ANNUAL
REPORT
DEAR SHAREHOLDERS,
2018 was another strong year for Cousins. Across all areas of our
business and in each of our markets, the team executed day in and day
out demonstrating exceptional dedication to the Company. Importantly,
the year marked the Company’s sixtieth anniversary, which is a testament
to our strong culture, deep relationships and history of innovation.
Our Strategy
Cousins has a unique and compelling strategy, which is to create the
preeminent Sun Belt office company. The Company pivoted to this
strategy in 2011 as we recognized several long-term trends, most notably
migration to the Sun Belt and the urbanization of the best submarkets,
would create an outsized growth opportunity. Importantly, these long-term
trends continue. To highlight, I will share a couple of recent data points:
•
According to the U.S. Census Bureau, Texas, Florida, North Carolina,
Arizona and Georgia ranked number one through five for states
with top net migration from 2005 to 2017.
•
According to JLL, approximately 75 percent of U.S. net office absorption
during the fourth quarter of 2018 was in urban, Class A properties.
Today, we own an approximately 15 million square foot portfolio comprised
of high-quality assets in the best urban submarkets of Atlanta, Charlotte,
Austin, Tampa and Phoenix where supply and demand fundamentals
remain favorable. Looking forward, we are committed to our strategy and
will continue to run the business based on four core operating principles:
•
First, own the premier Sun Belt office portfolio with concentrations
of trophy quality properties in the leading submarkets across our
geographic footprint.
Second, maintain a disciplined approach to capital allocation with
•
a focus on new investments where our platform can add value and
generate attractive risk-adjusted returns.
•
Third, preserve our industry-leading balance sheet which provides
financial flexibility and remains a meaningful competitive advantage.
Lastly, leverage our strong local operating platforms, supported by
•
top talent, which take an entrepreneurial approach to customer
service, local market relationships and deep community involvement.
2018 Results
The team at Cousins delivered terrific results in 2018. As a result of our
unique and straightforward strategy and core operating principles, the
Cousins team executed several key transactions while managing our
properties and providing exceptional service to our customers. Specifically,
in 2018, the Company:
Executed 1.6 million square feet of office leases.
Commenced operations of Spring & 8th, NCR’s world headquarters
•
•
in Midtown Atlanta.
•
Began construction of two office developments: 300 Colorado in
Austin, TX that is 87% pre-leased and 10000 Avalon in Atlanta, GA
that is 40% pre-leased.
•
•
Acquired premium land sites in Midtown Atlanta and Tempe, AZ.
Closed a new $1 billion unsecured revolving credit facility which
remains fully undrawn.
Funds From Operations were $0.63 per share for the year, same property
net operating income grew 4.7 percent, and second generation rents
increased 13.2 percent, both on a cash basis. Our balance sheet and
liquidity position provided another solid endorsement of the team’s
efforts. Cousins ended 2018 with a net debt to EBITDA of 3.68 times
and a $1 billion undrawn credit facility.
2019 and Beyond
I believe our unique position provides a strong runway for 2019 and
beyond with many actionable opportunities to grow future earnings
and ultimately create long-term value for our shareholders. To start,
our existing portfolio contains two powerful levers for growth with
in-place rents approximately 8 to 10 percent below current market
rates and annual escalators between 2 to 3 percent on current leases.
Externally, we continue to experience increased demand for new office
product, specifically in our targeted urban submarkets. Cousins’
current development pipeline, now 74 percent leased, totals 898,000
square feet of office. Once delivered and in operation, these projects
will provide a meaningful impact to future earnings, while expanding
our footprint in several highly coveted Sun Belt submarkets.
Going forward, we will continue to invest in our development pipeline
as a means to further grow the company. Today, Cousins owns four
premium sites in Atlanta, Dallas, Tempe and Tampa, which in aggregate
could accommodate approximately 1.4 million square feet of new office
product. While we plan to exercise patience and discipline on these
opportunities, we are encouraged by the interest from both existing
customers and new prospects.
In closing, I want to thank my 257 teammates and our dedicated Board
of Directors who faithfully serve our customers, our shareholders and each
other. Cousins is a world-class company comprised of talented and
hard-working individuals committed to delivering their best effort every
day. It’s a real privilege to work alongside each of you.
At the start of 2019, I transitioned into my new role as CEO. I am
honored to lead Cousins during the next chapter in its long and proud
story. Growing up in Atlanta, I always admired the impact that the
company had on both the skyline and the community as a whole. The
company’s brand represents first-class business done in a first-class
way and that has always differentiated Cousins. I was proud to join
that type of organization over seven years ago just as I am proud to be
part of the Company in my new role.
Lastly, I would like to express my gratitude for Larry Gellerstedt who
preceded me as CEO. During his nine-year tenure, he successfully
transformed the Company into the preeminent Sun Belt office REIT,
grew the company over threefold, created significant value for shareholders
and built a culture based on humility, collaboration and integrity. I value
his wisdom and experience and look forward to working with him in his
new role as Executive Chairman.
Thank you for this opportunity to serve. I’m grateful to be part of the
Cousins family.
Cover Image: 300 Colorado, Austin, TX // Architect: Pickard Chilton
M. Colin Connolly
President and Chief Executive Officer
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, 2018
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)
3344 Peachtree Road NE, Suite 1800, Atlanta, Georgia
(Address of principal executive offices)
58-0869052
(I.R.S. Employer
Identification No.)
30326-4802
(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)
Name of Exchange on which registered
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 every Interactive Data File required to be submitted pursuant
to Rule 405 of Regulation S-T (§232.405 of this chapter) 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 (§229.405 of this chapter) 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, a smaller reporting
company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting
company,” and “emerging growth 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
Emerging growth company
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for
complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.
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 30, 2018, the aggregate market value of the common stock of Cousins Properties Incorporated held by non-affiliates was
$3,996,942,489 based on the closing sales price as reported on the New York Stock Exchange. As of January 31, 2019, 420,366,403
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 April 23, 2019 are incorporated by
reference into Part III of this Form 10-K.
T A B L E O F C O N T E N T S
P A R T I
Item 1.
Business
Item 1A. Risk Factors
Item 1B. Unresolved Staff Comments
Item 2.
Properties
Item 3.
Legal Proceedings
Item 4. Mine Safety Disclosures
Item X.
Executive Officers of the Registrant
Item 5. Market for Registrant’s Common Stock and Related Stockholder Matters
P A R T I I
Item 6.
Selected Financial Data
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations
Item 7A. Quantitative and Qualitative Disclosure about Market Risk
Item 8.
Financial Statements and Supplementary Data
Item 9.
Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
Item 9A. Controls and Procedures
Item 9B. Other Information
Item 10. Directors, Executive Officers and Corporate Governance
P A R T I I I
Item 11.
Executive Compensation
Item 12.
Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
Item 13. Certain Relationships and Related Transactions, and Director Independence
Item 14.
Principal Accountant Fees and Services
Item 15.
Exhibits and Financial Statement Schedules
P A R T I V
SIGNATURES
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3
12
12
17
17
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19
20
21
35
35
36
36
38
38
38
39
39
39
40
45
F O R W A R D - L O O K I N G
S T A T E M E N T S
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 herein. These forward-looking statements include
information about possible or assumed future results of the
business and our 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:
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our business and financial strategy;
future debt financings;
future acquisitions and dispositions of operating assets;
future acquisitions and dispositions of land, including
ground leases;
future development and redevelopment opportunities,
including fee development opportunities;
future issuances and repurchases of common stock;
projected operating results;
– market and industry trends;
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entry into new markets;
future distributions;
projected capital expenditures;
future changes in interest rates; and
all statements that address operating performance,
events, or developments that we expect or anticipate
will occur in the future — including statements relating
to creating value for stockholders.
statements
forward-looking
Any
are based upon
management’s beliefs, assumptions, and expectations of
our future performance, taking into account information
that is 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,
our 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:
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the availability and terms of capital;
the ability to refinance or repay indebtedness as
it matures;
the failure of purchase, sale, or other contracts to
ultimately close;
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the failure to achieve anticipated benefits from
acquisitions, investments, or dispositions;
the potential dilutive effect of common stock or
operating partnership unit issuances;
the availability of buyers and pricing with respect to the
disposition of assets;
changes in national and local economic conditions,
the real estate industry, and the commercial real estate
markets in which we operate (including supply and
demand changes), particularly in Atlanta, Charlotte,
Austin, Phoenix, and Tampa where we have high
concentrations of our lease revenue;
changes to our strategy with regard to land and other
non-core holdings that require impairment losses to
be recognized;
leasing risks, including the ability to obtain new tenants
or renew expiring tenants, the ability to lease newly
developed and/or recently acquired space, the failure of
a tenant to occupy leased space, and the risk of declining
leasing rates;
changes in the needs of our tenants brought about by
the desire for co-working arrangements, trends toward
utilizing less office space per employee, and the effect
of telecommuting;
the adverse change in the financial condition of one or
more of our major tenants;
volatility in interest rates and insurance rates;
competition from other developers or investors;
the risks associated with real estate developments
(such as zoning approval, receipt of required permits,
construction delays, cost overruns, and leasing risk);
cyber security breaches;
changes
key personnel;
in senior management and the
loss of
the potential liability for uninsured losses, condemnation,
or environmental issues;
the potential
liability
regulatory requirements;
for a
failure
to meet
the financial condition and liquidity of, or disputes with,
joint venture partners;
any failure to comply with debt covenants under
credit agreements;
any failure to continue to qualify for taxation as a real
estate investment trust and meet regulatory requirements;
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potential changes to state, local, or federal regulations
applicable to our business;
– material changes in the rates, or the ability to pay,
dividends on common shares or other securities;
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potential changes to the tax laws impacting REITs and
real estate in general; and
those additional risks and factors discussed in reports
filed with the Securities and Exchange Commission by
the Company.
The words “believes,” “expects,” “anticipates,” “estimates,”
“plans,” “may,” “intend,” “will,” or similar expressions are
intended to identify forward-looking statements. Although
we believe that our plans, intentions, and expectations
reflected in any forward-looking statements are reasonable,
we can give no assurance that such plans, intentions, or
expectations will be achieved. We undertake 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.
P A R T I
I T E M 1 .
B U S I N E S S
Corporate Profile Cousins Properties Incorporated (the
“Registrant” or “Cousins”) is a Georgia corporation, which
has elected to be taxed as a real estate investment trust
(“REIT”). Cousins conducts substantially all of its business
through Cousins Properties LP (“CPLP”), a Delaware
limited partnership. Cousins owns approximately 98% of
CPLP, and CPLP is consolidated with Cousins for financial
reporting purposes. CPLP also owns Cousins TRS Services
LLC (“CTRS”), a taxable entity which owns and manages
its own real estate portfolio and performs certain real estate
related services for other parties. Cousins, CPLP, their
subsidiaries, and CTRS combined are hereafter referred to
as “we,” “us,” “our,” and the “Company.” Our common
stock trades on the New York Stock Exchange under the
symbol “CUZ.”
Our operations are conducted through a number of segments
based on our method of internal reporting, which classifies
operations by property type and geographical area.
Company Strategy Our strategy is to create value for our
stockholders through ownership of the premier urban office
portfolio in the Sunbelt markets of the United States, with a
particular focus on Georgia, Texas, North Carolina, Florida,
and Arizona. This strategy is based on a disciplined approach
to capital allocation that includes value-add acquisitions,
selective development projects, and timely dispositions of
non-core assets. This strategy is also based on a simple,
flexible, and low-leveraged balance sheet that allows us to
pursue investment opportunities at the most advantageous
points in the cycle. To implement this strategy, we leverage
our strong local operating platforms within each of our
major markets.
2018 Activities During 2018, we commenced two new
development projects and completed two development
projects. At year-end, we had four development projects
in process; our share of the total expected costs of these
projects totaled $245.9 million. We also improved our
balance sheet and liquidity by expanding and extending our
unsecured credit facility (“Credit Facility”) and repaying one
mortgage loan. The following is a summary of our significant
2018 activities:
I N V E S T M E N T AC T I V I T Y
– Commenced construction of 10000 Avalon, a 251,000
square foot office building in Atlanta, adjacent to our
existing 8000 Avalon building. This project is being
developed in a joint venture in which we hold a 90%
interest, and the project is expected to be completed
in 2020.
– Commenced construction of 300 Colorado, a 358,000
square foot office building in downtown Austin. This
project is being developed in a joint venture in which we
hold a 50% interest, and the project is expected to be
completed in 2021.
– Completed the development and commenced operations
of Spring & 8th (864 and 858 Spring Street), two office
buildings totaling 765,000 square feet in Midtown
Atlanta that comprise NCR’s headquarters.
– Continued development of Dimensional Place, a 282,000
square foot building in Charlotte that will become the
East Coast headquarters of Dimensional Fund Advisors.
This project is being developed in a 50-50 joint venture
with Dimensional Fund Advisors and is expected to be
completed in 2019.
– Acquired interests in two tracts of land in Midtown
Atlanta and a tract of land in Tempe for potential future
office development projects. With the addition of these
sites, we own or control sites that could accommodate
development of up to 1.4 million square feet of new
Class A office space.
F I N A N C I N G AC T I V I T Y
– Closed a $1 billion unsecured revolving credit facility
that replaced the existing $500 million facility.
– Repaid the $22.2 million mortgage note secured by The
Pointe, a 253,000 square foot office building in Tampa.
1
2018 ANNUAL REPORT COUSINS PROPERTIES INCORPORATED P O R T FO L I O AC T I V I T Y
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Leased or renewed 1.6 million square feet of office space.
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Increased second generation net rent per square foot by
32.5% on a GAAP basis and 13.2% on a cash basis.
Increased same property net operating income by 2.1%
on a GAAP basis and 4.7% on a cash basis.
Environmental Matters Our 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.
We typically manage this potential
liability through
performance of Phase I Environmental Site Assessments and,
as necessary, Phase II environmental sampling, on properties
we acquire or develop. Even with these assessments and
testings, 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 us. In
certain situations, we have also sought to avail ourselves 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. We are not
aware of any environmental liability that we believe would
have a material adverse effect on our 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 we are not aware of
any such situation, we may have such liabilities on properties
previously sold. We believe that we and our properties are in
compliance in all material respects with applicable federal,
state, and local laws, ordinances, and regulations governing
the environment. For additional information, see Item 1A.
Risk Factors - “Environmental issues.”
Competition We compete with other real estate owners
with similar properties located in our markets and distinguish
ourselves to tenants/buyers primarily on the basis of location,
rental rates/sales prices, services provided, reputation, and
the design and condition of the facilities. We also compete
with other real estate companies, financial institutions,
pension funds, partnerships, individual investors, and others
when attempting to acquire and develop properties.
Executive Offices; Employees Our executive offices are
located at 3344 Peachtree Road NE, Suite 1800, Atlanta,
Georgia 30326-4802. On December 31, 2018, we employed
257 people.
Available Information We make available free of
charge on the “Investor Relations” page of our website,
www.cousins.com, our 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”).
Our Corporate Governance Guidelines, Director
Independence Standards, Code of Business Conduct and
Ethics, and the Charters of the Audit Committee, and the
Compensation, Succession, Nominating and Governance
Committee of the Board of Directors are also available
on the “Investor Relations” page of our website. The
information contained on our website is not incorporated
herein by reference. Copies of these documents (without
exhibits, when applicable) are also available free of charge
upon request to us at 3344 Peachtree Road NE, Suite 1800,
Atlanta, Georgia 30326-4802, Attention: Investor Relations
or by telephone at (404) 407-1104 or by facsimile at (404)
407-1105. In addition, the SEC maintains a website that
contains reports, proxy and information statements, and
other information regarding issuers, including us, that file
electronically with the SEC at www.sec.gov.
2
COUSINS PROPERTIES INCORPORATED 2018 ANNUAL REPORT I T E M 1 A .
R I S K F A C T O R S
Set forth below are the risks we believe investors should
consider carefully in evaluating an investment in the securities
of Cousins Properties Incorporated.
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.
G E N E R A L R I S K S O F OW N I N G A N D O P E R AT I N G
R E A L E S TAT E
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 a general economic
decline or recessionary climate, our commercial real estate
assets may not generate sufficient cash to pay expenses,
service debt, or cover maintenance costs, and, as a result,
our results of operations and cash flows may be adversely
affected. Factors that may adversely affect the economic
performance and value of our properties include, among
other things:
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changes
economic climate;
in
the national,
regional, and
local
local real estate conditions such as an oversupply of
rentable space caused by increased development of
new properties or a reduction in demand for rentable
space caused by a change in the wants and needs
of our tenants or economic conditions making our
locations undesirable;
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 including, but not limited to, free
rent, and tenant improvement allowances;
uninsured losses as a result of casualty events;
the need to periodically repair, renovate, and re-lease
properties; and
changes in federal and state income tax laws as they
affect real estate companies and real estate investors.
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 downsize and/or to declare bankruptcy; and, pursuant to
various bankruptcy laws, leases may be rejected and thereby
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 rates, financing availability,
law changes, 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. If we decide
to sell a real estate asset rather than holding it for long term
investment or if we reduce our estimates of future cash flows
on a real estate asset, the risk of impairment increases. The
magnitude and frequency with which these charges occur
could materially and adversely affect our business, financial
condition, and results of operations.
Leasing risk. Our properties were 94.9%
leased at
December 31, 2018. Our operating revenues are dependent
upon entering into leases with, and collecting rents from,
our tenants. Tenants whose leases are expiring may want
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, 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.
3
2018 ANNUAL REPORT COUSINS PROPERTIES INCORPORATED Tenant and property concentration risk. As of December 31,
2018, our top 20 tenants represented 36% of our annualized
base rental revenues with no single tenant accounting for
more than 8% of our annualized base rental revenues. The
inability of any of our significant tenants to pay rent or a
decision by a significant tenant to vacate their premises
prior to, or at the conclusion of, their lease term 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 manner. These events could have a
significant adverse impact on our results of operations or
financial condition.
For the three months ended December 31, 2018, 41.5% of
our net operating income for properties owned was derived
from the metropolitan Atlanta area, 18.5% was derived
from the metropolitan Charlotte area, and 18.1% was
derived from the metropolitan Austin area. Any adverse
economic conditions impacting Atlanta, Charlotte, or Austin
could adversely affect our overall results of operations and
financial condition.
losses and condemnation costs. Accidents,
Uninsured
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, or our joint venture partners
where applicable, 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, and insurers
may not pay a claim as required under a policy. 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. We hold ownership interests in
a number of joint ventures with varying structures 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 may 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, financing, or disposition
of the underlying properties.
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COUSINS PROPERTIES INCORPORATED 2018 ANNUAL REPORT Liquidity risk. Real estate investments are relatively illiquid
and can be difficult to sell and convert to cash quickly. 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,
or we may be required to record an impairment loss on the
property as a result.
Compliance or failure to comply with the Americans with
Disabilities Act or other federal, state, and local regulatory
requirements could result in substantial costs.
The Americans with Disabilities Act generally requires
that certain buildings, including office buildings, be made
accessible to disabled persons. Noncompliance could result
in the imposition of fines by the federal government or the
award of damages to private litigants. If, under the Americans
with Disabilities Act, we are required to make substantial
alterations and capital expenditures in one or more of our
properties, including the removal of access barriers, it could
adversely impact our earnings and cash flows, thereby
impacting our ability to service debt and make distributions
to our stockholders.
Our properties are subject to various federal, state and
local regulatory requirements, such as state and local fire,
health, and life safety requirements. 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 future requirements
will require significant unanticipated expenditures that will
affect our cash flow and results of operations.
F I N A N C I N G R I S K S
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 generally finance our acquisition and development
projects through one or more of the following: our
Credit Facility, unsecured debt, non-recourse mortgages,
construction loans, the sale of assets, joint venture equity, the
issuance of common stock, issuance of preferred stock, and
the issuance of units of CPLP. 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:
– Credit Facility. Terms and conditions available in the
marketplace for unsecured 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 unsecured debt outstanding, restrictions
on secured recourse debt outstanding, and requirements
to maintain a minimum fixed charge coverage ratio. Our
continued ability to borrow under our Credit Facility is
subject to compliance with these covenants.
– Unsecured Debt. Terms and conditions available in the
marketplace for unsecured debt vary over time. The
availability of unsecured debt may vary based on the
capital markets and capital market activity. Unsecured
debt generally contains restrictive covenants that may
place limitations on our ability to conduct our business
similar to those placed upon us by our Credit Facility.
– Non-recourse mortgages. The availability of non-
is dependent upon various
recourse mortgages
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. If a property is mortgaged to secure payment of
indebtedness and we are unable to make the mortgage
payments, the lender may foreclose. Further, at the time
a mortgage matures, the property may be worth less than
the mortgage amount and, as a result, we may determine
not to refinance the mortgage and permit foreclosure,
potentially generating defaults on other debt.
– Asset 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 can limit our ability to sell properties,
which may affect our ability to liquidate an investment.
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2018 ANNUAL REPORT COUSINS PROPERTIES INCORPORATED As a result, our ability to raise capital through asset
sales could be limited. In addition, mortgage financing
on an asset may prohibit prepayment and/or impose
a prepayment penalty upon the sale of that property,
which may decrease the proceeds from a sale or make
the sale impractical.
– Construction loans. Construction loans generally relate
to specific assets under construction and fund costs
above an initial equity amount deemed acceptable
by the lender. Terms and conditions of construction
loans 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 funding. Construction loans can require a portion of
the loan to be recourse to us. In addition, construction
loans generally require a completion guarantee by the
borrower and may require a limited payment guarantee
from the Company which may be disproportionate to
any guaranty required from a joint venture partner.
There may be times when construction loans 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.
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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 and at
favorable terms.
– Common stock. Common stock issuances may have a
dilutive effect on our earnings per share and funds from
operations per share. The actual amount of dilution,
if any, from any future offering of common stock will
be based on numerous factors, particularly the use of
proceeds and any return generated from these proceeds.
The per share trading price of our common stock could
decline as a result of sales of a large number of shares of
our common stock in the market in connection with an
offering, or as a result of the perception or expectation
that such sales could occur. We can also provide no
assurance that conditions will be favorable for future
issuances of common stock when we need capital.
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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
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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.
– Operating partnership units. The issuance of units
of CPLP in connection with property, portfolio, or
business acquisitions could be dilutive to our earnings
per share and could have an adverse effect on the per
share trading price of our common stock.
As a result of any additional indebtedness incurred to
consummate investment activities, we may experience a
potential material adverse effect on our financial condition
and results of operations.
As of December 31, 2018, we had $1.1 billion of outstanding
indebtedness. The incurrence of additional indebtedness
could have adverse consequences on our business, such as:
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requiring us to use a substantial portion of our cash
flow from operations to service our indebtedness, which
would reduce the available cash flow to fund working
capital, capital expenditures, development projects,
and other general corporate purposes and reduce cash
for distributions;
limiting our ability to obtain additional financing to
fund our working capital needs, acquisitions, capital
expenditures, or other debt service requirements or for
other purposes;
increasing our exposure to floating interest rates;
limiting our ability to compete with other companies
who have less leverage, as we may be less capable of
responding to adverse economic and industry conditions;
restricting us from making strategic acquisitions,
developing
on
business opportunities;
capitalizing
properties,
or
restricting the way in which we conduct our business due
to financial and operating covenants in the agreements
governing our existing and future indebtedness;
exposing us to potential events of default (if not
cured or waived) under covenants contained in our
debt instruments;
increasing our vulnerability to a downturn in general
economic conditions; and
limiting our ability to react to changing market
conditions in our industry.
