avenue East Cobb
The Avenue Peachtree City
Emory Point
GEORGIA
The Avenue Murfreesboro
Mt. Juliet Village (3)
Creek Plantation Village (3)
The Shops of Lee Village (3)
TENNESSEE
The Avenue Viera
Viera MarketCenter
Mahan Village (5)
Highland City Town Center (3)
FLORIDA
Greenbrier MarketCenter
VIRGINIA
MISSOURI
Los Altos MarketCenter
CALIFORNIA
TOTAL RETAIL PROPERTIES
III. APARTMENTS
Emory Point
GEORGIA
TOTAL PORTFOLIO
Metropolitan
Area
Rentable
Square
Feet
Company’s
Ownership
Interest
End of
Period
Leased
Weighted
Average
Occupancy
(1)
Company's
Share of
Debt
Annualized
Base Rents (2)
Atlanta
Atlanta
Atlanta
Atlanta
Atlanta
Atlanta
Atlanta
Atlanta
Atlanta
Charlotte
Dallas
Dallas
Birmingham
Birmingham
Atlanta
Atlanta
Atlanta
Atlanta
Atlanta
Nashville
Nashville
Chattanooga
Nashville
Viera
Viera
Tallahassee
Lakeland
Chesapeake
Long Beach
1,222,000
996,000
775,000
655,000
566,000
540,000
358,000
160,000
51,000
5,323,000
1,065,000
1,065,000
844,000
203,000
1,047,000
197,000
123,000
320,000
7,755,000
401,000
256,000
230,000
183,000
80,000
1,150,000
751,000
91,000
78,000
74,000
994,000
332,000
178,000
147,000
96,000
753,000
376,000
376,000
238,000
238,000
157,000
157,000
3,668,000
100.00%
100.00%
100.00%
100.00%
20.00%
100.00%
50.00%
100.00%
100.00%
87%
82%
73%
96%
88%
91%
99%
98%
—
$
82%
83%
66%
95%
88%
85%
97%
97%
50%
50.00%
100%
100%
100.00%
100.00%
100.00%
100.00%
10.32%
11.50%
11.50%
11.50%
75.00%
50.00%
50.50%
50.50%
50.50%
11.50%
11.50%
100.00%
50.50%
65%
90%
98%
98%
100%
94%
86%
92%
82%
88%
80%
98%
89%
96%
94%
88%
87%
$
$
66%
89%
95%
93%
97%
95%
85%
90%
79%
87%
80%
92%
81%
95%
95%
55%
87%
10.32%
100%
100%
88.50%
87%
10.32%
100%
84%
93%
$
100,000
134,243
—
136,123
14,868
—
23,248
26,194
—
434,676
34,121
34,121
—
15,651
15,651
—
—
—
484,448
—
—
4,073
—
7,180
11,253
47,270
3,106
2,803
3,069
56,248
—
—
13,027
5,286
18,313
—
—
—
—
—
—
85,814
$
101,808
$
17,567
Atlanta
404,000
75.00%
30%
21%
$
25,456
11,827,000
$
595,718
Tiffany Springs MarketCenter
Kansas City
(1) Weighted average economic occupancy is calculated as the percentage of the property for which revenue was
recognized during 2012. If the property was purchased during the year, average economic occupancy is calculated from
the date of purchase forward.
14
(2)
(3)
(4)
(5)
Annualized base rents represents the sum of the annualized rent each tenant is paying as of the end of the reporting
period. If a tenant is not paying rent due to a free rent concession, annualized base rent is calculated based on the
annualized base rent the tenant will pay in the first period it is required to pay rent.
This property is owned through a joint venture with a third party who has contributed equity, but the equity ownership
and the allocation of the results of operations and/or gain on sale may be disproportionate.
This property contains four buildings - 100 North Point Center East, 200 North Point Center East, 333 North Point
Center East and 555 North Point Center East.
This property is shown as 100% as it is owned through a consolidated joint venture. The joint venture is with a third
party who has contributed equity and the joint venture partner may receive distributions from the venture in connection
with its equity ownership.
(6)
This property is classified as held for sale as of December 31, 2012.
Lease Expirations
OFFICE
As of December 31, 2012, the Company’s office portfolio included 14 operating office properties. The weighted average
remaining lease term of these office properties was approximately six years as of December 31, 2012. Most of the major tenant
leases in these properties provide for pass through of operating expenses and contractual rents which escalate over time. The
leases expire as follows:
Company Share
2013
2014
2015
2016
2017
2018
2019
2020
2021
2022 &
Thereafter
Total
Square Feet
Expiring
% of Leased
Space
Annual
Contractual Rent
($000’s) (1)
Annual
Contractual
Rent/Sq. Ft. (1)
RETAIL
341,823
324,807
507,656
855,524
653,729
333,857
338,038
290,306
502,502
1,429,527
5,577,769
6 %
6 %
9 %
15%
12%
6%
6%
5%
9 %
26%
100%
$ 6,684
$ 6,734
$ 11,268
$ 16,194 $ 15,742 $
9,208 $
8,260 $
7,889
$ 12,707
$
34,017 $ 128,703
$ 19.55
$ 20.73
$ 22.20
$ 18.93 $ 24.08 $ 27.58 $ 24.43 $ 27.17
$ 25.29
$
23.80 $
23.07
As of December 31, 2012, the Company's retail portfolio included 16 operating retail properties. The weighted average
remaining lease term of these retail properties was approximately nine years as of December 31, 2012. Most of the major tenant
leases in these properties provide for pass through of operating expenses and contractual rents which escalate over time. The
leases expire as follows:
Company Share
Square Feet
Expiring (2)
% of Leased
Space
Annual
Contractual Rent
($000’s) (1)
Annual
Contractual
Rent/Sq. Ft. (1)
2013
2014
2015
2016
2017
2018
2019
2020
2021
2022 &
Thereafter
Total
44,332
51,254
55,863
66,176
90,812
214,923
150,656
32,593
19,027
363,070
1,088,706
4%
5%
5%
6%
8%
20%
14%
3%
2%
33%
100%
$
911
$
952
$ 1,047
$ 1,226
$ 1,908
$ 20.55
$ 18.58
$ 18.75
$ 18.53
$ 21.01
$
$
4,420
20.57
$
$
2,971
$
624
$
527
$
3,844
19.72
$ 19.16
$ 27.71
$
10.59
$
$
18,430
16.93
(1)
(2)
Annual Contractual Rent shown is the estimated rate in the year of expiration. It includes the minimum contractual rent
paid by the tenant which, in most of the office leases, includes a base year of operating expenses.
Certain leases contain termination options, with or without penalty, if co-tenancy clauses or sales volume levels are not
achieved. The expiration date per the lease is used for these leases in the above table, although early termination is
possible.
15
Development Pipeline
As of December 31, 2012, the Company had the following projects under development ($ in thousands):
Project (1)
Emory Point (Phase I) Atlanta, GA
Metropolitan
Area
Company’s
Ownership
Interest
Estimated
Project
Cost (2)
Project
Cost
Incurred to
Date
Number of
Apartment
Units/Square
Feet
75 %
$
102,300
$
83,238
Percent
Leased
Actual
Opening (3)
Estimated
Stabilization (4)
Apartments
Retail
443
80,000
30 %
82 %
3Q 12
4Q 12
2Q 14
4Q 13
Mahan Village
Tallahassee, FL
100 % (5) $
25,800
$
23,909
Retail
147,000
88 %
3Q 12
3Q 13
(1)
(2)
(3)
(4)
(5)
This schedule shows projects currently under active development through the point of stabilization. Amounts included
in the estimated project cost column represent the estimated costs of the project through stabilization. Significant
estimation is required to derive these costs and the final costs may differ from these estimates. The projected
stabilization dates are also estimates and are subject to change as the project proceeds through the development process.
Amount represents 100% of the estimated project cost. The projects are being funded with a combination of equity from
the partners and $61.1 million and $15.0 million of construction loans for Emory Point and Mahan Village,
respectively. As of December 31, 2012, $43.5 million and $13.0 million were outstanding under the Emory Point and
Mahan Village loans, respectively.
Actual opening represents the quarter within which the first retail space was open for operations and the quarter that the
first apartment unit was occupied.
Estimated stabilization represents the quarter within which the Company estimates it will achieve 90% economic
occupancy.
Company's ownership interest is shown at 100% as Mahan Village is owned in a joint venture which is consolidated
with the Company.
16
Inventory of Land Held
As of December 31, 2012, the Company owned the following land holdings either directly or indirectly through joint
ventures:
Property Description
COMMERCIAL
Jefferson Mill Business Park
Wildwood Office Park
North Point
Wildwood Office Park
The Avenue Forsyth-Adjacent Land
549 / 555 / 557 Peachtree Street
Georgia
Round Rock Land
Research Park V
Texas
Metropolitan
Area
Company's
Ownership
Interest
Developable
Land Area
(Acres)
Atlanta
Atlanta
Atlanta
Atlanta
Atlanta
Atlanta
Austin
Austin
100.00 %
50.00 %
100.00 %
100.00 %
100.00 %
100.00 %
100.00 %
100.00 %
123
40
37
23
11
1
235
60
6
66
55
55
6
5
11
12
12
379
325
64,124
38,002
5,565
2,800
218
25
4
8,612
15
15
8,627
5,837
27,434
21,335
6,162
59,337
$
$
$
$
$
Highland City Town Center-Outparcels (1) (2) (3)
Lakeland
50.50 %
Florida
The Shops of Lee Village-Outparcels (2) (3)
The Avenue Murfreesboro-Outparcels (2) (3)
Tennessee
Nashville
Nashville
50.50 %
50.00 %
Tiffany Springs MarketCenter-Outparcels (2)
Kansas City
100.00 %
Missouri
TOTAL COMMERCIAL LAND HELD
COMPANY’S SHARE OF TOTAL
COST BASIS OF COMMERCIAL LAND
COMPANY’S SHARE OF COST BASIS OF COMMERCIAL
LAND
RESIDENTIAL (4)
Paulding County
Blalock Lakes
Callaway Gardens (5)
The Lakes at Cedar Grove
Longleaf at Callaway
Georgia
Padre Island
Texas
TOTAL RESIDENTIAL LAND HELD
COMPANY’S SHARE OF TOTAL
COST BASIS OF RESIDENTIAL LAND
COMPANY’S SHARE OF COST BASIS OF RESIDENTIAL
LAND
GRAND TOTAL COMPANY'S SHARE OF ACRES
GRAND TOTAL COMPANY'S SHARE OF COST BASIS OF
LAND HELD
Atlanta
Atlanta
Atlanta
Atlanta
Atlanta
50.00%
100.00%
100.00%
100.00%
100.00%
Corpus Christi
50.00%
(1)
(2)
(3)
(4)
(5)
Land is adjacent to an existing retail center and is anticipated to either be sold to a third party or developed as an
additional phase of the retail center.
Land relates to outparcels available for sale or ground lease, which are included in the basis of the related operating
property.
This project is owned through a joint venture with a third party who has contributed equity, but the equity ownership
and the allocation of the results of operations and/or gain on sale most likely will be disproportionate.
Residential represents land that may be sold to third parties as lots are in large tracts for residential or commercial
development.
Company's ownership interest is shown at 100% as Callaway Gardens is owned by a joint venture which is consolidated
with the Company. The partner is entitled to a share of the profits after the Company's capital is recovered.
17
Other Investments
The Company owns a leasehold interest in the air rights over the approximately 365,000 square foot CNN Center parking
facility in Atlanta, Georgia, adjoining the headquarters of Turner Broadcasting System, Inc. and Cable News Network. The air
rights are developable for additional parking or for certain other uses. The Company’s net carrying value of this interest is $0.
Item 3. Legal Proceedings
The Company is subject to various legal proceedings, claims and administrative proceedings arising in the ordinary
course of business, some of which are expected to be covered by liability insurance. Management makes assumptions and
estimates concerning the likelihood and amount of any potential loss relating to these matters using the latest information
available. The Company records a liability for litigation if an unfavorable outcome is probable and the amount of loss or range
of loss can be reasonably estimated. If an unfavorable outcome is probable and a reasonable estimate of the loss is a range, the
Company accrues the best estimate within the range. If no amount within the range is a better estimate than any other amount,
the Company accrues the minimum amount within the range. If an unfavorable outcome is probable but the amount of the loss
cannot be reasonably estimated, the Company discloses the nature of the litigation and indicates that an estimate of the loss or
range of loss cannot be made. If an unfavorable outcome is reasonably possible and the estimated loss is material, the Company
discloses the nature and estimate of the possible loss of the litigation. The Company does not disclose information with respect
to litigation where an unfavorable outcome is considered to be remote or where the estimated loss would not be material. Based
on current expectations, such matters, both individually and in the aggregate, are not expected to have a material adverse effect
on the liquidity, results of operations, business or financial condition of the Company.
Item 4. Mine Safety Disclosures
Not applicable.
Item X. Executive Officers of the Registrant
The Executive Officers of the Registrant as of the date hereof are as follows:
Name
Lawrence L. Gellerstedt III
Gregg D. Adzema
Michael I. Cohn
John S. McColl
J. Thad Ellis
John D. Harris, Jr.
Pamela F. Roper
Family Relationships
Age
Office Held
56 President and Chief Executive Officer
48 Executive Vice President and Chief Financial Officer
52 Executive Vice President
50 Executive Vice President
52 Senior Vice President
53 Senior Vice President, Chief Accounting Officer and Assistant Secretary
39 Senior Vice President, General Counsel and Corporate Secretary
There are no family relationships among the Executive Officers or Directors.
Term of Office
The term of office for all officers expires at the annual stockholders’ meeting. The Board retains the power to remove any
officer at any time.
Business Experience
Mr. Gellerstedt was appointed President and Chief Executive officer and Director in July 2009. From February 2009 to
July 2009, Mr. Gellerstedt served as President and Chief Operating Officer. From May 2008 to February 2009, Mr. Gellerstedt
served as Executive Vice President and Chief Development Officer. From July 2005 to May 2008, Mr. Gellerstedt served as
Senior Vice President and President of the Office/Multi-Family Division.
18
Mr. Adzema was appointed Executive Vice President and Chief Financial Officer in November 2010. Prior to joining the
Company, Mr. Adzema served as Chief Investment Officer of Hayden Harper Inc., an investment advisory and hedge fund
company, from October 2009 to November 2010. Mr. Adzema served as Executive Vice President-Investments with Grubb
Properties, Inc., a real estate development and management company, from August 2005 to September 2008.
Mr. Cohn was appointed Executive Vice President in December 2011. From August 2010 to December 2011, Mr. Cohn
served as Executive Vice President-Retail Investments, Leasing and Asset Management. Prior to joining the Company, Mr.
Cohn served as Senior Managing Director of Faison Southeast, a real estate development and management company, from
October 2002 to July 2010.
Mr. McColl was appointed Executive Vice President in December 2011. From February 2010 to December 2011, Mr.
McColl served as Executive Vice President-Development, Office Leasing and Asset Management. From May 1997 to February
2010, Mr. McColl served as Senior Vice President.
Mr. Ellis was appointed Senior Vice President in December 2011. From August 2006 to December 2011, Mr. Ellis served
as Senior Vice President-Client Services.
Mr. Harris was appointed Senior Vice President and Chief Accounting Officer in February 2005. In May 2005, Mr.
Harris was appointed Assistant Secretary.
Ms. Roper was appointed Senior Vice President, General Counsel and Corporate Secretary in October 2012. From
February 2008 to October 2012, Ms. Roper served as Senior Vice President, Associate General Counsel and Assistant
Secretary. From August 2003 to February 2008, Ms. Roper served as Vice President, Associate General Counsel and Assistant
Secretary.
19
Item 5. Market for Registrant’s Common Stock and Related Stockholder Matters
Market Information
PART II
The high and low sales prices for the Company’s common stock and dividends declared per common share were as
follows:
High
Low
Dividends
Payment Date
$
$
$
Holders
2012 Quarters
2011 Quarters
First
Second
Third
Fourth
First
Second
Third
Fourth
7.81
6.37
0.045
8.05
6.85
0.045
2/23/2012 5/30/2012 8/24/2012
8.49
7.44
0.045
$
$
$
$
$
$
$
$
$
8.57
7.67
0.045
12/21/2012
$
$
$
8.79
7.72
0.045
2/22/2011
$
$
$
9.09
8.06
0.045
$
$
$
5/27/2011 8/25/2011
9.19
5.76
0.045
$
$
$
6.85
5.25
0.045
12/22/2011
The Company’s common stock trades on the New York Stock Exchange (ticker symbol CUZ). On February 6, 2013,
there were 878 common stockholders of record.
Purchases of Equity Securities
For information on the Company’s equity compensation plans, see note 7 of the accompanying consolidated financial
statements, which is incorporated herein.
The Company purchased the following common shares during the fourth quarter of 2012:
October 1 - 31
November 1 - 30
December 1 - 31
Total Number
of Shares
Purchased (1)
1,995
—
—
1,995
Average Price
Paid per Share (1)
8.15
—
—
8.15
$
$
(1) Activity for the fourth quarter of 2012 related to the remittances of shares for income taxes due for restricted stock
vesting.
20
Performance Graph
The following graph compares the five-year cumulative total return of the Company’s Common Stock with the NYSE
Composite Index, the FTSE NAREIT Equity Index and the SNL US REIT Office Index. The graph assumes a $100 investment
in each of the indices on December 31, 2007 and the reinvestment of all dividends.
COMPARISON OF CUMULATIVE TOTAL RETURN OF ONE OR MORE COMPANIES, PEER
GROUPS, INDUSTRY INDICES AND/OR BROAD MARKETS
Index
Cousins Properties Incorporated
NYSE Composite Index
FTSE NAREIT Equity Index
SNL US REIT Office Index
12/31/2007
100.00
100.00
100.00
100.00
12/31/2008
67.04
60.85
62.27
56.85
12/31/2009
38.85
78.24
79.70
77.94
12/31/2010
43.15
88.88
101.99
94.53
12/31/2011
33.99
85.62
110.45
93.68
12/31/2012
45.31
99.45
130.39
107.32
Fiscal Year Ended
21
Item 6. Selected Financial Data
The following selected financial data sets forth consolidated financial and operating information on a historical basis.
This data has been derived from the Company’s consolidated financial statements and should be read in conjunction with the
consolidated financial statements and notes thereto. The data below has been restated for discontinued operations detailed in
note 9 of the consolidated financial statements. In addition, note 6 of the consolidated financial statements provides information
on impairment losses recognized in 2012, 2011 and 2010. In all four quarters of 2010 and in the last three quarters of 2009, the
common stock dividends were paid in a combination of cash and stock. The following table reflects the total dividend, both
cash and stock, paid.
For the Years Ended December 31,
2012
2011
2010
2009
2008
$
Rental property revenues
Fee income
Land and multi-family sales
Other
Total revenues
Rental property operating expenses
General and administrative expenses
Depreciation and amortization
Land and multi-family cost of sales
Interest expense
Impairment losses
Other expenses
Total expenses
Loss on extinguishment of debt and interest rate
swaps
Benefit (provision) for income taxes from
operations
Income (loss) from unconsolidated joint
ventures
Gain on sale of investment properties
Income (loss) from continuing operations
Discontinued operations
Net income (loss)
Net income attributable to noncontrolling
interests
Preferred dividends
Net income (loss) available to common
stockholders
Net income (loss) from continuing operations
attributable to controlling interest per common
share—basic and diluted
Net income (loss) per common share—basic
and diluted
Dividends declared per common share
Total assets (at year-end)
Notes payable (at year-end)
Stockholders’ investment (at year-end)
Common shares outstanding (at year-end)
$
125,609
17,797
3,310
1,562
148,278
54,518
24,351
43,559
1,833
23,933
488
12,009
160,691
(94)
(91)
39,258
4,053
30,713
17,206
47,919
(2,191)
(12,907)
$
($ in thousands, except per share amounts)
105,596
13,821
7,679
1,950
129,046
44,912
24,166
34,580
5,378
27,784
100,131
10,778
247,729
101,715 $
14,444
36,956
1,119
154,234
43,441
28,517
36,688
28,956
37,180
2,554
11,693
189,029
100,560 $
11,840
33,687
1,661
147,748
46,102
26,198
33,653
27,821
39,759
40,512
21,706
235,751
100,447
26,742
12,187
3,750
143,126
39,410
29,985
31,863
9,403
27,602
2,100
12,396
152,759
(74)
186
(18,299)
3,494
(133,376)
9,909
(123,467)
(4,958)
(12,907)
(9,827)
(2,766)
—
1,079
(4,341)
8,770
9,493
1,948
(32,102)
20,069
(12,033)
(68,697)
168,539
4,732
24,815
29,547
9,721
6,240
15,098
9,827
24,925
(2,540)
(12,907)
(2,252)
(12,907)
(2,378)
(14,957)
$
$
32,821
$
(141,332) $
(27,480) $
14,388 $
7,590
0.15
$
(1.46) $
(0.47) $
(0.16) $
0.01
0.32
$
$
0.18
$ 1,124,242
425,410
$
620,342
$
104,090
0.22 $
0.74 $
(0.27) $
0.36 $
0.15
(1.36) $
$
$
$
1.36
0.18
$ 1,371,282 $ 1,491,552 $ 1,693,795
$ 1,235,535
942,239
$
539,442
$
466,723
603,692
$
$
51,352
103,702
509,509 $
760,079 $
103,392
590,208 $
787,411 $
99,782
22
Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations
The following discussion and analysis should be read in conjunction with the selected financial data and the consolidated
financial statements and notes.
Overview of 2012 Performance and Company and Industry Trends
The Company made progress in 2012 with executing its strategy of producing returns through the acquisition,
development and management of trophy office and retail assets in the Sunbelt with particular focus on Georgia, Texas and
North Carolina. In implementing this strategy, the Company had goals for 2012 that included simplifying its business through
the sale of non-core assets, leasing vacant space and investing in opportunistic acquisitions and development projects within its
core markets. The Company was successful in meeting these goals and management believes that the Company is appropriately
positioned for the future.
Sale of Non-core Assets
During 2012, the Company sold $401.2 million in non-core assets. This amount included the sale of three retail lifestyle
centers, two of which were in Atlanta, Georgia and one of which was in Memphis, Tennessee. The Company also sold its
interests in five office properties. Two of these office properties were purchased initially for their location and land value for
which development opportunities never materialized. Three of these office properties were sold out of joint ventures for
strategic reasons or pursuant to buy-out provisions within the joint venture agreements. The Company also sold the majority of
its interests in CL Realty LLC and Temco Associates, two joint ventures formed for residential lot and land development, to its
partner. The Company reduced its holdings of commercial land as well by selling 98 acres in 2012. In addition to these real
estate asset sales, the Company sold its third party management and leasing business.
The results of the 2012 sales activities are significant. The percentage of net operating income generated by retail projects
decreased from 30% for the fourth quarter of 2011 to 16% for the fourth quarter of 2012. Square footage of properties owned
and operated in Georgia decreased from 7.7 million as of December 31, 2011 to 6.5 million as of December 31, 2012. The
remaining office assets in Georgia are primarily held in three strategic submarkets: Buckhead, Midtown and Downtown, while
most of the remaining retail assets in Georgia are owned in joint ventures in which the Company owns only a small interest. In
addition, the Company decreased the its share of the carrying amount of commercial and residential land from $115.9 million at
December 31, 2011 to $59.3 million at December 31, 2012 and land as a percentage of the Company's total assets decreased
from 9.4% as of December 31, 2011 to 5.3% as of December 31, 2012.
These non-core asset sales also allowed the Company to end 2012 with no amount outstanding under its unsecured Credit
Facility and with $176.9 million of cash on its balance sheet. While dilutive in the short term, this financial position provides
the Company with significant capacity to invest in the Company's core markets. The Company has also exited the residential
lot development business, the third party management and leasing business, the condominium development business and the
industrial development business, thereby, allowing the Company to eliminate the costs associated with managing and operating
these operations and allowing management to focus its efforts on the Company's core businesses.
Leasing Activity
In 2012, the Company leased or renewed 724,000 square feet of office space. As a result of this activity, the same
property office portfolio increased from 89% leased at December 31, 2011 to 91% leased at December 31, 2012. This
improvement is attributable primarily to activity at 191 Peachtree where 102,000 square feet of net new leasing has taken this
building from 82% leased at the beginning of the year to 87% leased at year end. Also, outside of the same property portfolio,
Promenade, which was acquired in the fourth quarter of 2011, improved from 63% leased at the beginning of the year to 73%
leased at year end.
The Company's retail portfolio also improved during the year as the Company leased or renewed 445,000 square feet of
retail space. The same property retail portfolio increased from 88% leased at the beginning of the year to 90% leased at year
end. This increase was driven by leasing activity at The Avenue Forsyth, which sold in the fourth quarter. The Company
increased percentage leased at The Avenue Forsyth from 89% at the beginning of the year to 93% at the time of sale, which
resulted in a more favorable valuation of this asset upon sale. Some of this square footage leased also occurred at Tiffany
Springs Marketcenter, where the leasing percentage increased from 83% to 87% during the year.
The long term prospects for the Company's markets remain strong. Each of the Company's markets is projecting job
growth over the next five years higher than the national average with the Texas markets projected to be the strongest. Current
unemployment in the Atlanta and Charlotte markets is higher than the national average, but all other markets are lower than the
nation overall. Office absorption was positive in each market with Houston being the strongest. Rental rates have been stable
over the past year - within the Company's portfolio, the highest net rents are in Austin and the lowest are in the North Fulton
sub-market of Atlanta.
23
With respect to retail, overall Black Friday sales trends were positive, showing a 13% increase in spending. Consumer
confidence reached a four and a half year high in November. Comparable same store sales at the Company's retail properties
were up 0.8% for the year, which is consistent with national trends. While the Company's retail portfolio is smaller than at the
beginning of 2012, management believes there is positive momentum for maintaining and increasing revenues from these
remaining properties.
Opportunistic Investments
The Company's investment strategy is to purchase trophy office assets or locate opportunistic development or re-
development properties in its core markets to which it can add value through relationships, capital or market expertise. During
2012, the Company purchased one well-located property in Dallas, Texas with upside potential, completed two development
projects and created a future development pipeline. After year-end, the Company added a trophy property in Houston, Texas to
its portfolio.
In the third quarter of 2012, the Company purchased 2100 Ross Avenue, an 844,000 square foot, Class A office building
in the Arts District of Dallas, Texas. The Company purchased this property for $70 per square foot which represents an amount
that is below management's estimate of replacement cost. The property was acquired at a price that provides an attractive
immediate return on investment; and at 65% leased, provides the opportunity for the Company to increase its returns as vacant
space is leased.
In the second half of 2012, the Company began operations at Emory Point, a mixed use development adjacent to Emory
University and the Centers for Disease Control in Atlanta, Georgia. The project contains 80,000 square feet of retail and 443
apartment units. The retail portion was 82% leased and the apartment portion was 30% leased at year end. The Company is in
the pre-development stage for a second phase of Emory Point.
The Company also began operations at Mahan Village, a 147,000 square foot shopping center anchored by Publix and
Academy Sports in Tallahassee, Florida. This property was 88% leased at year end. This opportunity was sourced through a
relationship where the Company stepped into the place of the original developer. With the opening of Mahan Village, the
Company's retail portfolio now contains five Publix-anchored shopping centers.
Subsequent to year end, the Company consummated a series of transactions that resulted in the purchase of a trophy asset
in the Galleria submarket of Houston, Texas, and the contribution of its interests in the assets at its Terminus project into a 50-
50 joint venture. The Company first purchased the interest of its joint venture partner in Terminus 200, then contributed
Terminus 100 and Terminus 200 to the new joint venture with JP Morgan. In addition, the Company purchased Post Oak
Central, a 1.3 million square foot Class A office complex in Houston, from an affiliate of JP Morgan. Post Oak Central was
92% leased upon closing of the transaction and provides the Company with a high quality asset with significant redevelopment
potential in a desirable Houston sub-market, thereby increasing the Company's exposure to the Texas market.