COUSINS PROPERTIES INCORPORATED 2018 ANNUAL REPORT The impact of any of these potential adverse consequences
could have a material adverse effect on our results of
operations, financial condition, and liquidity.
in our Credit Facility, senior
Covenants contained
unsecured notes, term loans and mortgages could restrict
our operational flexibility, which could adversely affect our
results of operations.
loan
Our Credit Facility, senior unsecured notes, and our
unsecured term
impose financial and operating
restrictions on us. These restrictions may be modified from
time to time, but restrictions of this type include limitations
on our ability to incur debt, as well as limitations on the
amount of our secured debt, unsecured debt, and on the
amount of joint venture activity in which we may engage.
These covenants may limit our flexibility in making business
decisions. 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 provisions on the
Credit Facility, senior unsecured notes, and term loan may
affect business decisions on other debt.
Some of our mortgages contain customary negative
covenants, including limitations on our ability, without
the lender’s prior consent, to further mortgage that specific
property, to enter into new leases, to modify existing leases,
or to sell the 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
the market price of
our securities.
financing or affect
Total debt as a percentage of either total asset value or
total market capitalization and total debt as a multiple of
annualized EBITDA 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, increases 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
common stock.
R E A L E S TAT E ACQ U I S I T I O N A N D D E V E LO P M E N T
R I S K S
We face risks associated with operating property acquisitions.
Operating property acquisitions contain inherent risks.
These risks may include:
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difficulty in leasing vacant space or renewing existing
tenants with the acquired property;
costs
the
redeveloping acquisitions;
and
timing
of
repositioning
or
the acquisitions may fail to meet internal projections or
otherwise fail to perform as expected;
the acquisitions may be in markets that are unfamiliar
to us and could present unforeseen business challenges;
the timing of acquisitions may not match the timing of
dispositions, leading to periods of time where projects’
proceeds are not invested as profitably as we desire or
where we increase short-term borrowings until sales
proceeds become available;
the inability to obtain financing for acquisitions on
favorable terms or at all;
the inability to successfully integrate the operations,
maintain consistent standards, controls, policies and
procedures, or realize the anticipated benefits of
acquisitions within the anticipated time frames or at all;
the inability to effectively monitor and manage our
expanded portfolio of properties, retain key employees
or attract highly qualified new employees;
the possible decline in value of the acquired asset;
the diversion of our management’s attention away from
other business concerns; and
the exposure to any undisclosed or unknown issues,
expenses, or potential liabilities relating to acquisitions.
In addition, we may acquire properties subject to liabilities
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 might not
be fully covered by owner’s title insurance policies or other
insurance policies.
7
2018 ANNUAL REPORT COUSINS PROPERTIES INCORPORATED Any of these risks could cause a failure to realize the intended
benefits of our acquisitions and could have a material adverse
effect on our financial condition, results of operations, and
the market price of our common stock.
higher construction costs. Delays could also result in
a violation of terms of construction loans that could
increase fees, interest, or trigger additional recourse of a
construction loan to us.
We face risks associated with the development of real estate.
Development activities contain certain
inherent risks.
Although we seek to minimize risks from development
through various management controls and procedures,
development risks cannot be eliminated. Some of the key
factors affecting development of property are as follows:
– Abandoned predevelopment costs. The development
process inherently requires that a large number of
opportunities be pursued with only a few actually
being developed. 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, we
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 abandoned projects on an ongoing basis.
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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 many factors, including the cost
of labor and 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.
– Construction delays. Real estate development carries the
risk that a project could be delayed due to a number
of issues that may arise including, but not limited to,
weather and other forces of nature, availability of
materials, availability of skilled labor, and the financial
health of general contractors or sub-contractors.
Construction delays could cause adverse financial
impacts to us which could include higher interest and
other carrying costs than originally budgeted, monetary
penalties from tenants pursuant to their leases, and
– 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 generally
achieve certain pre-leasing goals (which vary by market,
product type, and circumstances) before committing to
a project, it is expected that sometimes 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 prospective tenants’ industries;
supply and demand conditions for space in the
marketplace; and
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level of competition in the marketplace.
– Reputation risks. We have historically developed and
managed a significant portion of 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 developed under-performing
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.
Damage to our reputation could make it more difficult
to successfully develop 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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COUSINS PROPERTIES INCORPORATED 2018 ANNUAL REPORT – Competition. We compete for tenants in our Sunbelt
markets by highlighting our locations, rental rates,
services, reputation, and the design and condition of
our facilities. As the competition for tenants is intense,
we may be required to provide rent abatements, incur
charges for tenant improvements and other concessions,
or we may not be able to lease vacant space in a
timely manner.
G E N E R A L B U S I N E S S R I S K S
Due to recent changes, our executive management team
has limited experience working together in their new roles
and may not be able to manage our business effectively and
execute our strategy.
Recently, we have experienced a number of changes in our
executive team, including in our Chief Executive Officer
and our Executive Vice President, Operations positions.
Our success is dependent on the experience and skills of
our management team and our management team’s ability
to implement a successful strategy and to work effectively
together and with the Board of Directors. If our management
team is not successful, our ability to manage our business and
execute our business strategy would be adversely affected.
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
or organizations 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. We provide waivers
to this limitation on a case by case basis, which could result
in increased voting control by a shareholder. 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.
The market price of our common stock may fluctuate.
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;
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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;
– material
changes
in
any
significant
tenant
industry concentration;
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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;
uncertainties in world financial markets;
the realization of any of the other risk factors described
in this report; and
general market and economic conditions, in particular,
market and economic conditions of Atlanta, Charlotte,
Austin, Phoenix, and Tampa.
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.
If our future operating performance does not meet the
projections of our analysts or investors, our stock price
could decline.
Securities analysts publish quarterly and annual projections
of our financial performance. These projections are developed
independently 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, net income, and funds from
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2018 ANNUAL REPORT COUSINS PROPERTIES INCORPORATED operations 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.
We face risks associated with security breaches through
cyber attacks, cyber intrusions, or otherwise, as well as other
significant disruptions of our information technology (IT)
networks and related systems.
We face risks associated with security breaches or disruptions,
whether through cyber attacks or cyber intrusions over
the internet, malware, computer viruses, attachments to
emails, persons inside our organization, persons with access
to systems inside our organization, and other significant
disruptions of our IT networks and related systems. The risk
of a security breach or disruption, particularly through cyber
attacks or cyber intrusion, including by computer hackers,
foreign governments, and cyber terrorists, has generally
increased as the number, intensity, and sophistication of
attempted attacks and intrusions from around the world
have increased. Our IT networks and related systems are
essential to the operation of our business and our ability
to perform day-to-day operations (including managing our
building systems) and, in some cases, may be critical to the
operations of certain of our tenants. While, to date, we
have not had a significant cyber breach or attack that had
a material impact on our business or results of operations,
there can be no assurance that our efforts to maintain the
security and integrity of these types of IT networks and
related systems will be effective or that attempted security
breaches or disruptions would not be successful or damaging.
A security breach or other significant disruption involving
our IT networks and related systems could adversely impact
our financial condition, results of operations, cash flows,
liquidity, and the market price of our common stock. Further,
one or more of our tenants could experience a cyber incident
which could impact their operations and ability to perform
under the terms of their lease with us. While we maintain
insurance coverage that may, subject to policy terms and
conditions including deductibles, cover specific aspects of
cyber risks, such insurance coverage may be insufficient to
cover all losses. As cyber threats continue to evolve, we may
be required to expend additional resources to continue to
enhance our information security measures and to investigate
and remediate any information security vulnerabilities.
F E D E R A L I N CO M E TA X R I S K S
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 continue 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 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:
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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
10
COUSINS PROPERTIES INCORPORATED 2018 ANNUAL REPORT funds to meet the 90% distribution requirement, to avoid
corporate-level tax on undistributed taxable income, and to
avoid the nondeductible excise tax.
Certain property
prohibited transactions.
transfers may be characterized as
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 a
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 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.
We may face risks in connection with Section 1031 exchanges.
If a transaction’s gain that is intended to qualify as a Section
1031 deferral is later determined to be taxable, we may face
adverse consequences, and if the laws applicable to such
transactions are amended or repealed, we may not be able to
dispose of properties on a tax-deferred basis.
Recent changes to the U.S. tax laws could have an adverse
impact on our business operations, financial condition,
and earnings.
legislative,
judicial, and
In recent years, numerous
administrative changes have been made in the provisions of
federal and state income tax laws applicable to investments
similar to an investment in our shares. In particular,
in
the comprehensive tax reform
December 2017 and commonly known as the Tax Cuts and
Jobs Act, or TCJA, makes many significant changes to the
legislation enacted
U.S. federal income tax laws that will profoundly impact
the taxation of individuals and corporations (including both
regular C corporations and corporations that have elected
to be taxed as REITs). A number of changes that affect
noncorporate taxpayers will expire at the end of 2025 unless
Congress acts to extend them. These changes will impact
us and our shareholders in various ways, some of which
are adverse or potentially adverse compared to prior law.
Although the IRS has issued guidance with respect to certain
of the new provisions, there are numerous interpretive issues
that will require further guidance. It is highly likely that
technical corrections legislation will be needed to clarify
certain aspects of the new law and give proper effect to
Congressional intent. There can be no assurance, however,
that technical clarifications or changes needed to prevent
unintended or unforeseen tax consequences will be enacted
by Congress in the near future. Additional changes to tax
laws are likely to continue to occur in the future, and we
cannot assure investors that any such changes will not
adversely affect the taxation of our stockholders. Any such
changes could have an adverse effect on an investment in
shares or on the market value or the resale potential of our
properties. Investors are urged to consult with their own tax
advisor with respect to the impact of recent legislation on
ownership of shares and the status of legislative, regulatory,
or administrative developments and proposals, and their
potential effect on ownership of shares.
D I S C LO S U R E CO N T R O L S A N D I N T E R N A L
CO N T R O L OV E R F I N A N C I A L R E P O R T I N G R I S K S
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.
11
2018 ANNUAL REPORT COUSINS PROPERTIES INCORPORATED I T E M 1 B .
U N R E S O L V E D S T A F F C O M M E N T S
Not applicable.
I T E M 2 .
P R O P E R T I E S
The following table sets forth certain information related to operating properties in which we have an ownership interest.
Except as noted, all information presented is as of December 31, 2018:
Operating Properties
Rentable
Square Feet
Financial Statement
Presentation
Company’s
Ownership
Interest
End of
Period
Leased
Weighted
Average
Occupancy (1)
Company’s Share
% of
Total Net
Operating
Income (2)
Property
Level Debt
($000) (3)
Annualized
Rents (4)
OFFICE PROPERTIES
Spring & 8th (5)
Northpark (5)
Promenade
Buckhead Plaza (5)
Terminus (5)
3344 Peachtree
3350 Peachtree
8000 Avalon
3348 Peachtree
Emory University Hospital Midtown
Medical Office Tower
Meridian Mark Plaza
ATLANTA
Hearst Tower
Fifth Third Center
NASCAR Plaza
Gateway Village (5)
CHARLOTTE
One Eleven Congress
San Jacinto Center
Colorado Tower
816 Congress
Research Park V
AUSTIN
Hayden Ferry (5)
Tempe Gateway
111 West Rio
PHOENIX
12
765,000
1,539,000
777,000
671,000
Consolidated
Consolidated
Consolidated
Consolidated
1,226,000 Unconsolidated
Consolidated
Consolidated
Consolidated
Consolidated
484,000
413,000
229,000
258,000
358,000 Unconsolidated
160,000
Consolidated
6,880,000
966,000
692,000
394,000
Consolidated
Consolidated
Consolidated
1,061,000 Unconsolidated
3,113,000
519,000
395,000
373,000
435,000
173,000
1,895,000
Consolidated
Consolidated
Consolidated
Consolidated
Consolidated
789,000
264,000
225,000
1,278,000
Consolidated
Consolidated
Consolidated
100% 100.0%
100% 95.1%
100% 89.4%
100% 82.0%
50% 90.8%
100% 95.9%
100% 94.4%
90% 100.0%
100% 92.5%
50% 99.1%
100% 100.0%
93.4%
100% 98.5%
100% 99.8%
100% 95.3%
50% 99.4%
98.5%
100% 90.3%
100% 92.4%
100% 100.0%
100% 98.3%
100% 97.1%
95.1%
100% 94.9%
100% 96.8%
100% 100.0%
100.0%
86.6%
91.7%
85.2%
87.2%
91.7%
85.4%
79.9%
86.9%
—
8.8% $
7.9%
—
4.6% 99,015
4.5%
—
3.9% 99,366
—
3.7%
—
2.2%
—
1.9%
—
1.8%
98.2%
100.0%
1.2% 34,761
1.0% 23,483
89.3% 41.5% 256,625
—
7.8%
98.9%
5.7% 142,981
97.7%
—
2.9%
97.2%
99.4%
—
2.1%
98.4% 18.5% 142,981
—
4.9%
86.6%
4.5%
92.9%
—
4.0% 118,689
100.0%
3.5% 81,196
95.6%
—
1.2%
97.1%
93.6% 18.1% 199,885
91.1%
94.4%
100.0%
7.5%
2.4%
1.6%
—
—
—
—
96.2%
93.4% 11.5%
COUSINS PROPERTIES INCORPORATED 2018 ANNUAL REPORT Rentable
Square Feet
Financial Statement
Presentation
Company’s
Ownership
Interest
End of
Period
Leased
Weighted
Average
Occupancy (1)
Company’s Share
% of
Total Net
Operating
Income (2)
Property
Level Debt
($000) (3)
Annualized
Rents (4)
OFFICE PROPERTIES
Corporate Center (5)
1,224,000
Consolidated
100% 98.2%
The Pointe
Harborview Plaza
TAMPA
253,000
Consolidated
100% 97.1%
205,000
Consolidated
100% 64.1%
1,682,000
93.9%
Carolina Square Office (6)
158,000 Unconsolidated
50% 79.4%
CHAPEL HILL
158,000
TOTAL OFFICE PROPERTIES
15,006,000
79.4%
94.9%
Other Properties
Carolina Square Apartments
(246 Units) (6)
266,000 Unconsolidated
50% 100.0%
Carolina Square Retail (6)
44,000 Unconsolidated
50% 81.5%
TOTAL OTHER PROPERTIES
310,000
TOTAL PROPERTIES
15,316,000
97.4%
94.9%
94.5%
94.0%
61.9%
90.5%
73.8%
73.8%
7.4%
1.5%
0.2%
9.1%
—
—
—
—
0.5% 12,599
0.5% 12,599
92.1% 99.2% $612,090
$ 453,289
96.7%
68.9%
92.7%
0.7% 21,211
0.1%
3,509
0.8% $ 24,720
$
3,808
92.1% 100.0% $636,810
$ 457,097
(1) Weighted average occupancy represents an average of the square footage occupied during the year.
(2) The Company’s share of net operating income for the three months ended December 31, 2018.
(3) The Company’s share of property specific mortgage debt, net of unamortized loan costs, as of December 31, 2018.
(4) The Company’s share of annualized rent represents the sum of the annualized rent including tenant’s share of estimated operating
expenses, if applicable, 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 rent is calculated based on the annualized contractual rent the tenant will pay in the first period it is required to
pay rent. Included in this amount is $18.8 million of annualized base rent for tenants in a free rent period.
(5) Contains multiple buildings that are grouped together for reporting purposes.
(6) The Company’s share of Carolina Square debt has been allocated to office, retail, and apartments based on their relative square footages.
Office Lease Expirations (1)
As of December 31, 2018, our leases expire as follows:
Year of Expiration
2019
2020
2021
2022
2023
2024
2025
2026
2027
2028 & Thereafter
Total
Square Feet
Expiring % of Leased Space
Annual Contractual
Rents (in thousands) (2)
% of Annual
Contractual Rents
Annual Contractual
Rent/Sq. Ft.
713,100
850,082
1,313,734
1,385,003
1,180,130
1,023,805
1,434,011
1,301,548
728,584
2,861,633
5.6%
6.6%
10.3%
10.8%
9.2%
8.0%
11.2%
10.2%
5.7%
22.4%
$
23,166
34,662
49,359
54,089
48,703
41,742
60,270
47,875
30,822
132,334
4.5%
6.6%
9.4%
10.3%
9.3%
8.0%
11.5%
9.2%
5.9%
25.3%
12,791,630
100.0%
$ 523,022
100.0%
$ 32.49
40.77
37.57
39.05
41.27
40.77
42.03
36.78
42.30
46.24
$ 40.89
(1) Company’s share.
(2) Annual Contractual Rents are the estimated rents in the year of expiration. It includes the minimum base rent and an estimate of operating
expenses, if applicable, as defined in the respective leases.
13
2018 ANNUAL REPORT COUSINS PROPERTIES INCORPORATED Top 20 Office Tenants
As of December 31, 2018, our top 20 office tenants were as follows:
Tenant (1)
1 NCR Corporation
2 Bank of America
3 Wells Fargo Bank, N.A.
4 Parsley Energy, L.P.
5 ADP, LLC
6 Regus Equity Business Centers, LLC
7 Westrock Shared Services, LLC
8 McGuirewoods LLP
9 Blue Cross Blue Shield
10 NASCAR Media Group, LLC
11 OSI Restaurant Partners, LLC (dba
Outback Steakhouse)
12 Amazon
13 Board of Regents of the University
System of Georgia (dba Georgia State
University)
14 Hearst Communications, Inc.
15 Amgen Inc.
16 Smith, Gambrell & Russell, LLP
17 SVB Financial Group (dba Silicon Valley
Bank)
18 Atlassian, Inc.
19 K & L Gates LLP
20 Symantec Corporation
Total
Number of
Properties
Occupied
Number of
Markets
Occupied
Company’s
Share of
Square
Footage
Company’s
Share of
Annualized
Rent (2)
Percentage of
Company’s Share
of Annualized Rent
Weighted
Average
Remaining Lease
Term (Years)
1
4
5
1
1
7
1
3
1
1
1
3
1
1
1
1
1
1
1
1
1
2
4
1
1
4
1
3
1
1
1
2
1
1
1
1
1
1
1
1
762,090
$ 34,555,265
1,128,098
31,007,332
236,033
9,189,402
135,107
7,690,256
225,000
7,194,252
169,994
6,487,908
205,185
6,460,200
197,282
6,377,275
198,834
5,493,871
139,461
5,303,881
167,723
5,224,833
120,153
4,777,042
135,124
4,728,709
137,724
4,341,060
132,633
4,299,830
120,973
4,111,040
126,111
4,026,776
72,530
3,977,678
110,914
3,963,988
113,364
3,947,455
7.6%
6.8%
2.0%
1.7%
1.6%
1.4%
1.4%
1.4%
1.2%
1.2%
1.2%
1.1%
1.0%
1.0%
0.9%
0.9%
0.9%
0.9%
0.9%
0.9%
4,634,333
$163,158,053
36.0%
15
6
4
6
9
3
11
8
2
2
6
5
5
11
10
2
5
3
9
6
8
(1) In some cases, the actual tenant may be an affiliate of the entity shown.
(2) Annualized Rent represents the annualized rent including tenant’s share of estimated operating expenses, if applicable, paid by the tenant
as of the date of this report. If the tenant is in a free rent period as of the date of this report, Annualized Rent represents the annualized
contractual rent the tenant will pay in the first month it is required to pay rent.
Note:
This schedule includes tenants whose leases have commenced and/or who have taken occupancy. Leases that have been signed but
have not commenced are excluded.
14
COUSINS PROPERTIES INCORPORATED 2018 ANNUAL REPORT Tenant Industry Diversification (1)
As of December 31, 2018, our tenant industry diversification was as follows:
Industry
Financial
Technology
Professional Services
Legal
Consumer Goods & Services
Other
Health Care
Insurance
Marketing/Media/Creative
Real Estate
Energy
Construction/Design
Government
Non Profit
Total
(1) Management uses SIC codes when available along with judgment to determine tenant industry classification.
Percentage of Total Revenues
18.9%
17.4%
13.7%
13.2%
8.4%
6.5%
4.8%
4.6%
4.4%
2.5%
2.3%
1.8%
1.2%
0.3%
100%
Development Pipeline (1)
As of December 31, 2018, we had the following projects under development ($ in thousands):
Project
Type
Market
Company’s
Ownership
Interest
Actual or
Projected
Start Date
Number of
Square Feet
/Apartment
Units
Estimated
Project
Cost (1) (2)
Company’s
Share of
Estimated
Project
Cost (2)
Project Cost
Incurred to
Date (2)
Dimensional Place (5) Office Charlotte
Atlanta
120 West Trinity
Mixed
50% 4Q16
20% 1Q17
282,000 $ 92,000 $ 46,000 $ 91,625
36,670
17,000
85,000
Company’s
Share of
Project Cost
Incurred to
Date (2)
$45,812
7,334
Office
Retail
Apartments
300 Colorado (6)
10000 Avalon
Total
Office
Office
Austin
Atlanta
50% 4Q18
90% 3Q18
33,000
19,000
330
358,000
251,000
193,000
96,000
96,500
86,400
49,470
23,497
24,735
21,148
$466,000 $245,900 $201,262
$99,029
Initial
Occupancy (3) /
Estimated
Stabilization (4)
Percent
Leased
94% 1Q19/1Q19
—% 1Q20/3Q20
—% 1Q20/3Q20
—% 4Q19/2Q20
87% 1Q21/1Q22
40% 1Q20/1Q21
(1) This schedule shows projects currently under active development through the substantial completion of construction. Amounts included
in the estimated project cost column are 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.
(2) Estimated and incurred project costs include financing costs only on project-specific debt and excludes certain allocated capitalized costs
required by GAAP that are not incurred in a joint venture.
(3) Represents the quarter which the Company estimates the first tenant will take occupancy.
(4) Stabilization is the earlier of the quarter within which the Company estimates it will achieve 90% economic occupancy or one year from
initial occupancy.
15
2018 ANNUAL REPORT COUSINS PROPERTIES INCORPORATED (5) Dimensional Place is comprised of 266,000 square feet of office space and 16,000 square feet of retail space. The office component
is 100% leased, and the retail component is not yet leased. The Company’s share of project cost is capped under the joint venture
documents at $46 million. Any additional cost will be borne by the joint venture partner, as lessee, and will not change the economics of
the joint venture.
(6) 300 Colorado is comprised of 348,000 square feet of office space and 10,000 square feet of retail space. The office component is 86%
leased, and the retail component is 100% leased.
Land Holdings
As of December 31, 2018, we owned the following land holdings, either directly or indirectly, through joint ventures:
3rd and West Peachtree (1)
901 West Peachtree (2)
North Point
The Avenue Forsyth-Adjacent Land
Wildwood Office Park
Victory Center
Corporate Center
100 Mill
Padre Island
TOTAL
COMPANY’S SHARE
Market
Type
Atlanta Commercial
Atlanta Commercial
Atlanta Commercial
Atlanta Commercial
Atlanta Commercial
Dallas Commercial
Tampa Commercial
Tempe Commercial
Corpus Christi Residential
Company’s
Ownership
Interest
Total
Developable
Land (Acres)
Cost Basis of
Land ($ in
thousands)
100%
100%
100%
100%
50%
75%
100%
90%
50%
3.4
0.8
9.2
10.4
14.0
3.0
7.0
2.5
15.0
65.3
$105,807
49.7
$ 85,663
(1) In November 2018, the Company purchased a 3.15 acre land parcel at 3rd and West Peachtree St. in Midtown Atlanta. In January 2019,
the Company added to the assemblage with the purchase of an adjacent .25 acre land parcel not included in the above total.
(2) Includes two ground leases with future obligations to purchase.
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.
16
COUSINS PROPERTIES INCORPORATED 2018 ANNUAL REPORT I T E M 3 .
L E G A L P R O C E E D I N G S
We are 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. We record 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, we accrue the best estimate within the range.
If no amount within the range is a better estimate than any other amount, we accrue the minimum amount within the range. If
an unfavorable outcome is probable but the amount of the loss cannot be reasonably estimated, we disclose the nature of the
litigation and indicate 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, we disclose the nature and estimate of the possible loss of the litigation. We do
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 our liquidity, results of operations, business, or financial condition.
I T E M 4 .
M I N E S A F E T Y D I S C L O S U R E S
Not applicable.
I T E M X .
E X E C U T I V E O F F I C E R S O F T H E R E G I S T R A N T
The Executive Officers of the Registrant as of the date hereof are as follow:
Name
Age
Office Held
Lawrence L. Gellerstedt III
M. Colin Connolly
Gregg D. Adzema
Richard G. Hickson IV
John S. McColl
Pamela F. Roper
John D. Harris, Jr.
62
42
53
44
56
45
59
Executive Chairman of the Board
President, Chief Executive Officer, and Director
Executive Vice President, Chief Financial Officer
Executive Vice President, Operations
Executive Vice President
Executive Vice President, General Counsel and Corporate Secretary
Senior Vice President, Chief Accounting Officer, Treasurer and Assistant Secretary
17
2018 ANNUAL REPORT COUSINS PROPERTIES INCORPORATED
Family Relationships There are no family relationships
among the Executive Officers or Directors.
Mr. Adzema was appointed Executive Vice President and
Chief Financial Officer in November 2010.
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
Executive Chairman of the Board effective January 2019.
Prior to this appointment, Mr. Gellerstedt served as
Chairman of the Board and Chief Executive Officer since
July 2017. From July 2009 to July 2017, Mr. Gellerstedt
served as President, Chief Executive Officer, and Director.
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.
Mr. Connolly was appointed Chief Executive Officer and
President by the Company’s Board of Directors effective
January 2019. Prior to this appointment, Mr. Connolly
served as President and Chief Operating Officer since
July 2017. From July 2016 to July 2017, Mr. Connolly
served as Executive Vice President and Chief Operating
Officer. From December 2015 to July 2016, Mr. Connolly
served as Executive Vice President and Chief Investment
Officer. From May 2013 to December 2015, Mr. Connolly
served as Senior Vice President and Chief Investment Officer.
Mr. Hickson was appointed Executive Vice President of
Operations in October 2018. Mr. Hickson joined Cousins
in September 2016 as Senior Vice President responsible
for Asset Management. Prior to joining the Company,
from May 2012 to September 2016, Mr. Hickson was
self-employed in private investment.
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.
Ms. Roper was appointed Executive Vice President, General
Counsel and Corporate Secretary in February 2017. From
October 2012 to February 2017, Ms. Roper served as Senior
Vice President, General Counsel and Corporate Secretary.
From February 2008 to October 2012, Ms. Roper served
as Senior Vice President, Associate General Counsel and
Assistant Secretary.
Mr. Harris was appointed Senior Vice President
and Chief Accounting Officer
in February 2005. In
May 2005, Mr. Harris was appointed Assistant Secretary. In
December 2014, Mr. Harris was appointed Treasurer.
18
COUSINS PROPERTIES INCORPORATED 2018 ANNUAL REPORT P A R T I I
I T E M 5 .
M A R K E T F O R R E G I S T R A N T ’ S C O M M O N S T O C K A N D
R E L A T E D S T O C K H O L D E R M A T T E R S
M A R K E T I N FO R M AT I O N A N D H O L D E R S
Our common stock trades on the New York Stock Exchange (ticker symbol CUZ). On January 31, 2019, there were
1,787 stockholders of record of our common stock.
P U R C H A S E S O F E Q U I T Y S E C U R I T I E S
There were no purchases of common stock by the Company during the fourth quarter of 2018.
P E R FO R M A N C E G R A P H
The following graph compares the five-year cumulative total return of our 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, 2013 and the reinvestment of all dividends.
TOTA L R E T U R N P E R FO R M A N C E
e
u
l
a
V
x
e
d
n
I
160
150
140
130
120
110
100
90
12/31/13
12/31/14
12/31/15
12/30/16
12/30/17
12/31/18
Cousins Properties Incorporated
FTSE NAREIT Equity Index
NYSE Composite Index
SNL US REIT Office Index
CO M PA R I S O N O F C U M U L AT I V E TOTA L R E T U R N O F O N E O R M O R E CO M PA N I E S , P E E R
G R O U P S , I N D U S T RY I N D I C E S A N D/O R B R OA D M A R K E T S
Index
Cousins Properties Incorporated
NYSE Composite Index
FTSE NAREIT Equity Index
SNL US REIT Office Index
Fiscal Year Ended
12/31/2013 12/31/2014 12/31/2015 12/31/2016 12/31/2017 12/31/2018
100.00
100.00
100.00
100.00
113.80
106.75
130.14
126.06
97.01
102.38
134.30
127.17
124.56
114.61
145.74
141.91
140.11
136.07
153.36
145.74
122.30
123.89
146.27
119.86
19
2018 ANNUAL REPORT COUSINS PROPERTIES INCORPORATED
I T E M 6 .
S E L E C T E D F I N A N C I A L D A T A
The following selected financial data sets forth consolidated financial and operating information on a historical basis. This data
has been derived from our consolidated financial statements and should be read in conjunction with the consolidated financial
statements and notes thereto.
Revenues:
Rental property revenues
Fee income
Other
Expenses:
Rental property operating expenses
Reimbursed expenses
General and administrative expenses
Interest expense
Depreciation and amortization
Acquisition and merger costs
Other
Gain (loss) on extinguishment of debt
Income (loss) from continuing operations before benefit for
income taxes, income from unconsolidated joint ventures, and
gain on sale of investment properties
Benefit for income taxes from operations
Income from unconsolidated joint ventures
Income (loss) from continuing operations before gain on sale of
investment properties
Gain on sale of investment properties
Income from continuing operations
Income from discontinued operations:
Income from discontinued operations
Gain (loss) on sale from discontinued operations
Income from discontinued operations
Net income
Net income attributable to noncontrolling interests
Net income attributable to controlling interests
Preferred share original issuance costs
Dividends to preferred stockholders
Net income available to common stockholders
Net income from continuing operations attributable to controlling
interest per common share - basic and diluted
Net income 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)
20
For the Years Ended December 31,
2018
2017
2016
2015
2014
(in thousands, except per share amounts)
$ 461,853
10,089
3,270
475,212
$ 446,035
8,632
11,518
466,185
$ 249,814
8,347
1,050
259,211
$ 196,244
7,297
828
204,369
$ 164,123
12,519
919
177,561
164,678
3,782
22,040
39,430
181,382
248
556
412,116
8
63,104
—
12,224
75,328
5,437
80,765
—
—
—
80,765
(1,601)
79,164
—
—
79,164
$
163,882
3,527
27,523
33,524
196,745
1,661
1,796
428,658
2,258
39,785
—
47,115
86,900
133,059
219,959
—
—
—
219,959
(3,684)
216,275
—
—
$ 216,275
$
96,908
3,259
25,592
26,650
97,948
24,521
5,888
280,766
(5,180)
(26,735)
—
10,562
(16,173)
77,114
60,941
19,163
—
19,163
80,104
(995)
79,109
—
—
79,109
0.19
$
0.19
$
$
0.26
$ 4,146,296
$ 1,062,570
$ 2,765,865
420,385
0.52
$
0.52
$
$
0.30
$ 4,204,619
$ 1,093,228
$ 2,771,973
420,021
0.24
$
0.31
$
$
0.24
$ 4,171,607
$ 1,380,920
$ 2,455,557
393,418
82,545
3,430
16,918
22,735
71,625
299
1,181
198,733
—
5,636
—
8,302
13,938
80,394
94,332
31,848
(551)
31,297
125,629
(111)
125,518
—
—
$ 125,518
0.44
$
0.58
$
$
0.32
$ 2,595,320
$ 718,810
$ 1,683,415
211,513
76,963
3,652
19,784
20,983
62,258
1,130
3,729
188,499
—
(10,938)
20
11,268
350
12,536
12,886
20,764
19,358
40,122
53,008
(1,004)
52,004
(3,530)
(2,955)
45,519
$
0.02
$
0.22
$
$
0.30
$ 2,664,295
$ 789,309
$ 1,673,458
216,513
COUSINS PROPERTIES INCORPORATED 2018 ANNUAL REPORT I T E M 7 .
M A N A G E M E N T ’ S D I S C U S S I O N A N D A N A L Y S I S
O F F I N A N C I A L C O N D I T I O N A N D R E S U L T S
O F O P E R A T I O N S
The following discussion and analysis should be read
in conjunction with the selected financial data and the
consolidated financial statements and notes.
Overview of 2018 Performance and Company and
Industry Trends
Our strategy is to create value for our stockholders through
ownership of the premier urban office portfolio in the
Sunbelt markets of the United States, with a particular focus
on Georgia, Texas, North Carolina, Florida, and Arizona.
This strategy is based on a disciplined approach to capital
allocation including value-add acquisition of assets, selective
development projects, and timely disposition of non-core
assets. This strategy is also based on a simple, flexible and low-
leveraged balance sheet that allows us to pursue acquisitions
and development opportunities at the most advantageous
points in the cycle. To implement this strategy, we leverage our
strong local operating platforms within each of our markets.
2 01 8 AC T I V I T Y
During 2018, we continued to execute our development
strategy, improve our balance sheet, and increase the overall
occupancy of our portfolio with a strong leasing year. During
the year, we commenced two new development projects
and completed Spring & 8th, the 765,000 square foot
two-phase development of NCR’s headquarters in Atlanta.
At year-end, we had four development projects in process;
our share of the total expected costs of these projects totaled
$245.9 million. In addition, we acquired interests in three
tracts of land bringing our land holdings to the point that we
could build an additional 1.4 million square feet of new Class
A office space within our markets. We also improved our
balance sheet by extending and expanding our credit facility
to $1 billion, with an overall improvement in our spreads
over the London Interbank Offered Rate (“LIBOR”) as well
as more favorable financial covenants. At year-end, we had
cash balances (including restricted cash) of $2.7 million, no
amounts outstanding under our Credit Facility, and total
consolidated debt of $1.1 billion, consistent with that of the
prior year.
In 2018, we leased or renewed 1.6 million square feet of office
space. The weighted average net effective rent per square foot,
representing base rent less operating expense reimbursements
and leasing costs, for new or renewed non-amenity leases
with terms greater than one year was $23.35 per square foot.
Cash basis net effective rent per square foot increased 13.2%
on spaces that had been previously occupied in the past year.
Cash basis net effective rent represents net rent at the end of
the term paid by the prior tenant compared to the net rent
at the beginning of the term paid by the current tenant. Our
same property net operating income for the year increased by
2.1% on a GAAP basis and 4.7% on a cash basis. The same
property percentage leased increased slightly from 94.1% at
year-end 2017 to 94.5% at year-end 2018.
M A R K E T CO N D I T I O N S
We believe that the Sunbelt region, and in particular the five
Sunbelt markets in which we operate, possess some of the
most attractive economic and real estate fundamentals in the
nation. Our markets are located in states that lead the nation
in net migration as residents relocate from the Northeast,
Midwest, and West Coast to our markets. This migration,
when combined with historically low levels of new supply,
has led to steady office absorption and positive rent growth,
supporting healthy office fundamentals. We believe that
we are well positioned to benefit from, and ultimately
outperform in, the current real estate environment.
Our Atlanta portfolio totals 6.9 million square feet,
representing 41.5% of our Net Operating Income for the
fourth quarter of 2018 and was 93.4% leased at December 31,
2018. In addition, we had two projects under development
in Atlanta at December 31, 2018, one office property and
one mixed use property, in which we hold 90% and 20%
interests, respectively. Job growth in Atlanta for the year
ended December 31, 2018 was 2.3%, above the national
average, and construction as a percentage of the total market
square footage was 1.6% at year end. Our portfolio is well
located primarily in the Midtown, Buckhead, and Central
Perimeter submarkets with direct access to mass transit.
Our Charlotte portfolio totals 3.1 million square feet,
representing 18.5% of our Net Operating Income for the
fourth quarter of 2018 and was 98.5% leased at December 31,
2018. In addition, we have one project under development
in the South End of Charolotte totaling 282,000 square feet
that is 94% leased to a single office customer and is owned
21
2018 ANNUAL REPORT COUSINS PROPERTIES INCORPORATED
in a 50-50 joint venture. Job growth in Charlotte for the
year ended December 31, 2018 was 2.3% and construction
as a percentage of the total market square footage was
3.8%. Our portfolio is located in the Uptown submarket
where rent growth has significantly surpassed the national
average. The overall market has benefitted from Charlotte’s
strong population growth, which has increased at three
times the national rate over the past decade. Strong demand
and favorable economics have spurred a high level of new
development across the market, specifically in Uptown
where approximately 2 million square feet is currently
under construction.
Our Austin portfolio totals 1.9 million square feet, representing
18.1% of our Net Operating Income for the fourth quarter
of 2018 and was 95.1% leased at December 31, 2018. In
addition, we have one project under development in Austin,
owned in a 50-50 joint venture, totaling 358,000 square feet
that is 87% leased to a single office customer. Job growth
in Austin for the year ended December 31, 2018 was 3.0%
and construction as a percentage of the total market square
footage was 3.8%. Our portfolio is predominantly in the
central business district where vacancy is 5.1% and new
construction represents approximately 5% of inventory.
We believe that our dominant presence in the downtown
Austin submarket combined with strong
job growth
and low unemployment in Austin are favorable for our
existing portfolio.
Our Phoenix portfolio totals 1.3 million square feet,
representing 11.5% of our Net Operating Income for
the fourth quarter of 2018 and was 96.2% leased at
December 31, 2018. Job growth in Phoenix for the year
ended December 31, 2018 was 3.8% and construction as
a percentage of the total market square footage was 1.7%.
Phoenix has experienced population growth at more than
twice the national average, more than two-thirds of which
was from new residents from outside the metropolitan
area. Our portfolio is located in the Tempe submarkets, in
close proximity to Arizona State University and its 80,000
students, where vacancy is relatively low at 7.1%, but
construction as a percentage of inventory is the highest in
the metro area.
Our Tampa portfolio totals 1.7 million square feet,
representing 9.1% of Net Operating Income for the fourth
quarter of 2018 and was 93.9% leased at December 31, 2018.
Job growth in Tampa for the year ended December 31, 2018
was 2.2%, and construction as a percentage of the total
market square footage was 0.9%. Metro-wide, the Tampa
office market is experiencing low vacancy rates, and the
Westshore submarket, where our portfolio is located,
continues to command some of the highest rents in the
metropolitan area, in part due to its central location and
proximity to the Tampa airport.
Critical Accounting Policies
Our financial statements are prepared in accordance with
GAAP as outlined in the Financial Accounting Standards
Board’s
(“FASB”) Accounting Standards Codification
(“ASC”), 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 our accounting policies are
considered to be critical accounting policies, which are ones
that are both important to the portrayal of our financial
condition, results of operations, and cash flows, and ones
that also require significant judgment or complex estimation
processes. Our critical accounting policies are as follows:
R E A L E S TAT E A S S E T S
Cost Capitalization. We are involved in all stages of
real estate ownership, including development. Prior to
the point at which a project becomes probable of being
developed (defined as more likely than not), we expense
predevelopment costs. After we determine a project is
probable, all subsequently incurred predevelopment costs,
as well as interest and real estate taxes on qualifying assets
and certain internal personnel and associated costs directly
related to the project under development, are capitalized
in accordance with accounting rules. If we abandon
development of a project that had earlier been deemed
probable, we charge all previously capitalized costs to
expense. If this occurs, our predevelopment expenses could
rise significantly. The determination of whether a project is
probable requires judgment. If we determine that a project
is probable, interest, general and administrative, and other
expenses could be materially different than if we determine
the project is not probable.
During the predevelopment period of a probable project and the
period in which a project is under construction, we capitalize 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 us,
in some cases, to exercise judgment. If we determine 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 operations could be materially different
than if we determine these costs are not directly or indirectly
associated with the project.
22
COUSINS PROPERTIES INCORPORATED 2018 ANNUAL REPORT Once a certain project is constructed and deemed substantially
complete and ready for occupancy, carrying costs, such
as real estate taxes, interest, internal personnel costs, and
associated costs, are expensed as incurred. Determination of
when construction of a project is substantially complete and
held available for occupancy requires judgment. We consider
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 its initial occupancy. Our judgment
of the date the project is substantially complete has a direct
impact on our operating expenses and net income for
the period.
Real Estate Property Acquisitions. Upon acquisition
of an operating property, we record 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 leases.
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 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. An identifiable intangible asset
or liability is recorded if there is an above-market or below-
market lease at an acquired property.
The fair value of acquired in-place leases is derived based
on our 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 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 amounts recorded for in-place leases are included in
intangible assets on the balance sheets. These amounts are
amortized as an increase to depreciation and amortization
expense over the remaining term of the applicable leases.
significant
acquisitions
The determination of the fair value of the acquired tangible
and intangible assets and assumed liabilities of operating
judgment
requires
property
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 values 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.
Depreciation and Amortization. We depreciate or
amortize operating real estate assets over their estimated
useful lives using the straight-line method of depreciation.
We use judgment when estimating the useful life of real estate
assets and when allocating certain indirect project costs
to projects under development, which are amortized over
the useful life of the property once it becomes operational.
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 our real estate assets.
23
2018 ANNUAL REPORT COUSINS PROPERTIES INCORPORATED Impairment. We review our real estate assets on a property-
by-property basis for impairment. This review includes our
operating properties, properties under development, and
land holdings.
The first step in this process is for us 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, we 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 we determine that an
asset is held for sale, we 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, we 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 in 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. For projects
under development, indicators could include material budget
overruns without a corresponding funding source, significant
delays in construction, occupancy, or stabilization schedule,
regulatory changes or economic trends that have a significant
impact on the market, or an adverse change in the financial
condition of a significant tenant.
If we determine that an asset that is held and used has
indicators of impairment, we 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, we must
reduce the carrying amount of the asset to fair value.
In calculating the undiscounted net cash flows of an
asset, we must estimate a number of inputs. For operating
properties, we 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, we must estimate future sales prices
as well as operating income, carrying costs, and residual
capitalization rates for land held for future development.
For projects under development, we must estimate the cost
to complete construction, time period of lease-up, future
rental rates, expenditures for future leases, future operating
expenses, market capitalization rates for residual values,
and future sales price, among other things. In addition, if
there are alternative strategies for the future use of the
asset, we must assess the probability of each alternative
strategy and perform a probability-weighted undiscounted
cash flow analysis to assess the recoverability of the asset.
We 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, we exercise judgment
on a number of factors. We may determine fair value by using
a discounted cash flow calculation or by utilizing comparable
market information. We must determine an appropriate
discount rate to apply to the cash flows in the discounted
cash flow calculation. We 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
we determine that an asset is held and used, the results of
operations could be materially different than if we determine
that an asset is held for sale. Different assumptions we use 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. Our
assumptions about the discount rate used in a discounted cash
flow estimate of fair value and our judgment with respect to
market information could materially affect the decision to
record impairment losses or, if required, the amount of the
impairment losses.
I N V E S T M E N T I N J O I N T V E N T U R E S
We hold ownership interests in a number of joint ventures
with varying structures. We evaluate all of our 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 we determine that we are
the primary beneficiary, we consolidate the assets, liabilities,
and results of operations of the VIE. Quarterly, we reassess
our 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, we evaluate
whether or not we have control or significant influence over
24
COUSINS PROPERTIES INCORPORATED 2018 ANNUAL REPORT the joint venture to determine the appropriate consolidation
and presentation. Generally, entities under our control are
consolidated, and entities over which we can exert significant
influence, but do not control, are not consolidated and are
accounted for under the equity method of accounting.
We use judgment to determine whether an entity is a VIE,
whether we are the primary beneficiary of the VIE, and
whether we exercise control over the entity. If we determine
that an entity is a VIE and we are the primary beneficiary
or if we conclude that we exercise control over the entity,
the balance sheets and statements of operations would be
significantly different than if we concluded otherwise. In
addition, VIEs require different disclosures in the notes to the
financial statements than entities that are not VIEs. We may
also change our conclusions and, thereby, change our 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.
We perform an impairment analysis of the recoverability of
our investments in joint ventures on a quarterly basis. As
part of this analysis, we first determine whether there are
any indicators of impairment at any property held in a joint
venture investment. If indicators of impairment are present
for any of our investments in joint ventures, we calculate
the fair value of the investment. If the fair value of the
investment is less than the carrying value of the investment,
we must determine whether the impairment is temporary or
other than temporary, as outlined in GAAP. If we assesses
the impairment to be temporary, we do not record an
impairment charge. If we conclude that the impairment is
other than temporary, we record an impairment charge.
We use 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. We also use judgment in making the determination
as to whether the impairment is temporary or other than
temporary by considering, among other things, 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. Our 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 our financial condition, results of
operations, and cash flows.
S TO C K- B A S E D CO M P E N S AT I O N
We have several types of stock-based compensation plans.
These plans are described in note 13, as are the accounting
policies by type of award. Compensation cost for all stock-
based awards requires measurement at estimated fair value
on the grant date, and compensation cost is recognized over
the service vesting period, which represents the requisite
service period. For compensation plans that contain market
performance measures, we must estimate the fair value of the
awards on a quarterly basis and must adjust compensation
expense accordingly. The fair values of these awards are
estimated using complex pricing valuation models that
require a number of estimates and assumptions. For awards
that are based on our future earnings, we must estimate
future earnings and adjust the estimated fair value of the
awards accordingly.
We use considerable judgments in determining the fair value
of these awards. Compensation expense associated with these
awards could vary significantly based upon these estimates.
D I S C U S S I O N O F N E W ACCO U N T I N G
P R O N O U N C E M E N T S
In February 2016, the FASB issued ASU 2016-02, “Leases,”
(“ASC 842”), which amends the existing standards for lease
accounting by requiring lessees to record most leases on
their balance sheets and making targeted changes to lessor
accounting and reporting. The new standard will require
lessees to record a right-of-use asset and a lease liability for
all leases with a term of greater than 12 months and classify
such leases as either finance or operating leases based on
the principle of whether the lease is effectively a financed
purchase of the leased asset by the lessee. This classification
will determine whether the lease expense is recognized based
on an effective interest method (finance leases) or on a
straight-line basis over the term of the lease (operating leases).