In addition to a second phase of Emory Point, the Company has another potential development that it hopes to commence
in 2013. Third and Colorado is a proposed office building in downtown Austin, Texas. The Company is in the pre-leasing
stage. If this project moves forward, the Company estimates total project costs will be approximately $130 million.
Going forward, the Company expects to continue selling land and other non-core assets in order to further simplify its
business platform. Leasing of vacant space represents a significant opportunity to improve results of operations and enhance
the value of the Company's real estate holdings and is an important focus for 2013. The Company also plans to source new
development and acquisition projects that it expects to enhance value to shareholders over time. With the capital generated
from the sales activities in 2012, management believes that the Company is well positioned to implement its strategy.
Critical Accounting Policies
The Company’s financial statements are prepared in accordance with accounting principles generally accepted in the
United States of America (“GAAP”) as outlined in the Financial Accounting Standards Board’s Accounting Standards
Codification, and the notes to consolidated financial statements include a summary of the significant accounting policies for the
Company. The preparation of financial statements in accordance with GAAP requires the use of certain estimates, a change in
which could materially affect revenues, expenses, assets or liabilities. Some of the Company’s accounting policies are
considered to be critical accounting policies, which are ones that are both important to the portrayal of a company’s financial
condition and results of operations, and ones that also require significant judgment or complex estimation processes. The
Company’s critical accounting policies are as follows:
Real Estate Assets
Cost Capitalization. The Company is involved in all stages of real estate ownership, including development. Prior to the
point a project becomes probable of being developed (defined as more likely than not), the Company expenses predevelopment
costs. After management determines the project is probable, all subsequently incurred predevelopment costs, as well as interest,
real estate taxes and certain internal personnel and associated costs directly related to the project under development, are
24
capitalized in accordance with accounting rules. If the Company abandons development of a project that had earlier been
deemed probable, the Company charges all previously capitalized costs to expense. If this occurs, the Company’s
predevelopment expenses could rise significantly. The determination of whether a project is probable requires judgment by
management. If management determines that a project is probable, interest, general and administrative and other expenses
could be materially different than if management determines the project is not probable.
During the predevelopment period of a probable project and the period in which a project is under construction, the
Company capitalizes all direct and indirect costs associated with planning, developing, leasing and constructing the project.
Determination of what costs constitute direct and indirect project costs requires management, in some cases, to exercise
judgment. If management determines certain costs to be direct or indirect project costs, amounts recorded in projects under
development on the balance sheet and amounts recorded in general and administrative and other expenses on the statements of
comprehensive income could be materially different than if management determines these costs are not directly or indirectly
associated with the project.
Once a project is constructed and deemed substantially complete and held for occupancy, carrying costs, such as real
estate taxes, interest, internal personnel and associated costs, are expensed as incurred. Determination of when construction of a
project is substantially complete and held available for occupancy requires judgment. The Company considers projects and/or
project phases to be both substantially complete and held for occupancy at the earlier of the date on which the project or phase
reached economic occupancy of 90% or one year after it is substantially complete. The Company’s judgment of the date the
project is substantially complete has a direct impact on the Company’s operating expenses and net income for the period.
Operating Property Acquisitions. Upon acquisition of an operating property, the Company records the acquired tangible
and intangible assets and assumed liabilities at fair value at the acquisition date. Fair value is based on estimated cash flow
projections that utilize available market information and discount and/or capitalization rates as appropriate. Estimates of future
cash flows are based on a number of factors including historical operating results, known and anticipated trends, and market
and economic conditions. The acquired assets and assumed liabilities for an acquired operating property generally include, but
are not limited to: land, buildings and identified tangible and intangible assets and liabilities associated with in-place leases,
including tenant improvements, leasing costs, value of above-market and below-market leases and value of acquired in-place
lease.
The fair value of land is derived from comparable sales of land within the same submarket and/or region. The fair value
of buildings, tenant improvements and leasing costs are based upon current market replacement costs and other relevant market
rate information.
The fair value of the above-market or below-market component of an acquired in-place lease is based upon the present
value (calculated using a market discount rate) of the difference between (i) the contractual rents to be paid pursuant to the
lease over its remaining term and (ii) management’s estimate of the rents that would be paid using fair market rental rates and
rent escalations at the date of acquisition over the remaining term of the lease. In-place leases at acquired properties are
reviewed at the time of acquisition to determine if contractual rents are above or below current market rents for the acquired
property, and an identifiable intangible asset or liability is recorded if there is an above-market or below-market lease.
The fair value of acquired in-place leases is derived based on management’s assessment of lost revenue and costs
incurred for the period required to lease the “assumed vacant” property to the occupancy level when purchased. This fair value
is based on a variety of considerations including, but not necessarily limited to: (1) the value associated with avoiding the cost
of originating the acquired in-place leases; (2) the value associated with lost revenue related to tenant reimbursable operating
costs estimated to be incurred during the assumed lease-up period; and (3) the value associated with lost rental revenue from
existing leases during the assumed lease-up period. Factors considered in performing these analyses include an estimate of the
carrying costs during the expected lease-up periods, such as real estate taxes, insurance and other operating expenses, current
market conditions, and costs to execute similar leases, such as leasing commissions, legal and other related expenses.
The amounts recorded for above-market and in-place leases are included in other assets on the balance sheets, and the
amounts for below-market leases are included in other liabilities on the balance sheets. These amounts are amortized on a
straight-line basis as an adjustment to rental income over the remaining term of the applicable leases.
The determination of the fair value of the acquired tangible and intangible assets and assumed liabilities of operating
property acquisitions requires significant judgments and assumptions about the numerous inputs discussed above. The use of
different assumptions in these fair value calculations could significantly affect the reported amounts of the allocation of the
acquisition related assets and liabilities and the related amortization and depreciation expense recorded for such assets and
liabilities. In addition, since the value of above-market and below-market leases are amortized as either a reduction or increase
to rental income, respectively, the judgments for these intangibles could have a significant impact on reported rental revenues
and results of operations.
25
Depreciation and Amortization. The Company depreciates or amortizes operating real estate assets over their estimated
useful lives using the straight-line method of depreciation. Management uses judgment when estimating the life of real estate
assets and when allocating certain indirect project costs to projects under development. Historical data, comparable properties
and replacement costs are some of the factors considered in determining useful lives and cost allocations. The use of different
assumptions for the estimated useful life of assets or cost allocations could significantly affect depreciation and amortization
expense and the carrying amount of the Company's real estate assets.
Impairment. Management reviews its real estate assets on a property-by-property basis for impairment. This review
includes the Company’s operating properties and the Company’s land holdings.
The first step in this process is for management to use judgment to determine whether an asset is considered to be held
and used or held for sale, in accordance with accounting guidance. In order to be considered a real estate asset held for sale,
management must, among other things, have the authority to commit to a plan to sell the asset in its current condition, have
commenced the plan to sell the asset and have determined that it is probable that the asset will sell within one year. If
management determines that an asset is held for sale, it must record an impairment loss if the fair value less costs to sell is less
than the carrying amount. All real estate assets not meeting the held for sale criteria are considered to be held and used.
In the impairment analysis for assets held and used, management must use judgment to determine whether there are
indicators of impairment. For operating properties, these indicators could include a decline in a property’s leasing percentage, a
current period operating loss or negative cash flows combined with a history of losses at the property, a decline on lease rates
for that property or others in the property’s market, or an adverse change in the financial condition of significant tenants. For
land holdings, indicators could include an overall decline in the market value of land in the region, a decline in development
activity for the intended use of the land or other adverse economic and market conditions.
If management determines that an asset that is held and used has indicators of impairment, it must determine whether the
undiscounted cash flows associated with the asset exceed the carrying amount of the asset. If the undiscounted cash flows are
less than the carrying amount of the asset, the Company must reduce the carrying amount of the asset to fair value.
In calculating the undiscounted net cash flows of an asset, management must estimate a number of inputs. For operating
properties, management must estimate future rental rates, expenditures for future leases, future operating expenses and market
capitalization rates for residual values, among other things. For land holdings, management must estimate future sales prices as
well as operating income, carrying costs and residual capitalization rates for land held for future development. In addition, if
there are alternative strategies for the future use of the asset, management must assess the probability of each alternative
strategy and perform a probability-weighted undiscounted cash flow analysis to assess the recoverability of the asset.
Management must use considerable judgment in determining the alternative strategies and in assessing the probability of each
strategy selected.
In determining the fair value of an asset, management exercises judgment on a number of factors. Management may
determine fair value by using a discounted cash flow calculation or by utilizing comparable market information. Management
must determine an appropriate discount rate to apply to the cash flows in the discounted cash flow calculation. Management
must use judgment in analyzing comparable market information because no two real estate assets are identical in location and
price.
The estimates and judgments used in the impairment process are highly subjective and susceptible to frequent change. If
management determines that an asset is held and used, the results of operations could be materially different than if it
determines that an asset is held for sale. Different assumptions management uses in the calculation of undiscounted net cash
flows of a project, including the assumptions associated with alternative strategies and the probabilities associated with
alternative strategies, could cause a material impairment loss to be recognized when no impairment is otherwise warranted.
Management’s assumptions about the discount rate used in a discounted cash flow estimate of fair value and management’s
judgment with respect to market information could materially affect the decision to record impairment losses or, if required, the
amount of the impairment losses.
Recoveries from Tenants
Recoveries from tenants for operating expenses are determined on a calendar year and on a lease by lease basis. The most
common types of cost reimbursements in our leases are common area maintenance, real estate taxes and insurance, for which
the tenant pays its pro rata share in excess of a base year amount, if applicable. The computation of these amounts is complex
and involves numerous judgments, including the interpretation of terms and other customer lease provisions. Leases are not
uniform in dealing with such cost reimbursements and there are many variations in the computation. Many tenants make
monthly fixed payments of these operating expenses. We accrue income related to these payments each month. We make
monthly accrual adjustments, positive or negative, to recorded amounts to our best estimate of the annual amounts to be billed
and collected with respect to the cost reimbursements. After the end of the calendar year, we compute each customer's final
cost reimbursements and, after considering amounts paid by the tenant during the year, issue a bill or credit for the appropriate
amount to the tenant. The differences between the amounts billed less previously received payments and the accrual
adjustments are recorded as increases or decreases to revenues when the final bills are prepared, which occurs during the first
half of the subsequent year.
26
Revenue Recognition – Valuation of Receivables
Notes and accounts receivable are reduced by an allowance for amounts that may become uncollectible in the future. The
Company reviews its receivables regularly for potential collection problems in computing the allowance to record against its
receivables. This review requires management to make certain judgments regarding collectibility, notwithstanding the fact that
ultimate collections are inherently difficult to predict. Economic conditions fluctuate over time, and the Company has tenants in
many different industries which experience changes in economic health, making collectibility prediction difficult. Therefore,
certain receivables currently deemed collectible could become uncollectible, and those reserved could ultimately be collected.
A change in judgments made could result in an adjustment to the allowance for doubtful accounts with a corresponding effect
on net income.
Income Taxes – Valuation Allowance
The Company establishes a valuation allowance against deferred tax assets if, based on the available evidence, it is more
likely than not that such assets will not be realized. The realization of a deferred tax asset ultimately depends on the existence
of sufficient taxable income in either the carryback or carryforward periods under tax law. The Company periodically assesses
the need for valuation allowances for deferred tax assets based on the "more-likely-than-not" realization threshold criterion. In
the assessment, appropriate consideration is given to all positive and negative evidence related to the realization of the deferred
tax assets. This assessment requires considerable judgment by management and includes, among other matters, the nature,
frequency and severity of current and cumulative losses, forecasts of future profitability, the duration of statutory carryforward
periods, its experience with operating loss and tax credit carryforwards and tax planning alternatives. If management
determines that the Company requires a valuation allowance on its deferred tax assets, income tax expense or benefit could be
materially different than if management determines no such valuation allowance is necessary.
Investment in Joint Ventures
The Company holds ownership interests in a number of joint ventures with varying structures. Management evaluates all
of its joint ventures and other variable interests to determine if the entity is a variable interest entity (“VIE”), as defined in
accounting rules. If the venture is a VIE, and if management determines that the Company is the primary beneficiary, the
Company consolidates the assets, liabilities and results of operations of the VIE. The Company quarterly reassesses its
conclusions as to whether the entity is a VIE and whether consolidation is appropriate as required under the rules. For entities
that are not determined to be VIEs, management evaluates whether or not the Company has control or significant influence
over the joint venture to determine the appropriate consolidation and presentation. Generally, entities under the Company’s
control are consolidated, and entities over which the Company can exert significant influence, but does not control, are
accounted for under the equity method of accounting.
Management uses judgment to determine whether an entity is a VIE, whether the Company is the primary beneficiary of
the VIE and whether the Company exercises control over the entity. If management determines that an entity is a VIE with the
Company as primary beneficiary or if management concludes that the Company exercises control over the entity, the balance
sheets and statements of comprehensive income would be significantly different than if management concludes otherwise. In
addition, VIEs require different disclosures in the notes to the financial statements than entities that are not VIEs. Management
may also change its conclusions and, thereby, change its balance sheets, statements of comprehensive income and notes to the
financial statements, based on facts and circumstances that arise after the original consolidation determination is made. These
changes could include additional equity contributed to entities, changes in the allocation of cash flow to entity partners and
changes in the expected results within the entity.
Management performs an impairment analysis of the recoverability of its investments in joint ventures on a quarterly
basis. As part of this analysis, management first determines whether there are any indicators of impairment in any joint venture
investment. If indicators of impairment are present for any of the Company’s investments in joint ventures, management
calculates the fair value of the investment. If the fair value of the investment is less than the carrying value of the investment,
management must determine whether the impairment is temporary or other than temporary, as defined by GAAP. If
management assesses the impairment to be temporary, the Company does not record an impairment charge. If management
concludes that the impairment is other than temporary, the Company records an impairment charge.
Management uses considerable judgment in the determination of whether there are indicators of impairment present and
in the assumptions, estimations and inputs used in calculating the fair value of the investment. These judgments are similar to
those outlined above in the impairment of real estate assets. Management also uses judgment in making the determination as to
whether the impairment is temporary or other than temporary. The Company utilizes guidance provided by the SEC in making
the determination of whether the impairment is temporary. The guidance indicates that companies consider the length of time
that the impairment has existed, the financial condition of the joint venture and the ability and intent of the holder to retain the
investment long enough for a recovery in market value. Management’s judgment as to the fair value of the investment or on the
conclusion of the nature of the impairment could have a material impact on the results of operations and financial condition of
the Company.
27
Discussion of New Accounting Pronouncements
In June 2011, the FASB issued new guidance related to the presentation of other comprehensive income (“OCI”). The
new guidance requires, among other items, the presentation of the components of net income and OCI in one continuous
statement or in two separate but consecutive statements. In 2012, the Company reclassified OCI from the statements of equity
to the statements of comprehensive income. As the requirement pertains to presentation and disclosure only, adoption of this
guidance did not have a material effect on results of operations or financial condition.
Results of Operations For The Three Years Ended December 31, 2012
General
The Company's financial results have historically been significantly affected by purchase and sale transactions.
Accordingly, the Company's historical financial statements may not be indicative of future operating results.
Rental Property Revenues
Rental property revenues increased $20.0 million (19%) between 2012 and 2011 as a result of the following:
•
•
•
•
•
•
•
•
Increase of $15.1 million as a result of the Promenade acquisition in 2011;
Increase of $4.8 million as a result of the 2100 Ross acquisition;
Increase of $1.4 million at 191 Peachtree Tower as a result of an increase in average economic occupancy;
Increase of $353,000 at 600 University as a result of an increase in average economic occupancy;
Increase of $351,000 at Mahan Village as a result of the commencement of operations;
Decrease of $2.5 million at 555 North Point as a result of the termination of a lease in 2011. The vacated space
has been re-leased to a tenant whose lease commenced in the fourth quarter of 2012;
Decrease of $495,000 at American Cancer Society Center (“ACS Center”) as a result of a decrease in average
economic occupancy; and
Decrease of $399,000 at Terminus 100 as a result of lower recoverable expense revenues and a slight decrease in
average economic occupancy.
Rental property revenues increased $3.9 million (4%) between 2011 and 2010 as a result of the following:
•
•
•
•
•
Increase of $1.6 million as a result of the Promenade acquisition in 2011;
Increase of $1.0 million at 191 Peachtree Tower as a result of an increase in average economic occupancy and an
increase in parking revenues;
Increase of $854,000 at ACS Center as a result of an increase in average economic occupancy;
Increase of $830,000 at Terminus 100 due to an increase in average economic occupancy and an increase in
parking revenues; and
Decrease of $369,000 at 600 University Park Place as a result of a decrease in average economic occupancy.
Rental Property Operating Expenses
Rental property operating expenses increased $9.6 million (21%) between 2012 and 2011 as a result of the following:
•
•
•
Increase of $7.0 million as a result of the 2011 acquisition of Promenade;
Increase of $3.3 million as a result of the 2100 Ross acquisition; and
Decrease of $670,000 at Terminus 100 as a result of lower bad debt expense and lower utilities.
Rental property operating expenses increased $1.5 million (3%) between 2011 and 2010 primarily as a result of the 2011
Promenade acquisition.
Fee Income
Fee income increased approximately $4.0 million (29%) between 2012 and 2011. This increase is primarily due to the
receipt of a $4.5 million participation interest related to a contract that the Company assumed in the acquisition of an entity
several years ago. Under this contract, the Company is entitled to receive a portion of the proceeds from the sale of a project
that the entity developed and from payments received from a related seller-financed note. The Company may receive additional
proceeds under this contract in future periods. Partially offsetting this amount were lower leasing fees earned in 2012 from
MSREF/Terminus200 LLC (“MSREF/T200”) and Ten Peachtree Place Associates, which was sold in 2012.
28
Fee income decreased $623,000 (4%) between 2011 and 2010. This decrease is primarily the result of a decrease in
leasing fees from Palisades West LLC and MSREF/T200 as a result of these properties no longer being in the lease-up stage
and, therefore, signing fewer leases.
Multi-Family Residential Sales and Cost of Sales
Multi-family residential unit sales and cost of sales decreased significantly in both 2012 and 2011. The Company has
been liquidating its holdings of unsold multi-family units over the past three years and has commenced no new multi-family
residential development projects during that time. In 2012, 2011 and 2010, the Company sold two, five and 75 units at 10
Terminus Place. In future periods, the Company does not expect to recognize any significant revenues or expenses from multi-
family residential sales.
General and Administrative Expenses
General and administrative expenses decreased approximately $958,000 (4%) between 2012 and 2011 as a result of the
following:
•
•
•
•
Decrease in employee salaries and benefits, other than stock-based compensation, of approximately $3.2 million
due to a decrease in the number of corporate employees between 2012 and 2011;
Increase in stock-based compensation expense of $3.1 million primarily due to an increase in the Company's
stock price between years;
Increase in capitalized salaries of $734,000 as a result of increased development activity; and
Decrease in professional fees of $477,000 as a result of the Company's simpler structure and cost cutting
measures.
G&A expense decreased approximately $4.4 million (15%) between 2011 and 2010 as a result of the following:
•
•
•
•
Decrease in employee salaries and benefits, other than stock-based compensation, of approximately $1.7 million
primarily due to a decrease in the number of corporate employees between 2011 and 2010;
Decrease in stock-based compensation expense of $1.7 million primarily due to a decline in the Company's stock
price between years;
Decrease of $298,000 due to a decrease in professional fees as a result of the Company's simpler structure and
cost cutting measures; and
Increase of $327,000 in board of director's expenses, mainly due to a change in director compensation in 2011.
Separation Expenses
Separation expenses increased $1.8 million between 2012 and 2011 and decreased approximately $848,000 between
2011 and 2010. The Company had reductions in force in each of the years presented, which varied by number of employees
and positions between years. In 2012, the Company executed a strategic re-organization in connection with the sale of its third
party management business and overall simplification of its business. As a result, in the last half of 2012, the Company
terminated or experienced the retirement of 20 corporate level individuals and recorded severance expense as a result.
Separation expenses in 2010 related primarily to the retirement of the Company's Chief Financial Officer.
Interest Expense
Interest expense decreased $3.9 million (14%) between 2012 and 2011 as a result of the following:
•
•
•
•
•
Lower interest expense related to lower average borrowings under the Credit Facility resulting from asset sales
during 2012;
Lower interest expense as a result of the prepayment of the 100/200 North Point mortgage loan in 2012;
Lower interest expense as a result of the repayment of the 600 University Place mortgage loan, the 333/555 North
Point mortgage loan and the Lakeshore Park Plaza mortgage loan in 2011;
Lower interest expense due to higher capitalized interest in 2012; and
Higher interest expense related to a new mortgage loan on 191 Peachtree Tower that closed in the first quarter of
2012.
29
Interest expense decreased $9.4 million (25%) between 2011 and 2010 as a result of the following:
•
•
•
•
Lower interest expense related to the repayment of $56.2 million of higher cost fixed-rate mortgage debt using
proceeds from the lower-rate Credit Facility;
Lower interest expense as a result of the termination of two interest rate swaps in 2010 which had effectively
fixed certain variable-rate debt at a rate higher than the variable rate paid in 2011;
Lower interest expense from the Terminus 100 mortgage note payable, which was refinanced in 2010 at a lower
interest rate and a $40.0 million reduction in principal; and
Higher interest expense due to higher average amounts outstanding under the Credit Facility, mainly due to 2011
equity contributions to construct Emory Point and Mahan Village and to acquire Promenade in 2011, partially
offset by proceeds from asset sales.
Depreciation and Amortization
Depreciation and amortization increased approximately $9.0 million (26%) between 2012 and 2011 as a result of the
following:
•
•
•
•
•
•
Increase of $6.8 million as a result of the Promenade acquisition in 2011;
Increase of $2.3 million as a result of the 2100 Ross acquisition;
Increase of $427,000 at ACS Center as a result of the amortization of additional second generation tenant assets;
Increase of $420,000 at 191 Peachtree Tower as a result of the amortization of additional second generation tenant
assets;
Decrease of $1.0 million at 555 North Point Center East due to accelerated amortization recognized in 2011 of
tenant assets for a tenant that terminated its lease prior to the originally scheduled end date; and
Decrease of $385,000 related to corporate assets that became fully amortized during the year.
Depreciation and amortization decreased approximately $2.1 million (6%) between 2011 and 2010 as a result of the
following:
•
•
•
•
•
Decrease of $2.4 million from 191 Peachtree Tower due to accelerated amortization in 2010 of tenant assets for a
tenant that terminated its lease prior to the originally scheduled end date, partially offset by higher tenant
improvement amortization from increased occupancy;
Decrease of $843,000 from Terminus 100 due to accelerated amortization in 2010 of retail tenants that terminated
their leases prior to the originally scheduled end date;
Increase of $727,000 at 555 North Point Center East, due to accelerated amortization of tenant assets for a tenant
that terminated its lease prior to the originally scheduled end date;
Increase of $713,000 from the 2011 acquisition of Promenade; and
Increase of $418,000 from increased occupancy at the ACS Center.
Impairment Losses
During 2012, the Company incurred an impairment loss of $488,000 on its investment in Verde Realty (“Verde”), a cost
method investment in a non-public real estate investment trust, as a result of a merger of Verde into another company at a price
per share less than the Company's carrying amount.
During 2011, management began a strategic review and analysis of its residential and land businesses, as well as certain
of its operating properties, in an attempt to determine the most effective way to maximize the value of its holdings. In February
2012, the Company determined that it would liquidate its holdings of certain non-core assets in bulk on a more accelerated
timeline and at lower prices than initially planned and re-deploy this capital, primarily into office properties within its core
markets. As part of this process, in the fourth quarter of 2011, the Company revised the cash flow projections for its residential
holdings as well as two operating properties that were being held for long term investment opportunities. The cash flow
revisions reflected a higher probability that the Company would sell the assets in the short term than holding them for long term
investment and development opportunities. These cash flow revisions indicated that the undiscounted cash flows of 12
residential and land projects, as well as two operating properties, were less than their carrying amounts, and the Company
recorded impairment losses of $104.3 million to adjust these carrying amounts to fair value. The Company reclassified $7.6
million of these amounts to discontinued operations in 2012. Earlier in 2011, the Company recorded an other-than-temporary
impairment loss of $3.5 million on its investment in Verde to adjust the carrying amount of the Company's investment to fair
value, as a result of an analysis performed in connection with Verde's withdrawal of its proposed public offering.
30
During 2010, the Company recorded an impairment loss of $2.0 million on Handy Road, an encumbered, undeveloped
parcel of land in suburban Atlanta, Georgia that the Company was holding for future development or sale, because the
Company determined that it would convey the land to the lending bank through foreclosure. In addition, in 2010, the Company
recorded an impairment loss of $586,000 on 60 North Market, a multi-family residential project in Asheville, North Carolina,
because it determined the estimated selling prices of the units had declined since its acquisition.
Most of the Company's real estate assets are considered to be held for use pursuant to the accounting rules. If
management's strategy changes on any of these assets, the Company may be required to record significant impairment charges
in future periods. Changes that could cause these impairment losses include: (1) a decision by the Company to sell the asset
rather than hold for long-term investment or development purposes, or (2) changes in management's estimates of future cash
flows from the assets that cause the future undiscounted cash flows to be less than the asset's carrying amount. Given the
uncertainties with the economic environment, management cannot predict whether or not the Company will incur impairment
losses in the future, and if impairment losses are recorded, management cannot predict the magnitude of such losses.
Loss on Extinguishment of Debt and Interest Rate Swaps
In 2012, the Company amended and restated its Credit Facility and as a result, charged $94,000 of unamortized loan costs
to expense. In 2011, the Company prepaid the Lakeshore Park Plaza mortgage note and as a result, charged $74,000 of
unamortized loan costs to expense. In 2010, the Company incurred a fee of $9.2 million to terminate an interest rate swap on a
term loan. In addition, in 2010, the Company restructured its Credit Facility and as a result, charged $592,000 in unamortized
loan costs to expense.
Income (Loss) from Unconsolidated Joint Ventures
In 2012, 2011 and 2010, the Company had a considerable amount of activity that affected income (loss) from
unconsolidated joint ventures. In 2012, the Company sold its interest in Palisades West LLC for $64.8 million and recognized a
gain from unconsolidated entities of $23.3 million associated with this sale. In addition, Ten Peachtree Place Associates sold
the Ten Peachtree Place building to a third party. The Company received proceeds from this sale of $5.1 million and
recognized a gain from unconsolidated joint ventures of $7.3 million associated with this sale. CP Venture Two LLC sold
Presbyterian Medical Plaza to a third party in 2012 and the Company received proceeds from the sale of $450,000 and
recognized a gain of $167,000 associated with this sale. In addition, in 2012, the Emory Point development project became
operational within EP I LLC and the Company recorded $330,000 in its share of the losses from the start-up operations.
In 2011, Temco Associates (“Temco”) and CL Realty, L.L.C. (“CL Realty”) recorded impairment losses in income from
unconsolidated joint ventures on assets held by each entity. During 2011, Temco and CL Realty updated cash flow projections
for its projects and determined the cash flows to be generated by certain projects were less than their carrying amounts.