Leases with a term of 12 months or less will be accounted
for similarly to existing guidance for operating leases. The
new standard requires lessors to account for leases using an
approach that is substantially equivalent to existing guidance.
In July 2018, the FASB amended the new leasing standard,
providing lessors with a practical expedient to not separately
classify and disclose non-lease components of revenue from
the related lease components under certain conditions. The
new standard also revises the treatment of indirect leasing
costs and permits the capitalization and amortization only of
direct leasing costs. In 2018, we capitalized $3.8 million of
indirect leasing costs.
Because we expect substantially all of our leases with tenants
to qualify for the practical expedient, our accounting and
reporting for leases as lessor is not expected to change
materially. For those leases where we are lessee, specifically
25
2018 ANNUAL REPORT COUSINS PROPERTIES INCORPORATED ground leases, the adoption of ASC 842 will require us
to record a right of use asset and a lease liability on the
consolidated balance sheet. Ground leases executed before
the adoption of ASC 842 will continue to be accounted for as
operating leases and will not result in a materially different
ground lease expense. However, ground leases executed after
the adoption of ASC 842 are expected to be accounted for as
finance leases, which will result in ground lease expense being
recorded using the effective interest method instead of the
straight-line method over the term of the lease, which would
result in higher ground lease expense in the earlier years of
a ground lease when compared to the straight-line method.
We expect to use the “modified retrospective” method upon
adoption of ASC 842 on January 1, 2019 which permits
application of the new standard on the adoption date as
opposed to the earliest comparative period presented in our
financial statements. We expect to record a right-of-use asset
and a lease liability in the amount of approximately $40
million upon the adoption of ASC 842.
Results of Operations For The Three Years Ended
December 31, 2018
G E N E R A L
Our financial results for the three years ended December 31,
2018 have been significantly affected by the merger with
Parkway Properties, Inc. (“Parkway”) (the “Merger”) and
the spin-off of the combined companies’ Houston business
to Parkway, Inc. (“New Parkway”) (the “Spin-Off”)
(collectively, the “Parkway Transactions”) that occurred in
October 2016. Our financial results have also been affected
by various dispositions during the periods. During 2016,
we sold 100 North Point Center East and One Ninety One
Peachtree (collectively, the “2016 Dispositions”). During
2017, we sold the American Cancer Society Center (the
“ACS Center”), Bank of America Center, Citrus Center, and
One Orlando Centre (collectively, the “2017 Dispositions”).
Accordingly, our historical financial statements may not be
indicative of future operating results.
N E T O P E R AT I N G I N CO M E
The following results include the performance of our Same
Property portfolios. Our Same Property portfolios include
office properties that have been fully operational in each of the
comparable reporting periods. A fully operational property is
one that has achieved 90% economic occupancy for each of the
periods presented or has been substantially complete and owned
by us for each of the periods presented. Same Property amounts
for the 2018 versus 2017 comparison are from properties that
were owned as of January 1, 2017 through December 31, 2018.
Same Property amounts for the 2017 versus 2016 comparison
are from properties that were owned as of January 1, 2016
through December 31, 2017. This information includes
revenues and expenses of only consolidated properties.
We use Net Operating Income (“NOI”), a non-GAAP
financial measure, to measure the operating performance of
our properties. NOI is also widely used by industry analysts
and investors to evaluate performance. NOI, which is rental
property revenues less rental property operating expenses,
excludes certain components from net income in order to
provide results that are more closely related to a property’s
results of operations. Certain items, such as interest expense,
while included in net income, do not affect the operating
performance of a real estate asset and are often incurred
at the corporate level as opposed to the property level. As
a result, we use only those income and expense items that
are incurred at the property level to evaluate a property’s
performance. Depreciation and amortization are also
excluded from NOI. Same Property NOI allows analysts,
investors, and management to analyze continuing operations
and evaluate the growth trend of our portfolio.
NOI increased $15.0 million between the 2018 and 2017 periods as follows (dollars in thousands):
Rental Property Revenues
Same Property
Non-Same Property
Rental Property Operating Expenses
Same Property
Non-Same Property
Same Property NOI
Non-Same Property NOI
Total NOI
26
Year Ended December 31,
2018
2017
$ Change
% Change
$ 419,236
42,617
$ 461,853
$ 403,434
42,601
$ 446,035
$ 15,802
16
$ 15,818
$ 154,420
10,258
$ 164,678
$ 145,087
18,795
$ 163,882
$ 264,816
32,359
$ 258,347
23,806
$
$
$
9,333
(8,537)
796
6,469
8,553
$ 297,175
$ 282,153
$ 15,022
3.9%
—%
3.5%
6.4%
(45.4)%
0.5%
2.5%
35.9%
5.3%
COUSINS PROPERTIES INCORPORATED 2018 ANNUAL REPORT The increase in Same Property revenues was primarily
driven by increased occupancy at Northpark and Corporate
Center. The increase in Same Property expenses was driven
by the increased occupancy at Northpark and Corporate
Center along with an increase in property taxes for our
Atlanta and Phoenix properties. Non-Same Property NOI
increased as a result of the lease-up of 8000 Avalon, which
commenced operations in June 2017, the commencement
of operations of 858 Spring Street (first phase of Spring &
8th) in January 2018 and the commencement of operations
of 864 Spring Street (second and final phase of Spring &
8th) in October 2018. These increases in NOI were offset by
decreases resulting from the 2017 Dispositions. Non-Same
Property revenues did not change significantly between
periods while Non-Same Property expenses decreased
because we receive, and recognize, a higher percentage of
operating expenses in revenue from the tenant at Spring &
8th than we did at our Orlando properties.
NOI increased $129.2 million between the 2017 and 2016 periods as follows (dollars in thousands):
Rental Property Revenues
Same Property
Non-Same Property
Rental Property Operating Expenses
Same Property
Non-Same Property
Same Property NOI
Non-Same Property NOI
Total NOI
Year Ended December 31,
2017
2016
$ Change
% Change
$ 142,087
303,948
$ 446,035
$ 135,371
114,443
$ 249,814
$ 52,174
111,708
$ 163,882
$ 49,284
47,624
$ 96,908
$
6,716
189,505
$ 196,221
$
2,890
64,084
$ 66,974
$ 89,913
192,240
$ 86,087
66,819
$
3,826
125,421
$ 282,153
$ 152,906
$ 129,247
5.0%
165.6%
78.5%
5.9%
134.6%
69.1%
4.4%
187.7%
84.5%
The increase in Same Property NOI was primarily driven
by increases in revenues as a result of higher occupancy at
816 Congress and Fifth Third Center, offset by a decrease in
occupancy at Northpark. Same Property operating expense
increased due to these higher occupancy levels. The increase
in Non-Same Property NOI is primarily due to the Parkway
Transactions offset by the 2016 and 2017 Dispositions.
to an increase in LIBOR. These increases were partially
offset by the repayment of five mortgage loans in 2017
and one mortgage loan in 2018. Interest expense increased
$6.9 million (25.8%) between 2017 and 2016 primarily as a
result of the term loan that closed in late 2016 and the senior
notes that closed in 2017. These increases were partially
offset by the repayment of the five mortgage loans in 2017.
OT H E R I N CO M E
Other income decreased $8.2 million between 2018 and
2017 and increased $10.5 million between 2017 and 2016
primarily as a result of 2017 termination fees at 3350
Peachtree, NASCAR Plaza, Hayden Ferry, Fifth Third
Center, and Northpark.
D E P R E C I AT I O N A N D A M O R T I Z AT I O N
Depreciation and amortization decreased $15.4 million
(7.8%) between 2018 and 2017 primarily due to the 2017
Dispositions. Depreciation and amortization
increased
$98.8 million (100.9%) between 2017 and 2016 primarily
due to the Parkway Transactions.
G E N E R A L A N D A D M I N I S T R AT I V E E X P E N S E S
General and administrative expenses decreased $5.5 million
(19.9%) between 2018 and 2017 primarily as a result of
fluctuations in stock-based compensation expense due to the
volatility in our stock price relative to office peers included
in the SNL US Office REIT Index.
ACQ U I S I T I O N A N D R E L AT E D CO S T S
Included in acquisition and related costs in 2017 and 2016
are the costs associated with the Parkway Transactions.
These costs included legal, accounting, and financial advisory
fees as well as the cost of due diligence work and the costs
of combining the operations of Parkway with the Company.
I N T E R E S T E X P E N S E
Interest expense increased $5.9 million (17.6%) between
2018 and 2017 primarily as a result of interest incurred on
the senior notes that closed in 2017 and the as a result of
higher interest incurred on the floating rate term loan due
OT H E R E X P E N S E
Other expense decreased $4.1 million between 2017 and
2016 primarily as a result of an impairment loss recorded on
residential land in 2016.
27
2018 ANNUAL REPORT COUSINS PROPERTIES INCORPORATED I N CO M E F R O M U N CO N S O L I DAT E D J O I N T V E N T U R E S
Income from unconsolidated joint ventures consisted of the following in 2018, 2017, and 2016 (in thousands):
Year Ended December 31,
2018
$ 28,888
2,899
(13,078)
(6,456)
(29)
2017
$ 31,053
2,062
(13,191)
(7,859)
35,050
2016
$ 28,784
4,106
(13,905)
(8,423)
—
$ 12,224
$ 47,115
$ 10,562
in 2017 are gains recognized on the 2017 Dispositions. The
combined sales prices of the 2017 Dispositions represented
a weighted average capitalization rate of 7.3%. Included
in gain on sale of investment properties in 2016 are gains
recognized on the 2016 Dispositions as well as the sale of
commercial land in our Northpoint project. The combined
sales prices of the 2016 Dispositions represented a weighted
average capitalization rate of 6.7%.
D I S CO N T I N U E D O P E R AT I O N S
Discontinued operations contains the operations of Post Oak
Central and Greenway Plaza (the “Houston Properties”),
two of our properties that were included in the Spin-
Off. Because we decided to exit the Houston market in
connection with the Parkway Transactions, the Spin-Off
represented a strategic shift that had a significant impact
on our operations. As such, these properties qualified for
discontinued operations treatment.
N E T I N CO M E AT T R I B U TA B L E TO
N O N CO N T R O L L I N G I N T E R E S T S
Net income attributable to noncontrolling interests includes
the outside parties’ share of the net income of CPLP as well
as that of certain other consolidated entities.
F U N D S F R O M O P E R AT I O N S
The table below shows Funds from Operations Available
to Common Stockholders (“FFO”), a non-GAAP financial
measure, and the related reconciliation to net income
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
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.
(computed
Net operating income
Other income
Depreciation and amortization
Interest expense
Net gain on sales
Income from unconsolidated joint ventures
Net operating income decreased $2.2 million (7.0%)
between 2018 and 2017 primarily due to the sale of
properties owned by EP I, LLC and EP II, LLC (“Emory
Point I and II”) in 2017 and the sale of our interest in
Courvoisier Centre JV, LLC in 2017. These decreases were
offset by the commencement of operations and lease-up
of the properties owned by Carolina Square Holdings LP.
Net gain on sales of $35.1 million in 2017 resulted from
gains on the sales of Emory Point I and II and of our
interest in Courvoisier Centre JV, LLC, offset by a loss
on the purchase of the remaining 25.4% interest in the
111 West Rio building and the related consolidation of
the building immediately following the purchase.
Net operating income increased $2.3 million (7.9%)
between 2017 and 2016 primarily due to a change in
the partnership structure at Gateway Village whereby
we began receiving 50% of cash flows versus a preferred
return, effective December 1, 2016, and the addition
of Courvoisier Centre JV, LLC, which was acquired in
the Merger. These increases were offset by the sale of
properties owned by EP I, LLC and EP II, LLC (“Emory
Point I and II”) in the second quarter of 2017 and the sale
of our interest in Courvoisier Centre JV, LLC in the fourth
quarter of 2017. Other income decreased $2.0 million
primarily due to lower termination fees in 2017, offset
by a gain recognized on the sale of mineral rights at CL
Realty, LLC. Net gain on sales of $35.1 million in 2017
resulted from gains on the sales of Emory Point I and II
and of our interest in Courvoisier Centre JV, LLC, offset
by a loss on the purchase of the remaining 25.4% interest
in the 111 West Rio building and the related consolidation
of the building immediately following the purchase.
G A I N O N S A L E O F I N V E S T M E N T P R O P E R T I E S
Included in the gain on sale of investment properties in 2018
are gains recognized on the sale of commercial land at our
Northpoint project as well as the settlement of a liability related
to the 2016 sale of a property for an amount less than what
was accrued. Included in gain on sale of investment properties
28
COUSINS PROPERTIES INCORPORATED 2018 ANNUAL REPORT 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. Our management evaluates
operating performance in part based on FFO. Additionally,
our management uses FFO, along with other measures,
to assess performance in connection with evaluating and
granting incentive compensation to our officers and other
key employees.
The reconciliation of net income available to common
stockholders to FFO is as follows for the years ended
December 31, 2018, 2017, and 2016 (in thousands, except
per share information):
Net Income Available to Common Stockholders
Depreciation and amortization of real estate assets:
Consolidated properties
Share of unconsolidated joint ventures
Discontinued properties
Partners’ share of real estate depreciation
(Gain) loss on sale of depreciated properties:
Consolidated properties
Share of unconsolidated joint ventures
Non-controlling interest related to unit holders
Funds From Operations
Per Common Share — Diluted:
Net Income Available
Funds From Operations
Weighted Average Shares — Diluted
Net Operating Income
Company management evaluates the performance of its
property portfolio in part based on NOI. NOI represents
rental property revenues less rental property operating
expenses. NOI is not a measure of cash flows or operating
results as measured by GAAP, is not indicative of cash
available to fund cash needs, and should not be considered
an alternative to cash flows as a measure of liquidity. All
Year Ended December 31,
2018
2017
2016
$ 79,164
$ 216,275
$ 79,109
179,510
13,078
—
(302)
194,869
13,191
—
(23)
(4,925)
29
1,345
(133,043)
(35,050)
3,681
96,583
13,904
47,345
(3,564)
(73,533)
—
784
$267,899
$ 259,900
$160,628
$
$
0.19
0.63
$
$
0.52
0.61
$
$
0.31
0.63
427,473
423,297
256,023
companies may not calculate NOI in the same manner. The
Company considers NOI to be an appropriate supplemental
measure to net income as it helps both management and
investors understand the core operations of the Company’s
operating assets. NOI excludes corporate general and
administrative expenses, interest expense, depreciation and
amortization, impairments, gains/loss on sales of real estate,
and other non-operating items.
29
2018 ANNUAL REPORT COUSINS PROPERTIES INCORPORATED The following reconciles NOI to Net Income for each of the periods presented (in thousands):
Net income
Fee income
Other income
Reimbursed expenses
General and administrative expenses
Interest expense
Depreciation and amortization
Acquisition and transaction costs
Other expenses
(Gain) loss on extinguishment of debt
Income from unconsolidated joint ventures
Gain on sale of investment properties
Income from discontinued operations
Year Ended December 31,
2018
2017
2016
$ 80,765
(10,089)
(3,270)
3,782
22,040
39,430
$ 219,959
(8,632)
(11,518)
3,527
27,523
33,524
181,382
196,745
248
556
(8)
(12,224)
1,661
1,796
(2,258)
(47,115)
(5,437)
(133,059)
—
—
$ 80,104
(8,347)
(1,050)
3,259
25,592
26,650
97,948
24,521
5,888
5,180
(10,562)
(77,114)
(19,163)
Net Operating Income
$ 297,175
$ 282,153
$152,906
–
–
–
–
proceeds from construction loans;
proceeds from unsecured loans;
proceeds from offerings of debt or equity securities; and
joint venture formations.
F I N A N C I A L CO N D I T I O N
A key component of our strategy is to maintain a
conservative balance sheet with leverage and liquidity that
enables us to be positioned for future growth. Our leverage
metrics at December 31, 2018, were among the strongest
within our sector. During 2018, we increased the size of
our Credit Facility from $500 million to $1 billion and as
of December 31, 2018, and we had no amounts outstanding
under our Credit Facility and $2 million drawn under our
letters of credit, with the ability to borrow an additional $998
million under our Credit Facility. We also had $2.7 million
in cash, cash equivalents, and restricted cash on hand at
December 31, 2018.
Liquidity and Capital Resources
Our primary short-term and long-term liquidity needs
include the following:
–
–
–
–
–
property and land acquisitions;
expenditures on development projects;
building improvements, tenant improvements, and
leasing costs;
principal and interest payments on indebtedness; and
operating partnership distributions and common stock
dividends.
We may satisfy these needs with one or more of the following:
net cash from operations;
proceeds from the sale of assets;
borrowings under our credit facilities;
proceeds from mortgage notes payable;
–
–
–
–
30
COUSINS PROPERTIES INCORPORATED 2018 ANNUAL REPORT Contractual Obligations and Commitments
At December 31, 2018, we were subject to the following contractual obligations and commitments (in thousands):
Contractual Obligations:
Company debt:
Mortgage notes payable
Unsecured Senior Notes
Interest commitments (1)
Term Loan
Ground leases
Other operating leases
Unsecured Credit Facility
Total contractual obligations
Commitments:
Total
Less than
1 Year
1-3 Years
3-5 Years
More than
5 Years
$ 467,362
350,000
222,905
250,000
205,128
515
—
$10,997
—
40,591
—
2,321
261
—
$ 45,083
—
77,325
250,000
4,713
232
—
$105,316
—
52,792
—
4,748
22
—
$305,966
350,000
52,197
—
193,346
—
—
$1,495,910
$54,170
$377,353
$162,878
$901,509
Unfunded development and tenant improvement commitments
Performance bonds
Letters of credit
$ 100,234
566
2,000
$95,342
566
2,000
$
4,892
—
—
$
— $
—
—
Total commitments
$ 102,800
$97,908
$
4,892
$
— $
—
—
—
—
(1)
Interest on variable rate obligations is based on rates effective as of December 31, 2018.
In addition, we have several standing or renewable service
contracts mainly related to the operation of our 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.
OT H E R M O R TG AG E LOA N I N FO R M AT I O N
In 2018, we had the following mortgage loan activity:
– Repaid in full, without penalty, the $22.2 million
The Pointe mortgage note.
In 2017, we had the following mortgage loan activity:
– Repaid in full, without penalty, the $128.0 million One
Eleven Congress mortgage note.
– Repaid in full, without penalty, the $101.0 million San
Jacinto Center mortgage note.
– Repaid in full, without penalty, the $52.0 million Two
Buckhead Plaza mortgage note.
– Repaid in full, without penalty, the $77.9 million 3344
Peachtree mortgage note.
– Used the proceeds from the sale of the ACS Center to
repay in full, without penalty, the $127.0 million ACS
Center mortgage note.
Our existing mortgage debt is non-recourse, fixed-rate
mortgage loans secured by various real estate assets. We
expect to either refinance our non-recourse mortgage loans
at maturity or repay the mortgage loans with proceeds from
other financings. As of December 31, 2018, the weighted
average interest rate on our consolidated debt was 3.82%.
C R E D I T FAC I L I T Y I N FO R M AT I O N
Through January 2, 2018, we had a $500 million senior
unsecured line of credit (the “Credit Facility”) that was
scheduled to mature on May 28, 2019. The Credit Facility
included 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 Credit Facility contained restrictive covenants
pertaining to our operations, 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 included certain financial covenants (as
defined in the agreement) that required, among other things,
the maintenance of an unencumbered interest coverage ratio
of at least 2.00; a fixed charge coverage ratio of 1.50; and a
leverage ratio of no more than 60%.
On January 3, 2018, we entered into a Fourth Amended
and Restated Credit Agreement (the “New Credit Facility”)
under which we may borrow up to $1 billion if certain
conditions are satisfied. The New Credit Facility recasts the
Credit Facility by, among other things, increasing the size
31
2018 ANNUAL REPORT COUSINS PROPERTIES INCORPORATED from $500 million to $1 billion; extending the maturity date
from May 28, 2019 to January 3, 2023; providing for the
expansion of the New Facility by an additional $500 million,
subject to receipt of additional commitments from lenders
and other customary conditions; and decreasing the
Consolidated Unencumbered Interest Coverage ratio from
2.0 to 1.75.
The interest rate applicable to the New Credit Facility varies
according to our leverage ratio, and may, at our election,
be determined based on either (1) the current LIBOR plus
a spread of between 1.05% and 1.45%, 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 a spread of between 0.10% or 0.45%, based
on leverage.
At December 31, 2018, the New Credit Facility’s spread
over LIBOR was 1.05%. At December 31, 2018, we had no
amounts drawn under the New Credit Facility and had the
ability to borrow $998 million of the $1 billion available,
with $2 million utilized by an outstanding letter of credit.
U N S E C U R E D S E N I O R N OT E S
During 2017, we closed a $350 million private placement of
senior unsecured notes, which were funded in two tranches.
The first tranche of $100 million was funded in April 2017,
has a 10-year maturity, and has a fixed annual interest rate
of 4.09%. The second tranche of $250 million was funded
in July 2017, has an 8-year maturity, and has a fixed annual
interest rate of 3.91%. We used the proceeds from the
private placement to repay mortgages that were set to mature
during 2017.
T E R M LOA N
During 2016, we obtained a $250 million Term Loan that
matures on December 2, 2021. The Term Loan contains
financial covenants substantially consistent with those of the
Credit Facility. The Term Loan bears interest at LIBOR plus
a spread, based on our leverage ratio, as defined in the Term
Loan. On January 22, 2018, the Term Loan was amended
to make the financial covenants consistent with those of the
New Credit Facility.
F U T U R E C A P I TA L R E Q U I R E M E N T S
Over the long term, we intend to actively manage our
portfolio of properties and strategically sell assets to exit
our non-core holdings, reposition our portfolio of income-
producing assets geographically, and generate capital for
future investment activities. We expect to continue to utilize
cash retained from operations as well third-party sources of
capital such as indebtedness to fund future commitments as
well as utilize construction facilities for some development
assets, if available and under appropriate terms.
We may also generate capital through the issuance of
securities that include common or preferred stock, warrants,
debt securities, depositary shares or the issuance of CPLP
limited partnership units. In January 2017, we filed a shelf
registration statement to allow for the issuance from time to
time of such securities. Management will continue to evaluate
all public equity sources and select the most appropriate
options as capital is required.
Our business model is dependent upon raising or recycling
capital to meet obligations. If one or more sources of capital
are not available when required, we may be forced to reduce
the number of projects we acquire or develop and/or raise
capital on potentially unfavorable terms, or may be unable
to raise capital, which could have an adverse effect on our
financial position or results of operations.
Cash Flows
We report and analyze our cash flows based on operating
activities, investing activities, and financing activities. Cash,
cash equivalents, and restricted cash totaled $2.7 million,
$205.7 million, and $51.3 million at December 31, 2018,
2017, and 2016, respectively. The following table sets forth
the changes in cash flows (in thousands):
Year Ended December 31,
2018
2017
2016
2018 to 2017
Change
2017 to 2016
Change
Net cash provided by operating activities
$ 229,034
$ 211,649
$ 117,702
$ 17,385
$ 93,947
Net cash provided by (used in) investing activities
(284,484)
112,110
465,849
(396,594)
(353,739)
Net cash used in financing activities
(147,600)
(169,335)
(538,537)
21,735
369,202
The reasons for significant increases and decreases in cash
flows between the periods are as follows:
C A S H F LOWS F R O M O P E R AT I N G AC T I V I T I E S
Cash provided by operating activities increased $17.4 million
between the 2018 and 2017 periods primarily as a result
of the operations related to the Spring & 8th properties,
which commenced operations in 2018, offset by the loss of
operating cash flow from assets sold in 2017. Cash provided
by operating activities increased $93.9 million between the
2017 and 2016 periods primarily as a result of the operations
related to the properties added in the Parkway Transactions,
offset by the loss of operating cash flow from assets sold in
2016 and 2017.