Consequently, Temco and CL Realty recorded impairment losses to record these assets at fair value, the Company's share of
which was $14.6 million for Temco and $13.6 million for CL Realty. In the first quarter of 2012, Forestar Realty Inc., the
Company's 50% partner in each venture, purchased the majority of the ventures' residential project and land acreage. The
Company's share of the proceeds from this transaction was $23.5 million and neither venture recognized a significant gain or
loss on the transaction since the purchase price approximated the carrying amounts of the assets sold. Also in 2011, the
Company recognized income from the newly-formed Cousins Watkins LLC, which caused income from unconsolidated joint
ventures to increase $2.4 million.
In 2010, CL Realty recognized an impairment loss as a result of a decision to sell rather than develop a parcel of land in
Padre Island, Texas, which required CL Realty to reduce the carrying cost of the parcel to fair value. The Company's share of
this impairment loss was $2.2 million. In 2010, CL Realty also recognized $5.2 million in gains on lot and tract sales.
The Company's share of income from CP Venture Five LLC, Charlotte Gateway Village, LLC and Crawford Long - CPI,
LLC remained consistent over the three year period ended December 31, 2012. Going forward, the Company will not recognize
any income from Palisades West LLC or Ten Peachtree Place Associates as a result of the sales noted above. Amounts
recognized by the Company from CP Venture Two LLC will be slightly lower as a result of the sale of Presbyterian Medical
Plaza discussed above.
Discontinued Operations
Accounting rules require that certain assets that were sold or plan to be sold be treated as discontinued operations and that
the results of their operations and any gains on sales from these properties are shown as a separate component of income in the
statements of comprehensive income for all periods presented. The following is a summary of the assets included in
discontinued operations for each of the three years in the period ended December 31, 2012.
In 2012, the Company sold the following retail assets: The Avenue Collierville, a 511,000 square foot center in Memphis,
Tennessee, for a sales price of $55.0 million; The Avenue Forsyth, a 524,000 square foot center in Atlanta, Georgia for a sales
price of $119.0 million; and The Avenue Webb Gin, a 322,000 square foot center in Atlanta, Georgia for a sales price of $59.6
31
million. The weighted average capitalization rates for these three retail project was 7.8%. The Company also sold Galleria 75, a
111,000 square foot office building in Atlanta, Georgia, for a sales price of $9.2 million and a capitalization rate of 9.5%. In
2012, the Company also sold Cosmopolitan Center, a 51,000 square foot office building for a sales price of $7.0 million. The
capitalization rate of Cosmopolitan Center was not a significant determinant of the sales price as it was being sold for its
underlying land value as opposed to its in-place income stream. In the fourth quarter of 2012, the Company determined that
Inhibitex, a 51,000 square foot office building in Atlanta, Georgia met the requirements for discontinued operations.
Included in discontinued operations for 2012 were impairment losses recorded on The Avenue Collierville and Inhibitex
in the amounts of $12.2 million and $1.6 million, respectively. The Company sold The Avenue Collierville for an amount
lower than its carrying value and recorded the impairment loss as a result. When the Company determined that Inhibitex was
held for sale in accordance with applicable accounting rules, it determined that the fair value of the asset less expected closing
costs were lower than the carrying amount and recorded an impairment loss as a result. Included in discontinued operations for
2011 were impairment losses on Cosmopolitan Center and Galleria 75 in the amounts of $4.7 million and $2.9 million,
respectively. The Company recorded this impairment loss in connection with the strategic review of its land and other holdings
discussed in note 6 of notes to consolidated financial statements included in this Annual Report on Form 10-K. The Company
reclassified this impairment loss to discontinued operations in 2012 when the related assets qualified for discontinued
operations treatment.
In 2012, the Company also sold its third party management and leasing business to Cushman & Wakefield. Under the
terms of the agreement, the Company has the potential to receive up to $15.4 million in gross sales proceeds, of which
approximately 63.5% was received at closing. The final purchase price is subject to working capital adjustments, an earn out
based on the performance of the contributed management and leasing contracts and the potential contribution of additional
management and/or leasing contracts, all of which the Company expects to be substantially resolved by October 1, 2013. The
Company recognized a gain on this transaction of $7.5 million and will recognize additional gains if and when additional
consideration is earned. As a result of this sale, the operations of the Company's third party management and leasing business
were reclassified to discontinued operations.
In 2011, the Company sold One Georgia Center, a 376,000 square foot office building in Atlanta, Georgia, for a sales
price of $48.6 million, which corresponded to a capitalization rate of 8.0%. Also in 2011, the Company sold Jefferson Mill, a
459,000 square foot industrial property in suburban Atlanta, Georgia for a sales price of $22.0 million, and King Mill, a
796,000 square foot industrial property in suburban Atlanta, Georgia for a sales price of $28.3 million. The weighted average
capitalization rate for these two industrial projects combined was 7.6%. The Company also sold Lakeside in 2011, a 749,000
square foot industrial property in Dallas, Texas for a sales price of $28.4 million. The capitalization rate of this property was
not a significant determinant of the sales price, partly due to the fact that the transaction included related tracts of undeveloped
land.
In 2010, the Company sold San Jose MarketCenter, a 213,000 square foot retail center in San Jose, California, for a sales
price of $85.0 million and a capitalization rate of approximately 8%. The Company sold 8995 Westside Parkway, a 51,000
square foot office building in suburban Atlanta, Georgia for $3.2 million. The capitalization rate of 8995 Westside Parkway
was not a significant determinant of the sales price because this building had no leases at the time of sale. Capitalization rates
are generally calculated by dividing projected annualized cash flows by the sales price.
Net Income Attributable to Noncontrolling Interest
The Company consolidates certain entities and allocates the partner's share of those entities' results to net income
attributable to noncontrolling interests on the statements of comprehensive income. The noncontrolling interests' share of the
Company's net income decreased $2.8 million between 2012 and 2011, and increased $2.4 million between 2011 and 2010. In
2012, $2.1 million was allocated to the noncontrolling partner in the entity which owned the property in connection with the
sale of The Avenue Collierville. Also in 2012, $1.8 million of the gain on the sale of The Avenue Forsyth was allocated to the
noncontrolling partner in the entity which owned the property. In 2011, $1.6 million of the gain on sale of One Georgia Center
was allocated to the noncontrolling partner in the entity which owned the property. Also in 2011, $1.4 million of the gain on
sale of King Mill was allocated to the noncontrolling partner in the entity which owned the property.
Funds from Operations
The table below shows Funds from Operations Available to Common Stockholders (“FFO”) and the related
reconciliation to net income (loss) available to common stockholders for the Company. The Company calculates FFO in
accordance with the National Association of Real Estate Investment Trusts’ (“NAREIT”) definition, which is net income
available to common stockholders (computed in accordance with GAAP), excluding extraordinary items, cumulative effect of
change in accounting principle and gains on sale or impairment losses on depreciable property, plus depreciation and
amortization of real estate assets, and after adjustments for unconsolidated partnerships and joint ventures to reflect FFO on the
same basis.
32
FFO is used by industry analysts and investors as a supplemental measure of a REIT’s operating performance. Historical
cost accounting for real estate assets implicitly assumes that the value of real estate assets diminishes predictably over time.
Since real estate values instead have historically risen or fallen with market conditions, many industry investors and analysts
have considered presentation of operating results for real estate companies that use historical cost accounting to be insufficient
by themselves. Thus, NAREIT created FFO as a supplemental measure of REIT operating performance that excludes historical
cost depreciation, among other items, from GAAP net income. The use of FFO, combined with the required primary GAAP
presentations, has been fundamentally beneficial, improving the understanding of operating results of REITs among the
investing public and making comparisons of REIT operating results more meaningful. Company management evaluates
operating performance in part based on FFO. Additionally, the Company uses FFO, along with other measures, to assess
performance in connection with evaluating and granting incentive compensation to its officers and other key employees. The
reconciliation of net income (loss) available to common stockholders to FFO is as follows for the years ended December 31,
2012, 2011 and 2010 (in thousands, except per share information):
Net Income (Loss) Available to Common Stockholders
Depreciation and amortization:
Consolidated properties
Discontinued properties
Share of unconsolidated joint ventures
Depreciation of furniture, fixtures and equipment:
Consolidated properties
Discontinued properties
Share of unconsolidated joint ventures
Impairment losses on depreciable investment properties, net of amounts
attributable to noncontrolling interests
Gain on sale of investment properties:
Consolidated properties
Discontinued properties, net of gain attributable to noncontrolling
interests
Share of unconsolidated joint ventures
Gain on sale of undepreciated investment properties
Gain on sale of third party management and leasing business
Funds From Operations Available to Common Stockholders
Per Common Share—Basic:
Net Income (Loss) Available
Funds From Operations
Weighted Average Shares—Basic
Per Common Share—Diluted:
Net Income (Loss) Available
Funds From Operations
Weighted Average Shares—Diluted
Liquidity and Capital Resources
The Company’s primary liquidity sources are:
Years Ended December 31,
2012
$
32,821
$
2011
(141,332) $
2010
(27,480)
43,559
9,344
10,230
(1,075)
—
(15)
34,580
19,481
10,357
(1,688)
—
(20)
11,748
7,632
36,710
23,268
9,661
(1,884)
(5)
(22)
—
(4,318)
(3,494)
(1,938)
(16,292)
(30,662)
3,693
7,459
66,492
0.32
0.64
104,117
0.32
0.64
104,125
$
$
$
$
$
(5,649)
—
3,258
—
(76,875) $
(1.36) $
(0.74) $
103,651
(1.36) $
(0.74) $
103,655
(7,226)
—
1,697
—
32,781
(0.27)
0.32
101,440
(0.27)
0.32
101,440
$
$
$
$
$
Sales of assets;
• Net cash from operations;
•
• Borrowings under its Credit Facility;
•
•
•
Proceeds from mortgage notes payable;
Proceeds from equity offerings; and
Joint venture formations.
33
The Company’s primary liquidity uses are:
Payments of tenant improvements and other leasing costs;
Principal and interest payments on debt obligations;
• Corporate expenses;
•
•
• Dividends to common and preferred stockholders;
•
• Expenditures on predevelopment and development projects.
Property acquisitions; and
Financial Condition
During 2012 and 2011, the Company improved its financial position by reducing leverage, extending maturities,
replacing higher cost mortgage notes with lower cost financing and modifying its Credit Facility, all of which increased overall
financial flexibility. The Company expects to fund its current commitments over the next 12 months with cash flows from
operations, borrowings under its Credit Facility, borrowings under new or renewed mortgage loans, proceeds from the sale of
assets and proceeds from equity offerings. The Company amended its $350 million Credit Facility in the first quarter of 2012,
extending the maturity from August 2012 to February 2016, with a one-year extension under certain situations, and adding an
accordion feature that allows it to increase capacity under the Credit Facility to $500 million. Also in the first quarter of 2012,
the Company entered into a $100 million mortgage note payable secured by 191 Peachtree Tower that matures in 2018.
Proceeds from this loan were used to reduce amounts outstanding under the Credit Facility. The Company had a $24.5 million
fixed-rate mortgage loan maturing in June 2012, which was prepaid in April 2012. There are no significant maturities over the
next 12 months.
In 2012, the Company sold operating properties, its third party management and leasing business, land, its interest in real
estate joint ventures and other non-core assets, generating proceeds of $401.2 million. With these proceeds, the Company
acquired an operating property for $63.4 million, repaid all amounts outstanding under its Credit Facility and held excess cash
on its balance sheet as of December 31, 2012.
In February 2013, the Company purchased the remaining 80% interest in MSREF/T200, repaid the mortgage loan on
Terminus 200, sold 50% of its interest in Terminus 100 and Terminus 200 to JP Morgan and purchased Post Oak Central as
discussed in note 9 of notes to consolidated financial statements. The Company funded this series of transactions with cash on
hand and borrowings under its Credit Facility. Subsequent to these transactions, the Company had $85.0 million outstanding
under its Credit Facility.
The Company may seek additional acquisitions and opportunistic investments in 2013 and beyond and expects to fund
these activities with one or more of the following: sale of additional non-core assets, additional borrowings under its Credit
Facility, mortgage loans on existing and newly acquired properties, the issuance of common or preferred equity and joint
venture formation with third parties.
Contractual Obligations and Commitments
At December 31, 2012, the Company was subject to the following contractual obligations and commitments (in
thousands):
Total
Less than
1 Year
1-3 Years
3-5 Years
More than
5 years
Contractual Obligations:
Company debt:
Construction loan
Mortgage notes payable
Interest commitments (1)
Ground leases
Other operating leases
Total contractual obligations
Commitments:
Unfunded tenant improvements and other
Letters of credit
Performance bonds
Total commitments
$
$
$
13,027
412,383
143,811
15,400
619
585,240
13,337
2,105
537
15,979
$
$
$
— $
4,775
21,929
117
196
27,017
13,033
2,105
377
15,515
$
$
13,027
10,045
42,828
241
283
66,424
$
— $
152,787
38,763
255
100
$ 191,905
304
—
60
364
$
—
—
100
100
—
244,776
40,291
14,787
40
299,894
—
—
—
—
$
$
(1)
Interest on variable rate obligations is based on rates effective as of December 31, 2012.
34
In addition, the Company has several standing or renewable service contracts mainly related to the operation of its
buildings. These contracts were entered into in the ordinary course of business and are generally one year or less. These
contracts are not included in the above table and are usually reimbursed in whole or in part by tenants.
The Company repaid one mortgage loan during 2012 totaling $24.5 million. This loan had an interest rate of 5.39%,
which is higher than the rate paid on the Company’s Credit Facility and the weighted average rate on the Company’s other
debt. The Company repaid this note to provide flexibility to sell these assets or refinance them at a later date, depending upon
its strategic direction.
In 2012, the Company entered into a $100 million mortgage note payable, secured by an office building. The loan has an
interest rate of 3.35% and matures in 2018. Proceeds from this loan were used to reduce amounts outstanding under the Credit
Facility.
In 2011, the Company entered into a construction loan to fund a development project. The Company expects to fund the
majority of its future joint venture development projects with construction loans, as long as the terms remain attractive to other
capital sources.
The Company’s existing mortgage debt is primarily non-recourse, fixed-rate mortgage notes secured by various real
estate assets. Many of the Company’s non-recourse mortgages contain covenants which, if not satisfied, could result in
acceleration of the maturity of the debt. The Company expects that it will either refinance the non-recourse mortgages at
maturity or repay the mortgages with proceeds from other financings. As of December 31, 2012, the weighted average interest
rate on the Company’s consolidated debt was 5.14%, and the Company’s consolidated debt to undepreciated assets ratio was
35.3%.
Credit Facility Information
The Company amended its $350 million Credit Facility in the first quarter of 2012, extending the maturity from August
2012 to February 2016, with a one-year extension under certain situations and adding an accordion feature that allows it to
increase capacity under the Credit Facility to $500 million. The Company’s Credit Facility bears interest at the London
Interbank Offered Rate (“LIBOR”) plus a spread, based on the Company’s leverage ratio, as defined in the Credit Facility. At
December 31, 2012, the Company had no funds drawn on the facility. The amount that the Company may draw under the
Credit Facility is a defined calculation based on the Company’s unencumbered assets and other factors and is reduced by both
letters of credit and borrowings outstanding.
The Credit Facility includes customary events of default, including, but not limited to, the failure to pay any interest or
principal when due, the failure to perform under covenants of the credit agreement, incorrect or misleading representations or
warranties, insolvency or bankruptcy, change of control, the occurrence of certain ERISA events and certain judgment defaults.
The amounts outstanding under the Credit Facility may be accelerated upon an event of default. The Credit Facility contains
restrictive covenants pertaining to the operations of the Company, including limitations on the amount of debt that may be
incurred, the sale of assets, transactions with affiliates, dividends and distributions. The Credit Facility also includes certain
financial covenants (as defined in the agreement) that require, among other things, the maintenance of an unencumbered
interest coverage ratio of at least 2.00; a fixed charge coverage ratio of at least 1.40, increasing to 1.50 during the extension
period; and a leverage ratio of no more than 60%. The Company is currently in compliance with its financial covenants.
Future Capital Requirements
Over the long term, management intends to actively manage its portfolio of properties and strategically sell assets to exit
its non-core holdings, reposition its portfolio of income-producing assets geographically and by product type, and generate
capital for future investment activities. The Company expects to continue to utilize indebtedness to fund future commitments
and expects to place long-term mortgages on selected assets as well as to utilize construction facilities for development assets,
if available and under appropriate terms.
The Company may also generate capital through the issuance of securities that include common or preferred stock,
warrants, debt securities or depositary shares. In March 2010, the Company filed a shelf registration statement to allow for the
issuance of up to $500 million of such securities, of which $482 million remains to be drawn as of December 31, 2012.
Management will continue to evaluate all public equity sources and select the most appropriate options as capital is required.
The Company’s business model is dependent upon raising or recycling capital to meet obligations. If one or more sources
of capital are not available when required, the Company may be forced to reduce the number of projects it acquires or develops
and/or raise capital on potentially unfavorable terms, or may be unable to raise capital, which could have an adverse effect on
the Company’s financial position or results of operations.
35
Cash Flows
The reasons for significant increases and decreases in cash flows between the years are as follows:
Cash Flows from Operating Activities
Cash flows from operating activities increased $39.7 million between 2012 and 2011 due to the following:
•
•
•
•
Increase of $28.5 million in operating distributions from joint ventures due to the sale of the Company's interest in
Palisades West LLC and distribution the Company received from Ten Peachtree Place Associates as a result of
the sale of the Ten Peachtree Place building;
Increase of $3.5 million due to the receipt of a lease termination fee;
Increase of $3.4 million related to a participation interest in a former development project; and
Increase of $2.8 million as a result of lower interest paid due to lower average debt outstanding.
Cash flows from operating activities decreased approximately $24.1 million between 2011 and 2010 due to the following:
• Decrease of $27.8 million from multi-family residential unit sales due to a lower number of units sold in 2011
compared to 2010 at both the Company's 10 Terminus and 60 North Market condominium projects;
•
•
•
Increase of $9.2 million as a result of the 2010 payment of a fee for an interest rate swap termination;
Increase of $9.7 million as a result of lower interest paid due to lower average debt outstanding and lower average
interest rates in 2011;
Increase of $2.2 million from residential lot, outparcel and multi-family acquisition and development expenditures
due to a decrease in development activities for those property types between 2011 and 2010;
• Decrease of $14.3 million from lower proceeds from outparcel sales. There were no outparcel sales in 2011,
compared to eight outparcel sales in 2010; and
• Decrease of $2.8 million from a decrease in income taxes refunded between 2011 and 2010.
Cash Flows from Investing Activities
Net cash from investing activities increased $286.8 million between 2012 and 2011 due to the following:
•
•
•
Increase of $129.8 million from investment property sales. In 2012, the Company sold six operating properties
and four tracts of land. In 2011, the Company sold four operating properties and three tracts of land.
Increase of $76.8 million from a decrease in acquisition, development and tenant asset expenditures. This
decrease is primarily attributable to the differences in the purchase prices for the 2012 purchase of 2100 Ross and
the 2011 purchase of Promenade;
Increase of $75.7 million from joint ventures. In 2012, the Company sold its investment in Palisades West,
received distributions from Ten Peachtree Place Associates from the sale of its only asset, and received
distributions from CL Realty, L.L.C. and Temco Associates in connection with the sale of most of the assets
owned in these two ventures. In addition, the Company invested less in its joint ventures as a result of lower
capital contributions in EP I, which was formed and initially capitalized in 2011;
•
Increase of $8.2 million from the sale of the Company's third party management and leasing business; and
• Decrease of $8.5 million from the use of restricted cash for tenant improvements.
Net cash provided by investing activities decreased $71.7 million between 2011 and 2010 due to the following:
•
•
•
•
Increase of $41.9 million from investment property sales. In 2011, the Company sold four operating properties
and three tracts of land. In 2010, the Company sold three operating properties and three tracts of land;
Increase of $23.0 million from restricted cash usage. Under the loan agreements for Meridian Mark Plaza and the
ACS Center, reserves were required for future tenant improvement costs. In 2010, the Company funded
approximately $12.5 million of these reserves. In 2011, $10.5 million of these funds were released toward the
payment of tenant improvement costs;
Increase of $17.3 million due to the payment of a debt guarantee in 2010 related to the old T200 joint venture.
Increase of $2.9 million from lower contributions to joint ventures. In 2011, the Company contributed
approximately $18.6 million to the newly formed EP I joint venture. In 2010, the Company contributed $14.9
million for the formation of the Cousins Watkins LLC joint venture, $4.0 million to CP Venture Five LLC for its
share of a maturing note payable, and $3.2 million to the MSREF/T200 joint venture;
36
• Decrease of $148.1 million from increase in acquisition, development and tenant asset expenditures due primarily
to the acquisition of the Promenade and to the commencement of construction of Mahan Village in 2011; and
• Decrease of $7.6 million as a result of a decrease in distributions received from joint ventures due to lower
distributions from land sales at CL Realty and to a $3.8 million 2010 distribution from CP Venture Five LLC
related to a mortgage refinancing.
Cash Flows from Financing Activities
Net cash used in financing activities increased $151.8 million between 2012 and 2011 due primarily to a reduction in
debt outstanding of $114.0 million in 2012 compared to an increase in net borrowings in 2011 of $33.3 million. In 2012, the
Company repaid outstanding debt with proceeds from investment property sales.
Net cash used in financing activities decreased $95.0 million between 2011 and 2010 due to the following:
•
Increase in cash flows of $114.0 million due to an increase in debt outstanding. In 2011, the Company increased
its debt outstanding $33.3 million as a result of funding required for its net investing activities. In 2010, the
Company reduced its debt outstanding by $80.7 million as a result of proceeds generated from investment
property and other land sales and no significant acquisitions consummated in 2010;
• Decrease in cash flows of $6.5 million from common dividends paid. The 2011 annual dividend of $0.18 per
share was paid all in cash, while the 2010 annual dividend of $0.36 per share was paid in a combination of cash
and stock; and
• Decrease in cash flows of $13.3 million from distributions to noncontrolling interests, as the Company distributed
approximately $13.8 million in 2011 to its noncontrolling partners for their share of the proceeds from the sales of
three investment properties.
Capital Expenditures
The Company incurs costs related to its real estate assets that include acquisition of properties, development of new
properties, redevelopment of existing or newly purchased properties, leasing costs for new or replacement tenants and ongoing
property repairs and maintenance.
Capital expenditures for certain types of consolidated real estate are categorized as operating activities in the statements
of cash flows, such as those for the development of residential lots, retail outparcels and for-sale multi-family residential
projects. During the years ended December 31, 2012, 2011 and 2010, the Company incurred $47,000, $999,000 and $3.3
million, respectively, in land and for-sale multi-family project expenditures. The Company does not anticipate entering into any
new land or for-sale multi-family projects in the near term.
Capital expenditures for other types of consolidated real estate assets, mainly office and retail assets the Company
develops or acquires and then holds and operates, are included in the property acquisition, development and tenant asset
expenditures line item within investing activities on the statements of cash flows. Amounts accrued are removed from the table
below (accrued capital adjustment) to show the components of these costs on a cash basis. Components of costs included in this
line item for the years ended December 31, 2012, 2011 and 2010 are as follows (in thousands):
$
Acquisition of property
Projects under development
Redevelopment property—leasing costs
Redevelopment property—building improvements
Operating properties—leasing costs
Operating properties—building improvements
Land held for investment
Capitalized interest
Capitalized salaries
Accrued capital adjustment
Total property acquisition, development and tenant asset expenditures $
2012
63,562
13,387
—
—
20,179
4,499
480
407
1,515
1,040
105,069
$
$
2011
134,733 $
10,741
3,420
6,036
25,476
1,420
57
117
1,532
(1,623)
181,909 $
2010
—
—
8,281
3,956
19,396
2,548
—
—
1,618
(2,038)
33,761
Capital expenditures decreased $76.8 million between 2012 and 2011 mainly due to decreased acquisition activity. In
addition, the Company incurred lower overall leasing and building improvement costs in 2012 due to the sale of several
operating properties. Tenant improvements and leasing costs, as well as some of the capitalized personnel costs, are a function
of the number and size of executed new and renewed leases. The amount of tenant improvements and leasing costs on a per
37
square foot basis varies by lease and by market, and such costs per square foot have increased in certain markets during recent
years. However, these amounts have stabilized overall and are decreasing in some of the Company's markets. Given the level of
expected leasing and renewal activity in future periods, management anticipates future tenant improvement and leasing costs to
remain consistent with or greater than that experienced in 2012. The accrued capital adjustment is affected by the amount and
timing of the Company's payments for accounts payable and accrued expenses. The Company paid $1.1 million more in
accounts payable and accrued expenses than it incurred.
Capital expenditures increased $148.1 million between 2011 and 2010 mainly due to the fourth quarter 2011 purchase of
Promenade and the third quarter 2011 commencement of development of the Mahan Village retail center.
Dividends. The Company paid cash common and preferred dividends of $31.7 million, $31.6 million, and $25.1 million
in 2012, 2011 and 2010, respectively, which it funded with cash provided by operating activities. All of the 2012 and 2011
common stock dividends were paid in cash. The 2010 common stock dividends were paid in a combination of cash and
common stock. The value of the common dividends paid in stock totaled $24.3 million in 2010. The Company expects to fund
its quarterly distributions to common and preferred stockholders with cash provided by operating activities, proceeds from
investment property sales, distributions from unconsolidated joint ventures and indebtedness, if necessary.
On a quarterly basis, the Company reviews the amount of the common dividend in light of current and projected future
cash flows from the sources noted above and also considers the requirements needed to maintain its REIT status. In addition,
the Company has certain covenants under its Credit Facility which could limit the amount of dividends paid. In general,
dividends of any amount can be paid as long as leverage, as defined in the facility, is less than 60% and the Company is not in
default under its facility. Certain conditions also apply in which the Company can still pay dividends if leverage is above that
amount. The Company routinely monitors the status of its dividend payments in light of the Credit Facility covenants.
Effects of Inflation
The Company attempts to minimize the effects of inflation on income from operating properties by providing periodic
fixed-rent increases or increases based on the Consumer Price Index and/or pass-through of certain operating expenses of
properties to tenants or, in certain circumstances, rents tied to tenants’ sales.
Off Balance Sheet Arrangements
General. The Company has a number of off balance sheet joint ventures with varying structures, as described in note 5 of
notes to consolidated financial statements. Most of the joint ventures in which the Company has an interest are involved in the
ownership and/or development of real estate. A venture will fund capital requirements or operational needs with cash from
operations or financing proceeds, if possible. If additional capital is deemed necessary, a venture may request a contribution
from the partners, and the Company will evaluate such request. Except as previously discussed, based on the nature of the
activities conducted in these ventures, management cannot estimate with any degree of accuracy amounts that the Company
may be required to fund in the short or long-term. However, management does not believe that additional funding of these
ventures will have a material adverse effect on its financial condition or results of operations.
Debt. At December 31, 2012, the Company’s unconsolidated joint ventures had aggregate outstanding indebtedness to
third parties of approximately $390.8 million. These loans are generally mortgage or construction loans, most of which are non-
recourse to the Company, except as described below. In addition, in certain instances, the Company provides “non-recourse
carve-out guarantees” on these non-recourse loans. Certain of these loans have variable interest rates, which creates exposure to
the ventures in the form of market risk to interest rate changes. At December 31, 2012, approximately $40.6 million of the
loans at unconsolidated joint ventures were recourse to the Company.
CF Murfreesboro Associates (“CF Murfreesboro”), of which the Company owns 50%, has a $97.5 million facility that
matures on December 31, 2013, and $94.5 million was drawn at December 31, 2012. The Company has a $26.2 million
repayment guarantee on the loan.