32
COUSINS PROPERTIES INCORPORATED 2018 ANNUAL REPORT C A S H F LOWS F R O M I N V E S T I N G AC T I V I T I E S
Cash flows from investing activities decreased $396.6 million
between the 2018 and 2017 periods primarily from a decrease
in cash provided by investment property sales and a decrease
in cash distributions from unconsolidated joint ventures, offset
by a decrease in cash used in acquisition, development, and
tenant improvement expenditures. Cash flows from investing
activities decreased $353.7 million between the 2017 and 2016
periods primarily from a decrease in proceeds from investment
property sales, an increase in cash used in acquisition,
development, and tenant improvement expenditures, and
cash and restricted cash acquired in the merger with Parkway
in 2016. These decreases were offset by an increase in
distributions from unconsolidated joint ventures.
C A S H F LOWS F R O M F I N A N C I N G AC T I V I T I E S
Cash flows used in financing activities decreased $21.7
million between the 2018 and 2017 periods as a result of a
decrease in net debt repayments and a decrease in proceeds
from a common stock issued. Cash flows used in financing
activities decreased $369.2 million between 2017 and
2016 periods as a result of a decrease in distributions to
noncontrolling interest holders, a decrease in distributions to
Parkway, Inc. in connection with the Spin-Off, and proceeds
from a common stock issuance in 2017, offset by an increase
in net debt repayments in 2017.
C A P I TA L E X P E N D I T U R E S
We incur capital expenditures related to our real estate assets
that include the acquisition of properties, the development
of new properties, the redevelopment of existing or newly
purchased properties, leasing costs for new or replacement
tenants and ongoing property repairs and maintenance.
Capital expenditures for assets we develop or acquire and then
hold and operate 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
expenditures adjustment) to show the components of these
costs on a cash basis. Components of expenditures included
in this line item for the years ended December 31, 2018,
2017 and 2016 are as follows (in thousands):
Projects under development
Operating properties—building improvements
Operating properties—leasing costs
Purchase of land held for investment
Capitalized interest
Capitalized salaries
Accrued capital expenditures adjustment
2018
2017
2016
$ 53,911
20,027
65,164
58,360
4,902
3,168
18,104
$173,698
29,328
106,693
—
8,303
7,918
(5,965)
$109,760
23,462
57,286
—
4,696
6,248
(7,918)
Total property acquisition, development and tenant asset expenditures
$223,636
$319,975
$193,534
Capital expenditures decreased $96.3 million between
December 31, 2018 and 2017 primarily due to a decrease
improvement
in projects under development, building
expenditures, and leasing costs, offset by an increase in
expenditures related to the purchase of land held for
investment. Capital expenditures increased $126.4 million
between 2017 and 2016 primarily due to an increase
in projects under development, building
improvement
expenditures, and leasing costs. Leasing costs, as well as
some of the tenant improvements and 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 square foot basis for 2018, 2017
and 2016 were as follows:
New leases
Renewal leases
Expansion leases
2018
2017
2016
$8.23
$5.28
$8.24
$4.73
$6.72
$4.42
$7.94
$7.10
$6.14
The amounts of tenant improvement and leasing costs on
a per square foot basis vary by lease and by market. Given
the level of expected leasing and renewal activity, in future
periods, we expect tenant improvements and leasing costs
per square foot to remain consistent with those experienced
during 2018.
D i v i d e n d s
We paid cash dividends on our common stock of $107.2
million, $99.2 million, and $50.5 million in 2018, 2017,
and 2016, respectively. We funded these dividends with cash
provided by operating activities. We declared and paid our
fourth quarter 2016 dividend in the amount of $0.06 per share
in January 2017, which partially accounts for the increase
in common dividends paid in 2017 as compared to 2016.
We expect to fund our quarterly distributions to common
stockholders with cash provided by operating activities,
proceeds from investment property sales, distributions from
unconsolidated joint ventures and indebtedness, if necessary.
33
2018 ANNUAL REPORT COUSINS PROPERTIES INCORPORATED
On a quarterly basis, we review the amount of our common
dividend in light of current and projected future cash provided
by operating activities and also consider the requirements
needed to maintain our REIT status. In addition, we have
certain covenants under our Credit Facility which could limit
the amount of common dividends paid. In general, common
dividends of any amount can be paid as long as leverage, as
defined in the facility, is less than 60% and we are not in
default under our facility. Certain conditions also apply in
which we can still pay common dividends if leverage is above
that amount. We routinely monitor the status of our common
dividend payments in light of the Credit Facility covenants.
E F F E C T S O F I N F L AT I O N
We attempt to minimize the effects of inflation on income
from operating properties by providing periodic fixed-rent
increases 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. We have a number of off balance sheet joint
ventures with varying structures, as described in note 6 to
our consolidated financial statements. The joint ventures
in which we have 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 additional capital is
deemed necessary, a venture may request a contribution
from the partners, and we 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 we 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 our financial condition
or results of operations.
Debt. At December 31, 2018, our unconsolidated joint
ventures had aggregate outstanding indebtedness to third
parties of $342.9 million. This debt represents mortgage or
construction loans, most of which are non-recourse to us,
except as described below. In addition, in certain instances,
we provide “non-recourse carve-out guarantees” on these
non-recourse loans. We guarantee 12.5% of the loan amount
related to the Carolina Square construction loan, which
has a lending capacity of $79.8 million, and $74.6 million
outstanding as of December 31, 2018.
I T E M 7 A . Q U A N T I T A T I V E A N D Q U A L I T A T I V E D I S C L O S U R E
A B O U T M A R K E T R I S K
Our primary exposure to market risk results from our debt,
which bears interest at both fixed and variable rates. We
attempt to mitigate this risk by limiting our debt exposure
in total and our maturities in any one year and weighting
more towards fixed-rate debt in our portfolio. The fixed rate
debt obligations limit the risk of fluctuating interest rates. At
December 31, 2018, we had $817.4 million of fixed rate debt
outstanding at a weighted average interest rate of 3.86%.
At December 31, 2017, we had $848.8 million of fixed
rate debt outstanding at a weighted average interest rate of
3.86%. The amount of fixed-rate debt outstanding decreased
from 2017 to 2018 as a result of the 2018 repayment of the
mortgage loan secured by The Pointe.
At December 31, 2018, we had $250.0 million of variable
rate debt outstanding, which consisted of the Credit Facility
with no outstanding balance at an interest rate of 3.55% and
a $250.0 million term loan with an interest rate of 3.7%. As
of December 31, 2017, we had $250.0 million of variable
rate debt outstanding, which consisted of the Credit Facility
with no outstanding balance at an interest rate of 2.66% and
a $250.0 million term loan with an interest rate of 2.76%.
Based on our average variable rate debt balances in 2018,
interest incurred would have increased by $2.5 million in
2018 if these interest rates had been 1% higher.
34
COUSINS PROPERTIES INCORPORATED 2018 ANNUAL REPORT
The following table summarizes our market risk associated
with notes payable as of December 31, 2018. It includes
the principal maturing, an estimate of the weighted average
interest rates on remaining debt obligations, and the fair
values of the Company’s fixed and variable rate notes
payable. Fair value was calculated by discounting future
principal payments at estimated rates at which similar
loans could have been obtained at December 31, 2018. The
information presented below should be read in conjunction
with note 9 of notes to consolidated financial statements
included in this Annual Report on Form 10-K. We did not
have a significant level of notes receivable at December 31,
2018, and the table does not include information related to
notes receivable.
($ in thousands)
2019
2020
2021
2022
2023
Thereafter
Total
Estimated
Fair Value
Notes Payable:
Fixed Rate
Weighted Average Interest Rate
Variable Rate
Weighted Average Interest
Rate (1)
$10,997
$33,825
$ 11,258
$97,042
$ 8,274
$655,966
$817,362
$823,305
3.86%
3.80%
3.80%
$
— $
— $250,000
$
3.74%
—
3.74%
$ — $
3.74%
3.86%
— $250,000
$259,000
—
—
3.70%
—
—
—
3.70%
(1) Interest rates on variable rate notes payable are equal to the variable rates in effect on December 31, 2018.
I T E M 8 .
F I N A N C I A L S T A T E M E N T S A N D S U P P L E M E N T A R Y D A T A
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-29.
The following selected quarterly financial information
(unaudited) for the years ended December 31, 2018 and
2017 should be read in conjunction with the consolidated
financial statements and notes thereto included herein (in
thousands, except per share amounts):
2018
Revenues
Income from unconsolidated joint ventures
Gain (loss) on sale of investment properties
Income from continuing operations
Net income
Net income available to common stockholders
Basic and diluted net income per common share
2017
Revenues
Income from unconsolidated joint ventures
Gain (loss) on sale of investment properties
Income from continuing operations
Net income
Net income available to common stockholders
Basic and diluted net income per common share
Quarters
First
Second
Third
Fourth
(Unaudited)
$117,202
2,885
(372)
16,406
16,406
16,043
0.04
$
$116,628
5,036
5,317
21,749
21,749
21,276
0.05
$
$118,706
2,252
(33)
19,859
19,859
19,485
0.05
$
$122,676
2,051
525
22,751
22,751
22,360
0.05
$
Quarters
First
Second
Third
Fourth
(Unaudited)
$119,879
581
(70)
4,858
4,858
4,751
0.01
$
$119,035
40,320
119,832
170,945
170,945
168,089
0.40
$
$113,159
2,461
(33)
12,285
12,285
12,067
0.03
$
$114,112
3,753
13,330
31,871
31,871
31,368
0.07
$
35
2018 ANNUAL REPORT COUSINS PROPERTIES INCORPORATED 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 2018 and 2017, our quarterly results varied as a
result of the timing of the sales of assets, which generated
gains within quarters of each year. These gains were
recorded within gain (loss) on sale of investment properties
and income from unconsolidated joint ventures.
I T E M 9 .
C H A N G E S I N A N D D I S A G R E E M E N T S W I T H A C C O U N T A N T S
O N A C C O U N T I N G A N D F I N A N C I A L D I S C L O S U R E
Not applicable.
I T E M 9 A .
C O N T R O L S A N D P R O C E D U R E S
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
judgment
in assessing the costs and benefits of such controls and
procedures, which, by their nature, can provide only
reasonable assurance regarding our 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
36
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 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, 2018.
The framework on which the assessment was based is
described in “Internal Control – Integrated Framework”
(2013) 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, 2018. Deloitte &
Touche LLP, our independent registered public accounting
firm, issued an opinion on the effectiveness of our internal
control over financial reporting as of December 31, 2018,
which follows this report of management.
COUSINS PROPERTIES INCORPORATED 2018 ANNUAL REPORT
R E P O R T O F I N D E P E N D E N T R E G I S T E R E D P U B L I C ACCO U N T I N G F I R M
To the Stockholders and Board of Directors of
Cousins Properties Incorporated
Opinion on Internal Control over Financial Reporting
in
We have audited the internal control over financial reporting
Incorporated and subsidiaries
of Cousins Properties
(the “Company”) as of December 31, 2018, based on
criteria established
Integrated
Framework (2013) issued by the Committee of Sponsoring
Organizations of the Treadway Commission (COSO). In our
opinion, the Company maintained, in all material respects,
effective internal control over financial reporting as of
December 31, 2018, based on criteria established in Internal
Control - Integrated Framework (2013) issued by COSO.
Internal Control
-
We have also audited, in accordance with the standards of the
Public Company Accounting Oversight Board (United States)
(PCAOB), the consolidated financial statements as of and for
the year ended December 31, 2018, of the Company and
our report dated February 6, 2019, expressed an unqualified
opinion on those consolidated financial statements.
Basis for Opinion
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 are a public accounting firm registered with the PCAOB
and are required to be independent with respect to the
Company in accordance with the U.S. federal securities laws
and the applicable rules and regulations of the Securities and
Exchange Commission and the PCAOB.
We conducted our audit in accordance with the standards
of the PCAOB. 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.
Definition and Limitations of Internal Control over
Financial Reporting
A company’s 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 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 its inherent limitations, internal control over
financial reporting may not prevent or detect misstatements.
Also, projections of any evaluation of effectiveness to future
periods are subject to the risk that controls may become
inadequate because of changes in conditions, or that the
degree of compliance with the policies or procedures
may deteriorate.
/s/ Deloitte & Touche LLP
Atlanta, Georgia
February 6, 2019
37
2018 ANNUAL REPORT COUSINS PROPERTIES INCORPORATED I T E M 9 B .
O T H E R I N F O R M A T I O N
Election of Director
On February 5, 2019, the Board of Directors (the “Board”)
of Cousins Properties Incorporated (the “Company”)
increased the size of the Board from eight to nine Directors
and elected M. Colin Connolly, the President and Chief
Executive Officer, to the Board effective February 5, 2019.
There are no changes to Mr. Connolly’s compensation as a
result of this election.
P A R T I I I
I T E M 1 0 .
D I R E C T O R S ,
C O R P O R A T E G O V E R N A N C E
E X E C U T I V E O F F I C E R S A N D
The information required by Items 401, 405, 406, and 407
of Regulation S-K is presented in item X in part I above
and is included under the captions “Proposal 1 - Election
of Directors” and “Section 16(a) Beneficial Ownership
Reporting Compliance” in the Proxy Statement relating to
the 2019 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.cousins.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. During 2018, the Company amended
and restated the Code.
I T E M 1 1 .
E X E C U T I V E C O M P E N S A T I O N
The information required by Items 402 and 407 of Regulation
S-K is included under the captions “Executive Compensation”
“Director Compensation” and “Compensation Committee
Interlocks and Insider Participation” in the Proxy Statement
relating to the 2019 Annual Meeting of the Registrant’s
Stockholders and is incorporated herein by reference.
38
COUSINS PROPERTIES INCORPORATED 2018 ANNUAL REPORT
I T E M 1 2 .
S E C U R I T Y O W N E R S H I P O F C E R T A I N B E N E F I C I A L
O W N E R S A N D M A N A G E M E N T A N D R E L A T E D
S T O C K H O L D E R M A T T E R S
The information under the captions “Beneficial Ownership
of Common Stock” and “Equity Compensation Plan
Information” in the Proxy Statement relating to the
2019 Annual Meeting of the Registrant’s Stockholders is
incorporated herein by reference.
I T E M 1 3 .
C E R T A I N R E L A T I O N S H I P S A N D R E L A T E D
T R A N S A C T I O N S ,
A N D D I R E C T O R I N D E P E N D E N C E
The information under the caption “Certain Transactions”
and “Director Independence” in the Proxy Statement relating
to the 2019 Annual Meeting of the Registrant’s Stockholders
is incorporated herein by reference.
I T E M 1 4 .
P R I N C I P A L A C C O U N T A N T F E E S A N D S E R V I C E S
The information under the caption “Summary of Fees to
Independent Registered Public Accounting Firm” in the
Proxy Statement relating to the 2019 Annual Meeting of the
Registrant’s Stockholders has fee information for fiscal years
2018 and 2017 and is incorporated herein by reference.
39
2018 ANNUAL REPORT COUSINS PROPERTIES INCORPORATED
P A R T I V
I T E M 1 5 .
E X H I B I T S A N D F I N A N C I A L S T A T E M E N T S C H E D U L E S
(a) 1. Financial Statements
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, 2018 and 2017
Consolidated Statements of Operations for the Years Ended December 31, 2018, 2017, and 2016
Consolidated Statements of Equity for the Years Ended December 31, 2018, 2017, and 2016
Consolidated Statements of Cash Flows for the Years Ended December 31, 2018, 2017, and 2016
Notes to Consolidated Financial Statements
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, 2018
Page Number
F-2
F-3
F-4
F-5
F-6
F-7
Page Number
S-1 through S-3
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
Agreement and Plan of Merger, dated April 28, 2016, by and among Parkway Properties, Inc., Parkway Properties LP,
Cousins Properties Incorporated and Clinic Sub Inc., filed as Exhibit 2.1 to the Registrant’s Current Form on Form 8-K
filed on April 29, 2016, and incorporated herein by reference.
Separation, Distribution and Transition Services Agreement, dated as of October 5, 2016, by and among the Registrant,
Cousins Properties LP, Clinic Sub Inc., Parkway Properties, Inc., Parkway Properties LP, Parkway Properties General
Partners, Inc., Parkway, Inc. and Parkway Operating Partnership LP., filed as Exhibit 2.1 to the Registrant’s Current Form
on Form 8-K filed on October 6, 2016, and incorporated herein by reference.
Tax Matters Agreement, dated as of October 5, 2016, by and among the Registrant, Cousins Properties LP, Clinic Sub
Inc., Parkway Properties, Inc., Parkway Properties LP, Parkway Properties General Partners, Inc., Parkway, Inc. and
Parkway Operating Partnership LP., filed as Exhibit 2.2 to the Registrant’s Current Form on Form 8-K filed on October
6, 2016, and incorporated herein by reference.
Employee Matters Agreement, dated as of October 5, 2016, by and among the Registrant, Cousins Properties LP, Clinic
Sub Inc., Parkway Properties, Inc., Parkway Properties LP, Parkway Properties General Partners, Inc., Parkway, Inc. and
Parkway Operating Partnership LP., filed as Exhibit 2.3 to the Registrant’s Current Form on Form 8-K filed on October
6, 2016, and incorporated herein by reference.
2.1
2.2
2.3
2.4
40
COUSINS PROPERTIES INCORPORATED 2018 ANNUAL REPORT
3.1
3.1.1
3.1.2
3.1.3
3.1.4
3.1.5
3.2
10(a)(i)*
10(a)(ii)*
10(a)(iii)*
10(a)(iv)*
10(a)(v)*
10(a)(vi)*
10(a)(vii)*
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.
Articles of Amendment to Restated and Amended Articles of Incorporation of the Registrant, as amended May 9, 2014,
filed as Exhibit 3.1.4 to the Registrant’s Form 10-Q for the quarter ended June 30, 2014, and incorporated herein by
reference.
Articles of Amendment to Restated and Amended Articles of Incorporation of Cousins, as amended October 6, 2016,
filed as Exhibit 3.1 and 3.1.1 to the Registrant’s Current Form on Form 8-K filed on October 7, 2016, and incorporated
herein by reference.
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.
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.
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.
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.
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.
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.
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.
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.
10(a)(viii)*
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.
41
2018 ANNUAL REPORT COUSINS PROPERTIES INCORPORATED 10(a)(ix)*
10(a)(x)*
10(a)(xi)*
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.
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.
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)(xii)*
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.
10(a)(xiii)*
10(a)(xiv)*
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.
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.
10(a)(xv)*
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.
10(a)(xvi)*
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.
10(a)(xvii)*
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.
10(a)(xviii)*
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.
10(a)(xix)*
Cousins Properties Incorporated 2005 Restricted Stock Unit Plan — Form of Restricted Stock Unit Certificate for
2014-2016 Performance Period, filed as Exhibit 10(a)(xxxi) to the Registrant’s Form 10-K for the year ended December
31, 2013, and incorporated herein by reference.
10(a)(xx)*
Cousins Properties Incorporated 2009 Incentive Stock Plan – Form of Stock Grant Certificate, filed as Exhibit 10(a)(xxxii)
to the Registrant’s Form 10-K for the year ended December 31, 2013, and incorporated herein by reference.
10(a)(xxi)*
10(a)(xxii)*
Cousins Properties Incorporated 2005 Restricted Stock Unit Plan — Form of Restricted Stock Unit Certificate for 2015-
2017 Performance Period, filed as Exhibit 10(a)(xxxiii) to the Registrant’s Form 10-K for the year ended December 31,
2014, and incorporated herein by reference.
Cousins Properties Incorporated 2005 Restricted Stock Unit Plan — Form of Restricted Stock Unit Certificate for 2016-
2018 Performance Period, filed as Exhibit 10(a)(xxxiv) to the Registrant’s Form 10-K for the year ended December 31,
2015, and incorporated herein by reference.
10(a)(xxiii)*
Cousins Properties Incorporated 2009 Incentive Stock Plan – Form of Stock Grant Certificate, filed as Exhibit 10(a)(xxxv)
to the Registrant’s Form 10-K for the year ended December 31, 2015, and incorporated herein by reference.
42
COUSINS PROPERTIES INCORPORATED 2018 ANNUAL REPORT 10(a)(xxiv)*
Form of Amendment Number One to Change in Control Severance Agreement, filed as Exhibit 10(a)(xxxvi) to the
Registrant’s Form 10-K for the year ended December 31, 2015, and incorporated herein by reference.
10(a)(xxv)*
Cousins Properties Incorporated 2005 Restricted Stock Unit Plan — Form of Restricted Stock Unit Certificate for 2017-
2019 Performance Period, filed as Exhibit 10(a)(xxxvii) to the Registrant’s Form 10-K for the year ended December 31,
2016, and incorporated herein by reference.
10(a)(xxvi)*
Cousins Properties Incorporated 2009 Incentive Stock Plan – Form of Stock Grant Certificate, filed as Exhibit 10(a)
(xxxviii) to the Registrant’s Form 10-K for the year ended December 31, 2016, and incorporated herein by reference.
10(a)(xxvii)*
Form of New Change in Control Severance Agreement, filed as Exhibit 10.1 to the Registrant’s Current Report on Form
10-Q filed on July 27, 2017, and incorporated herein by reference.
10(a)(xxviii)*
Form of Amendment Number One to Change in Control Severance Agreement, filed as Exhibit 10.2 to the Registrant’s
Current Report on Form 10-Q filed on July 27, 2017, and incorporated herein by reference.
10(a)(xxix)*
Form of Amendment Number Three to Change in Control Severance Agreement, filed as Exhibit 10.2 to the Registrant’s
Current Report on Form 10-Q filed on July 27, 2017, and incorporated herein by reference.
10(a)(xxx)*
Cousins Properties Incorporated 2005 Restricted Stock Unit Plan — Form of Restricted Stock Unit Certificate for 2017-
2020 Performance Period, filed as Exhibit 10(a)(xxx) to the Registrant’s Form 10-K for the year ended December 31,
2017, and incorporated herein by reference.
10(a)(xxxi)*
Cousins Properties Incorporated 2005 Restricted Stock Unit Plan — Form of Restricted Stock Unit Certificate for 2018-
2020 Performance Period, filed as Exhibit 10(a)(xxxi) to the Registrant’s Form 10-K for the year ended December 31,
2017, and incorporated herein by reference.
10(a)(xxxii)*
Cousins Properties Incorporated 2009 Incentive Stock Plan – Form of Stock Grant Certificate, filed as Exhibit 10(a)(xxxii)
to the Registrant’s Form 10-K for the year ended December 31, 2017, and incorporated herein by reference.