The Company guarantees 25% of two of the four outstanding loans at the Cousins Watkins LLC joint venture, which
owns four retail shopping centers. The two recourse loans have a total capacity of $16.3 million, of which the Company
guarantees 25% of the outstanding balance. At December 31, 2012, the Company guaranteed $2.9 million, based on current
amounts outstanding under these loans. These guarantees may be reduced or eliminated based on achievement of certain
criteria.
The Company guarantees repayment of $11.5 million of the EP I construction loan, which has a maximum amount
available of $61.1 million. This guarantee may be reduced and/or eliminated based on achievement of certain criteria.
Bonds. The unconsolidated joint ventures also had performance bonds of $115,000 at December 31, 2012, which the
Company guarantees through an indemnity agreement with the bond issuer and which are shown on the Company’s
commitment table above. These performance bonds relate to construction projects at the retail center owned by CF
Murfreesboro, and the Company would seek reimbursement from CF Murfreesboro if the bond was paid.
38
Item 7A. Quantitative and Qualitative Disclosure about Market Risk
The Company’s primary exposure to market risk results from its debt, which bears interest at both fixed and variable
rates. The Company mitigates this risk by limiting its debt exposure in total and its maturities in any one year and weighting
more towards fixed-rate, non-recourse debt compared to recourse, variable-rate debt in its portfolio. The fixed rate debt
obligations limit the risk of fluctuating interest rates, and generally are mortgage loans secured by certain of the Company’s
real estate assets. The Company does not have a significant level of consolidated fixed-rate mortgage debt maturing in 2013
and, therefore, does not have high exposure for the refinancing of its mortgage debt in the near term. At December 31, 2012,
the Company had $412.4 million of fixed rate debt outstanding at a weighted average interest rate of 5.24%. At December 31,
2011, the Company had $341.2 million of fixed rate debt outstanding at a weighted average interest rate of 5.81%. The amount
of fixed-rate debt outstanding increased and the weighted average interest rate decreased from 2011 to 2012 as a result of the
Company entering into a $100 million mortgage note payable secured by 191 Peachtree Tower at a fixed interest rate of 3.35%.
See note 3 of the notes to consolidated financial statements included in this Annual Report on Form 10-K for additional
information regarding 2012 debt activity.
The Company has variable rate debt consisting primarily of a construction loan which had $13.0 million outstanding as of
December 31, 2012. The interest rate on the construction loan was LIBOR plus a spread, which totaled 1.86% at December 31,
2012. As of December 31, 2011, the variable rate debt consisted primarily of the Credit Facility, which had $198.3 million
outstanding at an interest rate of 2.30%. Borrowings under the Credit Facility decreased in 2012 due to the cash inflow
resulting from the sale of several real estate assets. Based on the Company’s average variable rate debt balances in 2012,
interest incurred would have increased by approximately $1.1 million in 2012 if these interest rates had been 1% higher.
In 2012, the Credit Facility was amended to, among other things, extend the maturity to February 28, 2016 and reduce
the interest spread over LIBOR. See note 3 of notes to consolidated financial statements included in this Annual Report on
Form 10-K for additional information regarding the Credit Facility.
The following table summarizes the Company’s market risk associated with notes payable as of December 31, 2012. It
includes the principal maturing, an estimate of the weighted average interest rates on those expected principal maturity dates
and the fair values of the Company’s fixed and variable rate notes payable. Fair value was calculated by discounting future
principal payments at estimated rates at which similar loans could have been obtained at December 31, 2012. The information
presented below should be read in conjunction with note 3 of notes to consolidated financial statements included in this Annual
Report on Form 10-K. (The Company did not have a significant level of notes receivable at December 31, 2012, and the table
does not include information related to notes receivable.)
($ in thousands)
Notes Payable:
Fixed Rate
Average Interest Rate
Variable Rate
Average Interest Rate (1)
2013
2014
2015
2016
2017
Thereafter
Total
$ 4,775
$ 4,878
$ 20,174
$ 132,696
$ 244,692
$ 412,383
$
$ 13,027
5.70%
—
—
$
$
5,168
5.76%
— $
—
5.76%
1.86%
5.54%
— $
—
6.38%
—
—
$
4.57%
—
—
5.24%
$ 13,027
1.86%
(1)
Interest rates on variable rate notes payable are equal to the variable rates in effect on December 31, 2012.
39
Item 8. Financial Statements and Supplementary Data
The consolidated financial statements, notes to consolidated financial statements and report of independent registered
public accounting firm are included on pages F-1 through F-35.
Certain components of quarterly net income (loss) available to common stockholders disclosed below differ from those
as reported on the Company’s respective quarterly reports on Form 10-Q. As discussed in notes 2 and 9 of notes to
consolidated financial statements, gains and losses from the disposition of certain real estate assets and the related historical
operating results were reclassified as discontinued operations for all applicable periods presented. Additionally, impairment
losses were recorded in certain quarters during both 2012 and 2011, as discussed in note 6 of notes to consolidated financial
statements included in this Annual Report on Form 10-K. The following selected quarterly financial information (unaudited)
for the years ended December 31, 2012 and 2011 should be read in conjunction with the consolidated financial statements and
notes thereto included herein (in thousands, except per share amounts):
2012:
Revenues
Impairment losses
Income (loss) from unconsolidated joint ventures
Gain on sale of investment properties
Income (loss) from continuing operations
Discontinued operations
Net income (loss)
Net income (loss) attributable to controlling interest
Net income (loss) available to common stockholders
Basic and diluted net income (loss) per common share
2011:
Revenues
Impairment losses
Income from unconsolidated joint ventures
Gain on sale of investment properties
Income (loss) from continuing operations
Discontinued operations
Net income (loss)
Net income (loss) attributable to controlling interest
Net income (loss) available to common stockholders
Basic and diluted net income (loss) per common share
$
$
Quarters
First
Second
Third
Fourth
(Unaudited)
$
34,652
—
2,186
57
(1,706)
(9,649)
(11,354)
(9,885)
(13,112)
(0.13)
40,582 $
(488)
2,268
60
1,485
11,795
13,278
12,670
9,444
0.09
39,250
—
25,042
3,907
24,531
11,234
35,765
33,315
30,088
0.29
$
33,794
—
9,762
29
6,403
3,826
10,230
9,628
6,401
0.06
Quarters
First
Second
Third
Fourth
(Unaudited)
$
33,899
(3,508)
2,496
59
(5,976)
1,927
(4,049)
(4,630)
(7,857)
(0.08)
$
30,191
—
2,312
59
(2,654)
1,856
(798)
(1,479)
(4,706)
(0.05)
31,313 $
—
2,660
59
25
5,581
5,606
3,414
188
—
33,643
(96,623)
(25,767)
3,317
(124,771)
545
(124,226)
(125,730)
(128,957)
(1.24)
The above per share quarterly information does not sum to full year per share information due to rounding. Other
financial statements and financial statement schedules required under Regulation S-X are filed pursuant to item 15 of part IV of
this report.
During 2012 and 2011, the Company's quarterly results varied as a result of the timing of certain impairment charges
recorded within quarters of each year and the timing of the sales of assets, which generated gains within quarters of each year.
See note 6 of notes to consolidated financial statements included in this Annual Report on Form 10-K for a discussion of
impairment losses recorded and note 9 of notes to consolidated financial statements included in this Annual Report on Form
10-K for a discussion of asset sales.
40
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
Not applicable.
Item 9A. Controls and Procedures
We maintain disclosure controls and procedures that are designed to ensure that information required to be disclosed in
our Exchange Act reports is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules
and forms, and that such information is accumulated and communicated to management, including the Chief Executive Officer
and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure. Management necessarily
applied its judgment in assessing the costs and benefits of such controls and procedures, which, by their nature, can provide
only reasonable assurance regarding management’s control objectives.
As of the end of the period covered by this annual report, we carried out an evaluation, under the supervision and with the
participation of management, including the Chief Executive Officer along with the Chief Financial Officer, of the effectiveness,
design and operation of our disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)).
Based upon the foregoing, the Chief Executive Officer along with the Chief Financial Officer concluded that our disclosure
controls and procedures were effective. In addition, based on such evaluation we have identified no changes in our internal
control over financial reporting that occurred during the most recent fiscal quarter that have materially affected, or are
reasonably likely to materially affect, our internal control over financial reporting.
Report of Management on Internal Control over Financial Reporting
Management of the Company is responsible for establishing and maintaining adequate internal control over financial
reporting, as such term is defined in Exchange Act Rule 13a-15(f). Internal control over financial reporting is a process
designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial
statements for external reporting purposes in accordance with accounting principles generally accepted in the United States
(“GAAP”). Internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance
of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of our assets; (2) provide
reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance
with GAAP and that our receipts and expenditures are being made only in accordance with authorizations of our management
and directors; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or
disposition of our assets that could have a material effect on the financial statements.
Management, under the supervision of and with the participation of the Chief Executive Officer and the Chief Financial
Officer, assessed the effectiveness of our internal control over financial reporting as of December 31, 2012. The framework on
which the assessment was based is described in “Internal Control – Integrated Framework” issued by the Committee of
Sponsoring Organizations of the Treadway Commission. Based on this assessment, we concluded that we maintained effective
internal control over financial reporting as of December 31, 2012. Deloitte & Touche, our independent registered public
accounting firm, issued an opinion on the effectiveness of our internal control over financial reporting as of December 31,
2012, which follows this report of management.
41
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors and Stockholders of
Cousins Properties Incorporated:
We have audited the internal control over financial reporting of Cousins Properties Incorporated and subsidiaries (the
"Company") as of December 31, 2012, based on criteria established in Internal Control - Integrated Framework issued by the
Committee of Sponsoring Organizations of the Treadway Commission. The Company's management is responsible for
maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over
financial reporting, included in the accompanying Report of Management on Internal Control over Financial Reporting. Our
responsibility is to express an opinion on the Company's internal control over financial reporting based on our audit.
We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United
States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective
internal control over financial reporting was maintained in all material respects. Our audit included obtaining an understanding
of internal control over financial reporting, assessing the risk that a material weakness exists, testing and evaluating the design
and operating effectiveness of internal control based on the assessed risk, and performing such other procedures as we
considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.
A company's internal control over financial reporting is a process designed by, or under the supervision of, the company's
principal executive and principal financial officers, or persons performing similar functions, and effected by the company's
board of directors, management, and other personnel to provide reasonable assurance regarding the reliability of financial
reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting
principles. A company's internal control over financial reporting includes those policies and procedures that (1) pertain to the
maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of
the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial
statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are
being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable
assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company's assets that
could have a material effect on the financial statements.
Because of the inherent limitations of internal control over financial reporting, including the possibility of collusion or
improper management override of controls, material misstatements due to error or fraud may not be prevented or detected on a
timely basis. Also, projections of any evaluation of the effectiveness of the internal control over financial reporting to future
periods are subject to the risk that the controls may become inadequate because of changes in conditions, or that the degree of
compliance with the policies or procedures may deteriorate.
In our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of
December 31, 2012, based on the criteria established in Internal Control - Integrated Framework issued by the Committee of
Sponsoring Organizations of the Treadway Commission.
We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United
States), the consolidated financial statements and financial statement schedule as of and for the year ended December 31, 2012
of the Company and our report dated February 13, 2013 expressed an unqualified opinion on those consolidated financial
statements and financial statement schedule.
/s/ DELOITTE & TOUCHE LLP
Atlanta, Georgia
February 13, 2013
Item 9B. Other Information
None.
42
Item 10. Directors, Executive Officers and Corporate Governance
PART III
The information required by Items 401 and 405 of Regulation S-K is presented in item X in part I above and is included
under the captions “Election of Directors” and “Section 16(a) Beneficial Ownership Reporting Compliance” in the Proxy
Statement relating to the 2013 Annual Meeting of the Registrant’s Stockholders, and is incorporated herein by reference. The
Company has a Code of Business Conduct and Ethics (the “Code”) applicable to its Board of Directors and all of its
employees. The Code is publicly available on the “Investor Relations” page of its website site at www.cousinsproperties.com.
Section 1 of the Code applies to the Company’s senior executive and financial officers and is a “code of ethics” as defined by
applicable SEC rules and regulations. If the Company makes any amendments to the Code other than technical, administrative
or other non-substantive amendments, or grants any waivers, including implicit waivers, from a provision of the Code to the
Company’s senior executive or financial officers, the Company will disclose on its website the nature of the amendment or
waiver, its effective date and to whom it applies. There were no amendments or waivers during 2012.
Item 11. Executive Compensation
The information under the captions “Executive Compensation” (other than the Committee Report on Compensation) and
“Director Compensation” in the Proxy Statement relating to the 2013 Annual Meeting of the Registrant’s Stockholders is
incorporated herein by reference.
Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
The information under the captions “Beneficial Ownership of Common Stock” and “Equity Compensation Plan
Information” in the Proxy Statement relating to the 2013 Annual Meeting of the Registrant’s Stockholders is incorporated
herein by reference.
Item 13. Certain Relationships and Related Transactions, and Director Independence
The information under the caption “Certain Transactions” and “Director Independence” in the Proxy Statement relating
to the 2013 Annual Meeting of the Registrant’s Stockholders is incorporated herein by reference.
Item 14. Principal Accountant Fees and Services
The information under the caption “Summary of Fees to Independent Registered Public Accounting Firm” in the Proxy
Statement relating to the 2013 Annual Meeting of the Registrant’s Stockholders has fee information for fiscal years 2012 and
2011 and is incorporated herein by reference.
43
Item 15. Exhibits and Financial Statement Schedules
(a) 1. Financial Statements
PART IV
A. The following consolidated financial statements of the Registrant, together with the applicable report of
independent registered public accounting firm, are filed as a part of this report:
Report of Independent Registered Public Accounting Firm
Consolidated Balance Sheets—December 31, 2012 and 2011
Consolidated Statements of Comprehensive Income for the Years Ended December 31, 2012,
2011 and 2010
Consolidated Statements of Equity for the Years Ended December 31, 2012, 2011 and 2010
Consolidated Statements of Cash Flows for the Years Ended December 31, 2012, 2011 and
2010
Notes to Consolidated Financial Statements
Page Number
F-2
F-3
F-4
F-6
F-8
F-10
2.
Financial Statement Schedule
The following financial statement schedule for the Registrant is filed as a part of this report:
A. Schedule III—Real Estate and Accumulated Depreciation—December 31, 2012
Page Number
S-1 through S-4
NOTE: Other schedules are omitted because of the absence of conditions under which they are required or
because the required information is given in the financial statements or notes thereto.
(b) Exhibits
2.1
2.2
2.3
2.4
3.1
3.1.1
3.1.2
3.1.3
Membership Interest Purchase Agreement between 3280 Peachtree III LLC and MSREF VII Global U.S.
Holdings (FRC), L.L.C., dated December 7, 2012. (Schedules and exhibits omitted pursuant to Item 601(b)(2)
of Regulation S-K. The Registrant agrees to furnish supplementally a copy of any omitted schedule to the
Securities and Exchange Commission upon request.)
First Amendment to Membership Interest Purchase Agreement between 3280 Peachtree III LLC and MSREF
VII Global U.S. Holdings (FRC), L.L.C., dated January 30, 2013. (Schedules and exhibits omitted pursuant to
Item 601(b)(2) of Regulation S-K. The Registrant agrees to furnish supplementally a copy of any omitted
schedule to the Securities and Exchange Commission upon request.)
Sale and Contribution Agreement between Cousins Properties Incorporated, 3280 Peachtree I LLC, 3280
Peachtree III LLC and Terminus Acquisition Company LLC, dated February 4, 2013. (Schedules and exhibits
omitted pursuant to Item 601(b)(2) of Regulation S-K. The Registrant agrees to furnish supplementally a copy
of any omitted schedule to the Securities and Exchange Commission upon request.)
Purchase and Sale Agreement (Post Oak Central) between Crescent POC Investors, L.P. and Cousins POC I
LLC, dated February 4, 2013. (Schedules and exhibits omitted pursuant to Item 601(b)(2) of Regulation S-K.
The Registrant agrees to furnish supplementally a copy of any omitted schedule to the Securities and
Exchange Commission upon request.)
Restated and Amended Articles of Incorporation of the Registrant, as amended August 9, 1999, filed as
Exhibit 3.1 to the Registrant’s Form 10-Q for the quarter ended June 30, 2002, and incorporated herein by
reference.
Articles of Amendment to Restated and Amended Articles of Incorporation of the Registrant, as amended July
22, 2003, filed as Exhibit 4.1 to the Registrant’s Current Report on Form 8-K filed on July 23, 2003, and
incorporated herein by reference.
Articles of Amendment to Restated and Amended Articles of Incorporation of the Registrant, as amended
December 15, 2004, filed as Exhibit 3(a)(i) to the Registrant’s Form 10-K for the year ended December 31,
2004, and incorporated herein by reference.
Articles of Amendment to Restated and Amended Articles of Incorporation of the Registrant, dated May 4,
2010, filed as Exhibit 3.1 to the Registrant’s Current Report on Form 8-K filed on May 10, 2010, and
incorporated herein by reference.
44
3.2
4(a)
10(a)(i)*
Bylaws of the Registrant, as amended and restated December 4, 2012, filed as Exhibit 3.1 to the Registrant’s
Current Report on Form 8-K filed on December 7, 2012, and incorporated herein by reference.
Dividend Reinvestment Plan as restated as of March 27, 1995, filed in the Registrant’s Form S-3 dated March
27, 1995, and incorporated herein by reference.
Cousins Properties Incorporated 1999 Incentive Stock Plan, as amended and restated, approved by the
Stockholders on May 6, 2008, filed as Annex B to the Registrant’s Proxy Statement dated April 13, 2008, and
incorporated herein by reference.
10(a)(ii)*
Cousins Properties Incorporated 2005 Restricted Stock Unit Plan, filed as Exhibit 10.1 to the Registrant’s
Current Report on Form 8-K dated December 9, 2005, and incorporated herein by reference.
10(a)(iii)*
10(a)(iv)*
10(a)(v)*
10(a)(vi)*
10(a)(vii)*
10(a)(viii)*
Amendment No. 1 to Cousins Properties Incorporated 2005 Restricted Stock Unit Plan, filed as Exhibit
10(a)(iii) to the Registrant’s Form 10-Q for the quarter ended March 31, 2006, and incorporated herein by
reference.
Cousins Properties Incorporated 1999 Incentive Stock Plan – Form of Key Employee Non-Incentive Stock
Option and Stock Appreciation Right Certificate, amended effective December 6, 2007, filed as Exhibit
10(a)(vi) to the Registrant’s Form 10-K for the year ended December 31, 2007, and incorporated herein by
reference.
Cousins Properties Incorporated 1999 Incentive Stock Plan – Form of Key Employee Incentive Stock Option
and Stock Appreciation Right Certificate, amended effective December 6, 2007, filed as Exhibit 10(a)(vii) to
the Registrant’s Form 10-K for the year ended December 31, 2007, and incorporated herein by reference.
Cousins Properties Incorporated 2005 Restricted Stock Unit Plan – Form of Restricted Stock Unit Certificate,
filed as Exhibit 10.3 to the Registrant’s Current Report on Form 8-K dated December 11, 2006, and
incorporated herein by reference.
Amendment No. 2 to the Cousins Properties Incorporated 2005 Restricted Stock Unit Plan, filed as Exhibit
10.1 to the Registrant’s Current Report on Form 8-K filed on August 18, 2006, and incorporated herein by
reference.
Cousins Properties Incorporated 2005 Restricted Stock Unit Plan – Form of Restricted Stock Unit Certificate
for Directors, filed as Exhibit 10.2 to the Registrant’s Current Report on Form 8-K filed on August 18, 2006,
and incorporated herein by reference.
10(a)(ix)*
Form of Change in Control Severance Agreement, filed as Exhibit 10.1 to the Registrant’s Current Report on
Form 8-K filed on August 31, 2007, and incorporated herein by reference.
10(a)(x)*
Amendment No. 1 to the Cousins Properties Incorporated 1999 Incentive Stock Plan, filed as Exhibit 10(a)(ii)
to the Registrant’s Form 10-Q for the quarter ended March 31, 2008, and incorporated herein by reference.
10(a)(xi)*
10(a)(xii)*
Amendment No. 4 to the Cousins Properties Incorporated 2005 Restricted Stock Unit Plan dated September 8,
2008, filed as Exhibit 10(a)(xiii) to the Registrant’s Form 10-K for the year ended December 31, 2008, and
incorporated herein by reference.
Amendment No. 5 to the Cousins Properties Incorporated 2005 Restricted Stock Unit Plan dated February 16,
2009, filed as Exhibit 10(a)(xiv) to the Registrant’s Form 10-K for the year ended December 31, 2008, and
incorporated herein by reference.
10(a)(xiii)*
Form of Amendment Number One to Change in Control Severance Agreement filed as Exhibit 10.2 to the
Registrant’s Current Report on Form 8-K dated May 12, 2009, and incorporated herein by reference.
10(a)(xiv)*
Amendment Number 6 to the Cousins Properties Incorporated 2005 Restricted Stock Unit Plan filed as
Exhibit 10.3 to the Registrant’s Current Report on Form 8-K dated May 12, 2009, and incorporated herein by
reference.
10(a)(xv)*
Form of Cousins Properties Incorporated Cash Long Term Incentive Award Certificate filed as Exhibit 10.3 to
the Registrant’s Current Report on Form 8-K dated May 12, 2009, and incorporated herein by reference.
10(a)(xvi)*
10(a)(xvii)*
Cousins Properties Incorporated 2009 Incentive Stock Plan, as approved by the Stockholders on May 12,
2009, filed as Annex B to the Registrant’s Proxy Statement dated April 3, 2009, and incorporated herein by
reference.
Cousins Properties Incorporated Director Non-Incentive Stock Option and Stock Appreciation Right
Certificate under the Cousins Properties Incorporated 2009 Incentive Stock Plan, filed as Exhibit 10.2 to the
Registrant’s Form 10-Q for the quarter ended June 30, 2009, and incorporated herein by reference.
45
10(a)(xviii)*
10(a)(xix)*
10(a)(xx)*
10(a)(xxi)*
10(a)(xxii)*
10(a)(xxiii)*
10(a)(xxiv)*
10(a)(xxv)*
10(a)(xxvi)*
10(a)(xxvii)*
10(a)(xxviii)*
Cousins Properties Incorporated 2005 Restricted Stock Unit Plan – Form of Restricted Stock Unit Certificate
for 2010-2012 Performance Period filed as Exhibit 10(a)(xx) to the Registrant’s Form 10-K for the year ended
December 31, 2009, and incorporated herein by reference.
Cousins Properties Incorporated 2009 Incentive Stock Plan – Form of Key Employee Non-Incentive Stock
Option Certificate filed as Exhibit 10(a)(xxi) to the Registrant’s Form 10-K for the year ended December 31,
2009, and incorporated herein by reference.
Cousins Properties Incorporated 2009 Incentive Stock Plan – Form of Stock Grant Certificate filed as Exhibit
10(a)(xxii) to the Registrant’s Form 10-K for the year ended December 31, 2009, and incorporated herein by
reference.
Form of New Change in Control Severance Agreement, filed as Exhibit 10.1 to the Registrant’s Current
Report on Form 8-K filed on January 7, 2011, and incorporated herein by reference.
Form of Amendment Number Two to Change in Control Severance Agreement, filed as Exhibit 10.2 to the
Registrant’s Current Report on Form 8-K filed on January 7, 2011, and incorporated herein by reference.
Cousins Properties Incorporated 2009 Incentive Stock Plan – Form of Stock Grant Certificate filed as Exhibit
10(a)(xxv) to the Registrant’s Form 10-K for the year ended December 31, 2010, and incorporated herein by
reference.
Cousins Properties Incorporated 2009 Incentive Stock Plan – Form of Key Employee Non-Incentive Stock
Option Certificate filed as Exhibit 10(a)(xxvi) to the Registrant’s Form 10-K for the year ended December 31,
2010, and incorporated herein by reference.
Cousins Properties Incorporated 2009 Incentive Stock Plan – Form of Key Employee Incentive Stock Option
Certificate filed as Exhibit 10(a)(xxvii) to the Registrant’s Form 10-K for the year ended December 31, 2010,
and incorporated herein by reference.
Cousins Properties Incorporated 2005 Restricted Stock Unit Plan – Form of Restricted Stock Unit Certificate
for 2011-2013 Performance Period filed as Exhibit 10(a)(xxviii) to the Registrant’s Form 10-K for the year
ended December 31, 2010, and incorporated herein by reference.
Cousins Properties Incorporated 2005 Restricted Stock Unit Plan – Form of Restricted Stock Unit Certificate
for 2012-2016 Performance Period filed as Exhibit 10.1 to the Registrant’s Current Report on Form 8-K filed
on February 3, 2012, and incorporated herein by reference.
Cousins Properties Incorporated 2009 Incentive Stock Plan – Form of Key Employee Incentive Stock Option
Certificate filed as Exhibit 10.2 to the Registrant’s Current Report on Form 8-K filed on February 3, 2012, and
incorporated herein by reference.
10(a)(xxix)*
Cousins Properties Incorporated 2005 Restricted Stock Unit Plan – Form of Restricted Stock Unit Certificate
for 2012-2016 Performance Period, filed as Exhibit 10.1 to the Registrant's Current Report on Form 8-K filed
on February 3, 2012 and incorporated herein by reference.
10(a)(xxx)*
Cousins Properties Incorporated 2009 Incentive Stock Plan – Form of Stock Grant Certificate, filed as Exhibit
10.2 to the Registrant's Current Report on Form 8-K filed on February 3, 2012 and incorporated herein by
reference.
10(d)*
10(e)
10(f)
10(g)
10(h)
Retirement and Consulting Agreement and General Release with James A. Fleming dated August 9, 2010,
filed as Exhibit 10.1 to the Registrant’s Form 10-Q for the quarter ended June 30, 2010, and incorporated
herein by reference.
Loan Agreement dated as of August 31, 2007, between Cousins Properties Incorporated, a Georgia
corporation, as Borrower and JP Morgan Chase Bank, N.A., a banking association chartered under the laws of
the United States of America, as Lender, filed as Exhibit 10.1 to the Registrant’s Current Report on Form 8-K
filed on September 7, 2007, and incorporated herein by reference.
Loan Agreement dated as of October 16, 2007, between 3280 Peachtree I LLC, a Georgia limited liability
corporation, as Borrower and The Northwestern Mutual Life Insurance Company, as Lender, filed as Exhibit
10.1 to the Registrant’s Current Report on Form 8-K filed October 17, 2007, and incorporated herein by
reference.
Contribution and Formation Agreement between Cousins Properties Incorporated, CP Venture Three LLC and
The Prudential Insurance Company of America, including Exhibit U thereto, filed as Exhibit 10.1 to the
Registrant’s Form 8-K filed on May 4, 2006, and incorporated herein by reference.
Form of Indemnification Agreement, filed as Exhibit 10.1 to the Registrant’s Form 8-K dated June 18, 2007,
and incorporated herein by reference.
46
10(i)
10(j)*
11
21†
23†
31.1†
31.2†
32.1†
32.2†
101†
*
†
Second Amended and Restated Credit Agreement, dated as of February 28, 2012, among Cousins Properties
Incorporated as the Principal Borrower (and the Borrower Parties, as defined, and the Guarantors, as defined);
Bank of America, N.A., as Administrative Agent, Swing Line Lender and an L/C Issuer; JPMorgan Chase
Bank, N.A., as Syndication Agent and an L/C Issuer; Wells Fargo Bank, N.A., PNC Bank, N. A., U.S. Bank
National, N. A., and SunTrust Bank, as Co-Documentation Agents; Merrill Lynch, Pierce, Fenner & Smith
Inc. and J.P. Morgan Securities LLC as Joint Lead Arrangers and Joint Bookrunners; and the Other Lenders
Party Hereto, filed as Exhibit 10.1 to the Registrant's Current Report on Form 8-K filed on March 1, 2012, and
incorporated herein by reference.