10(a)(xxxiii)*
Cousins Properties Incorporated 2005 Restricted Stock Unit Plan — Form of Restricted Stock Unit Certificate for 2017-
2020 Performance Period, filed as Exhibit 10(a)(xxxiii) to the Registrant’s Form 10-K for the year ended December 31,
2017, and incorporated herein by reference.
10(a)(xxxiv)*†
Cousins Properties Incorporated 2005 Restricted Stock Unit Plan — Form of Restricted Stock Unit Certificate for 2018-
2021 Performance Period.
10(a)(xxxv)*†
Cousins Properties Incorporated 2005 Restricted Stock Unit Plan — Form of Restricted Stock Unit Certificate for 2018-
2021 Performance Period.
10(a)(xxxvi)*†
Cousins Properties Incorporated 2009 Incentive Stock Plan — Form of Stock Grant Certificate.
10(b)
10(c)
10(d)
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.
Agreement of Limited Partnership of Cousins Properties LP., filed as Exhibit 10.1 to the Registrant’s Current Form on
Form 8-K filed on October 7, 2016, and incorporated herein by reference.
Stockholders Agreement, dated April 28, 2016, by and among Cousins Properties Incorporated, TPG VI Pantera Holdings,
L.P. and TPG VI Management, LLC, filed as Exhibit 10.1 to the Registrant’s Current Form on Form 8-K filed on April 29,
2016, and incorporated herein by reference.
43
2018 ANNUAL REPORT COUSINS PROPERTIES INCORPORATED 10(e)
10(f)
10(g)
21†
23†
31.1†
31.2†
32.1†
32.2†
101†
Term Loan Agreement, dated as of December 2, 2016, among the Registrant, the co-borrowers from time to time party
thereto, the lenders party thereto, and Bank of America, N.A., as administrative agent, filed as Exhibit 10(m) to the
Registrant’s Form 10-K for the year ended December 31, 2016, and incorporated herein by reference.
Term Loan Agreement, dated as of January 22, 2018, among the Registrant, the co-borrowers from time to time party
thereto, the lenders party thereto, and Bank of America, N.A., as administrative agent, filed as Exhibit 10 to the Registrant’s
Current Report on Form 10-Q filed on April 25, 2018, and incorporated herein by reference.
Fourth Amended and Restated Credit Agreement dated as of January 3, 2018, among Cousins Properties LP, as the
Borrower, Cousins Properties Incorporated, as the Parent and a Guarantor, Certain Consolidated Entities of The Parent
From Time to Time Designated by the Parent as Guarantors Hereunder, collectively, with the Borrower, as the Borrower
Parties, Certain Consolidated Entities of The Parent From Time to Time Designated by the Parent as Guarantors
Hereunder, as Guarantors, JPMORGAN CHASE BANK, N.A., as Syndication Agent, a Swing Line Lender and an L/C
Issuer, BANK OF AMERICA, N.A., as Administrative Agent, a Swing Line Lender and an L/C Issuer, SUNTRUST
BANK, as Documentation Agent, a Swing Line Lender and an L/C Issuer, and The Other Lenders Party Hereto WELLS
FARGO BANK, NATIONAL ASSOCIATION, PNC BANK, NATIONAL ASSOCIATION, U.S. BANK NATIONAL
ASSOCIATION, CITIZENS BANK, NATIONAL ASSOCIATION and MORGAN STANLEY SENIOR FUNDING,
INC.,as Co-Documentation Agents. J.P. MORGAN CHASE BANK, N.A., MERRILL LYNCH, PIERCE, FENNER
& SMITH INCORPORATED and SUNTRUST ROBINSON HUMPHREY, INC., as Joint Lead Arrangers and Joint
Bookrunners, filed as Exhibit 10(n).
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 operations, (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.
44
COUSINS PROPERTIES INCORPORATED 2018 ANNUAL REPORT S I G N A T U R E S
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.
Dated: February 6, 2019
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/ M. Colin Connolly
M. Colin Connolly
/s/ Gregg D. Adzema
Gregg D. Adzema
/s/ John D. Harris, Jr.
John D. Harris, Jr.
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, Treasurer and Assistant Secretary
(Principal Accounting Officer)
Date
February 6, 2019
February 6, 2019
February 6, 2019
/s/ Lawrence L. Gellerstedt III
Lawrence L. Gellerstedt III
Executive Chairman of the Board
February 6, 2019
/s/ Charles T. Cannada
Charles T. Cannada
/s/ Edward M. Casal
Edward M. Casal
/s/ Robert M. Chapman
Robert M. Chapman
/s/ Lillian C. Giornelli
Lillian C. Giornelli
/s/ S. Taylor Glover
S. Taylor Glover
/s/ Donna W. Hyland
Donna W. Hyland
/s/ R. Dary Stone
R. Dary Stone
Director
Director
Director
Director
February 6, 2019
February 6, 2019
February 6, 2019
February 6, 2019
Lead Independent Director
February 6, 2019
Director
Director
February 6, 2019
February 6, 2019
45
2018 ANNUAL REPORT COUSINS PROPERTIES INCORPORATED
I N D E X T O C O N S O L I D A T E D F I N A N C I A L S T A T E M E N T S
Cousins Properties Incorporated
Report of Independent Registered Public Accounting Firm
Consolidated Balance Sheets—December 31, 2018 and 2017
Consolidated Statements of Operations for the Years Ended December 31, 2018, 2017, and 2016
Consolidated Statements of Equity for the Years Ended December 31, 2018, 2017, and 2016
Consolidated Statements of Cash Flows for the Years Ended December 31, 2018, 2017, and 2016
Notes to Consolidated Financial Statements
Page
F-2
F-3
F-4
F-5
F-6
F-7
F-1
COUSINS PROPERTIES INCORPORATED 2018 ANNUAL REPORT R E P O R T O F I N D E P E N D E N T R E G I S T E R E D P U B L I C ACCO U N T I N G F I R M
We conducted our audits in accordance with the standards
of the PCAOB. Those standards require that we plan and
perform the audit to obtain reasonable assurance about
whether the financial statements are free of material
misstatement, whether due to error or fraud. Our audits
included performing procedures to assess the risks of material
misstatement of the financial statements, whether due to
error or fraud, and performing procedures that respond to
those risks. Such procedures included examining, on a test
basis, evidence regarding the amounts and disclosures in the
financial statements. Our audits also included evaluating the
accounting principles used and significant estimates made by
management, as well as evaluating the overall presentation of
the financial statements. We believe that our audits provide a
reasonable basis for our opinion.
/s/ Deloitte & Touche LLP
Atlanta, Georgia
February 6, 2019
We have served as the Company’s auditor since 2002.
To the Stockholders and Board of Directors of Cousins
Properties Incorporated
Opinion on the Financial Statements
We have audited the accompanying consolidated balance
sheets of Cousins Properties Incorporated and subsidiaries
(the “Company”) as of December 31, 2018 and 2017, the
related consolidated statements of operations, stockholders’
equity, and cash flows for each of the three years in the
period ended December 31, 2018, the related notes and the
financial statement schedule listed in the Index at Item 15
(collectively referred to as the “financial statements”). In
our opinion, the financial statements present fairly, in all
material respects, the financial position of the Company
as of December 31, 2018 and 2017, and the results of its
operations and its cash flows for each of the three years in
the period ended December 31, 2018, in conformity with
accounting principles generally accepted in the United States
of America.
We have also audited, in accordance with the standards
of the Public Company Accounting Oversight Board
(United States) (PCAOB), the Company’s internal control
over financial reporting as of December 31, 2018, based
on criteria established in Internal Control - Integrated
Framework (2013) issued by the Committee of Sponsoring
Organizations of the Treadway Commission and our report
dated February 6, 2019, expressed an unqualified opinion
on the Company’s internal control over financial reporting.
Basis for Opinion
These financial statements are the responsibility of the
Company’s management. Our responsibility is to express an
opinion on the Company’s financial statements based on our
audits. We are a public accounting firm registered with the
PCAOB and are required to be independent with respect to
the Company in accordance with the U.S. federal securities
laws and the applicable rules and regulations of the Securities
and Exchange Commission and the PCAOB.
F-2
2018 ANNUAL REPORT COUSINS PROPERTIES INCORPORATED CO U S I N S P R O P E R T I E S I N CO R P O R AT E D A N D S U B S I D I A R I E S
CO N S O L I DAT E D B A L A N C E S H E E T S
(in thousands, except share and per share amounts)
ASSETS:
REAL ESTATE ASSETS:
Operating properties, net of accumulated depreciation of $421,495 and $275,977 in 2018 and
2017, respectively
Projects under development
Land
Cash and cash equivalents
Restricted cash
Notes and accounts receivable, net of allowance for doubtful accounts of $629 and $535 in 2018 and
2017, respectively
Deferred rents receivable
Investment in unconsolidated joint ventures
Intangible assets, net
Other assets
Total assets
LIABILITIES:
Notes payable
Accounts payable and accrued expenses
Deferred income
Intangible liabilities, net of accumulated amortization of $42,473 and $28,960 in 2018 and
2017, respectively
Other liabilities
Total liabilities
Commitments and contingencies
EQUITY:
Stockholders’ investment:
December 31,
2018
2017
$ 3,603,011 $ 3,332,619
280,982
4,221
3,617,822
148,929
56,816
24,217
72,563
3,699,791
2,547
148
13,821
83,116
161,907
145,883
39,083
14,420
58,158
101,414
186,206
20,854
$ 4,146,296 $ 4,204,619
$ 1,062,570 $ 1,093,228
137,909
37,383
110,159
41,266
56,941
54,204
1,325,140
70,454
40,534
1,379,508
Preferred stock, $1 par value, 20,000,000 shares authorized, 6,867,357 shares issued and outstanding in
2018 and 2017
Common stock, $1 par value, 700,000,000 shares authorized, 430,724,520 and 430,349,620 shares issued
in 2018 and 2017, respectively
Additional paid-in capital
Treasury stock at cost, 10,339,735 and 10,329,082 shares in 2018 and 2017, respectively
6,867
6,867
430,725
3,606,191
(148,473)
(1,129,445)
430,350
3,604,776
(148,373)
(1,121,647)
2,765,865
2,771,973
55,291
53,138
2,821,156
2,825,111
$ 4,146,296 $ 4,204,619
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
COUSINS PROPERTIES INCORPORATED 2018 ANNUAL REPORT
CO U S I N S P R O P E R T I E S I N CO R P O R AT E D A N D S U B S I D I A R I E S
CO N S O L I DAT E D S TAT E M E N T S O F O P E R AT I O N S
( I n t h o u s a n d s , exce p t p e r s h a re a m o u n t s)
REVENUES:
Rental property revenues
Fee income
Other
Expenses:
Rental property operating expenses
Reimbursed expenses
General and administrative expenses
Interest expense
Depreciation and amortization
Acquisition and transaction costs
Other
Gain (loss) on extinguishment of debt
Income (loss) from continuing operations before unconsolidated joint ventures and gain on sale of
investment properties
Income from unconsolidated joint ventures
Income (loss) from continuing operations before gain on sale of investment properties
Gain on sale of investment properties
Income from continuing operations
Income from discontinued operations
Net income
Net income attributable to noncontrolling interests
Net income available to common stockholders
PER COMMON SHARE INFORMATION — BASIC AND DILUTED:
Income from continuing operations
Income from discontinued operations
Net income per common share - basic and diluted
Weighted average shares — basic
Weighted average shares — diluted
Dividends declared per common share
See notes to consolidated financial statements.
Year Ended December 31,
2018
2017
2016
$461,853
10,089
3,270
475,212
$446,035
8,632
11,518
466,185
$249,814
8,347
1,050
259,211
164,678
3,782
22,040
39,430
181,382
248
556
412,116
8
63,104
12,224
75,328
5,437
80,765
163,882
3,527
27,523
33,524
196,745
1,661
1,796
428,658
2,258
39,785
47,115
86,900
133,059
219,959
—
—
80,765
(1,601)
$ 79,164
219,959
(3,684)
$216,275
96,908
3,259
25,592
26,650
97,948
24,521
5,888
280,766
(5,180)
(26,735)
10,562
(16,173)
77,114
60,941
19,163
80,104
(995)
$ 79,109
$
$
0.19
$
0.52
$
—
—
0.19
$
0.52
$
0.24
0.07
0.31
420,305
415,610
253,895
427,473
423,297
256,023
$
0.26
$
0.30
$
0.24
F-4
2018 ANNUAL REPORT COUSINS PROPERTIES INCORPORATED
CO U S I N S P R O P E R T I E S I N CO R P O R AT E D A N D S U B S I D I A R I E S
CO N S O L I DAT E D S TAT E M E N T S O F E Q U I T Y
( I n t h o u s a n d s , exce p t p e r s h a re d at a )
Preferred
Stock
Common
Stock
Additional
Paid-In
Capital
Treasury
Stock
Distributions
in Excess of
Cumulative
Net Income
Stockholders’
Investment
Nonredeemable
Noncontrolling
Interests
Total
Equity
BALANCE DECEMBER 31, 2015
$ — $220,256 $ 1,722,224 $(134,630)
$ (124,435) $ 1,683,415
$
— $ 1,683,415
Net income
Securities issued in merger
—
—
—
6,867
183,207
1,683,076
Noncontrolling interest in assets acquired
in merger
Common stock issuance pursuant to stock
based compensation
Spin-off of New Parkway
Amortization of stock options and restricted
stock, net of forfeitures
Common stock redemption by unit holders
Contributions from nonredeemable
noncontrolling interests
Distributions to nonredeemable
noncontrolling interests
Repurchase of common stock
Common dividends ($0.24 per share)
—
—
—
—
—
—
—
—
—
—
280
—
(35)
39
—
—
—
—
—
224
—
1,683
223
—
—
—
—
—
—
—
—
—
—
—
—
—
(13,743)
79,109
79,109
995
80,104
—
—
—
1,873,150
76,858
1,950,008
—
504
292,337
292,337
—
504
(1,118,240)
(1,118,240)
(22,821)
(1,141,061)
—
—
—
—
—
1,648
262
—
—
(13,743)
—
(262)
1,648
—
4,126
4,126
(292,550)
(292,550)
—
—
(13,743)
(50,548)
—
(50,548)
(50,548)
BALANCE DECEMBER 31, 2016
6,867
403,747
3,407,430
(148,373)
(1,214,114)
2,455,557
58,683
2,514,240
Net income
—
—
—
Common stock offering, net of issuance costs
— 25,000
186,774
Common stock issued pursuant to stock
based compensation
Spin-off of Parkway, Inc.
Common stock redemption by unit holders
Amortization of stock options and restricted
stock, net of forfeitures
Contributions from nonredeemable
noncontrolling interest
Distributions to nonredeemable
noncontrolling interest
Common dividends ($0.30 per share)
—
—
—
—
—
—
—
403
—
1,203
(279)
—
8,865
(3)
1,986
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
216,275
—
—
545
—
—
—
—
216,275
211,774
124
545
3,684
—
—
—
10,068
(10,068)
219,959
211,774
124
545
—
1,983
—
1,983
—
—
2,646
2,646
(1,807)
(1,807)
(124,353)
(124,353)
—
(124,353)
BALANCE DECEMBER 31, 2017
6,867
430,350
3,604,776
(148,373)
(1,121,647)
2,771,973
53,138
2,825,111
Net income
Common stock issued pursuant to stock
based compensation
Cumulative effect of change in accounting
principle
Amortization of stock options and restricted
stock, net of forfeitures
Contributions from nonredeemable
noncontrolling interest
Distributions to nonredeemable
noncontrolling interest
Common dividends ($0.26 per share)
—
—
—
—
—
—
—
—
397
—
—
(22)
2,279
—
—
—
—
—
—
—
—
79,164
79,164
1,601
80,765
(864)
(100)
—
(567)
—
—
—
—
—
22,329
22,329
—
—
—
2,257
—
—
—
—
—
(567)
22,329
2,257
3,205
3,205
(2,653)
(2,653)
(109,291)
(109,291)
—
(109,291)
BALANCE DECEMBER 31, 2018
$6,867 $430,725 $ 3,606,191 $(148,473)
$(1,129,445) $ 2,765,865
$ 55,291
$ 2,821,156
See notes to consolidated financial statements.
F-5
COUSINS PROPERTIES INCORPORATED 2018 ANNUAL REPORT CO U S I N S P R O P E R T I E S I N CO R P O R AT E D A N D S U B S I D I A R I E S
CO N S O L I DAT E D S TAT E M E N T S O F C A S H F LOWS
( I n t h o u s a n d s)
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income
Adjustments to reconcile net income to net cash provided by operating activities:
Gain on sale of investment properties
Depreciation and amortization, including discontinued operations
Amortization of deferred financing costs and premium/discount on notes payable
Stock-based compensation expense, net of forfeitures
Effect of non-cash adjustments to rental revenues
Income from unconsolidated joint ventures
Operating distributions from unconsolidated joint ventures
(Gain) loss on extinguishment of debt
Other
Changes in other operating assets and liabilities:
Change in other receivables and other assets, net
Change in operating liabilities, net
Net cash provided by operating activities
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from investment property sales
Proceeds from sale of interest in unconsolidated joint venture
Property acquisition, development, and tenant asset expenditures
Purchase of tenant-in-common interest
Investment in unconsolidated joint ventures
Cash and restricted cash acquired in merger with Parkway Properties, Inc.
Distributions from unconsolidated joint ventures
Investment in marketable securities
Change in notes receivable and other assets
Other
Net cash provided by (used in) investing activities
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from credit facility
Repayment of credit facility
Proceeds from issuance of notes payable
Repayment of notes payable
Payment of deferred financing costs
Cash distributed to Parkway, Inc.
Repurchase of Common Stock
Common stock issued, net of expenses
Contributions from noncontrolling interests
Distributions to nonredeemable noncontrolling interests
Common dividends paid
Other
Net cash used in financing activities
Year Ended December 31,
2018
2017
2016
$ 80,765
$ 219,959
$ 80,104
(5,437)
181,382
2,417
3,399
(32,401)
(12,224)
16,756
(8)
—
(6,049)
434
229,034
372
—
(223,636)
—
(50,933)
—
2,032
—
(8,317)
(4,002)
(284,484)
8,000
(8,000)
—
(31,402)
(6,166)
—
—
—
1,497
(2,653)
(107,167)
(1,709)
(147,600)
(133,059)
196,745
(2,139)
2,994
(40,410)
(47,115)
11,065
(2,258)
—
11,456
(5,589)
211,649
370,944
12,514
(319,975)
(13,382)
(20,080)
—
75,506
—
6,583
—
112,110
589,300
(723,300)
350,000
(495,913)
(2,074)
—
—
211,521
2,646
(1,807)
(99,151)
(557)
(169,335)
(77,114)
145,293
(1,595)
2,152
(25,873)
(10,562)
14,184
5,180
4,526
2,156
(20,749)
117,702
622,643
—
(193,534)
—
(28,531)
93,753
949
(21,190)
(8,241)
—
465,849
716,800
(674,800)
870,000
(907,300)
—
(192,755)
(13,743)
—
4,126
(286,122)
(50,548)
(4,195)
(538,537)
NET INCREASE (DECREASE) IN CASH, CASH EQUIVALENTS, AND RESTRICTED CASH
CASH, CASH EQUIVALENTS, AND RESTRICTED CASH AT BEGINNING OF PERIOD
CASH, CASH EQUIVALENTS, AND RESTRICTED CASH AT END OF PERIOD
(203,050)
205,745
2,695
$
154,424
51,321
$ 205,745
45,014
6,307
$ 51,321
See notes to consolidated financial statements.
F-6
2018 ANNUAL REPORT COUSINS PROPERTIES INCORPORATED CO U S I N S P R O P E R T I E S I N CO R P O R AT E D A N D S U B S I D I A R I E S
N OT E S TO CO N S O L I DAT E D F I N A N C I A L S TAT E M E N T S
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
conducts substantially all of its business through Cousins
Properties, LP (“CPLP”). Cousins owns approximately 98%
of CPLP and consolidates CPLP. CPLP owns Cousins TRS
Services LLC (“CTRS”) a taxable entity which owns and
manages its own real estate portfolio and performs certain
real estate related services for other parties.
Cousins, CPLP, CTRS, and their subsidiaries (collectively,
the “Company”) develop, acquire, lease, manage, and own
primarily Class A office properties and opportunistic mixed-
use developments in the Sunbelt markets of the United States
with a focus on Georgia, Texas, Arizona, Florida, and North
Carolina. As of December 31, 2018, the Company’s portfolio
of real estate assets consisted of interests in 15.0 million
square feet of office space and 310,000 square feet of mixed-
use space.
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.
For the three years ended December 31, 2018, there were
no items of other comprehensive income. Therefore, the
Company did not present comprehensive income.
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. As of December 31, 2018 the
Company did not have any partnerships, joint ventures, or
other arrangements with variable interests that qualified as
a VIE.
F-7
Recently Issued Accounting Standards: On January 1, 2018,
the Company adopted ASU 2014-09 (“ASC 606”), “Revenue
from Contracts with Customers” using the “modified
retrospective” method; as such, the Company applied the
guidance only to the most recent period presented in the
financial statements. Under the new guidance, companies
are required to recognize revenue when the seller satisfies
a performance obligation, which would be when the buyer
takes control of the good or service. Prior to adoption of ASC
606, gains or losses from real estate sales were adjusted at
the time of the sale by the maximum exposure to loss related
to continuing involvement with the real estate asset. After
adoption, any continuing involvement is considered a separate
performance obligation and the sales price is required to be
allocated between the elements with continuing involvement
and those without continuing involvement. As the continuing
performance obligations are satisfied, additional gains or
losses are recognized. The Company had no sales of real
estate with continuing involvement during 2018 or in any
prior periods that affected results of operations in 2018 or
could affect results of operations in future periods.
The Company categorizes its primary sources of revenue
into revenue from contracts with customers and other
revenue accounted for as leases under Accounting Standards
Codification Topic 840 - Leases (“ASC 840”) as follows:
– Rental property revenue consists of (1) contractual
revenues from leases recognized on a straight-line basis
over the term of the respective lease; (2) percentage
rents recognized once a specified sales target is achieved;
(3) parking revenue; and (4) the reimbursement of
the tenants’ share of real estate taxes, insurance, and
other operating expenses. Rental property revenue is
accounted for in accordance with the guidance set forth
in ASC 840.
–
Fee revenue consists of development fees, management
fees, and leasing fees earned from unconsolidated
joint ventures and from third parties. Fee revenue is
accounted for in accordance with the guidance set forth
in ASC 606.
– Other revenue consists primarily of termination fees,
which are accounted for in accordance with the guidance
set forth in ASC 840.
Fee revenue and other revenue, as a whole, are immaterial
to total revenues. The Company made no changes to
previously reported amounts related to the adoption of
ASC 606. For the years ended December 31, 2018, 2017,
and 2016 the Company recognized rental property revenue
COUSINS PROPERTIES INCORPORATED 2018 ANNUAL REPORT of $461.9 million, $446.0 million, and $249.8 million,
respectively. For the years ended December 31, 2018, 2017,
and 2016 the Company recognized fee and other revenue of
$13.4 million, $20.2 million, and $9.4 million, respectively.
In February 2016, the FASB issued ASU 2016-02, “Leases,”
(“ASC 842”) which amends the existing standards for lease
accounting by requiring lessees to record most leases on
their balance sheets and making targeted changes to lessor
accounting and reporting. The new standard will require
lessees to record a right-of-use asset and a lease liability for
all leases with a term of greater than 12 months and classify
such leases as either finance or operating leases based on
the principle of whether the lease is effectively a financed
purchase of the leased asset by the lessee. This classification
will determine whether the lease expense is recognized based
on an effective interest method (finance leases) or on a
straight-line basis over the term of the lease (operating leases).
Leases with a term of 12 months or less will be accounted
for similarly to existing guidance for operating leases. The
new standard requires lessors to account for leases using an
approach that is substantially equivalent to existing guidance.
In July 2018, the FASB amended the new leasing standard,
providing lessors with a practical expedient to not separately
classify and disclose non-lease components of revenue from
the related lease components under certain conditions. The
new standard also revises the treatment of indirect leasing
costs and permits the capitalization and amortization of
direct leasing costs only. In 2018, the Company capitalized
$3.8 million of indirect leasing costs.
Because the Company expects substantially all of its leases
with tenants to qualify for the practical expedient, the
Company’s accounting and reporting for leases as lessor is
not expected to change materially. For those leases where
the Company is lessee, specifically ground leases, the
adoption of ASC 842 will require the Company to record
a right of use asset and a lease liability on the consolidated
balance sheet. Ground leases executed before the adoption
of ASC 842 will continue to be accounted for as operating
leases and will not result in a materially different ground
lease expense. However, ground leases executed after the
adoption of ASC 842 are expected to be accounted for as
finance leases which will result in ground lease expense being
recorded using the effective interest method instead of the
straight-line method over the term of the lease, which would
result in higher ground lease expense in the earlier years of
a ground lease when compared to the straight line method.
The Company expects to use the “modified retrospective”
method upon adoption of ASC 842 on January 1, 2019,
which permits application of the new standard on the
adoption date as opposed to the earliest comparative period
presented in its financial statements. The Company expects
to record a right of use asset and a lease liability in the
amount of approximately $40 million upon the adoption of
ASC 842.
In February 2017, the FASB issued ASU No. 2017-05,
“Other Income - Gains and Losses from the Derecognition
of Nonfinancial Assets (Subtopic 610-20): Clarifying the
Scope of Asset Derecognition Guidance and Accounting
for Partial Sales of Nonfinancial Assets” (“ASU 2017-05”).
ASU 2017-05 updates the definition of an “in substance
nonfinancial asset” and clarifies the derecognition guidance
for nonfinancial assets to conform with the new revenue
recognition standard. Among other things, ASU 2017-05
requires companies to recognize 100% of the gain on the
transfer of a nonfinancial asset to an entity in which it has a
noncontrolling interest. ASU 2017-05 is effective for interim
and annual reporting periods in fiscal years beginning after
December 15, 2017. The Company adopted this guidance
using the “modified retrospective” method effective on
January 1, 2018. As a result of the adoption of ASU
2017-05, the Company recorded a cumulative effect from
change in accounting principle which credited distributions
in excess of cumulative net income by $22.3 million. This
cumulative effect adjustment resulted from the 2013 transfer
of a wholly-owned property to an entity in which it had a
noncontrolling interest.
In May 2017, FASB issued ASU 2017-09, “Scope of
the scope
Modification Accounting,” which amends
of modification accounting
for share-based payment
arrangements and provides guidance on the types of
changes to the terms or conditions of share-based payment
awards to which an entity would be required to apply
modification accounting under ASC 718, “Compensation—
Stock Compensation.” This update is effective for interim
and annual reporting periods in fiscal years beginning
after December 15, 2017, with early adoption permitted.
The Company adopted this standard on January 1, 2018.
Adoption of the standard did not have a material impact on
the Company’s financial statements.
2. SIGNIFICANT ACCOUNTING POLICIES
R E A L E S TAT E A S S E T S
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
F-8
2018 ANNUAL REPORT COUSINS PROPERTIES INCORPORATED 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.
Through December 31, 2018, the Company capitalized direct
and indirect leasing costs related to leases that are probable
of being executed. These costs included 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 allocated these costs to individual tenant leases
and amortized them over the related lease term. Beginning
January 1, 2019, in connection with the implementation
of ASC 842, the Company will only capitalize direct costs
of a lease, which would not have been incurred if the lease
had not been obtained. These costs generally would include
commissions paid to employees or third parties and any
other costs incremental to executing a lease that would not
have otherwise been incurred.
Impairment: For real estate assets that are considered to be
held for sale according to accounting guidance or those that
are distributed to stockholders in a spin-off, the Company
records impairment losses if the fair value of the asset or
disposal group 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 and records an impairment loss.
Acquisition of Real Estate Assets: 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 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 leasing costs, value
of above-market and below-market tenant leases, value of
above-market and below-market ground 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 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 and below-market ground leases are included
in intangible liabilities and intangible assets, respectively, and
are amortized on a straight-line basis into rental property
revenues over the remaining terms 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
intangible 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
generally from 30 to 42 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.
F-9
COUSINS PROPERTIES INCORPORATED 2018 ANNUAL REPORT Discontinued Operations: Assets held for sale or disposals
representing strategic shifts in operations are reflected
in discontinued operations. During 2016, the Company
completed a spin-off as described in note 3. The Company
considered this disposition to be a strategic shift in
operations and reclassified the historical operations of the
assets included in the spin-off into discontinued operations
on the consolidated statements of operations. During 2017
and 2018, there were no assets held for sale or disposals that
represented a strategic shift in operations. The Company
ceases depreciation of a property when it is categorized as
held for sale.
I N V E S T M E N T I N J O I N T V E N T U R E S
For joint ventures that the Company does not control, but
over which it 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 to liquidate the venture. These ventures are
recorded at cost and adjusted for equity in earnings (losses)
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. If
management concludes that the impairment is “other than
temporary,” the Company reduces the investment to its
estimated fair value.
interests.
In cases where
N O N CO N T R O L L I N G I N T E R E S T
The Company consolidates CPLP and certain joint ventures
in which it owns a controlling interest. 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 nonredeemable
noncontrolling
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. The outside partners’ interests
in CPLP are redeemable into shares of cash or common stock
of the Company at the Company’s sole discretion. Therefore,
noncontrolling interests associated with CPLP are considered
nonredeemable noncontrolling interests. The noncontrolling
partners’ share of all consolidated entities’ income is reflected
in net income attributable to noncontrolling interest on the
statements of operations.
R E V E N U E R E CO G N I T I O N
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 2018, 2017, and 2016,
the Company recognized $79.8 million, $67.2 million, and
$90.2 million, respectively, in revenues, including discontinued
operations, 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.
Income: The Company recognizes development,
Fee
management, and leasing fees as it satisfies the related
performance obligations under the respective contracts. The
Company recognizes development 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 its investment in unconsolidated joint ventures when
fees are paid to the Company by a joint venture in which the
Company has an ownership interest.
F-10
2018 ANNUAL REPORT COUSINS PROPERTIES INCORPORATED Gain on Sale of Investment Properties: Prior to the adoption
of ASC 606, the Company recognized gains or losses on
sale of investment property when the sale of a property was
consummated, the buyer’s initial and continuing investment
was adequate to demonstrate commitment to pay, any
receivable obtained was not subject to future subordination,
the usual risks and rewards of ownership were transferred,
and the Company had no substantial continuing involvement
with the property. If the Company had a commitment to the
buyer and that commitment was a specific dollar amount,
this commitment was accrued and the gain on sale that the
Company recognized was reduced. If the Company had a
construction commitment to the buyer, management made
an estimate of this commitment, deferred a portion of the
profit from the sale, and recognized the deferred profit
when the commitment was fulfilled. After adoption of
ASC 606, the Company recognizes a gain on the sale of
investment property at the time the buyer obtains control
of the investment property. If the Company maintains any
continuing involvement with the investment property, that
continuing involvement is considered to be one or more
additional performance obligations and additional gains on
losses will be recognized as these performance obligations
are satisfied.
I N CO M E TA X E S
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 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.
CTRS is a C-Corporation for federal income tax purposes and
uses the liability method for 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.
E A R N I N G S P E R S H A R E ( “ E P S ” )
Net income per share-basic is calculated as net income
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 per share-diluted
is calculated as net income available to common stockholders
plus noncontrolling interests in CPLP 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 the outside units in CPLP were converted
into the Company’s common stock and 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. Stock options
are dilutive when the average market price of the Company’s
stock during the period exceeds the option exercise price.
C A S H A N D C A S H E Q U I VA L E N T S
Cash and cash equivalents include unrestricted 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.
R E S T R I C T E D C A S H
Restricted Cash includes escrow accounts held by lenders to
pay real estate taxes, earnest money paid in connection with
future acquisitions, and proceeds from property sales held by
qualified intermediaries for potential like-kind exchanges in
accordance with Section 1031 of the Code, if any.
U S E O F E S T I M AT E S
The preparation of financial statements in conformity
with GAAP requires management to make estimates and
assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at
the date of the financial statements and the reported amounts
of revenues and expenses during the reporting period. Actual
results could differ from those estimates.
F-11
COUSINS PROPERTIES INCORPORATED 2018 ANNUAL REPORT 3. TRANSACTIONS WITH PARKWAY
PROPERTIES, INC.
On October 6, 2016, Parkway Properties, Inc. (“Parkway”)
merged with and into a wholly-owned subsidiary of the
Company (the “Merger”), with this subsidiary continuing
as the surviving corporation of the Merger. The Company
incurred $188,000, $1.7 million, and $24.5 million in expenses
related to the Merger during the years ended December 31,
2018, 2017, and 2016, respectively. The Merger accounted
for $68.7 million of consolidated revenue and $9.0 million in
consolidated net income as reported for 2016.
On October 7, 2016, Cousins distributed pro rata to its
common and limited voting preferred stockholders, including
legacy Parkway common and limited voting stockholders,
Revenues
Income from continuing operations
Net income
Net income available to common stockholders
Per share information:
Basic
Diluted
all of the outstanding shares of common and limited voting
stock, respectively, of Parkway, Inc. (“New Parkway”), a
newly-formed entity that included the combined businesses
relating to the ownership of real properties in Houston, Texas
and certain other businesses of Parkway (the “Spin-Off”).
New Parkway became an independent public company.
supplemental pro
following unaudited
The
forma
information presented for the year ended December 31,
2016, is based upon the Company’s historical consolidated
statements of operations, adjusted as if the Merger had
occurred on January 1, 2015. This supplemental pro forma
information is not necessarily indicative of future results,
or of actual results, that would have been achieved had
the transactions been consummated at the beginning of the
period (unaudited, in thousands, except per share amounts).
$ 732,117
179,625
174,117
166,375
$
$
0.42
0.41
As a result of the Spin-Off, the historical results of operations
of the Company’s properties that were contributed to New
Parkway have been presented as discontinued operations in
the consolidated statements of operations and comprehensive
income. The above pro forma information is presented prior
to the discontinued operations reclassification. Discontinued
operations include transaction costs of $6.3 million incurred
in 2016 as a result of the Spin-Off. The following table includes
a summary of discontinued operations of the Company for
the year ended December 31, 2016 (in thousands).
Rental property revenues
Rental property operating expenses
Other revenues
Interest expense
Depreciation and amortization
Other expenses
Income from discontinued operations
Cash provided by operating activities
Cash used in investing activities
$136,927
(58,336)
288
(6,022)
(47,345)
(6,349)
$ 19,163
$ 42,604
$ 30,067
F-12
2018 ANNUAL REPORT COUSINS PROPERTIES INCORPORATED 4. REAL ESTATE TRANSACTIONS
D I S P O S I T I O N S
The Company had no dispositions in 2018. The Company sold the following properties in 2017 and 2016 ($ in thousands):
Property
Property Type
Location
Square Feet
Sales Price
2017
American Cancer Society Center
Bank of America Center, One Orlando Centre, and Citrus Center
2016
Post Oak Central
Greenway Plaza
191 Peachtree
Two Liberty Place
Lincoln Place
The Forum
100 North Point Center East
(1) Properties distributed to New Parkway in the Spin-Off.
Office
Office
Office
Office
Office
Office
Office
Office
Office
Atlanta, GA
Orlando, FL
996,000
1,038,000
$ 166,000
$ 208,100
Houston, TX
Houston, TX
Atlanta, GA
Philadelphia, PA
Miami, FL
Atlanta, GA
Atlanta, GA
1,280,000
4,348,000
1,225,000
941,000
140,000
220,000
129,000
(1)
(1)
$ 267,500
$219,000
$ 80,000
$ 70,000
$ 22,000
The Company sold the properties noted above as part of its ongoing investment strategy of exiting non-core markets and
selling non-core assets, using these proceeds to fund new investment activity.
ACQ U I S I T I O N S
During 2018, the Company acquired interests in two tracts of land in Midtown Atlanta, Georgia and one tract of land in
Tempe, Arizona for future investment. These three tracts of land were valued at $68.4 million and are included in land on the
accompanying balance sheets.
5. NOTES AND ACCOUNTS RECEIVABLE
At December 31, 2018 and 2017, notes and accounts receivables included the following (in thousands):
Notes receivable
Tenant and other receivables
Allowance for doubtful accounts related to tenant and other receivables
$
2018
453
13,997
(629)
$
2017
465
14,490
(535)
$ 13,821
$ 14,420
At December 31, 2018 and 2017, 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, 2018 and
2017. The estimate of the rate, which is the most significant
input in the discounted cash flow calculation, is intended to
replicate notes of similar type and maturity. This fair value
calculation is considered to be Level 3 under the guidelines
as set forth in ASC 820, as the Company utilizes internally
generated assumptions regarding current interest rates at
which similar instruments would be executed.
F-13
COUSINS PROPERTIES INCORPORATED 2018 ANNUAL REPORT 6. 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, 2018 and 2017.
The information included in the summary of operations table is for the years ended December 31, 2018, 2017, and 2016
(in thousands).
SUMMARY OF FINANCIAL POSITION
2018
2017
2018
2017
2018
2017
2018
2017
Total Assets
Total Debt
Total Equity (Deficit)
Company’s Investment
Terminus Office Holdings
DC Charlotte Plaza LLLP
Austin 300 Colorado Project, LP
Carolina Square Holdings LP
HICO Victory Center LP
Charlotte Gateway Village, LLC
AMCO 120 WT Holdings, LLC
CL Realty, L.L.C.
Temco Associates, LLC
EP II LLC
EP I LLC
Wildwood Associates
Crawford Long - CPI, LLC
Other
64,412
$ 258,060 $ 261,999 $ 198,732 $ 203,131 $ 50,539
— 88,922
— 41,298
28,844
— 14,801
— 109,666
— 31,372
4,183
—
1,379
—
165
—
—
296
— 11,108
(44,146)
—
155,530
51,180
106,187
15,069
112,553
36,680
4,169
1,482
247
461
11,157
26,429
—
53,791
—
106,580
14,403
124,691
18,066
8,287
4,441
277
521
16,337
27,362
6,379
—
—
74,638
—
—
—
—
—
—
—
—
69,522
—
71,047
—
$ 48,033
42,853
—
33,648
14,401
121,386
16,354
8,127
4,337
180
319
16,297
(44,815)
6,303
$ 48,571
46,554
22,335
16,840
10,003
8,225
5,538
2,886
919
30
6
(460) (1)
(21,071) (1)
—
$ 24,898
22,293
—
19,384
9,752
14,568
1,664
2,980
875
44
25
(1,151) (1)
(21,323) (1)
4,931
$ 779,204 $ 643,134 $ 342,892 $ 338,590 $ 338,427
$ 267,423
$ 140,376
$ 78,940
SUMMARY OF OPERATIONS
2018
2017
2016
2018
2017
2016
2018
2017
2016
Total Revenues
Net Income (Loss)
Company's Share of Net
Income (Loss)
Charlotte Gateway Village, LLC
Terminus Office Holdings
Wildwood Associates
Crawford Long - CPI, LLC
HICO Victory Center LP
Austin 300 Colorado Project, LP
Temco Associates, LLC
Courvoisier Centre JV, LLC
DC Charlotte Plaza LLLP
EP II LLC
EP I LLC
CL Realty, L.L.C.
Carolina Square Holdings LP
AMCO 120 WT Holdings, LLC
Other
42,386
$ 26,932 $ 26,465 $ 34,156 $10,285
5,506
— (1,140)
3,446
400
220
(2,965)
—
—
(16)
(23)
(161)
(169)
38
(69)
44,429
—
12,383
400
487
176
—
—
5
17
—
10,686
—
—
43,959
—
12,079
429
—
192
15,106
2
2,644
4,123
2,964
2,701
—
—
12,113
383
—
1,343
3,968
47
5,376
12,239
567
58
—
4,219
$ 9,528
6,307
(116)
3,171
431
—
123
(1,750)
2
13,008
45,115
2,668
(532)
58
(69)
$14,536
4,608
(140)
2,743
376
—
440
(489)
45
(1,187)
2,294
237
9
—
3,926
$ 5,143
2,755
2,723
1,641
219
110
43
5
(1)
(14)
(20)
(94)
(275)
—
(11)
$ 4,764
3,153
(58)
1,572
225
—
46
521
1
9,756
28,667
536
522
—
(2,590)
$ 2,194
2,303
(70)
1,372
187
—
502
(93)
24
(878)
1,684
128
—
—
3,209
(1) Negative balances are included in deferred income on the consolidated balance sheets.
$ 95,515 $110,664 $116,855 $15,352
$77,944
$27,398
$12,224
$ 47,115
$ 10,562
F-14
2018 ANNUAL REPORT COUSINS PROPERTIES INCORPORATED Terminus Office Holdings LLC (“TOH”) – TOH is a 50-
50 joint venture between the Company and institutional
investors advised by J.P. Morgan Asset Management
(“JPM”), which owns and operates two office buildings in
Atlanta, Georgia. TOH has two non-recourse mortgage loans
totaling $198.7 million that mature on January 1, 2023. The
weighted average interest rate on these fixed rate loans is
4.68%. Operating cash flows and proceeds from capital
transactions of TOH are allocated to the partners equally
until JPM receives an agreed upon return, after which the
Company may receive an additional promoted interest. The
assets of the venture in the above table include a cash balance
of $7.5 million at December 31, 2018.
DC Charlotte Plaza LLLP (“Charlotte Plaza”) – Charlotte
Plaza is a 50-50 joint venture between the Company and
Dimensional Fund Advisors (“DFA”), formed to develop
DFA’s 282,000 square foot regional headquarters building
in Charlotte, North Carolina. Capital contributions and
distributions of cash flow are made equally in accordance
with each partner’s partnership interest. The Company’s
required capital contribution is limited to a maximum of $46
million. The assets of the venture in the above table include a
cash balance of $842,000 at December 31, 2018.
Austin 300 Colorado Project, LP (“300 Colorado”) – In
2018, 300 Colorado, a joint venture between the Company,
3C Block 28 Partners, LP (“3CB”), and 3C RR Xylem, LP
(“3CRR”), was formed for the purpose of developing a
358,000 square foot office building in Austin, Texas. The
Company owns a 50% interest in the venture, 3CB owns
a 34.5% interest, and 3CRR owns a 15.5% interest. Upon
formation, 3CB and 3CRR contributed land for use by the
joint venture in the development project, the Company
contributed $6.0 million in cash, and 300 Colorado assumed
a ground lease for an additional parcel of land. The assets of
the venture in the above table include a cash balance of $1.7
million at December 31, 2018.
Carolina Square Holdings LP (“Carolina Square”) – Carolina
Square is a 50-50 joint venture between the Company and
NR 123 Franklin LLC (“Northwood Ravin”), which owns
and operates a mixed-use property in Chapel Hill, North
Carolina. This property contains 158,000 square feet of
office space, 44,000 square feet of retail space, and 246
apartment units. Carolina Square has a construction loan,
secured by the project, with an outstanding balance of $74.6
million. The loan bears interest at LIBOR plus 1.90% and
matures on May 1, 2019, with the second of two one-year
extensions available, subject to conditions. The Company
and Northwood Ravin each guarantee 12.5% of the
outstanding loan amount and guarantee completion of the
project. The assets of the venture in the table above include a
cash balance of $3.8 million at December 31, 2018.
HICO Victory Center LP (“HICO”) – HICO is a joint
venture between the Company and Hines Victory Center
Associates Limited Partnership (“Hines Victory”), formed
for the purpose of acquiring and subsequently developing an
office parcel in Dallas, Texas. Pursuant to the joint venture
agreement, all pre-development expenditures, other than
land, are funded equally by the partners. The Company
funded 75% of the cost of land while Hines Victory funded
25%. If the partners decide to commence construction of an
office building, the capital accounts and economics of the
venture will be adjusted such that the Company will own
at least 90% of the venture and Hines will own up to 10%.
As of December 31, 2018, the Company accounted for its
investment in HICO under the equity method because it
does not control the activities of the venture. If the partners
decide to construct an office building within the venture,
the Company expects to consolidate the venture. The assets
of the venture in the table above include a cash balance of
$565,000 at December 31, 2018.
Charlotte Gateway Village, LLC (“Gateway”) – Gateway is
a 50-50 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 Charlotte, North Carolina. Through December 1, 2016,
Gateway’s net income or loss and cash distributions were
allocated to the members as follows: first to the Company
so that it received a cumulative compounded return equal
to 11.46% on its capital contributions, second to BOA
until it received an amount equal to the aggregate amount
distributed to the Company, and then 50% to each member.
After December 1, 2016, net income and cash flows are
allocated 50% to each until the Company receives a 17%
internal rate of return; thereafter, cash flows are allocated
80% to BOA and 20% to the Company. The assets of the
venture in the above table include a cash balance of $3.2
million at December 31, 2018.
CL Realty, L.L.C. (“CL Realty”) – CL Realty is a 50-50
joint venture between the Company and Forestar Realty Inc.
(“Forestar”), that owns a parcel of land in Texas. The assets
of the venture in the above table include a cash balance of
$379,000 at December 31, 2018.
AMCO 120 WT Holdings, LLC (“Cousins AMCO”) –
Cousins AMCO is a joint venture between the Company,
with a 20% interest, and affiliates of AMLI Residential
(“AMLI”), with an 80% interest, formed to develop 120
F-15
COUSINS PROPERTIES INCORPORATED 2018 ANNUAL REPORT West Trinity, a mixed-use property in Decatur, Georgia. The
property is expected to contain approximately 33,000 square
feet of office space, 19,000 square feet of retail space, and
330 apartment units. Initial contributions to the joint venture
for the purchase of land were funded entirely by AMLI.
Subsequent contributions are funded in proportion to the
members’ percentage interests. The Company accounts for
its investment in this joint venture under the equity method
as it does not control the activities of the venture. The assets
of the venture in the above table include a cash balance of
$1,000 at December 31, 2018.
(“Temco”) – Temco
Temco Associates, LLC
is a
50-50 joint venture between the Company and Forestar,
that owns a golf course in Georgia. The assets of the venture
in the above table include a cash balance of $500,000 at
December 31, 2018.
EP I LLC (“EP I”) and EP II LLC (“EP II”) – EP I and EP II are
joint ventures between the Company, with a 75% ownership
interest, and Lion Gables Realty Limited Partnership
(“Gables”), with a 25% ownership interest, which owned
Emory Point, a mixed-use property in Atlanta, Georgia.