Retirement and Consulting Agreement and General Release between Cousins Properties Incorporated and
Craig B. Jones dated September 20, 2012, filed as Exhibit 10.1 to the Registrant’s Form 10-Q for the quarter
ended September 30, 2012, and incorporated herein by reference.
Computation of Per Share Earnings. Data required by SFAS No. 128, “Earnings Per Share,” is provided in
Note 2 of Notes to Consolidated Financial Statements included in this Annual Report on Form 10-K, and
incorporated herein by reference.
Subsidiaries of the Registrant.
Consent of Independent Registered Public Accounting Firm.
Certification of the Chief Executive Officer Pursuant to Rule 13a-14(a), as adopted pursuant to Section 302 of
the Sarbanes-Oxley Act of 2002.
Certification of the Chief Financial Officer Pursuant to Rule 13a-14(a), as adopted pursuant to Section 302 of
the Sarbanes-Oxley Act of 2002.
Certification of the Chief Executive Officer Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002.
Certification of the Chief Financial Officer Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002.
The following financial information for the Registrant, formatted in XBRL (Extensible Business Reporting
Language): (i) the Condensed Consolidated Balance Sheets, (ii) the Condensed Consolidated Statements of
Comprehensive Income, (iii) the Condensed Consolidated Statements of Equity, (iv) the Condensed
Consolidated Statements of Cash Flows, and (v) the Notes to Condensed Consolidated Financial Statements.
Indicates a management contract or compensatory plan or arrangement.
Filed herewith.
47
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly
caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
SIGNATURES
Dated: February 13, 2013
Cousins Properties Incorporated
(Registrant)
BY:
/s/ Gregg D. Adzema
Gregg D. Adzema
Executive Vice President and Chief Financial
Officer (Duly Authorized Officer and Principal
Financial Officer)
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following
persons on behalf of the Registrant and in the capacities and on the date indicated.
Signature
/s/ Lawrence L. Gellerstedt III
Lawrence L. Gellerstedt III
/s/ Gregg D. Adzema
Gregg D. Adzema
/s/ John D. Harris, Jr.
John D. Harris, Jr.
/s/ Tom G. Charlesworth
Tom G. Charlesworth
/s/ James D. Edwards
James D. Edwards
/s/ Lillian C. Giornelli
Lillian C. Giornelli
/s/ S. Taylor Glover
S. Taylor Glover
/s/ James H. Hance, Jr.
James H. Hance, Jr.
William Porter Payne
/s/ R. Dary Stone
R. Dary Stone
Capacity
Chief Executive Officer,
President and Director
(Principal Executive Officer)
Executive Vice President and
Chief Financial Officer
(Principal Financial Officer)
Senior Vice President, Chief
Accounting Officer and Assistant
Secretary
(Principal Accounting Officer)
Director
Director
Director
Date
February 13, 2013
February 13, 2013
February 13, 2013
February 13, 2013
February 13, 2013
February 13, 2013
Chairman of the Board of Directors
February 13, 2013
Director
Director
Director
February 13, 2013
February 13, 2013
February 13, 2013
48
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
Cousins Properties Incorporated
Report of Independent Registered Public Accounting Firm
Consolidated Balance Sheets as of December 31, 2012 and 2011
Consolidated Statements of Comprehensive Income for the Years Ended December 31, 2012, 2011 and 2010
Consolidated Statements of Equity for the Years Ended December 31, 2012, 2011 and 2010
Consolidated Statements of Cash Flows for the Years Ended December 31, 2012, 2011 and 2010
Notes to Consolidated Financial Statements
Page
F-2
F-3
F-4
F-5
F-6
F-7
F-1
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors and Stockholders of
Cousins Properties Incorporated:
We have audited the accompanying consolidated balance sheets of Cousins Properties Incorporated and subsidiaries (the
"Company") as of December 31, 2012 and 2011, and the related consolidated statements of comprehensive income, equity, and
cash flows for each of the three years in the period ended December 31, 2012. Our audits also included the financial statement
schedule listed in the Index at Item 15. These financial statements and financial statement schedule are the responsibility of the
Company's management. Our responsibility is to express an opinion on the financial statements and financial statement
schedule based on our audits.
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United
States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, such consolidated financial statements present fairly, in all material respects, the financial position of
Cousins Properties Incorporated and subsidiaries as of December 31, 2012 and 2011, and the results of their operations and
their cash flows for each of the three years in the period ended December 31, 2012, in conformity with accounting principles
generally accepted in the United States of America. Also, in our opinion, such financial statement schedule, when considered
in relation to the basic consolidated financial statements taken as a whole, presents fairly, in all material respects, the
information set forth therein.
We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United
States), the Company's internal control over financial reporting as of December 31, 2012, based on the criteria established in
Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission
and our report dated February 13, 2013 expressed an unqualified opinion on the Company's internal control over financial
reporting.
/s/ DELOITTE & TOUCHE LLP
Atlanta, Georgia
February 13, 2013
F-2
COUSINS PROPERTIES INCORPORATED AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(in thousands, except share and per share amounts)
ASSETS
REAL ESTATE ASSETS:
Operating properties, net of accumulated depreciation of $255,128 and $289,473 in
2012 and 2011, respectively
Projects under development, net of accumulated depreciation of $183 in 2012
Land
Other
OPERATING PROPERTY AND RELATED ASSETS HELD FOR SALE, net of
accumulated depreciation of $2,947 in 2012
CASH AND CASH EQUIVALENTS
RESTRICTED CASH
NOTES AND ACCOUNTS RECEIVABLE, net of allowance for doubtful accounts of
$1,743 and $5,100 in 2012 and 2011, respectively
DEFERRED RENTS RECEIVABLE
INVESTMENT IN UNCONSOLIDATED JOINT VENTURES
OTHER ASSETS
TOTAL ASSETS
LIABILITIES AND EQUITY
NOTES PAYABLE
ACCOUNTS PAYABLE AND ACCRUED EXPENSES
DEFERRED INCOME
OTHER LIABILITIES
TOTAL LIABILITIES
COMMITMENTS AND CONTINGENT LIABILITIES
REDEEMABLE NONCONTROLLING INTERESTS
STOCKHOLDERS’ INVESTMENT:
Preferred stock, 20,000,000 shares authorized, $1 par value:
7.75% Series A cumulative redeemable preferred stock, $25 liquidation preference;
2,993,090 shares issued and outstanding in 2012 and 2011
7.50% Series B cumulative redeemable preferred stock, $25 liquidation preference;
3,791,000 shares issued and outstanding in 2012 and 2011
Common stock, $1 par value, 250,000,000 shares authorized, 107,660,080 and
107,272,078 shares issued in 2012 and 2011, respectively
Additional paid-in capital
Treasury stock at cost, 3,570,082 shares in 2012 and 2011
Distributions in excess of cumulative net income
TOTAL STOCKHOLDERS’ INVESTMENT
Nonredeemable noncontrolling interests
TOTAL EQUITY
TOTAL LIABILITIES AND EQUITY
See notes to consolidated financial statements.
F-3
December 31,
2012
2011
669,652 $
25,209
42,187
151
737,199
1,866
176,892
2,852
884,652
11,325
67,327
637
963,941
—
4,858
4,929
9,972
39,378
97,868
58,215
1,124,242 $
11,359
37,141
160,587
52,720
1,235,535
425,410 $
34,751
11,888
9,240
481,289
539,442
29,682
17,343
8,910
595,377
—
2,763
74,827
94,775
107,660
690,024
(86,840)
(260,104)
620,342
22,611
642,953
1,124,242 $
74,827
94,775
107,272
687,835
(86,840)
(274,177)
603,692
33,703
637,395
1,235,535
$
$
$
$
COUSINS PROPERTIES INCORPORATED AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(In thousands, except per share amounts)
REVENUES:
Rental property revenues
Fee income
Land sales
Multi-family residential unit sales
Other
COSTS AND EXPENSES:
Rental property operating expenses
Reimbursed expenses
General and administrative expenses
Land cost of sales
Multi-family residential unit cost of sales
Interest expense
Depreciation and amortization
Impairment losses
Separation expenses
Other
LOSS ON EXTINGUISHMENT OF DEBT AND INTEREST RATE
SWAPS
LOSS FROM CONTINUING OPERATIONS BEFORE TAXES,
UNCONSOLIDATED JOINT VENTURES AND SALE OF
INVESTMENT PROPERTIES
BENEFIT (PROVISION) FOR INCOME TAXES FROM
OPERATIONS
INCOME (LOSS) FROM UNCONSOLIDATED JOINT VENTURES
INCOME (LOSS) FROM CONTINUING OPERATIONS BEFORE
GAIN ON SALE OF INVESTMENT PROPERTIES
GAIN ON SALE OF INVESTMENT PROPERTIES
INCOME (LOSS) FROM CONTINUING OPERATIONS
INCOME FROM DISCONTINUED OPERATIONS:
Income (loss) from discontinued operations
Gain on sale of discontinued operations, net
NET INCOME (LOSS)
NET INCOME ATTRIBUTABLE TO NONCONTROLLING
INTERESTS
NET INCOME (LOSS) ATTRIBUTABLE TO CONTROLLING
INTEREST
DIVIDENDS TO PREFERRED STOCKHOLDERS
NET INCOME (LOSS) AVAILABLE TO COMMON
STOCKHOLDERS
OTHER COMPREHENSIVE INCOME:
Effective portion of change in value of interest rate swaps
COMPREHENSIVE INCOME (LOSS) AVAILABLE TO COMMON
STOCKHOLDERS
PER COMMON SHARE INFORMATION—BASIC AND DILUTED:
Income (loss) from continuing operations attributable to controlling
interest
Income from discontinued operations
Net income (loss) available to common stockholders
$
$
$
WEIGHTED AVERAGE SHARES—BASIC
WEIGHTED AVERAGE SHARES—DILUTED
See notes to consolidated financial statements.
F-4
Year Ended December 31,
2011
2010
2012
$
125,609
17,797
2,616
694
1,562
148,278
54,518
7,063
23,208
1,420
413
23,933
43,559
488
1,985
4,104
160,691
$
105,596 $
13,821
3,015
4,664
1,950
129,046
44,912
6,207
24,166
2,891
2,487
27,784
34,580
100,131
197
4,374
247,729
101,715
14,444
2,514
34,442
1,119
154,234
43,441
6,297
28,517
1,939
27,017
37,180
36,688
2,554
1,045
4,351
189,029
(94)
(74)
(9,827)
(12,507)
(118,757)
(44,622)
(91)
39,258
26,660
4,053
30,713
(1,201)
18,407
17,206
47,919
(2,191)
186
(18,299)
(136,870)
3,494
(133,376)
1,390
8,519
9,909
(123,467)
1,079
9,493
(34,050)
1,948
(32,102)
12,853
7,216
20,069
(12,033)
(4,958)
(2,540)
45,728
(12,907)
(128,425)
(12,907)
(14,573)
(12,907)
$
32,821
$
(141,332) $
(27,480)
—
—
—
—
9,517
9,517
32,821
$
(141,332) $
(17,963)
$
$
0.15
0.17
0.32
104,117
104,125
(1.46) $
0.10
(1.36) $
103,651
103,651
(0.47)
0.20
(0.27)
101,440
101,440
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S
COUSINS PROPERTIES INCORPORATED AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss)
Adjustments to reconcile net income (loss) to net cash provided by
operating activities:
Years Ended December 31,
2012
2011
2010
$
47,919
$
(123,467) $
(12,033)
Impairment losses, including discontinued operations
Gain on sale of investment properties, including discontinued
operations
Gain on sale of third party management and leasing business
Losses on abandoned predevelopment projects
Loss on extinguishment of debt
Impairment losses on investment in unconsolidated joint ventures
Depreciation and amortization, including discontinued operations
Amortization of deferred financing costs
Stock-based compensation
Effect of certain non-cash adjustments to rental revenues
(Income) loss from unconsolidated joint ventures
Operating distributions from unconsolidated joint ventures
Land and multi-family cost of sales, net of closing costs paid
Land and multi-family acquisition and development expenditures
Changes in other operating assets and liabilities:
Change in other receivables and other assets, net
Change in operating liabilities
Net cash provided by operating activities
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from investment property sales
Proceeds from sale of third party management and leasing business
Property acquisition, development and tenant asset expenditures
Investment in unconsolidated joint ventures
Distributions from unconsolidated joint ventures
Change in notes receivable and other assets
Change in restricted cash
Payment of debt guarantee for unconsolidated joint venture
Net cash provided by (used in) investing activities
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from credit facility
Repayment of credit and term facilities
Proceeds from other notes payable
Repayment of notes payable
Payment of loan issuance costs
Common stock issued, net of expenses
Common dividends paid
Preferred dividends paid
Contributions from noncontrolling interests
Distributions to noncontrolling interests
Net cash used in financing activities
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD
CASH AND CASH EQUIVALENTS AT END OF PERIOD
$
See notes to consolidated financial statements.
F-6
14,278
107,763
(15,001)
(7,459)
—
94
—
52,439
1,056
2,244
(3,938)
(39,258)
37,379
1,706
(47)
(851)
4,761
95,322
273,386
8,247
(105,069)
(6,619)
67,435
2,504
2,077
—
241,961
417,900
(616,150)
113,026
(28,808)
(3,419)
—
(18,748)
(12,907)
—
(16,143)
(165,249)
172,034
4,858
176,892
$
(12,013)
—
937
74
608
54,061
1,637
2,113
(6,719)
17,691
8,865
5,187
(999)
2,099
(2,256)
55,581
143,623
—
(181,909)
(23,341)
8,428
(2,255)
10,592
—
(44,862)
256,275
(163,425)
—
(59,543)
(442)
18
(18,649)
(12,907)
1,300
(16,087)
(13,460)
(2,741)
7,599
4,858
$
2,554
(9,164)
—
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592
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2,074
2,348
(5,142)
(9,493)
11,394
35,743
(3,272)
3,870
(560)
79,696
101,706
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(26,229)
16,024
(1,229)
(12,409)
(17,250)
26,852
100,300
(134,900)
27,034
(73,133)
(1,996)
(95)
(12,176)
(12,907)
2,237
(2,777)
(108,413)
(1,865)
9,464
7,599
COUSINS PROPERTIES INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. DESCRIPTION OF BUSINESS AND BASIS OF PRESENTATION
Description of Business: Cousins Properties Incorporated (“Cousins”), a Georgia corporation, is a self-administered and
self-managed real estate investment trust (“REIT”). Cousins Real Estate Corporation (“CREC”) is a taxable entity wholly-
owned by and consolidated with Cousins. CREC owns, develops, and manages its own real estate portfolio and performs
certain real estate related services for other parties.
Cousins, CREC and their subsidiaries (collectively, the “Company”) develop, acquire, manage and own primarily Class
A office and retail properties. As of December 31, 2012, the Company’s portfolio of real estate assets consisted of interests in
7.8 million square feet of office space, 3.7 million square feet of retail space and 404,000 square feet of apartments.
Basis of Presentation: The Consolidated Financial Statements include the accounts of the Company and its consolidated
partnerships and wholly-owned subsidiaries. Intercompany transactions and balances have been eliminated in consolidation.
The Company presents its financial statements in accordance with accounting principles generally accepted in the United States
(“GAAP”) as outlined in the Financial Accounting Standard Board’s Accounting Standards Codification (the “Codification” or
“ASC”). The Codification is the single source of authoritative accounting principles applied by nongovernmental entities in the
preparation of financial statements in conformity with GAAP.
The Company evaluates all partnerships, joint ventures and other arrangements with variable interests to determine if the
entity or arrangement qualifies as a variable interest entity (“VIE”), as defined in the Codification. If the entity or arrangement
qualifies as a VIE and the Company is determined to be the primary beneficiary, the Company is required to consolidate the
assets, liabilities and results of operations of the VIE.
The Company has a joint venture with Callaway Gardens Resort, Inc. (“Callaway”) for the development of residential
lots, which is anticipated to be funded fully through Company contributions. Callaway has the right to receive returns, but no
obligation to fund any costs or absorb any losses. The Company is the sole decision maker for the venture and the development
manager. The Company has determined that Callaway is a VIE, and the Company is the primary beneficiary. Therefore, the
Company consolidates this joint venture. As of December 31, 2012 and 2011, Callaway had total assets of $4.9 million and
$4.9 million, respectively, and no significant liabilities.
2. SIGNIFICANT ACCOUNTING POLICIES
Real Estate Assets
Cost Capitalization: Costs related to planning, developing, leasing and constructing a property, including costs of
development personnel working directly on projects under development, are capitalized. In addition, the Company capitalizes
interest to qualifying assets under development based on average accumulated expenditures outstanding during the period. In
capitalizing interest to qualifying assets, the Company first uses the interest incurred on specific project debt, if any, and next
uses the Company’s weighted average interest rate for non-project specific debt. The Company also capitalizes interest to
investments accounted for under the equity method when the investee has property under development with a carrying value in
excess of the investee’s borrowings. To the extent debt exists within an unconsolidated joint venture during the construction
period, the venture capitalizes interest on that venture-specific debt.
The Company capitalizes interest, real estate taxes and certain operating expenses on the unoccupied portion of recently
completed development properties from the date a project is substantially complete to the earlier of (1) the date on which the
project achieves 90% economic occupancy or (2) one year after it is substantially complete.
The Company capitalizes direct leasing costs related to leases that are probable of being executed. These costs include
commissions paid to outside brokers, legal costs incurred to negotiate and document a lease agreement and internal costs that
are based on time spent by leasing personnel on successful leases. The Company allocates these costs to individual tenant
leases and amortizes them over the related lease term.
Impairment: For real estate assets that are considered to be held for sale according to accounting guidance, the Company
records impairment losses if the fair value of the asset net of estimated selling costs is less than the carrying amount. For those
long-lived assets that are held and used according to accounting guidance, management reviews each asset for the existence of
any indicators of impairment. If indicators of impairment are present, the Company calculates the expected undiscounted future
cash flows to be derived from such assets. If the undiscounted cash flows are less than the carrying amount of the asset, the
Company reduces the asset to its fair value. See note 6 for impairment losses recognized during 2012, 2011 and 2010.
Acquisition of Operating Properties: The Company records the acquired tangible and intangible assets and assumed
liabilities of operating property acquisitions at fair value at the acquisition date. The acquired assets and assumed liabilities for
F-7
COUSINS PROPERTIES INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
an operating property acquisition generally include but are not limited to: land, buildings and improvements, and identified
tangible and intangible assets and liabilities associated with in-place leases, including tenant improvements, leasing costs, value
of above-market and below-market leases, acquired in-place lease values, and tenant relationships, if any.
The fair value of land is derived from comparable sales of land within the same submarket and/or region. The fair value
of buildings and improvements, tenant improvements, and leasing costs are based upon current market replacement costs and
other relevant market rate information.
The fair value of the above-market or below-market component of an acquired in-place lease is based upon the present
value (calculated using a market discount rate) of the difference between (i) the contractual rents to be paid pursuant to the
lease over its remaining term and (ii) management’s estimate of the rents that would be paid using fair market rental rates and
rent escalations at the date of acquisition over the remaining term of the lease. The amounts recorded for above-market leases
are included in other assets on the balance sheets and are amortized on a straight-line basis as a reduction of rental income over
the remaining term of the applicable leases. The amounts recorded for below-market leases are included in accounts payable
and accrued expenses and are amortized on a straight-line basis as an increase to rental income over the remaining term of the
applicable leases.
The fair value of acquired in-place leases is derived based on management’s assessment of lost revenue and costs
incurred for the period required to lease the “assumed vacant” property to the occupancy level when purchased. The amount
recorded for acquired in-place leases is included in other assets and amortized as an increase to depreciation and amortization
expense over the remaining term of the applicable leases.
Depreciation and Amortization: Real estate assets are stated at depreciated cost less impairment losses, if any. Buildings
are depreciated over their estimated useful lives, which range from 24 to 40 years. The life of a particular building depends
upon a number of factors including whether the building was developed or acquired and the condition of the building upon
acquisition. Furniture, fixtures and equipment are depreciated over their estimated useful lives of three to five years. Tenant
improvements, leasing costs and leasehold improvements are amortized over the term of the applicable leases or the estimated
useful life of the assets, whichever is shorter. The Company accelerates the depreciation of tenant assets if it estimates that the
lease term will end prior to the termination date. This acceleration may occur if a tenant files for bankruptcy, vacates its
premises or defaults in another manner on its lease. Deferred expenses are amortized over the period of estimated benefit. The
Company uses the straight-line method for all depreciation and amortization.
Discontinued Operations: The Company classifies the results of operations of properties that have been sold or
otherwise qualify as held for sale as discontinued operations for all periods presented if the property's operations are expected
to be eliminated from ongoing operations and the Company will not have any significant continuing involvement in the
operations of the property after the sale. The Company also classifies any gains or losses on the sale of such properties as
discontinued operations as well as any related impairment losses associated with such properties. The Company ceases
depreciation of a property when it is categorized as held for sale. See note 9 for a detail of property transactions that met these
requirements.
Investment in Joint Ventures
For joint ventures that the Company does not control, but exercises significant influence, the Company uses the equity
method of accounting. The Company's judgment with regard to its level of influence or control of an entity involves
consideration of various factors including the form of its ownership interest; its representation in the entity's governance; its
ability to participate in policy-making decisions; and the rights of other investors to participate in the decision-making process,
to replace the Company as manager and/or liquidate the venture. These ventures are recorded at cost and adjusted for equity in
earnings and cash contributions and distributions. Any difference between the carrying amount of these investments on the
Company’s balance sheet and the underlying equity in net assets on the joint venture’s balance sheet is adjusted as the related
underlying assets are depreciated, amortized or sold. The Company generally allocates income and loss from an unconsolidated
joint venture based on the venture's distribution priorities, which may be different from its stated ownership percentage.
The Company evaluates the recoverability of its investment in unconsolidated joint ventures in accordance with
accounting standards for equity investments by first reviewing each investment for any indicators of impairment. If indicators
are present, the Company estimates the fair value of the investment. If the carrying value of the investment is greater than the
estimated fair value, management makes an assessment of whether the impairment is “temporary” or “other-than-temporary.”
In making this assessment, management considers the following: (1) the length of time and the extent to which fair value has
been less than cost, (2) the financial condition and near-term prospects of the entity, and (3) the Company’s intent and ability to
retain its interest long enough for a recovery in market value. See note 5 for more information on impairments recognized on
the Company’s investments in unconsolidated joint ventures during 2012, 2011 and 2010.
F-8
COUSINS PROPERTIES INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
The Company consolidates certain joint ventures that it controls. In cases where the entity’s documents do not contain a
required redemption clause, the Company records the partner’s share of the entity in the equity section of the balance sheets in
a line item called nonredeemable noncontrolling interests. In cases where the entity’s documents contain a provision requiring
the Company to purchase the partner’s share of the venture at a certain value upon demand or at a future date, the Company
records the partner’s share of the entity in redeemable noncontrolling interests on the balance sheets. Amounts recorded in
redeemable noncontrolling interests are adjusted to the higher of fair value or the partner’s cost basis each reporting period. The
effect of these adjustments is recorded in additional paid-in capital within total stockholders’ investment. The noncontrolling
partner’s share of all consolidated joint ventures income is reflected in net income attributable to noncontrolling interest on the
statements of comprehensive income.
Revenue Recognition
Rental Property Revenues: The Company recognizes contractual revenues from leases on a straight-line basis over the
term of the respective lease. Certain of these leases also provide for percentage rents based upon the level of sales achieved by
the lessee. Percentage rents are recognized once the specified sales target is achieved. In addition, leases typically provide for
reimbursement of the tenants' share of real estate taxes, insurance and other operating expenses to the Company. Operating
expense reimbursements are recognized as the related expenses are incurred. During 2012, 2011 and 2010, the Company
recognized $22.2 million, $21.2 million and $20.0 million, respectively, in revenues from tenants related to operating expenses.
The Company makes valuation adjustments to all tenant-related accounts receivable based upon its estimate of the
likelihood of collectibility of amounts due from the tenant. The amount of any valuation adjustment is based on the tenant’s
credit and business risk, history of payment and other factors considered by management.
Fee Income: The Company recognizes development, management and leasing fees when earned. The Company
recognizes development, management and leasing fees received from unconsolidated joint ventures and related salaries and
other direct costs incurred by the Company as income and expense based on the percentage of the joint venture which the
Company does not own. Correspondingly, the Company adjusts the investment in unconsolidated joint ventures asset when
fees are paid to the Company by a joint venture in which the Company has an ownership interest. The Company amortizes
these adjustments over a relevant period in income from unconsolidated joint ventures.
Land Sales: The Company recognizes sales and related cost of sales of land upon closing, the majority of which
historically have been accounted for on the full accrual method. If a substantial continuing obligation exists related to the sale,
the Company uses the percentage of completion method. If other criteria for the full accrual method are not met, the Company
utilizes the installment method, cost recovery method, deposit method or reduced-profit method as applicable. Management
estimates cost of sales based on profit percentages for the entire project and applies these percentages to each parcel in a
consistent manner. If the anticipated profit percentage changes during the course of a project, the Company adjusts cost of sales
prospectively to reflect the new metrics.
Gain on Sale of Investment Properties: The Company recognizes a gain on sale of investment properties when the sale
of a property is consummated, the buyer’s initial and continuing investment is adequate to demonstrate commitment to pay, any
receivable obtained is not subject to future subordination, the usual risks and rewards of ownership are transferred and the
Company has no substantial continuing involvement with the property. If the Company has a commitment to the buyer and that
commitment is a specific dollar amount, this commitment is accrued and the gain on sale that the Company recognizes is
reduced. If the Company has a construction commitment to the buyer, management makes an estimate of this commitment,
defers a portion of the profit from the sale and recognizes the deferred profit as or when the commitment is fulfilled.
Income Taxes
Cousins has elected to be taxed as a REIT under the Internal Revenue Code of 1986, as amended (the “Code”). To
qualify as a REIT, Cousins must distribute annually at least 90% of its adjusted taxable income, as defined in the Code, to its
stockholders and satisfy certain other organizational and operating requirements. It is management’s current intention to adhere
to these requirements and maintain Cousins’ REIT status. As a REIT, Cousins generally will not be subject to federal income
tax at the corporate level on the taxable income it distributes to its stockholders. If Cousins fails to qualify as a REIT in any
taxable year, it will be subject to federal income taxes at regular corporate rates (including any applicable alternative minimum
tax) and may not be able to qualify as a REIT for four subsequent taxable years. Cousins may be subject to certain state and
local taxes on its income and property, and to federal income taxes on its undistributed taxable income.
CREC, a C-Corporation for federal income tax purposes, uses the liability method of accounting for income taxes. Tax
return positions are recognized in the financial statements when they are “more-likely-than-not” to be sustained upon
examination by the taxing authority. Deferred income tax assets and liabilities result from temporary differences. Temporary
differences are differences between the tax bases of assets and liabilities and their reported amounts in the financial statements
that will result in taxable or deductible amounts in future periods. A valuation allowance may be placed on deferred income tax
assets, if it is determined that it is more likely than not that a deferred tax asset may not be realized.
F-9
COUSINS PROPERTIES INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
Stock-Based Compensation
The Company has several types of stock-based compensation plans. These are described in note 7, as are the accounting
policies by type of award. The Company recognizes compensation expense, net of forfeitures, arising from share-based
payment arrangements granted to employees and directors in general and administrative expense in the statements of
comprehensive income over the related awards’ vesting period, which may be accelerated under the Company’s retirement
feature. The Company has capitalized a portion of share-based payment expense to certain properties for those employees
whose jobs are related to properties under development.
Earnings per Share (“EPS”)
Net income (loss) per share-basic is calculated as net income (loss) available to common stockholders divided by the
weighted average number of common shares outstanding during the period, including nonvested restricted stock which has
nonforfeitable dividend rights. Net income (loss) per share-diluted is calculated as net (income) loss available to common
stockholders divided by the diluted weighted average number of common shares outstanding during the period. Diluted
weighted average number of common shares uses the same weighted average share number as in the basic calculation and adds
the potential dilution that would occur if stock options (or any other contracts to issue common stock) were exercised and
resulted in additional common shares outstanding, calculated using the treasury stock method. The numerator is reduced for the
effect of preferred dividends in both the basic and diluted net income (loss) per share calculations. For the years ended
December 31, 2012, 2011 and 2010, basic and diluted weighted average shares were as follows (in thousands):
Weighted average shares—basic
Dilutive potential common shares—stock options
Weighted average shares—diluted
Weighted average anti-dilutive stock options
2012
104,117
8
104,125
4,315
2011
103,651
—
103,651
5,836
2010
101,440
—
101,440
6,460
Stock options are dilutive when the average market price of the Company’s stock during the period exceeds the option
exercise price. However, in periods where the Company is in a net loss position, the dilutive effect of stock options is not
included in the diluted weighted average shares total.
Anti-dilutive stock options represent stock options whose exercise price exceeds the average market value of the
Company’s stock. These anti-dilutive stock options are not included in the current calculation of dilutive weighted average
shares, but could be dilutive in the future.
Derivative Instruments
During 2010, the Company maintained interest rate swaps to manage its interest rate risk on certain debt instruments. The
Company followed the hypothetical derivative method and did not utilize the “shortcut method” of accounting for these
instruments. The Company recognized the change in value of the interest rate swaps in accumulated other comprehensive loss,
which is included in the equity section of the balance sheets. The Company recorded payments made or received under interest
rate swap agreements in interest expense on the statements of comprehensive income. The Company analyzed ineffectiveness
on a quarterly basis. The Company terminated its interest rate swaps in 2010 and expensed amounts paid to its counterparties
upon termination. The Company held no swaps during the years ended December 31, 2012 and 2011.
Cash and Cash Equivalents and Restricted Cash
Cash and cash equivalents include cash and highly-liquid money market instruments. Highly-liquid money market
instruments include securities and repurchase agreements with original maturities of three months or less, money market
mutual funds and United States Treasury Bills with maturities of 30 days or less. Restricted cash primarily represents amounts
restricted under debt agreements for future capital expenditures or for specific future operating costs.
New Accounting Pronouncements
In June 2011, the FASB issued new guidance related to the presentation of other comprehensive income (“OCI”). The
new guidance requires, among other items, the presentation of the components of net income and OCI in one continuous
statement or in two separate but consecutive statements. In 2012, the Company reclassified OCI from the statements of equity
to the statements of comprehensive income. As the requirement pertains to presentation and disclosure only, adoption of this
guidance did not have a material effect on results of operations or financial condition.
F-10
COUSINS PROPERTIES INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
Use of Estimates
The preparation of financial statements in conformity with GAAP requires management to make estimates and
assumptions that affect the amounts reported in the accompanying financial statements and footnotes. Actual results could
differ from those estimates.
3. NOTES PAYABLE
The following table summarizes the terms of notes payable outstanding at December 31, 2012 and 2011 ($ in thousands):
Description
Terminus 100 mortgage note
The American Cancer Society Center mortgage note
191 Peachtree Tower mortgage note (interest only
until May 1, 2016) (see discussion below)
Meridian Mark Plaza mortgage note
The Points at Waterview mortgage note
Mahan Village LLC construction facility
Callaway Gardens mortgage note
Credit Facility, unsecured (see discussion below)
100/200 North Point Center East mortgage note (see
discussion below)
Interest Rate
5.25%
Maturity
2023
$
2012
136,123
$
6.45%
3.35%
6.00%
5.66%
1.86%
4.13%
1.71%
5.39%
2017
2018
2020
2016
2014
2013
2016
2012
134,243
100,000
26,194
15,651
13,027
172
—
—
425,410
$
$
2011
138,194
135,650
—
26,554
16,135
1
180
198,250
24,478
539,442
Credit Facility
On February 28, 2012, the Company modified its $350 million senior unsecured line of credit by entering into the Second
Amended and Restated Credit Agreement (the “Credit Facility”), which replaced the Amended and Restated Credit Agreement
dated August 29, 2007 (the “Old Facility"). The Credit Facility amended the Old Facility by, among other things, extending the
maturity date from August 29, 2012 to February 28, 2016, with an additional one-year extension option upon certain conditions
and with the payment of a fee. It also added an accordion feature, which authorized the maximum amount available to be
borrowed to increase to $500 million under certain conditions and in specified increments.
The Credit Facility contains financial covenants that require, among other things, the maintenance of an unencumbered
interest coverage ratio of at least 2.00; a fixed charge coverage ratio of at least 1.40, increasing to 1.50 during the extension
period; and maximum leverage of no more than 60%.
The Credit Facility also reduced the Company's interest rate spreads on borrowings. The Company may borrow funds at
an interest rate, at its option, calculated as either (1) the current London Interbank Offered Rate (LIBOR) plus the applicable
spread as detailed below or (2) the greater of Bank of America's prime rate, the federal funds rate plus 0.50% or the one-month
LIBOR plus 1.0% (the “Base Rate”), plus the applicable spread as detailed below. The Company also pays an annual facility
fee on the total commitment under the Credit Facility. The pricing spreads and the facility fee under the Credit Facility are as
follows:
Leverage Ratio
≤ 40%
>40% but ≤ 50%
>50% but ≤ 55%
>55% but ≤ 60%
Applicable % Spread for
LIBOR
Applicable % Spread for Base
Rate
Annual Facility Fee %
1.50%
1.60%
1.90%
2.10%
0.50%
0.60%
0.90%
1.10%
0.20%
0.25%
0.35%
0.40%
F-11
COUSINS PROPERTIES INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
At December 31, 2012, the Credit Facility's spread over LIBOR was 1.5%. The amount that the Company may draw
under the Credit Facility is a defined calculation based on the Company's unencumbered assets and other factors. The total
borrowing capacity under the Credit Facility was $269.2 million at December 31, 2012, and the Credit Facility is recourse to
the Company.
Other Debt Information
In March 2012, the Company entered into a $100 million mortgage note payable secured by 191 Peachtree Tower, a 1.2
million square foot office building in Atlanta, Georgia. The interest rate is 3.35% and interest-only payments are due monthly
through May 1, 2016, followed by monthly principal and interest payments through October 1, 2018, the maturity date.
In September 2011, the Company entered into a construction loan agreement, secured by Mahan Village, a 147,000
square foot retail center in Tallahassee, Florida, to provide for up to $15.0 million to fund construction. Interest on the loan is
LIBOR plus 1.65%, and the current interest rate is 1.86%. The loan matures September 12, 2014, and may be extended for two,
one-year periods if certain conditions are met. The Company guarantees up to 25% of the construction loan, which may be
eliminated after the completion of the project and the achievement of certain performance criteria.
In April 2012, the Company prepaid the 100/200 North Point Center East mortgage note in full, without penalty. In
August 2011, the Company repaid the 600 University Park Place mortgage note in full upon its maturity. In July 2011, the
Company prepaid, without penalty, the Lakeshore Park Plaza mortgage note. In June 2011, the Company prepaid, without
penalty, the 333/555 North Point Center East mortgage note. In May 2011, the Company was released of its obligation under
the Handy Road Associates, LLC mortgage note through foreclosure.
The real estate and other assets of The American Cancer Society Center (the “ACS Center”) are restricted under the ACS
Center loan agreement in that they are not available to settle debts of the Company. However, provided that the ACS Center
loan has not incurred any uncured event of default, as defined in the loan agreement, the cash flows from the ACS Center, after
payments of debt service, operating expenses and reserves, are available for distribution to the Company.
The majority of the Company’s consolidated debt is fixed-rate long-term mortgage notes payable. Assets with
depreciated carrying values of $387.7 million were pledged as security on the $425.4 million mortgage notes payable. As of
December 31, 2012, the weighted average maturity of the Company’s consolidated debt was 6.7 years.
At December 31, 2012 and 2011, the estimated fair value of the Company’s notes payable was approximately $456.0
million and $568.5 million, respectively, calculated by discounting the debt's remaining contractual cash flows at estimated
rates at which similar loans could have been obtained at December 31, 2012 and 2011. The estimate of the current market rate,
which is the most significant input in the discounted cash flow calculation, is intended to replicate debt of similar maturity and
loan-to-value relationship. These fair value calculations are considered to be Level 2 under the guidelines as set forth in ASC
820 as the Company utilizes market rates for similar type loans from third party brokers.
For the years ended December 31, 2012, 2011 and 2010, interest was recorded as follows (in thousands):
Total interest incurred
Interest capitalized
Total interest expense
2012
2011
2010
$
$
25,570
(1,637)
23,933
$
$
28,384 $
(600 )
27,784 $
37,180
—
37,180
F-12
COUSINS PROPERTIES INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
Debt Maturities
The aggregate maturities of the Company’s debt at December 31, 2012 are as follows (in thousands):
2013
2014
2015
2016
2017
Thereafter
$
$
4,775
17,905
5,168
20,174
132,696
244,692
425,410
4. COMMITMENTS AND CONTINGENCIES
Commitments
The Company had a total of $13.3 million in future obligations under leases to fund tenant improvements and in other
future construction obligations at December 31, 2012. The Company had outstanding letters of credit and performance bonds
totaling $2.6 million at December 31, 2012. The Company recorded lease expense of $684,000, $680,000 and $865,000 in
2012, 2011 and 2010, respectively. The Company has future lease commitments under ground leases and operating leases
totaling $16.0 million over weighted average remaining terms of 69.7 and 3 years, respectively. Amounts due under these lease
commitments are as follows (in thousands):
2013
2014
2015
2016
2017
Thereafter
Litigation
$
$
313
259
265
179
175
14,828
16,019
The Company is subject to various legal proceedings, claims and administrative proceedings arising in the ordinary
course of business, some of which are expected to be covered by liability insurance. Management makes assumptions and
estimates concerning the likelihood and amount of any potential loss relating to these matters using the latest information
available. The Company records a liability for litigation if an unfavorable outcome is probable and the amount of loss or range
of loss can be reasonably estimated. If an unfavorable outcome is probable and a reasonable estimate of the loss is a range, the
Company accrues the best estimate within the range. If no amount within the range is a better estimate than any other amount,
the Company accrues the minimum amount within the range. If an unfavorable outcome is probable but the amount of the loss
cannot be reasonably estimated, the Company discloses the nature of the litigation and indicates that an estimate of the loss or
range of loss cannot be made. If an unfavorable outcome is reasonably possible and the estimated loss is material, the Company
discloses the nature and estimate of the possible loss of the litigation. The Company does not disclose information with respect
to litigation where an unfavorable outcome is considered to be remote or where the estimated loss would not be material. Based
on current expectations, such matters, both individually and in the aggregate, are not expected to have a material adverse effect
on the liquidity, results of operations, business or financial condition of the Company.
F-13
COUSINS PROPERTIES INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
5. INVESTMENT IN UNCONSOLIDATED JOINT VENTURES
The following information summarizes financial data and principal activities of the Company’s unconsolidated joint
ventures. The information included in the following table entitled summary of financial position is as of December 31, 2012
and 2011. The information included in the summary of operations table is for the years ended December 31, 2012, 2011 and
2010. Dollars in both tables are in thousands.
SUMMARY OF FINANCIAL POSITION:
EP I LLC
Cousins Watkins LLC
CF Murfreesboro Associates
CP Venture Five LLC
Charlotte Gateway Village, LLC
Temco Associates, LLC
MSREF/ Cousins Terminus 200 LLC
CL Realty, L.L.C.
CP Venture Two LLC
Wildwood Associates
Crawford Long - CPI, LLC
Palisades West LLC
Ten Peachtree Place Associates
Other
Total Assets
Total Debt
Total Equity
Company's Investment
2012
2011
2012
2011
$ 83,235
54,285
121,451
286,647
140,384
8,409
95,520
7,549
96,345
21,176
32,818
—
—
2,194
$ 950,013
$
33,343
56,096
125,668
301,352
146,854
23,653
92,421
44,481
102,178
21,224
32,739
124,588
22,523
3,668
$ 1,130,788
$ 43,515
28,244
94,540
35,417
68,242
—
74,340
—
—
—
46,496
—
—
—
$ 390,794
$
1
28,571
98,922
36,031
83,097
2,787
68,562
1,056
—
—
47,631
—
26,192
—
$ 392,850
$
2012
32,611
25,259
25,411
243,563
70,917
8,233
19,659
7,155
94,819
21,173
(15,129)
—
—
1,844
$ 535,515
2011
2012
2011
$
29,137
26,893
24,810
255,881
62,423
20,646
17,967
42,932
99,942
21,221
(16,137)
81,635
(4,145)
2,799
$ 666,004
$ 27,864
16,692
14,571
13,884
10,299
4,095
3,930
3,579
2,894
(1,664)
(6,407)
—
—
60
$ 89,797
$
(1)
(1)
24,827
16,321
14,421
14,694
10,333
7,363
3,593
22,413
3,343
(1,639)
(6,873)
42,616
(3,679)
(1)
(1)
(1)
663
$ 148,396
Total Revenues
Net Income (Loss)
Company's Share of Net Income (Loss)
2012
2011
2010
2012
2011
2010
2012
2011
2010
SUMMARY OF OPERATIONS:
EP I LLC
Cousins Watkins LLC
CF Murfreesboro Associates
CP Venture Five LLC
Charlotte Gateway Village, LLC
Temco Associates, LLC
MSREF/ Cousins Terminus 200 LLC
CL Realty, L.L.C.
CP Venture Two LLC
Wildwood Associates
Crawford Long - CPI, LLC
Palisades West LLC
Ten Peachtree Place Associates
Other
$
796
$
—
$
5,575
13,152
30,007
32,901
702
12,265
2,667
19,533
1
11,579
15,401
2,488
1,271
$ 148,338
4,831
13,081
31,020
32,442
653
6,093
9,141
19,061
1
11,904
16,230
7,178
2,957
—
—
13,785
31,343
31,812
2,180
1,873
28,013
18,394
55
11,415
13,588
7,776
7,963
$
(441)
$
(6)
$
—
$
(330)
$
(4)
$
(24)
602
3,943
9,704
42
547
4,008
8,802
(65)
(37,494)
(1,072)
1,032
3,955
7,829
210
(1,069)
(3,453)
(1,967)
1,068
10,473
(139)
2,508
5,330
20,895
(147)
(28,508)
8,459
(155)
2,404
5,858
1,161
(256)
227
8,899
(129)
1,939
4,668
981
(1,703)
2,397
16
1,059
1,176
(236)
(215)
221
1,208
(70)
(2)
(3)
1,248
25,547
7,843
(606)
2,410
25
1,054
1,176
(15,682)
(693)
(11,971)
860
(77)
1,199
2,858
596
(50)
—
—
280
1,034
1,176
104
(393)
3,543
921
(65)
969
2,265
506
(847)
9,493
$ 154,592
$ 168,197
$
52,638
$ (38,591)
$
24,869
$
39,258
$
(18,299)
$
(1) Negative balances are included in deferred income on the balance sheets.
(2) Amount includes income from continuing operations of the venture of $2.2 million and a $23.3 million gain on the sale of
the Company's interest in the venture.
(3) This venture sold its only asset in 2012; therefore, this amount represents the Company's share of discontinued operations
from the venture, including a gain on the sale of $7.3 million.
The Company’s share of income above includes results of operations and any impairments that were recognized at the
venture level, and excludes impairments taken at the Company’s ownership level related to its investment in these entities. See
note 5 herein for a discussion of impairments taken by the Company on certain of its investments in joint ventures.
F-14
COUSINS PROPERTIES INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
EP I LLC (“EP I”) – In 2011, EP I was formed between the Company, with a 75% ownership interest, and Lion Gables
Realty Limited Partnership (“Gables”), with a 25% ownership interest, for the purpose of developing and operating Emory
Point, the first phase of a mixed-use property in Atlanta, Georgia. The Company does not consolidate EP I because the
Company and Gables share decision making abilities and have joint control over the venture. Operating cash flows and
proceeds from capital transactions of EP I are allocated to the partners pro rata based on their percentage ownership interests.
Upon formation, the Company contributed approximately $8.1 million in cash and $6.2 million in predevelopment assets, and
Gables contributed a total of approximately $3.8 million in cash and other assets. EP I has a construction loan to provide for up
to $61.1 million to fund construction, $43.5 million of which was outstanding at December 31, 2012, and the loan bears interest
at LIBOR plus 1.85%. The loan matures June 28, 2014 and may be extended for two, one-year periods if certain conditions are
met. The Company and Gables guarantee up to approximately $11.5 million and $3.8 million of the construction loan,
respectively. These guarantees may be eliminated after project completion, based on certain conditions. The assets of the
venture in the above table include a cash balance of approximately $475,000 at December 31, 2012.
Cousins Watkins LLC – In 2010, Cousins Watkins LLC was formed between an affiliate of the Company and Watkins
Retail Group (“Watkins”) for the purpose of owning and operating four retail centers in Tennessee and Florida. Watkins
contributed the properties to the venture, and the Company contributed cash of approximately $14.9 million. Upon formation,
the venture obtained four mortgage loans with a total borrowing capacity of $33.5 million, with $28.2 million outstanding at
December 31, 2012. The loans bear interest at LIBOR plus a spread ranging from 2.65% to 2.85%. The loans mature January 1,
2016 and may be extended for two, one-year terms, provided certain conditions are met. The Company guaranteed 25% of two
of these loans, the maximum amount of which is approximately $4.1 million. The guarantees will be released if certain metrics
at the centers are achieved. The Company receives a preferred return on operating cash flows and is entitled to receive proceeds
from capital transactions that equate to a 16% return on its invested capital, prior to Watkins receiving any distributions from
capital transactions. The assets of the venture in the above table include cash and restricted cash balances of approximately
$811,000 at December 31, 2012.
CF Murfreesboro Associates (“CF Murfreesboro”) – CF Murfreesboro is a 50-50 joint venture between the Company
and an affiliate of Faison Associates, that owns and operates The Avenue Murfreesboro, a 751,000 square foot retail center in
suburban Nashville, Tennessee. CF Murfreesboro has a construction loan with an outstanding principal amount of $94.5
million at December 31, 2012, and interest under the loan is LIBOR plus 3.0%. CF Murfreesboro must make quarterly
principal payments based on cash flows from the venture, plus an additional annual payment, if necessary, based on a defined
debt service coverage ratio. The Company has a repayment guarantee on the loan of $26.2 million. In December 2012, CF
Murfreesboro entered into an agreement to amend the loan to extend the maturity date to December 31, 2013, decrease the
capacity of the loan from $113.2 million to $97.5 million and decrease the interest paid on the loan to LIBOR plus 2.5%
beginning in August 2013. The assets of the venture in the above table include cash and restricted cash balances of $6.9 million
at December 31, 2012.
CP Venture Five LLC (“CPV Five”) – The Company owns an effective interest of 11.5% in CPV Five, which owns
five retail properties totaling approximately 1.2 million rentable square feet; three in suburban Atlanta, Georgia and two in
Viera, Florida. CPV Five has a mortgage note payable secured by The Avenue East Cobb with an outstanding balance of $35.4
million outstanding as of December 31, 2012 and a fixed interest rate of 4.52%. Principal and interest payments are made based
on a 30-year amortization, and the maturity date is December 1, 2017. The assets of the venture in the above table include a
cash balance of $1.2 million at December 31, 2012.
Charlotte Gateway Village, LLC (“Gateway”) – Gateway is a joint venture between the Company and Bank of
America Corporation (“BOA”), which owns and operates Gateway Village, a 1.1 million square foot office building in
downtown Charlotte, North Carolina. The project is 100% leased to BOA through 2016. Gateway’s net income or loss and cash
distributions are allocated to the members as follows: first to the Company so that it receives a cumulative compounded return
equal to 11.46% on its capital contributions, second to BOA until it receives an amount equal to the aggregate amount
distributed to the Company and then 50% to each member. The Company’s total project return on Gateway is ultimately
limited to an internal rate of return of 17% on its invested capital. Gateway has a mortgage note payable with an outstanding
balance at December 31, 2012 of $68.2 million, a maturity of December 1, 2016 and an interest rate of 6.41%. The assets of the
venture in the above table include a cash balance of $1.7 million at December 31, 2012.
Temco Associates, LLC (“Temco”) – Temco, a 50-50 joint venture between the Company and Forestar, was one of two
ventures through which the Company operated the majority of its residential land business. In connection with the Company's
decision to effectively exit the residential land business, Temco recorded impairment losses in the fourth quarter of 2011, the
Company's share of which were $14.6 million. These losses were the result of adjustments to the cash flow projections of each
of Temco's assets based on higher probability that certain assets would be sold in the short term as opposed to being held for
development or long term investment. In addition, the Company recorded a $608,000 impairment loss on its investment in
F-15
COUSINS PROPERTIES INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
Temco due to basis differences stemming from impairment losses at the joint venture level. In the first quarter of 2012, Temco
sold substantially all of its assets to Forestar. At December 31, 2012, Temco owned various parcels of land in Georgia and a
golf course and related debt in Georgia. The assets of the venture in the above table include a cash balance of approximately
$91,000 at December 31, 2012.
MSREF/Cousins Terminus 200 LLC (“MSREF/T200”) – MSREF/T200 is a joint venture between the Company and
Morgan Stanley, which, through February 2013, owned and operated Terminus 200, a 566,000 square foot office building in
the Buckhead district of Atlanta, Georgia. The Company has a 20% interest in MSREF/T200 and Morgan Stanley has an 80%
interest. MSREF/T200 has a mortgage loan with a $92.0 million capacity that was due December 31, 2013, on which the
venture paid interest at LIBOR plus 2.5%. The assets of the venture in the above table include a cash balance of $684,000 at
December 31, 2012. In February 2013, the Company purchased Terminus 200 from MSREF/T200. See note 9 for further
details.
CL Realty, L.L.C. (“CL Realty”) – CL Realty, a 50-50 joint venture between the Company and Forestar Realty Inc.
("Forestar"), was one of two ventures through which the Company operated the majority of its residential land business. In
connection with the Company's decision to effectively exit the residential land business, CL Realty recorded impairment losses
in the fourth quarter of 2011, the Company’s share of which were $13.6 million. These losses were the result of adjustments to
the cash flow projections of each of CL Realty's assets based on higher probability that certain assets would be sold in the short
term as opposed to being held for development or long term investment. In the first quarter of 2012, CL Realty sold
substantially all of its assets to Forestar. At December 31, 2012, CL Realty owned one parcel of land in Texas and mineral
rights associated with one project in Texas. The assets of the venture in the above table include a cash balance of approximately
$699,000 at December 31, 2012.
CP Venture Two LLC (“CPV Two”) – The Company’s effective ownership in CPV Two is 10.4%, which at
December 31, 2012 owned three retail properties totaling approximately 934,000 rentable square feet. During 2012, CPV Two
sold Presbyterian Medical Plaza, a 69,000 square foot office building in Charlotte, North Carolina for a gain, the Company's
share of which was $167,000. The assets of the venture in the above table include a cash balance of $2.3 million at
December 31, 2012.
Wildwood Associates (“Wildwood”) – Wildwood is a 50-50 joint venture between the Company and IBM which owns
approximately 36 acres of undeveloped land in the Wildwood Office Park in suburban Atlanta, Georgia. At December 31,
2012, the Company’s investment in Wildwood was a credit balance of $1.6 million. This credit balance resulted from
cumulative distributions from Wildwood over time that exceeded the Company’s basis in its contributions, and essentially
represents deferred gain not recognized at venture formation. This credit balance will decline as the venture’s remaining land is
sold. The Company does not have any obligation to fund Wildwood’s working capital needs.
Crawford Long—CPI, LLC (“Crawford Long”) – Crawford Long is a 50-50 joint venture between the Company and
Emory University and owns the Emory University Hospital Midtown Medical Office Tower, a 358,000 square foot medical
office building located in Midtown Atlanta, Georgia. Crawford Long has a mortgage note payable with an outstanding balance
of $46.5 million at December 31, 2012, a maturity of June 1, 2013 and an interest rate of 5.9%. The Company intends to
refinance this note on or prior to maturity. Upon closing, the net proceeds from the mortgage note were distributed to the
partners in accordance with the operating agreement. The amounts distributed to the Company were greater than the
Company’s investment balance which created negative equity. The assets of the venture in the above table include a cash
balance of approximately $3.0 million at December 31, 2012.
Palisades West LLC (“Palisades”) – The Company held a 50% interest in Palisades, which owned and operated two
office buildings totaling 373,000 square feet in Austin, Texas. In 2012, the Company sold its interest in Palisades to its 50%
partner and recognized a $23.3 million gain on the sale.
Ten Peachtree Place Associates (“TPPA”) – TPPA was a 50-50 joint venture between the Company and a wholly-
owned subsidiary of The Coca-Cola Company. TPPA owned Ten Peachtree Place, a 260,000 square foot office building
located in midtown Atlanta, Georgia. Ten Peachtree Place was sold in May 2012 for $45.3 million to an unrelated third party.
The Company recognized a gain on this transaction through income from unconsolidated entities of $7.3 million.
Additional Information – During the development or construction of an asset, the Company and its partners may be
committed to provide funds pursuant to a development plan. However, in general, the Company does not have any obligation to
fund the working capital needs of its unconsolidated joint ventures. The partners may elect, in their discretion, to fund cash
needs if the venture requires additional funds to effect re-leasing or has other specific needs. Additionally, the Company
generally does not guarantee the outstanding debt of any of its unconsolidated joint ventures, except for customary “non-
recourse carve-out” guarantees of certain mortgage notes and the CF Murfreesboro, Watkins and EP I guarantees discussed in
the related sections above.
F-16
COUSINS PROPERTIES INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
The Company recognized $8.7 million, $10.1 million, and $10.4 million of development, leasing, and management fees,
including salary and expense reimbursements, from unconsolidated joint ventures in 2012, 2011 and 2010, respectively. See
note 2, fee income, for a discussion of the accounting treatment for fees and reimbursements from unconsolidated joint
ventures.
6. IMPAIRMENT LOSSES
During 2012, the Company incurred an impairment loss of $488,000 on its investment in Verde Realty (“Verde”), a cost
method investment in a non-public real estate investment trust, as a result of a merger of Verde into another company at a price
per share less than the Company's carrying amount.
In 2011, management began a strategic review and analysis of the Company's residential and land businesses, as well as
certain of its operating properties, in an attempt to determine the most effective way to maximize the value of its holdings. In
February 2012, the Company determined that it would liquidate its holdings of certain non-core assets in bulk on a more
accelerated timeline and at lower prices than initially planned and re-deploy this capital, primarily into office properties within
its core markets. As part of this process, in the fourth quarter of 2011, the Company revised the cash flow projections for its
residential holdings as well as two operating properties that were being held for long term investment opportunities. The cash
flow revisions reflected a higher probability that the Company would sell the assets in the short term than holding them for long
term investment and development opportunities. These cash flow revisions indicated that the undiscounted cash flows of 12
residential and land projects, as well as two operating properties, were less than their carrying amounts, and the Company
recorded impairment losses of $104.3 million to adjust these carrying amounts to fair value. The Company reclassified $7.6
million of these amounts to discontinued operations in 2012. Earlier in 2011, the Company recorded an other-than-temporary
impairment loss of $3.5 million on its investment in Verde to adjust the carrying amount of the Company's investment to fair
value, as a result of an analysis performed in connection with Verde's withdrawal of its proposed public offering.
During 2010, the Company recorded an impairment loss of $2.0 million on Handy Road, an encumbered, undeveloped
parcel of land in suburban Atlanta, Georgia that the Company was holding for future development or sale, because the
Company determined that it would convey the land to the bank through foreclosure. In addition, in 2010, the Company
recorded an impairment loss of $586,000 on 60 North Market, a multi-family residential project in Asheville, North Carolina,
because it determined the estimated selling prices of the units had declined since its acquisition.
Impairment Losses – Unconsolidated Joint Ventures
In 2011, Temco Associates (“Temco”) and CL Realty, L.L.C. (“CL Realty”) recorded impairment losses in income from
unconsolidated joint ventures on assets held by each entity. During 2011, Temco and CL Realty updated cash flow projections
for their projects and determined the cash flows to be generated by certain projects were less than their carrying amounts.
Consequently, Temco and CL Realty recorded impairment losses to record these assets at fair value, the Company's share of
which was $14.6 million for Temco and $13.6 million for CL Realty. In addition, in 2011, the Company recorded a $608,000
impairment loss on its investment in Temco due to basis differences stemming from impairment losses at the joint venture
level.
In 2010, CL Realty recognized an impairment loss as a result of a decision to sell rather than develop a parcel of land in
Padre Island, Texas, which required CL Realty to reduce the carrying cost of the parcel to fair value. The Company's share of
this impairment loss was $2.2 million.
Fair Value Considerations for Property
The Company is required to assess the fair value of its impaired consolidated real estate assets and the value of its
unconsolidated joint venture investments with indicators of impairment. The value of impaired real estate assets and
investments is determined using widely accepted valuation techniques, including discounted cash flow analyses on the
expected cash flow of each asset, as well as the income capitalization approach, which considers prevailing market
capitalization rates, analyses of recent comparable sales transactions, information from actual sales negotiations and bona fide
purchase offers received from third parties. In general, the Company considers multiple valuation techniques when measuring
fair value. However, in certain circumstances, a single valuation technique may be more appropriate.
The fair value measurements used in these evaluations are considered to be Level 3 valuations within the fair value
hierarchy in the accounting rules, as there are significant unobservable inputs. Examples of inputs the Company utilizes in its
fair value calculations are discount rates, market capitalization rates, expected lease rental rates, timing of new leases, an
estimate of future sales prices and comparable sales prices of similar assets, if available. All of the impairment charges outlined
F-17
COUSINS PROPERTIES INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
above were recorded in the statements of comprehensive income, either in costs and expenses or within income (loss) from
unconsolidated joint ventures.
7. EQUITY AND STOCK-BASED COMPENSATION
2009 Incentive Stock Plan
The Company maintains the 2009 Incentive Stock Plan (the “2009 Plan”), which allows the Company to issue awards of
stock options, stock grants or stock appreciation rights to employees and directors. As of December 31, 2012, 1,720,835 shares
were authorized to be awarded pursuant to the 2009 Plan.
Stock Options – At December 31, 2012, the Company had 4,428,562 stock options outstanding to key employees and
outside directors pursuant to the 2009 Plan. The Company typically uses authorized, unissued shares to provide shares for
option exercises. The stock options have a term of 10 years from the date of grant and a vesting period of four years, except
director stock options, which vest immediately.
In addition, the employee stock options include a retirement feature where certain employees vest immediately upon
retirement. An employee who meets the requirements of the retirement feature will have the remaining original term to exercise
their stock options after retirement. Employees who do not meet the retirement feature have an exercise period of one year after
termination to exercise vested options.
The Company calculates the fair value of each option grant on the grant date using the Black-Scholes option-pricing
model, which requires the Company to provide certain inputs as follows:
•
•
•
•
The risk-free interest rate utilized is the interest rate on U.S. Treasury Strips or Bonds having the same life as the
estimated life of the Company’s option awards.
Expected life of the options granted is estimated based on historical data reflecting actual hold periods plus an
estimated hold period for unexercised options outstanding.
Expected volatility is based on the historical volatility of the Company’s stock over a period equal to the
estimated option life.
The assumed dividend yield is based on the Company’s expectation of an annual dividend rate for regular
dividends over the estimated life of the option.
In 2012, there were no stock option grants. In 2011 and 2010, the Company computed the value of all stock options
granted using the Black-Scholes option pricing model with the following assumptions and results:
Assumptions
Risk-free interest rate
Assumed dividend yield
Assumed lives of option awards (in years)
Assumed volatility
Results
Weighted average fair value of options granted
2011
2010
2.37%
2.95%
5.3
0.653
2.63%
5.50%
5.4
0.642
$
3.90
$
2.68
The Company recognizes compensation expense using the straight-line method over the vesting period of the options,
with the offset recognized in additional paid-in capital. During 2012, 2011 and 2010, approximately $310,000, $941,000 and
$1.6 million, respectively, was recognized as compensation expense, before capitalization or income tax benefit, if any. In
2010, stock options of the former Chief Financial Officer were modified in connection with his retirement resulting in
$110,000 in additional compensation expense.
F-18
COUSINS PROPERTIES INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
The Company anticipates recognizing $410,000 in future compensation expense related to stock options outstanding at
December 31, 2012, which will be recognized over a weighted average period of 1.8 years. During 2012, total cash proceeds
from the exercise of options equaled $45,000. As of December 31, 2012, the intrinsic value of the options outstanding and
exercisable was $243,000. The intrinsic value is calculated using the exercise prices of the options compared to the market
value of the Company’s stock. At December 31, 2012 and 2011, the weighted-average contractual lives for the options
outstanding and exercisable were 3.5 years and 3.3 years, respectively.
The following is a summary of stock option activity for the year ended December 31, 2012:
Outstanding, beginning of year
Exercised
Forfeited/Expired
Outstanding, end of year
Options exercisable at end of year
Number of
Options
(000s)
Weighted Average
Exercise Price Per
Option
5,960
$
(6) $
(1,525) $
$
4,429
$
4,201
20.83
7.51
18.16
21.76
22.51
Stock Grants – The 2009 Plan provides for stock grants, which may be subject to specified performance and vesting
requirements, and have historically been in the form of restricted stock. In 2012, the Company made stock grants of 470,306
shares, which vest ratably over three years. In 2011, the Company made stock grants of 214,206 shares, which vest ratably over
three years, and 29,411 shares, which cliff vest three years from the date of grant. Stock grants awarded in 2010 also cliff vest
three years from the date of grant. The remaining stock grants vest ratably over a four-year period. In 2012, the Company also
granted 25,442 shares of stock to independent members of the board of directors which vested immediately on the grant date.
All stock grants receive dividends and have voting rights during the vesting period. The Company records the restricted stock
in common stock and additional paid-in capital at fair value on the grant date, with the offsetting deferred compensation also
recorded in additional paid-in capital. The Company records compensation expense over the vesting period. Compensation
expense related to restricted stock was approximately $1.8 million, $1.2 million and $747,000 in 2012, 2011 and 2010,
respectively.
As of December 31, 2012, the Company had recorded $2.6 million of unrecognized compensation cost included in
additional paid-in capital related to restricted stock, which will be recognized over a weighted average period of 1.9 years. The
total fair value of the restricted stock which vested during 2012 was approximately $1.2 million. The following table
summarizes restricted stock activity during 2012:
Non-vested restricted stock at beginning of year
Granted
Vested
Forfeited
Non-vested restricted stock at end of year
2005 Restricted Stock Unit Plan
Number of
Shares
(000s)
Weighted-Average
Grant Date
Fair Value
$
439
470
$
(138) $
(130) $
$
641
7.83
7.45
8.39
7.48
7.50
The Company also maintains the 2005 Restricted Stock Unit Plan (the “RSU Plan”), as amended. An RSU is a right to
receive a payment in cash equal to the fair market value, as defined, of one share of the Company’s stock on the vesting date.
The Company records compensation expense for RSUs over the vesting period and adjusts the expense and related liability
based upon the market value, as defined, of the Company’s common stock at each reporting period. The RSU Plan also has a
retirement feature where employees who meet the requirements of the retirement feature vest fully in their RSUs outstanding
upon retirement. The Company accelerates the vesting period for employees who will become eligible under this feature before
the end of their original vesting period, even if the employee has not retired. The Company has issued performance- and non-
performance-based RSUs. Each of these RSU awards is described as follows:
F-19
COUSINS PROPERTIES INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
Regular RSUs. The Company’s non-performance-based RSUs (“Regular RSUs”) are granted to directors and key
employees. In 2012, there were no Regular RSU grants. In 2011, the Company awarded 401 Regular RSUs to a new director
and 56,845 Regular RSUs to employees, both of which cliff vest three years from the date of grant. In 2010, the Company
granted 21,442 in Regular RSUs to directors, 20,368 of which have a three-year cliff vest. All other Regular RSU grants vest
ratably over a four-year period. Regular RSU holders receive cash dividend payments for each Regular RSU held during the
vesting period equal to the common dividends per share paid by the Company. These dividends are also recorded in
compensation expense. The total cash paid for Regular RSU vesting and dividend payments in 2012 was approximately
$294,000.
The following table summarizes Regular RSU activity for 2012 (in thousands):
Outstanding at beginning of year
Vested
Forfeited
Outstanding at end of year
143
(37)
(15)
91
2012 Performance-Based RSUs. During 2012, the Company awarded two types of performance-based RSUs to key
employees. The first is based on the total stockholder return of the Company, as defined, as compared to the companies in the
SNL US REIT Office index as of January 1, 2012 (“SNL RSUs”). The second is based on the ratio of cumulative funds from
operations per share to targeted cumulative funds from operations per share (“FFO RSUs”). The performance period for both
awards is January 1, 2012 to December 31, 2014, and the targeted number of SNL RSUs and FFO RSUs outstanding at
December 31, 2012 is 137,609 and 86,060, respectively. The ultimate payout of these awards can range from 0% to 200% of
the targeted number of units depending on the achievement of the performance metrics described above. The SNL RSUs and
FFO RSUs cliff vest on February 14, 2015 and are dependent upon the attainment of required service and performance criteria.
The number of RSUs vesting will be determined at that date, and the payout per unit will be equal to the average closing price
on each trading day during the 30-day period ending on December 31, 2014. The Company expenses an estimate of the fair
value of the SNL RSUs over the vesting period using a quarterly Monte Carlo valuation. The Company expenses the FFO
RSUs over the vesting period using the fair market value of the Company’s stock at the reporting date multiplied by the
anticipated number of units to be paid based on the current estimate of what the ratio is expected to be upon vesting. Dividend
equivalents on the SNL RSUs and FFO RSUs will also be paid based upon the percentage vested. The dividend equivalent
payments will equal the total cash dividends that would have been paid during the performance period, assuming dividends had
been reinvested in Company stock.
In 2012, the Company also issued performance-based RSUs to the Chief Executive Officer. The targeted number of units
outstanding at December 31, 2012 is 281,532. The payout of these awards can range from 0% to 150% of the targeted number
of units depending on the Total Stockholder Return of the Company, as defined on an absolute basis, compared to the total
stockholder return for the companies in the SNL US REIT Office Index. The performance period of the awards is from
January 1, 2012 to December 31, 2016 with interim performance measurement dates at each of the third, fourth and fifth
anniversaries. To the extent that the Company has attained the defined performance goals at the end each of these periods, one-
third of the units may be credited after each of the third and fourth anniversaries, with the balance credited at the end of the
fifth anniversary, and to be awarded subject to continuous employment on the fifth anniversary. This award is expensed using a
quarterly Monte Carlo valuation over the vesting period. The number of RSUs vesting under this award will be determined at
the fifth anniversary date of the grant, and the cash payout per unit will be equal to the average closing price on each trading
day during the 30-day period ending with such date.
2011 Performance-Based RSUs. During 2011, the Company awarded two types of performance-based RSUs to key
employees. The first is based on the total stockholder return of the Company, as defined, as compared to the companies in the
SNL US REIT Office index as of January 1, 2011 (“SNL RSUs”). The second is based on the ratio of cumulative funds from
operations per share to targeted cumulative funds from operations per share (“FFO RSUs”). The performance period for both
awards is January 1, 2011 to December 31, 2013, and the targeted number of SNL RSUs and FFO RSUs outstanding at
December 31, 2012 is 77,306 and 49,697, respectively. The ultimate payout of these awards can range from 0% to 200% of the
targeted number of units depending on the achievement of the performance metrics described above. The SNL RSUs and FFO
RSUs cliff vest on February 14, 2014 and are dependent upon the attainment of required service and performance criteria. The
number of RSUs vesting will be determined at that date, and the payout per unit will be equal to the average closing price on
each trading day during the 30-day period ending on December 31, 2013. The Company expenses an estimate of the fair value
of the SNL RSUs over the vesting period using a quarterly Monte Carlo valuation. The Company expenses the FFO RSUs over
the vesting period using the fair market value of the Company’s stock at the reporting date multiplied by the anticipated
F-20
COUSINS PROPERTIES INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
number of units to be paid based on the current estimate of what the ratio is expected to be upon vesting. Dividend equivalents
on the SNL RSUs and FFO RSUs will also be paid based upon the percentage vested. The dividend equivalent payments will
equal the total cash dividends that would have been paid during the performance period, assuming dividends had been
reinvested in Company stock.
2010 Performance-Based RSUs. In 2010, the Company awarded two types of performance-based RSUs to key
employees. The first RSU is based on total stockholder return of the Company, as defined, compared to the companies in the
MSCI US REIT index as of January 1, 2010 (the “MSCI RSU”). The second RSU is based on the ratio of total debt, as defined,
to the trailing 12-month calculation of earnings before interest, taxes, depreciation and amortization, as defined (the “EBITDA
RSU”). The performance period for both RSUs is January 1, 2010 to December 31, 2012, and the target number of MSCI RSUs
and EBITDA RSUs outstanding as of December 31, 2012 is 61,464 and 85,427, respectively. The ultimate payout of these
awards can range from 0% to 200% of the target number of units depending on the achievement of the performance metrics
described above and the attainment of certain service requirements. Both of these types of RSUs cliff vest on February 15,
2013. The number of each type of RSU to be issued will be determined upon vesting, and the payout per unit will be equal to
the 30-day average closing price of the Company’s stock ending on December 31, 2012. The Company expenses an estimate of
the fair value of the MSCI RSUs over the vesting period using a Monte Carlo valuation. The EBITDA RSUs are expensed over
the vesting period using the Company’s stock price at the reporting period multiplied by the anticipated number of units to be
paid based on the current estimate of the debt-to-EBITDA ratio upon vesting. Dividend equivalents on both the EBITDA and
MSCI RSUs will be paid based upon the percentage vested. The dividend equivalent payments will equal the total dividends
that would have been paid during the performance period, assuming the dividends had been reinvested in Company stock.
The following table summarizes the combined performance-based RSU activity for 2012 (in thousands):
Outstanding at beginning of year
Granted
Forfeited
Outstanding at end of year
344
546
(111)
779
Combined RSU activity. The Company estimates future expense for all types of RSUs outstanding at December 31, 2012
to be approximately $4.7 million (using stock prices and estimated target percentages as of December 31, 2012), which will be
recognized over a weighted-average period of 3 years.
During 2012, 2011 and 2010, approximately $2.5 million, $1.0 million and $1.4 million, respectively, was recognized as
compensation expense related to RSUs for employees and directors.
Other Long-Term Compensation Information — In 2009, the Company granted an additional long-term incentive
compensation award to key employees, which will be settled in cash if the Company’s stock price achieves a specified level of
growth at the testing dates and the service requirement is met. This award is valued using the Monte Carlo method. The
Company recognized $101,000 and $805,000 in compensation expense related to this plan in 2012 and 2010, respectively, and
reversed approximately $767,000 in expense in 2011.This requires testing for vesting at specified dates in 2012, 2013 and
2014. As a result of this testing, no amounts vested in 2012. If the stock value growth condition has not been met as of the last
possible testing date in 2014 or, except as described for a change in control, if the employee terminates employment before this
vesting condition is met on a testing date, the award is automatically forfeited.
Other Stockholder Investment Information
Preferred Stock — At December 31, 2012, the Company had 2,993,090 shares outstanding of its 7.75% Series A
Cumulative Redeemable Preferred Stock (liquidation preference of $25 per share), and 3,791,000 shares outstanding of its
7.50% Series B Cumulative Redeemable Preferred Stock (liquidation preference of $25 per share). The Series A preferred
stock may be redeemed on or after July 24, 2008, and the Series B preferred stock may be redeemed on or after December 17,
2009, both at the Company’s option at $25 per share plus all accrued and unpaid dividends through the date of redemption.
None of the Series A or Series B preferred stock has been redeemed as of December 31, 2012. Dividends on both the Series A
and Series B preferred stock are payable quarterly in arrears on February 15, May 15, August 15 and November 15.
Director Fees — Outside directors may elect to receive some of their director fees in stock, based on 95% of the average
market price on the date of service. Outside directors elected to receive 46,711, 30,005, and 35,040 shares of stock in lieu of
cash for director fees in 2012, 2011 and 2010, respectively.
F-21
COUSINS PROPERTIES INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
Ownership Limitations — In order to minimize the risk that the Company will not meet one of the requirements for
qualification as a REIT, Cousins’ Articles of Incorporation include certain restrictions on the ownership of more than 3.9% of
the Company’s total common and preferred stock.
Distribution of REIT Taxable Income — The following reconciles dividends paid and dividends applied in 2012, 2011
and 2010 to meet REIT distribution requirements (in thousands):
Common and preferred dividends paid
Dividends treated as taxable compensation
Portion of dividends declared in current year, and paid in current year,
which was applied to the prior year distribution requirements
Portion of dividends declared in subsequent year, and paid in subsequent
year, which apply to current year distribution requirements
Dividends applied to meet current year REIT distribution requirements
$
$
2012
2011
2010
$
31,655
(147)
31,557 $
(71)
49,365
(79)
—
(304)
(1,606)
1,563
33,071
$
(10)
31,172 $
304
47,984
Tax Status of Dividends — The following summarizes the components of the taxability of the Company’s dividends for
the years ended December 31, 2012, 2011 and 2010:
Common:
Series A Preferred:
Series B Preferred:
Total Dividends
Per Share
Ordinary
Dividends
Long-Term
Capital Gain
Unrecaptured
Section 1250
Gain (A)
2012
2011
2010
2012
2011
2010
2012
2011
2010
$
$
$
$
$
$
$
$
$
0.180000
0.180000
0.360000
1.937500
1.937500
1.937500
1.875000
1.875000
1.875000
$
$
$
$
$
$
$
$
$
0.124724 $ 0.055276 $
0.067853 $ 0.112147 $
0.059447 $ 0.300553 $
0.055276
0.042574
0.073937
1.342220 $ 0.595280 $
0.730053 $ 1.207447 $
0.315868 $ 1.621632 $
0.595280
0.458393
0.399714
1.298222 $ 0.576078 $
0.706502 $ 1.168498 $
0.305678 $ 1.569322 $
0.576078
0.443606
0.386819
(A)
Represents a portion of the dividend allocated to long-term capital gain.
F-22
COUSINS PROPERTIES INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
8. INCOME TAXES
CREC is a taxable entity and its consolidated benefit (provision) for income taxes from operations for the years ended
December 31, 2012, 2011 and 2010 is as follows (in thousands):
Current tax benefit (provision):
Federal
State
Deferred tax benefit (provision):
Federal
State
Benefit (provision) for income taxes from operations
2012
2011
2010
$
$
— $
(91)
(91)
—
—
—
(91) $
— $
186
186
—
—
—
186 $
720
359
1,079
—
—
—
1,079
The net income tax benefit (provision) differs from the amount computed by applying the statutory federal income tax
rate to CREC’s income before taxes for the years ended December 31, 2012, 2011 and 2010 as follows ($ in thousands):
Federal income tax benefit (expense)
$
State income tax benefit (expense), net of federal
income tax effect
Valuation allowance
State deferred tax adjustment
Other
Benefit (provision) applicable to income (loss)
from continuing operations
$
2012
Amount
(4,368)
(91)
7,055
(2,687)
—
2011
2010
Rate
(35)% $
Amount
35,112
Rate
35%
Amount
1,832
$
Rate
35%
—
57%
(22)%
—
121
(34,191)
—
(856)
—
(34)%
—
(1)%
141
(894)
—
—
3%
(17)%
—
—
(91)
—
$
186
—
$
1,079
21%
The tax effect of significant temporary differences representing CREC’s deferred tax assets and liabilities as of
December 31, 2012 and 2011 are as follows (in thousands):
Income from unconsolidated joint ventures
Land
Long-term incentive equity awards
For-sale multi-family units basis differential
Interest carryforward
Federal and state tax carryforwards
Other
Total deferred tax assets
Valuation allowance
Net deferred tax asset
2012
2011
$
$
7,846 $
11,219
2,126
233
13,158
44,075
323
78,980
(78,980)
— $
26,009
20,248
1,608
269
13,158
23,883
860
86,035
(86,035)
—
F-23
COUSINS PROPERTIES INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
A valuation allowance is required to be recorded against deferred tax assets if, based on the available evidence, it is more
likely than not that such assets will not be realized. When assessing the need for a valuation allowance, appropriate
consideration should be given to all positive and negative evidence related to this realization. This evidence includes, among
other things, the existence of current and recent cumulative losses, forecasts of future profitability, the length of statutory
carryforward periods, the Company’s history with loss carryforwards and available tax planning strategies.
In 2012 and 2011, the deferred tax asset of the Company’s taxable REIT subsidiary, CREC, equaled $79.0 million and
$86.0 million, respectively, with a valuation allowance placed against the full amount. The conclusion that a valuation
allowance should be recorded was based on losses at CREC in current and recent years, and the inability of the Company to
predict, with any degree of certainty, when CREC would generate income in the future in amounts sufficient to utilize the
deferred tax asset.
As of December 31, 2012, the Company’s federal and state combined net operating loss (“NOL”) carryforwards are
$197.7 million, which will expire between 2023 and 2031, if unused. In addition, the Company has Alternative Minimum Tax
(“AMT”) credit carryforwards of $63,000 which do not expire. On an after-tax basis, the Company’s federal and state NOL
carryforwards and AMT credit carryforwards result in a deferred tax asset of $44.1 million.
The Company has interest carryforwards related to interest deductions of approximately $33.7 million as of both
December 31, 2012 and 2011. The Company recorded deferred tax assets of $13.2 million as of both December 31, 2012 and
2011, reflecting the benefit of the interest carryforwards. Although such deferred tax assets do not expire, realization is
dependent upon generating sufficient taxable income in the future.
9. PROPERTY TRANSACTIONS
Discontinued Operations
Accounting rules require that the historical operating results of held-for-sale or sold assets which meet certain accounting
rules be included in a separate section, discontinued operations, in the statements of comprehensive income for all periods
presented. If the asset is sold, the related gain or loss on sale is also included in discontinued operations. The following
properties which were held-for-sale in 2012 or sold in 2012, 2011 and 2010 met the criteria for discontinued operations
presentation ($ in thousands):
Property
2012:
The Avenue Forsyth
The Avenue Collierville
The Avenue Webb Gin
Galleria 75
Cosmopolitan Center
Inhibitex
2011:
King Mill Distribution Park — Building 3
Lakeside Ranch Business Park — Building 20
Jefferson Mill Business Park — Building A
One Georgia Center
2010:
San Jose MarketCenter
8995 Westside Parkway
Property Type
Location
Square
Feet
Sales Price
Retail
Retail
Retail
Office
Office
Office
Atlanta, GA
Memphis, TN
Atlanta, GA
Atlanta, GA
Atlanta, GA
Atlanta, GA
Industrial
Industrial
Industrial
Office
Atlanta, GA
Dallas, TX
Atlanta, GA
Atlanta, GA
Retail
Office
San Jose, CA
Atlanta, GA
524,000 $
511,000
322,000
111,000
51,000
51,000
119,000
55,000
59,600
9,200
7,000
Held-for-sale
796,000
749,000
459,000
376,000
213,000
51,000
28,300
28,400
22,000
48,600
85,000
3,200
F-24
COUSINS PROPERTIES INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
In addition, the Company sold its third party management and leasing business to Cushman & Wakefield in 2012. Under
the terms of the agreement, the Company has the potential to receive up to $15.4 million in gross sales proceeds, of which
approximately 63.5% was received at closing. The final purchase price is subject to working capital adjustments, an earn out
based on the performance of the contributed management and leasing contracts, and the potential contribution of additional
management and/or leasing contracts, all of which the Company expects to be substantially resolved by October 1, 2013. The
Company recognized a gain on this transaction of $7.5 million and will recognize additional gains if and when additional
consideration is earned. As a result of this sale, the operations of the Company's third party management and leasing business
are presented as discontinued operations on the accompanying statements of comprehensive income for each of the periods
presented.
The following table details the components of income (loss) from discontinued operations for the years ended
December 31, 2012, 2011 and 2010 (in thousands):
Rental property revenues
Third party management and leasing revenues
Other income
Rental property expenses
Third party management and leasing expenses
Depreciation and amortization
Impairment losses
Other
Income (loss) from discontinued operations
2012
2011
2010
$
$
$
22,517
16,364
3,526
(6,746)
(13,679)
(9,344)
(13,790)
(49)
(1,201) $
41,092 $
19,359
179
(15,480)
(16,584)
(19,481)
(7,632)
(63)
1,390 $
46,613
18,976
4,814
(16,824)
(17,393)
(23,268)
—
(65)
12,853
Gains (losses) related on sales of discontinued operations are as follows for the years ended December 31, 2012, 2011
and 2010 (in thousands):
Third party management and leasing business
The Avenue Forsyth
The Avenue Webb Gin
Cosmopolitan Center
Galleria 75
The Avenue Collierville
King Mill Distribution Park — Building 3
One Georgia Center
Lakeside Ranch Business Park — Building 20
Jefferson Mill Business Park — Building A
San Jose MarketCenter
8995 Westside Parkway
Gain on sale of discontinued operations, net
Purchases of Investment Property
2012
2011
2010
$
$
7,459
4,508
3,590
2,064
569
73
307
(104)
(59)
—
—
—
18,407
$
$
— $
—
—
—
—
—
4,977
2,805
1,121
(394)
10
—
8,519 $
—
(10)
—
—
—
—
—
—
—
—
6,572
654
7,216
In 2012, the Company purchased 2100 Ross Avenue, a 844,000 square foot Class-A office building in the Arts District
submarket of Dallas, Texas, and paid cash of $59.2 million. In addition, the Company assumed $4.2 million in liabilities
associated with the building including tenant improvement liabilities, property tax liabilities and deferred revenue. In
accordance with applicable accounting rules, the Company included these assumed liabilities in the purchase price of the asset.
The Company allocated the purchase price among the assets and liabilities acquired based on their respective fair values. The
Company incurred approximately $408,000 in acquisition costs related to the purchase, which were recorded in other expense
in the statements of comprehensive income.
F-25
COUSINS PROPERTIES INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
In 2011, the Company purchased Promenade, a 775,000 square foot office building in the midtown submarket of Atlanta,
Georgia, for a cash purchase price of $134.7 million. The Company allocated the purchase price among the assets and liabilities
acquired based on their respective fair values. The Company incurred approximately $292,000 in acquisition costs related to
the purchase, which are recorded in other expense on the statements of comprehensive income.
The following table summarizes the fair value of the assets and liabilities acquired (in thousands):
Land and improvements
Building
Tenant Improvements and FF&E
Tangible assets
Intangible Assets:
Above-market leases
In-place leases
Total intangible assets
Intangible Liabilities:
Below-market leases
Total net assets acquired
$
$
2012
5,987
36,705
9,034
51,726
3,267
8,888
12,155
2011
13,439
94,190
8,600
116,229
3,991
16,172
20,163
(436)
$
63,445
$
(1,659)
134,733
See note 11 for a schedule of the timing of amortization of the intangible assets and liabilities and the weighted average
amortization periods.
Subsequent Events
In February 2013, consistent with the Company's strategy, the Company purchased the remaining 80% interest in
MSREF/T200 for $53.4 million in a transaction that valued the property at $164.0 million and repaid the mortgage loan secured
by the Terminus 200 building in the amount of $74.5 million. Subsequently, the Company contributed the Terminus 200
building and the Terminus 100 building, encumbered by its existing mortgage loan in the amount of $135.8 million, to an entity
and sold 50% of the entity to JP Morgan for $112.1 million. This transaction valued the Terminus 100 building at $209.2
million. The Company then purchased Post Oak Central, a 1.3 million square foot, Class A office building in the Galleria
district of Houston, Texas for $232.6 million from an affiliate of JP Morgan. The Company expects to recognize a gain on the
acquisition of the remaining interest in MSREF/T200 equal to the difference between the value of its interest in MSREF/T200,
as determined by the transaction, less the carrying amount of its investment immediately prior to the purchase. The Company
also expects to record a gain on the sale of its 50% interest in Terminus 100.
10. NOTES AND ACCOUNTS RECEIVABLES
At December 31, 2012 and 2011, notes and accounts receivables included the following (in thousands):
2012
2011
Notes receivable
Allowance for doubtful accounts related to notes receivable
Tenant and other receivables
Allowance for doubtful accounts related to tenant and other receivables
$
$
Fair Value
$
2,885
(1,026)
8,830
(717)
9,972
$
7,580
(4,294)
10,063
(1,990)
11,359
At December 31, 2012 and 2011, the fair value of the Company’s notes receivable approximated the cost basis. Fair
value was calculated by discounting future cash flows from the notes receivable at estimated rates in which similar loans would
have been made at December 31, 2012 and 2011. The estimate of the rate, which is the most significant input in the discounted
cash flow calculation, is intended to replicate debt of similar type and maturity. This fair value calculation is considered to be a
Level 3 calculation under the accounting guidelines, as the Company utilizes internally generated assumptions regarding
current interest rates at which similar instruments would be executed.
F-26
COUSINS PROPERTIES INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
11. OTHER ASSETS
At December 31, 2012 and 2011, other assets included the following (in thousands):
Lease inducements, net of accumulated amortization of $4,718 and $3,696 in 2012 and
2011, respectively
FF&E and leasehold improvements, net of accumulated depreciation of $18,877 and
$17,814 in 2012 and 2011, respectively
Loan closing costs, net of accumulated amortization of $2,624 and $4,026 in 2012 and
2011, respectively
Predevelopment costs and earnest money
Prepaid expenses and other assets
Investment in Verde Realty
Intangible Assets:
In-place leases, net of accumulated amortization of $5,729 and $2,833 in 2012 and
2011, respectively
Above market leases, net of accumulated amortization of $9,424 and $8,845 in 2012
and 2011, respectively
Goodwill
2012
2011
$
11,089 $
12,219
4,814
3,704
3,284
2,044
—
21,637
6,892
4,751
58,215 $
$
4,736
1,435
581
2,168
5,868
16,144
4,414
5,155
52,720
Lease Inducements. Lease inducements represent incentives paid to tenants in conjunction with leasing space, such as
moving costs, sublease arrangements of prior space and other costs. These amounts are amortized into rental revenues over the
individual underlying lease terms.
Predevelopment Costs and Earnest Money. Predevelopment costs represent amounts that are capitalized related to
predevelopment projects which the Company determines are probable of future development.
Investment in Verde Realty. The investment in Verde Realty, a cost method investment in a non-public real estate
investment trust, was sold in 2012.
Intangible Assets. Intangible assets, other than goodwill, mainly relate to the acquisitions of 2100 Ross Avenue in 2012
and Promenade in 2011 (see note 9), with small amounts remaining relating to the 2006 acquisition of 191 Peachtree Tower.
The Company acquired intangible liabilities with these purchases, including above-market and below-market leases, both of
which are recorded within other assets and other liabilities on the balance sheets, respectively. Both above-market and below-
market tenant leases are amortized into rental property revenues over the individual remaining lease terms. The above-market
ground lease associated with 191 Peachtree Tower is amortized into rental property operating expenses over its remaining lease
term. In-place leases are amortized into depreciation and amortization expense, also over the individual remaining lease terms.
Aggregate net amortization expense related to intangible assets and liabilities was $3.3 million, $305,000 and $4,000 for the
years ended December 31, 2012, 2011 and 2010, respectively. Over the next five years and thereafter, aggregate amortization
of these intangible assets and liabilities is anticipated to be as follows (in thousands):
Below Market
Rents
Above Market
Ground Lease
Above Market
Rents
2013
2014
2015
2016
2017
Thereafter
Weighted average remaining lease term
$
$
(363) $
(340)
(326)
(276)
(183)
(391)
(1,879) $
6 years
(9) $
(9)
(9)
(9)
(9)
(624)
(669) $
74 years
F-27
In Place Leases
4,175
$
3,657
3,172
2,689
1,825
6,119
21,637
$
1,062
1,048
978
910
651
2,243
6,892
8 years
7 years
$
$
Total
4,865
4,356
3,815
3,314
2,284
7,347
25,981
10 years
COUSINS PROPERTIES INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
Goodwill relates entirely to the office reporting unit. As office assets are sold, either by the Company or by joint ventures
in which the Company has an interest, goodwill is allocated to the cost of each sale. The following is a summary of goodwill
activity for the years ended December 31, 2012 and 2011 (in thousands):
Beginning Balance
Allocated to property sales
Ending Balance
2012
2011
$
$
5,155 $
(404)
4,751 $
5,430
(275)
5,155
12. CONSOLIDATED STATEMENTS OF CASH FLOWS - SUPPLEMENTAL INFORMATION
Supplemental information related to cash flows, including significant non-cash activity affecting the Statements of Cash
Flows, for the years ended December 31, 2012, 2011 and 2010 is as follows (in thousands):
Interest paid, net of amounts capitalized
Income taxes paid (refunded), net
Non-Cash Transactions:
Transfer from operating properties to operating properties and
related assets held for sale
Transfer from other assets to investment in joint venture
Transfer from land to operating properties
Decrease in land and notes payable due to foreclosure
Adjustments to property expenditures for amounts included in
accounts payable
Change in fair value of redeemable noncontrolling interests
Issuance of common stock for payment of common dividends
Land collateral received from note receivable default
Increase in notes receivable for lease termination and land and lot
sales
2012
2011
2010
$
$
23,142
63
25,960 $
(551)
35,616
(3,308)
1,866
—
—
—
—
—
—
—
—
—
6,193
5,159
3,374
1,559
766
—
—
—
—
—
1,410
—
1,976
378
24,282
5,030
3,312
13. NONCONTROLLING INTERESTS
The Company consolidates various ventures that are involved in the ownership and/or development of real estate. The
partner’s share of the entity, in cases where the entity’s documents do not contain a required redemption clause, is reflected in a
separate line item called nonredeemable noncontrolling interests within equity in the balance sheets. Correspondingly, the
partner’s share of income or loss is recorded in net income attributable to noncontrolling interests in the statements of
comprehensive income.
Other consolidated ventures contain provisions requiring the Company to purchase the partners’ share of the venture at a
certain value upon demand or at a future prescribed date. In these situations, the partner’s share of the entity is recognized as
redeemable noncontrolling interests and is presented between liabilities and equity in the balance sheets, with the
corresponding share of income or loss in the venture recorded in net income attributable to noncontrolling interests in the
statements of comprehensive income. The redemption values are evaluated each period and adjusted within equity to the higher
of fair value or the partner’s cost basis. One of these ventures, The Avenue Collierville, sold its underlying assets in 2012. Two
of these ventures with redemption options sold their underlying assets, King Mill Distribution Park – Building 3 and Jefferson
Mill Business Park — Building A, in 2011 (see note 9). In conjunction with these sales, the pro rata share of the sales proceeds
was distributed to each of the noncontrolling partners.
F-28
COUSINS PROPERTIES INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
The following table details the components of redeemable noncontrolling interests in consolidated subsidiaries for the
years ended December 31, 2012 and 2011 (in thousands):
Beginning Balance
Net income (loss) attributable to redeemable noncontrolling interests
Distributions to redeemable noncontrolling interests
Other
Change in fair value of redeemable noncontrolling interests
Ending Balance
2012
2011
2,763 $
(2,002)
(858)
97
—
— $
14,289
1,433
(12,193)
—
(766)
2,763
$
$
The following reconciles the net income attributable to nonredeemable noncontrolling interests as recorded in the
statements of equity and the net income (loss) attributable to redeemable noncontrolling interests as recorded outside of the
equity section on the balance sheets to the net income attributable to noncontrolling interests on the statements of
comprehensive income for the years ended December 31, 2012, 2011 and 2010 (in thousands):
Net income attributable to nonredeemable noncontrolling interests
Net income (loss) attributable to redeemable noncontrolling interests
Net income attributable to noncontrolling interests
2012
2011
2010
$
$
4,193
(2,002)
2,191
$
$
3,525 $
1,433
4,958 $
2,364
176
2,540
14. RENTAL PROPERTY REVENUES
The Company’s leases typically contain escalation provisions and provisions requiring tenants to pay a pro rata share of
operating expenses. The leases typically include renewal options and are classified and accounted for as operating leases. The
majority of the Company’s real estate assets are concentrated in the Southeastern United States, specifically in the Atlanta,
Georgia metropolitan area.
At December 31, 2012 future minimum rentals to be received by consolidated entities under existing non-cancelable
leases are as follows (in thousands):
2013
2014
2015
2016
2017
Thereafter
Office
Retail
Total
$
$
91,823
90,460
83,778
78,248
70,163
245,287
659,759
$
$
3,917 $
4,087
3,971
3,871
3,793
4,363
24,002 $
95,740
94,547
87,749
82,119
73,956
249,650
683,761
15. RETIREMENT SAVINGS PLAN
The Company maintains a defined contribution plan (the “Retirement Savings Plan”) pursuant to Section 401 of the
Internal Revenue Code (the “Code”) which covers active regular employees. Employees are eligible under the Retirement
Savings Plan immediately upon hire, and pre-tax contributions are allowed up to the limits set by the Code. In years prior to
2011, the Company made discretionary retirement savings contributions into the Retirement Savings Plan for certain eligible
active regular employees based on an annual, discretionary percentage as determined by the Compensation, Nominating and
Governance Committee of the Board of Directors. Beginning in 2011, the Company changed to a match program of up to 3%
of an employee’s eligible pre-tax Retirement Savings Plan contributions up to certain Code limits, rather than an annual
discretionary contribution. Employees vest in Company contributions over a three-year period. The Company may change this
F-29
COUSINS PROPERTIES INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
percentage at its discretion, and, in addition, the Company could decide to make additional or replacement discretionary
contributions in the future. The Company contributed approximately $722,000, $748,000 and $1.2 million to the Retirement
Savings Plan for the 2012, 2011 and 2010 plan years, respectively.
16. REPORTABLE SEGMENTS
The Company has five reportable segments: Office, Retail, Land, CPS Third Party Management and Leasing, and Other.
In 2012, the Company sold its third party management and leasing business. See note 9 for detailed information. These
reportable segments represent an aggregation of operating segments reported to the Chief Operating Decision Maker based on
similar economic characteristics that include the type of product and the nature of service. Each segment includes both
consolidated operations and joint ventures. The Office and Retail segments show the results for that product type. The Land
segment includes results of operations for certain land holdings and single-family residential communities that are sold as
developed lots to homebuilders. Fee income and related expenses for the third party-owned properties which are managed or
leased by the Company are included in the Third Party Management and Leasing segment. In 2010, the Company had an
additional segment, the For-Sale Multi-Family Residential Unit, segment which included results of operations for the
development and sale of multi-family real estate projects. The Company has sold substantially all of its multi-family residential
units, and this line of business is no longer considered to be a separate reporting segment. The Other segment includes:
•
•
•
•
•
•
•
•
fee income for third party owned and joint venture properties for which the Company performs management,
development and leasing services;
compensation for corporate employees, other than those in the Third Party Management and Leasing segment;
general corporate overhead costs, interest expense for consolidated and unconsolidated entities;
income attributable to noncontrolling interests;
income taxes;
depreciation;
preferred dividends; and
operations of the industrial buildings, which were sold in 2011.
Company management evaluates the performance of its reportable segments in part based on funds from operations
available to common stockholders (“FFO”). FFO is a supplemental operating performance measure used in the real estate
industry. The Company calculated FFO using the National Association of Real Estate Investment Trusts’ (“NAREIT”)
definition of FFO, which is net income (loss) available to common stockholders (computed in accordance with GAAP),
excluding extraordinary items, cumulative effect of change in accounting principle and gains on sale or impairment losses on
depreciable property, plus depreciation and amortization of real estate assets, and after adjustments for unconsolidated
partnerships and joint ventures to reflect FFO on the same basis.
During 2012, the Company changed the format of the information presented to the Chief Operating Decision Maker
about its segments and revised its presentation of the segment information included in the following tables. These changes did
not result in a change in the number of reportable segments. Prior years' amounts were changed to be consistent with the
current year's presentation.
FFO is used by industry analysts, investors and the Company as a supplemental measure of a REIT’s operating
performance. Historical cost accounting for real estate assets implicitly assumes that the value of real estate assets diminishes
predictably over time. Since real estate values instead have historically risen or fallen with market conditions, many industry
investors and analysts have considered presentation of operating results for real estate companies that use historical cost
accounting to be insufficient by themselves. Thus, NAREIT created FFO as a supplemental measure of a REIT’s operating
performance that excludes historical cost depreciation, among other items, from GAAP net income. Management believes the
use of FFO, combined with the required primary GAAP presentations, has been fundamentally beneficial, improving the
understanding of operating results of REITs among the investing public and making comparisons of REIT operating results
more meaningful. Company management evaluates operating performance in part based on FFO. Additionally, the Company
uses FFO, along with other measures, to assess performance in connection with evaluating and granting incentive
compensation to its officers and other key employees.
F-30
COUSINS PROPERTIES INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
Segment net income, the balance of the Company’s investment in joint ventures and the amount of capital expenditures
are not presented in the following tables. Management does not utilize these measures when analyzing its segments or when
making resource allocation decisions, and therefore this information is not provided. FFO is reconciled to net income (loss) on
a total Company basis (in thousands):
Year ended December 31, 2012
Net operating income
Sales less costs of sales
Fee income
Other income
Third party management and leasing expenses
Separation expenses
General and administrative expenses
Reimbursed expenses
Interest expense
Impairment loss
Other expenses
Gain on sale of third party management and
leasing business
Preferred stock dividends
Funds from operations available to common
stockholders
Real estate depreciation and amortization,
including Company's share of joint ventures
Impairment loss on depreciable investment
property, net of amounts attributable to
noncontrolling interests
Gain on sale of depreciated investment
properties including Company's share of joint
ventures
Net income available to common
stockholders
Total Assets
Office
$ 80,907
—
—
3,037
—
—
—
—
—
—
—
Retail
$ 29,429
—
—
603
—
—
—
—
—
—
—
—
—
—
—
Third Party
Management
and Leasing
Land
$
— $
4,915
—
—
—
—
—
—
—
—
—
—
—
$
—
—
16,365
—
(13,675)
—
—
—
—
—
—
7,459
—
$
Other
121
309
17,797
1,513
—
(1,984)
(23,208)
(7,063)
(28,154)
(488)
(8,484)
—
(12,907)
Total
110,457
5,224
34,162
5,153
(13,675)
(1,984)
(23,208)
(7,063)
(28,154)
(488)
(8,484)
7,459
(12,907)
$ 83,944
$ 30,032
$
4,915
$
10,149
$ (62,548)
66,492
(62,043)
(11,748)
40,120
$
32,821
$ 1,124,242
$ 736,867
$ 151,417
$ 50,520
$
—
$ 185,438
F-31
COUSINS PROPERTIES INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
Year ended December 31, 2011
Net operating income
Sales less costs of sales
Fee income
Other income
Third party management and leasing expenses
Separation expenses
General and administrative expenses
Reimbursed expenses
Interest expense
Impairment losses
Other expenses
Preferred stock dividends
Funds from operations available to common
stockholders
Real estate depreciation and amortization,
including Company's share of joint ventures
Impairment losses on depreciable investment
properties, net of amounts attributable to
noncontrolling interests
Gain on sale of depreciated investment
properties including the Company's share of
joint ventures
Net loss available to common stockholders
Total Assets
Office
$ 75,387
—
—
1,475
—
—
—
—
—
—
—
—
$
Land
Retail
$ 31,583
5,236
—
—
—
—
151
—
—
—
—
—
—
—
—
—
—
— (125,526)
—
—
—
—
— $
$
Third Party
Management
and Leasing
—
—
19,359
—
(16,585 )
—
—
—
—
—
—
—
Other
3,583
2,250
13,821
578
—
(197)
(24,166)
(6,208)
(32,515)
(3,608)
(8,586)
(12,907)
Total
$ 110,553
7,486
33,180
2,204
(16,585)
(197)
(24,166)
(6,208)
(32,515)
(129,134)
(8,586)
(12,907)
$ 76,862
$ 31,734
$(120,290) $
2,774
$ (67,955)
(76,875)
(62,709)
(7,632)
5,884
$ (141,332)
$ 1,235,535
$ 732,857
$ 375,923
$ 108,172
$
4,302
$ 14,281
F-32
COUSINS PROPERTIES INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
Year ended December 31, 2010
Net operating income
Sales less costs of sales
Fee income
Other income
Third party management and leasing
expenses
Separation expenses
General and administrative expenses
Reimbursed expenses
Interest expense
Impairment losses
Other expenses
Preferred stock dividends
Funds from operations available to
common stockholders
Real estate depreciation and amortization,
including Company's share of joint
ventures
Gain on sale of depreciated investment
properties
Net loss available to common
stockholders
Total Assets
Office
$
72,792 $
—
—
416
Retail
31,729 $
—
—
146
Third Party
Management
and Leasing Other
— $
—
18,977
—
3,721 $
7,898
14,443
750
Land
— $
12,502
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
(17,393
—
—
—
—
(5,714)
—
—
(17,393)
—
—
—
—
—
—
—
(1,045)
(28,517)
(6,297)
(41,432)
(586)
(16,702)
(12,907)
Total
108,242
20,400
33,420
1,312
(17,393)
(1,045)
(28,517)
(6,297)
(41,432)
(6,300)
(16,702)
(12,907)
$
73,208 $
31,875 $
6,788 $
1,584 $
(80,674)
32,781
$
671,540 $
348,470 $
261,323 $
4,050 $
(67,728)
7,467
$
(27,480)
85,899 $ 1,371,282
When reviewing the results of operations for the Company, management analyzes the following revenue and income
items net of their related costs:
•
•
•
Rental property operations;
Land sales; and
Gains on sales of investment properties.
F-33
COUSINS PROPERTIES INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
These amounts are shown in the segment tables above in the same “net” manner as shown to management. In addition,
management reviews the operations of discontinued operations and its share of the operations of its joint ventures in the same
manner as the operations of its wholly-owned properties included in the continuing operations. Therefore, the information in
the tables above includes the operations of discontinued operations and its share of joint ventures in the same categories as the
operations of the properties included in continuing operations. Certain adjustments are required to reconcile the above segment
information to the Company’s consolidated revenues. The following table reconciles information presented in the tables above
to the Company’s consolidated revenues (in thousands):
Net operating income
Sales less cost of sales
Fee income
Other income
Plus rental property operating expenses
Cost of sales
Net operating income in joint ventures
Sales less cost of sales in joint ventures
Net operating income in discontinued operations
Fee income in discontinued operations
Other income in discontinued operations
Gain on tract sales (included in gain on investment properties)
Total consolidated revenues
******
2012
110,457
5,224
34,162
5,153
54,518
1,833
(23,596)
(28)
(15,770)
(16,365)
(3,591)
(3,719)
148,278
$
$
2011
110,553 $
7,486
33,180
2,204
44,912
5,378
(24,258)
(1,927)
(25,611)
(19,359)
(254)
(3,258)
129,046 $
2010
108,242
20,400
33,420
1,312
43,441
28,956
(20,179)
(6,034)
(29,788)
(18,977)
(193)
(6,366)
154,234
$
$
F-34
CERTIFICATION PURSUANT TO SECTION 302 OF
THE SARBANES-OXLEY ACT OF 2002
I, Lawrence L. Gellerstedt III, certify that:
Exhibit 31.1
1.
I have reviewed this Annual Report on Form 10-K of Cousins Properties Incorporated (the “Registrant”);
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a
material fact necessary to make the statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly
present in all material respects the financial condition, results of operations and cash flows of the Registrant as of,
and for, the periods presented in this report;
4. The Registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls
and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial
reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the Registrant and have:
a.
b.
c.
d.
Designed such disclosure controls and procedures, or caused such disclosure controls and
procedures to be designed under our supervision, to ensure that material information relating to
the Registrant, including its consolidated subsidiaries, is made known to us by others within
those entities, particularly during the period in which this report is being prepared;
Designed such internal control over financial reporting, or caused such internal control over
financial reporting to be designed under our supervision, to provide reasonable assurance
regarding the reliability of financial reporting and the preparation of financial statements for
external purposes in accordance with generally accepted accounting principles;
Evaluated the effectiveness of the Registrant’s disclosure controls and procedures and
presented in this report our conclusions about the effectiveness of the disclosure controls and
procedures, as of the end of the period covered by this report based on such evaluation; and
Disclosed in this report any change in the Registrant’s internal control over financial reporting
that occurred during the Registrant’s most recent fiscal quarter (the registrant’s fourth fiscal
quarter in the case of an annual report) that has materially affected, or is reasonably likely to
materially affect, the Registrant’s internal control over financial reporting; and
5. The Registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal
control over financial reporting, to the registrant’s auditors and the audit committee of the Registrant’s board of
directors (or persons performing the equivalent functions):
a.
b.
All significant deficiencies and material weaknesses in the design or operation of internal
control over financial reporting which are reasonably likely to adversely affect the Registrant’s
ability to record, process, summarize and report financial information; and
Any fraud, whether or not material, that involves management or other employees who have a
significant role in the Registrant’s internal control over financial reporting.
/s/ Lawrence L. Gellerstedt III
Lawrence L. Gellerstedt III
President and Chief Executive Officer
Date: February 13, 2013
CERTIFICATION PURSUANT TO SECTION 302 OF
THE SARBANES-OXLEY ACT OF 2002
Exhibit 31.2
I, Gregg D. Adzema, certify that:
1.
I have reviewed this Annual Report on Form 10-K of Cousins Properties Incorporated (the “Registrant”);
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a
material fact necessary to make the statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly
present in all material respects the financial condition, results of operations and cash flows of the Registrant as of,
and for, the periods presented in this report;
4. The Registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls
and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial
reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the Registrant and have:
a.
b.
c.
d.
Designed such disclosure controls and procedures, or caused such disclosure controls and
procedures to be designed under our supervision, to ensure that material information relating to
the Registrant, including its consolidated subsidiaries, is made known to us by others within
those entities, particularly during the period in which this report is being prepared;
Designed such internal control over financial reporting, or caused such internal control over
financial reporting to be designed under our supervision, to provide reasonable assurance
regarding the reliability of financial reporting and the preparation of financial statements for
external purposes in accordance with generally accepted accounting principles;
Evaluated the effectiveness of the Registrant’s disclosure controls and procedures and
presented in this report our conclusions about the effectiveness of the disclosure controls and
procedures, as of the end of the period covered by this report based on such evaluation; and
Disclosed in this report any change in the Registrant’s internal control over financial reporting
that occurred during the Registrant’s most recent fiscal quarter (the registrant’s fourth fiscal
quarter in the case of an annual report) that has materially affected, or is reasonably likely to
materially affect, the Registrant’s internal control over financial reporting; and
5. The Registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal
control over financial reporting, to the registrant’s auditors and the audit committee of the Registrant’s board of
directors (or persons performing the equivalent functions):
a.
b.
All significant deficiencies and material weaknesses in the design or operation of internal
control over financial reporting which are reasonably likely to adversely affect the Registrant’s
ability to record, process, summarize and report financial information; and
Any fraud, whether or not material, that involves management or other employees who have a
significant role in the Registrant’s internal control over financial reporting.
/s/ Gregg D. Adzema
Gregg D. Adzema
Executive Vice President and Chief Financial Officer
Date: February 13, 2013
CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO SECTION 906 OF THE
SARBANES-OXLEY ACT OF 2002
Exhibit 32.1
Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 and in connection with the Annual Report on Form 10-K of
Cousins Properties Incorporated (the “Registrant”) for the year ended December 31, 2012, as filed with the Securities and Exchange
Commission on the date hereof (the “Report”), the undersigned, the President and Chief Executive Officer of the Registrant,
certifies that to his knowledge:
(1) The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and
(2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of
operations of the Registrant.
/s/ Lawrence L. Gellerstedt III
Lawrence L. Gellerstedt III
President and Chief Executive Officer
Date: February 13, 2013
CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO SECTION 906 OF THE
SARBANES-OXLEY ACT OF 2002
Exhibit 32.2
Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 and in connection with the Annual Report on Form 10-K of
Cousins Properties Incorporated (the “Registrant”) for the year ended December 31, 2012, as filed with the Securities and Exchange
Commission on the date hereof (the “Report”), the undersigned, the Executive Vice President and Chief Financial Officer of the
Registrant, certifies that to his knowledge:
(1) The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and
(2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of
operations of the Registrant.
/s/ Gregg D. Adzema
Gregg D. Adzema
Executive Vice President and Chief Financial Officer
Date: February 13, 2013
Post Oak Central
H O U S T O N , T X
2100 Ross
D A L L A S , T X
Terminus 100
A T L A N T A , G A
Terminus 200
A T L A N T A , G A
191 Peachtree
A T L A N T A , G A
Promenade
A T L A N T A , G A
SHAREHOLDER
INFORMATION
Independent Registered Public
Accounting Firm
Deloitte & Touche LLP
Counsel
King & Spalding LLP
Troutman Sanders LLP
Transfer Agent and Registrar
American Stock Transfer & Trust Company
6201 15th Avenue
Brooklyn, NY 11219
Telephone Number: 1.800.937.5449
www.amstock.com
Form 10-K Available
The Company's Annual Report on Form 10-K for the year
ended December 31, 2012 forms part of the Annual
Report. Additional copies of the Form 10-K, without
exhibits, are available free of charge upon written request to
the Company at 191 Peachtree Street NE, Suite 500,
Atlanta, Georgia 30303. Exhibits are available if requested.
The Form 10-K is also posted on the Company’s website at
cousinsproperties.com or may be obtained from the SEC’s
website at www.sec.gov.
Investor Relations Contact
Cameron Golden
Vice President, Investor Relations
Telephone Number: 404.407.1984
Fax Number: 404.407.1985
camerongolden@cousinsproperties.com
Gateway Village
C H A R L O T T E , N C
American Cancer Society Center
A T L A N T A , G A
Emory Univ. Hospital Midtown
A T L A N T A , G A
P R I N T E D O N R E C Y C L E D P A P E R
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191 Peachtree Street NE, Suite 500
Atlanta, GA 30303-1740
404.407.1000 I cousinsproperties.com