In 2017, EP I and EP II sold Emory Point for a combined
gross sales price of $199.0 million. After repayment of debt,
the Company received a distribution of $70.0 million and
recognized a gain of $37.9 million, which is recorded in
income from unconsolidated joint ventures. The assets of
the ventures in the above table include a cash balance of
$695,000 at December 31, 2018.
Courvoisier Centre JV, LLC (“Courvoisier”) – Courvoisier
was a joint venture between the Company, with a 20% interest,
and Spanish Key LLC, with an 80% interest, that owned
Courvoisier Centre, a 343,000 square foot, two-building
office property in Miami, Florida. In 2017, the Company
sold its 20% interest in Courvoisier Centre for $12.6 million
and recognized a gain of $716,000 in a transaction that
valued its interest in the property at $33.9 million, prior to
deduction for existing mortgage debt.
Wildwood Associates (“Wildwood”) – Wildwood is a 50-50
joint venture between the Company and IBM which owns
undeveloped land in the Wildwood Office Park in Atlanta,
Georgia. At December 31, 2018, the Company’s investment
in Wildwood was a credit balance of $460,000. 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. During 2018,
the venture sold land resulting in the Company decreasing
the credit balance by $749,000 and recognizing income from
unconsolidated joint ventures of $2.3 million related to this
sale. The Company does not have any obligation to fund
Wildwood’s working capital needs. The assets of the venture
in the above table include a cash balance of $68,000 at
December 31, 2018.
Crawford Long—CPI, LLC (“Crawford Long”) – Crawford
Long is a 50-50 joint venture between the Company and
Emory University that owns the Emory University Hospital
Midtown Medical Office Tower, a 358,000 square foot
medical office building located in Atlanta, Georgia. Crawford
Long has a $69.5 million, 3.5% fixed rate mortgage note
which matures on June 1, 2023. The assets of the venture
in the above table include a cash balance of $2.1 million at
December 31, 2018.
At December 31, 2018, the Company’s unconsolidated
joint ventures had aggregate outstanding indebtedness to
third parties of $342.9 million. These loans are mortgage or
construction loans, most of which are non-recourse to the
Company, except as described above. In addition, in certain
instances, the Company provides “non-recourse carve-out
guarantees” on these non-recourse loans.
The Company recognized $9.3 million, $7.2 million, and
$7.4 million of development, leasing, and management
fees,
reimbursements,
salary and expense
from unconsolidated joint ventures in 2018, 2017, and
2016, respectively.
including
F-16
2018 ANNUAL REPORT COUSINS PROPERTIES INCORPORATED 7. INTANGIBLE ASSETS
At December 31, 2018 and 2017, intangible assets included the following (in thousands):
In-place leases, net of accumulated amortization of $125,130 and
$91,548 in 2018 and 2017, respectively
Above-market tenant leases, net of accumulated amortization of $19,502 and
$13,038 in 2018 and 2017, respectively
Below-market ground lease, net of accumulated amortization of $621 and
$345 in 2018 and 2017, respectively
Goodwill
2018
2017
$105,964
$139,548
20,453
26,917
17,792
1,674
18,067
1,674
$145,883
$186,206
Aggregate net amortization expense related to intangible assets and liabilities was $27.0 million, $42.4 million, and $24.0
million for the years ended December 31, 2018, 2017, and 2016, respectively. Over the next five years and thereafter, aggregate
amortization of these intangible assets and liabilities is anticipated to be as follows (in thousands):
2019
2020
2021
2022
2023
Thereafter
Below
Market Rents
Above
Market Ground
Lease
Below
Market Ground
Lease
Above Market
Rents
In Place
Leases
Total
$(11,645)
(10,519)
(8,753)
(6,185)
(4,844)
(13,272)
$
(46)
(46)
(46)
(46)
(46)
(1,488)
$
276
276
276
276
276
16,412
$ 5,308
4,433
3,374
2,292
1,710
3,336
$ 26,161 $ 20,054
15,374
11,217
7,646
5,939
27,043
21,230
16,366
11,309
8,843
22,055
$(55,218)
$(1,718)
$ 17,792
$20,453
$105,964 $ 87,273
Weighted average remaining lease term
6 years
37 years
65 years
6 years
6 years
10 years
The carrying amount of goodwill did not change during the years ended December 31, 2018 and 2017.
8. OTHER ASSETS
At December 31, 2018 and 2017, other assets included the following (in thousands):
Furniture, fixtures and equipment, leasehold improvements, and other deferred costs,
net of accumulated depreciation of $25,193 and $21,925 in 2018 and 2017, respectively
Prepaid expenses and other assets
Lease inducements, net of accumulated amortization of $1,545 and $978 in 2018 and 2017, respectively
Line of credit deferred financing costs, net of accumulated amortization of $1,451 and
$3,119 in 2018 and 2017, respectively
Predevelopment costs and earnest money
2018
2017
$14,942
5,087
4,961
$12,241
3,902
3,126
5,844
8,249
1,213
372
$39,083
$20,854
inducements are
incentives paid to tenants
Lease
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 represent amounts that are capitalized
related to predevelopment projects that the Company
determined are probable of future development.
F-17
COUSINS PROPERTIES INCORPORATED 2018 ANNUAL REPORT 9. NOTES PAYABLE
The following table summarizes the terms of notes payable outstanding at December 31, 2018 and 2017 (in thousands):
Description
Term Loan, unsecured
Senior Notes, unsecured
Fifth Third Center
Colorado Tower
Senior Notes, unsecured
Promenade
816 Congress
Meridian Mark Plaza
Credit Facility, unsecured
The Pointe
Unamortized premium, net
Unamortized loan costs
Total Notes Payable
Interest Rate
Maturity *
2018
2017
3.70%
3.91%
3.37%
3.45%
4.09%
4.27%
3.75%
6.00%
3.55%
4.01%
2021
2025
2026
2026
2027
2022
2024
2020
2023
2019
$ 250,000 $ 250,000
250,000
146,557
250,000
143,497
119,427
120,000
100,000
100,000
99,238
81,676
23,524
—
—
102,355
83,304
24,038
—
22,510
$1,067,362 $1,098,764
—
219
(4,792)
(5,755)
$1,062,570 $1,093,228
*Weighted average maturity of notes payable outstanding at December 31, 2018 was 5.7 years.
C R E D I T FAC I L I T Y
Through January 2, 2018, the Company had a $500 million
senior unsecured line of credit (the “Credit Facility”) that was
scheduled to mature on May 28, 2019. The Credit Facility
contained financial covenants that required, among other
things, the maintenance of an unencumbered interest coverage
ratio of at least 2.00; a fixed charge coverage ratio of at least
1.50; an overall leverage ratio of no more than 60%; and a
minimum shareholders’ equity in an amount equal to $1.0
billion, plus a portion of the net cash proceeds from certain
equity issuances. The Credit Facility also contained customary
representations and warranties and affirmative and negative
covenants, as well as customary events of default.
The interest rate applicable to the Credit Facility varied
according to the Company’s leverage ratio, and was, at the
election of the Company, determined based on either (1) the
current London Interbank Offered Rate (“LIBOR”) plus a
spread of between 1.10% and 1.45%, based on leverage
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 a spread of between 0.10%
and 0.45%, based on leverage. The Company also paid an
annual facility fee on the total commitments under the Credit
Facility of between 0.15% and 0.30%, based on leverage.
On January 3, 2018, the Company entered into a Fourth
Amended and Restated Credit Agreement (the “New Credit
Facility”) under which the Company may borrow up to
$1 billion if certain conditions are satisfied.
The New Credit Facility recasts the Credit Facility by,
among other things, increasing the size from $500 million to
$1 billion; extending the maturity date from May 28, 2019
to January 3, 2023; providing for the expansion of the New
Facility by an additional $500 million, subject to receipt of
additional commitments from lenders and other customary
conditions; and decreasing the Consolidated Unencumbered
Interest Coverage ratio from 2.0 to 1.75.
The interest rate applicable to the New Credit Facility varies
according to the Company’s leverage ratio, and may, at the
election of the Company, be determined based on either
(1) the current LIBOR plus a spread of between 1.05% and
1.45%, 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 a spread of between
0.10% or 0.45%, based on leverage.
At December 31, 2018, the New Credit Facility’s spread over
LIBOR was 1.05%. At December 31, 2018, the Company
had no amounts drawn under the New Credit Facility and
had the ability to borrow $998 million of the $1 billion
available, with $2 million utilized by an outstanding letter
of credit.
T E R M LOA N
The Company has a $250 million unsecured term loan (the
“Term Loan”) that matures on December 2, 2021. Through
January 21, 2018, the Term Loan contained financial
covenants substantially consistent with those of the Credit
F-18
2018 ANNUAL REPORT COUSINS PROPERTIES INCORPORATED Facility. On January 22, 2018, the Term Loan was amended
to make the financial covenants consistent with those of the
New Credit Facility. The interest rate applicable to the Term
Loan varies according to the Company’s leverage ratio, and
may, at the election of the Company, be determined based on
either (1) the current LIBOR plus a spread of between 1.20%
and 1.70%, based on leverage 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 a
spread of between 0.00% and 0.75%, based on leverage. At
December 31, 2018, the Term Loan’s spread over LIBOR
was 1.2%.
U N S E C U R E D S E N I O R N OT E S
In 2017, the Company closed a $350 million private
placement of senior unsecured notes, which were funded in
two tranches. The first tranche of $100 million has a 10-year
maturity and has a fixed annual interest rate of 4.09%. The
second tranche of $250 million has an 8-year maturity and
has a fixed annual interest rate of 3.91%.
The senior unsecured notes contain 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 1.50; an overall leverage
ratio of no more than 60%; and a minimum shareholders’
equity in an amount equal to $1.9 billion, plus a portion
of the net cash proceeds from certain equity issuances. The
senior notes also contain customary representations and
warranties and affirmative and negative covenants, as well
as customary events of default.
M O R TG AG E LOA N I N FO R M AT I O N
In 2018, the Company repaid in full, without penalty, the
$22.2 million The Pointe mortgage note.
In 2017, the Company repaid in full, without penalty,
the $128.0 million One Eleven Congress mortgage note,
the $101.0 million San Jacinto Center mortgage note, the
$52.0 million Two Buckhead Plaza mortgage note, and the
$77.9 million 3344 Peachtree mortgage note. In connection
with these repayments, the Company recorded gains on
extinguishment of debt of $2.6 million, which represented
the unamortized premium recorded on the notes at the time
of the Merger.
In 2017, the Company sold the ACS Center. A portion of the
proceeds from the sale were used to repay the $127.0 million
mortgage note on the associated property, and the Company
recorded a loss on extinguishment of debt of $376,000,
which represented the remaining unamortized loan costs and
other costs associated with repaying the debt.
F-19
As of December 31, 2018, the Company had $467.3 million
outstanding on five non-recourse mortgage notes. Assets
with depreciated carrying values of $505.3 million were
pledged as security on these mortgage notes payable.
OT H E R D E BT I N FO R M AT I O N
At December 31, 2018 and 2017, the estimated fair value
of the Company’s notes payable was $1.1 billion, calculated
by discounting the debt’s remaining contractual cash flows
at estimated rates at which similar loans could have been
obtained at December 31, 2018 and 2017. 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, 2018, 2017, and 2016,
interest was recorded as follows (in thousands):
2018
2017
2016
Total interest incurred
Interest capitalized
$44,332
(4,902)
$42,767
(9,243)
$31,347
(4,697)
Total interest expense
$39,430
$33,524
$26,650
D E BT M AT U R I T I E S
(including scheduled
Future principal payments due
amortization payments and payments due upon maturity) on
the Company’s notes payable at December 31, 2018 are as
follows (in thousands):
2019
2020
2021
2022
2023
Thereafter
$
10,997
33,825
261,258
97,042
8,274
655,966
$ 1,067,362
10. COMMITMENTS AND CONTINGENCIES
CO M M I T M E N T S
The Company had outstanding letters of credit and
performance bonds totaling $2.6 million at December 31,
total of
2018. As a
$100.2 million in future obligations under leases to
fund tenant improvements and other future construction
obligations at December 31, 2018.
the Company had a
lessor,
The Company recorded ground and operating lease expense
of $3.6 million, $3.3 million, and $2.4 million in 2018,
2017, and 2016, respectively. The Company has future
COUSINS PROPERTIES INCORPORATED 2018 ANNUAL REPORT lease commitments under ground leases and operating leases
totaling $205.6 million over weighted-average remaining
terms of 76 and 2 years, respectively. Amounts due under
ground and operating lease commitments are as follows
(in thousands):
2019
2020
2021
2022
2023
Thereafter
$
2,582
2,484
2,461
2,396
2,374
193,346
$ 205,643
L I T I G AT I O N
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.
11. STOCKHOLDERS’ EQUITY
In 2017, the Company issued 25.0 million shares of
common stock, resulting in gross proceeds to the Company
of $212.9 million. The Company recorded $1.1 million in
legal, accounting, and other expenses associated with the
issuance resulting in net proceeds of $211.8 million. The
Company used the net proceeds from this offering to reduce
indebtedness. During the year ended December 31, 2017,
certain holders of CPLP units redeemed 1,203,286 units
in exchange for shares of the Company’s common stock.
The aggregate value at the time of these transactions was
$10.1 million based upon the value of the Company’s
common stock at the time of the transactions.
In 2016, in connection with the Merger, the Company issued
6.9 million shares of limited voting preferred stock, par value
$1 per share. Each share of limited voting preferred stock is
“paired” with a limited partnership unit in CPLP. A share of
Cousins limited voting preferred stock will be automatically
redeemed by Cousins without consideration if such share’s
paired limited partnership unit in CPLP is transferred or
redeemed. Holders of the limited voting preferred stock are
entitled to one vote on the following matters only: the election
of directors, any proposed amendment of the Company’s
Articles of Incorporation, any merger or other business
combination of the Company, any sale of substantially all of
the Company’s assets, and any liquidation of the Company.
Holders of limited voting preferred stock are not entitled
to any dividends or distributions and the limited voting
preferred stock is not convertible into or exchangeable for
any other property or securities of the Company.
Ownership Limitations — In order to minimize the risk
that the Company will not meet one of the requirements
for qualification as a REIT, the Company’s Articles of
Incorporation include certain restrictions on the ownership
of more than 3.9% of the Company’s total common and
preferred stock, subject to waiver by the Board of Directors.
F-20
2018 ANNUAL REPORT COUSINS PROPERTIES INCORPORATED Distribution of REIT Taxable Income — The following reconciles dividends paid and dividends applied in 2018, 2017, and
2016 to meet REIT distribution requirements (in thousands):
2018
2017
2016
Common and preferred dividends
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 in excess of current year REIT distribution requirements
Dividends applied to meet current year REIT distribution requirements
$107,167 $99,138 $1,077,179
(92)
(150)
(129)
—
—
—
—
—
—
(827,005)
$107,017 $99,009 $ 250,082
—
—
Tax Status of Distributions — The following summarizes the components of the taxability of the Company’s common stock
distributions for the years ended December 31, 2018, 2017, and 2016:
2018
2017
2016
Total
Distributions
Per Share
Ordinary
Dividends
Long-Term
Capital Gain
Unrecaptured
Section 1250
Gain (1)
Nondividend
Distributions
AMT
Adjustment (2)
$0.255000
$0.251396
$0.003604
$
—
$
—
$
—
$0.240000
$2.853075
$0.093312
$0.079661
$0.146688
$0.582778
$0.070522
$0.100934
$
—
$2.190636
$0.017756
—
$
(1) Represents a portion of the dividend allocated to long-term capital gain.
(2) The Company apportioned certain 2017 alternative minimum tax adjustments to its shareholders. Individual taxpayers
should refer to Internal Revenue Service Form 6251, Alternative Minimum Tax - Individuals. Corporate taxpayers should
refer to Internal Revenue Service Form 4626, Alternative Minimum Tax - Corporations.
leases
12. FUTURE MINIMUM RENTS
The Company’s
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.
typically
contain
At December 31, 2018, future minimum rents to be received
by consolidated entities under existing non-cancelable leases
are as follows (in thousands):
2019
2020
2021
2022
2023
Thereafter
$ 328,607
330,477
314,410
280,959
256,233
1,115,490
$ 2,626,176
13. STOCK-BASED COMPENSATION
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
F-21
to employees and directors. As of December 31, 2018,
2,466,153 shares were authorized to be awarded pursuant
to the 2009 Plan. The Company also maintains the 2005
Restricted Stock Unit (“RSU”) Plan, as amended, which
allows the Company to issue awards to employees that
are paid in cash on the vesting date in an amount equal
to the fair market value, as defined, of one share of the
Company’s stock. The Company has granted stock options,
restricted stock, and restricted stock units to employees as
discussed below.
As a result of the Spin-Off, the number and strike price of
stock options, shares of restricted stock, and the number
of restricted stock units were adjusted to preserve the
intrinsic value of the awards immediately prior to the Spin-
Off using an adjustment ratio based on the market price of
the Company’s stock prior to the Spin-Off and the market
price of the Company’s stock subsequent to the Spin-Off
pursuant to anti-dilution provisions of the 2009 Plan. Since
these adjustments were considered to be a modification
of the awards, the Company compared the fair value of
the awards immediately prior to the Spin-Off to the fair
value immediately after the Spin-Off to measure potential
COUSINS PROPERTIES INCORPORATED 2018 ANNUAL REPORT incremental
stock-based compensation expense. The
adjustments did not result in an increase in the fair value of
the awards and, accordingly, the Company did not record
incremental stock-based compensation expense.
S TO C K O P T I O N S
At December 31, 2018, the Company had 458,154 stock
options outstanding to key employees and outside directors
pursuant to the 2009 Plan, which are exercisable for
common stock. The Company typically uses authorized,
unissued shares to provide shares for option exercises. The
stock options have a term of ten years from the date of grant
and have a vesting period of four years, except director stock
options, which vest immediately. In 2018, 2017, and 2016,
there were no stock option grants to employees or directors.
In 2016, in conjunction with the Merger, the Company
granted 672,375 options to former Parkway key executives
that vested immediately and had a term of ten years from
the date of grant. The weighted average fair value of options
granted was $0.84 per option, and the Company computed
the fair value of options granted using the Black-Scholes
option pricing model with the following assumptions:
Risk-free interest rate
Assumed dividend yield
Assumed lives of option awards (in years)
Assumed volatility
1.37%
3.60%
6.4
23.23%
The Company recorded $565,000 to additional paid-in
capital for the fair value of the options granted as part of
the Merger. During 2018, 2017, and 2016, the Company
recognized no compensation expense related to stock
options. The Company does not anticipate recognizing
any future compensation expense related to stock options
outstanding. During 2018, the Company issued 47,309
shares and paid $945,000 to optionees for option exercises.
As of December 31, 2018, the intrinsic value of the options
outstanding and exercisable was $851,000. 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, 2018 and 2017, the weighted-average
contractual lives for the options outstanding and exercisable
were 1.1 years and 2.3 years, respectively.
The following is a summary of stock option activity for the years ended December 31, 2018, 2017, and 2016 (options
in thousands):
Outstanding at December 31, 2015
Granted as a result of the Merger and Spin-Off
Exercised
Forfeited/Expired
Outstanding at December 31, 2016
Exercised
Forfeited/Expired
Outstanding at December 31, 2017
Exercised
Forfeited/Expired
Outstanding at December 31, 2018
Options Exercisable at December 31, 2018
Number of
Options
Weighted
Average
Exercise Price
Per Option
1,763
1,222
(2)
(721)
2,262
(577)
(756)
929
(457)
(14)
458
458
$ 22.05
11.78
8.35
27.24
10.82
7.51
18.47
6.59
6.60
18.72
$ 6.00
$ 6.00
R E S T R I C T E D S TO C K
In 2018, 2017, and 2016, the Company issued 315,199,
308,289, and 234,965 shares of restricted stock to
employees, which vest ratably over three years from the
issuance date. In 2018, 2017, and 2016, the Company also
issued 118,555, 120,878, and 72,771 shares of stock to
independent members of the board of directors which vested
immediately on the issuance date. All shares of restricted
stock receive dividends and have voting rights during the
vesting period. The Company records 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
$2.3 million, $2.0 million, and $1.6 million in 2018, 2017,
and 2016, respectively.
F-22
2018 ANNUAL REPORT COUSINS PROPERTIES INCORPORATED As of December 31, 2018, the Company had recorded
$2.8 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
1.7 years. The total fair value of the restricted stock which
vested during 2018 was $2.3 million. The following table
summarizes restricted stock activity for the years ended
December 31, 2018, 2017, and 2016 (shares in thousands):
Number of
Shares
Weighted-Average
Grant Date
Fair Value
293
235
114
(141)
(30)
471
308
(214)
(8)
557
315
(259)
(22)
591
$10.65
8.62
7.57
8.54
9.77
7.57
8.63
7.50
6.53
7.93
8.51
7.83
8.22
$ 8.27
of performance-based RSUs outstanding at December 31,
2018 are 443,127, 379,381, and 379,582 related to the
2018, 2017, and 2016 grants, respectively.
The following table summarizes the performance-based
RSU activity as of December 31, 2018, 2017, and 2016
(in thousands):
Outstanding at December 31, 2015
Granted
Granted as a result of the Spin-Off
Vested
Forfeited
Outstanding at December 31, 2016
Granted
Vested
Forfeited
Outstanding at December 31, 2017
Granted
Vested
Forfeited
Outstanding at December 31, 2018
843
312
308
(160)
(30)
1,273
399
(576)
(12)
1,084
450
(296)
(36)
1,202
Non-vested restricted stock at December 31, 2015
Granted
Granted as a result of the Spin-Off
Vested
Forfeited
Non-vested restricted stock at December 31, 2016
Granted
Vested
Forfeited
Non-vested restricted stock at December 31, 2017
Granted
Vested
Forfeited
Non-vested restricted stock at December 31, 2018
R E S T R I C T E D S TO C K U N I T S
During 2018, 2017, and 2016, the Company awarded two
types of performance-based RSUs to key employees: one
based on the total stockholder return of the Company, as
defined, relative to that of office peers included in the SNL
US Office REIT Index (the “TSR RSUs”) and the other based
on the ratio of cumulative funds from operations per share
to targeted cumulative funds from operations per share (the
“FFO RSUs”). The performance period for these awards
is three years and 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. Both of these RSUs are to be settled in cash
with payment dependent upon the attainment of required
service, market, and performance criteria. The Company
expenses an estimate of the fair value of the TSR RSUs
over the performance 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 TSR RSUs and FFO RSUs will also be
paid based upon the percentage vested. The targeted number
F-23
COUSINS PROPERTIES INCORPORATED 2018 ANNUAL REPORT During 2018, 2017, and 2016, the Company granted 17,836,
264,723, and 28,938 time-vested RSUs, respectively, to key
employees. The vesting period for these awards is three years.
The value of each unit is equal to the fair market value of one
share of common stock. These RSUs are to be settled in cash
with payment dependent upon the attainment of the required
service criteria. Dividend equivalent units will be paid based
on the number of RSUs granted, with such payments made
concurrently with payment of common dividends.
The Company estimates future expense for all types of
RSUs outstanding at December 31, 2018 to be $3.6 million
(using stock prices and estimated target percentages as
of December 31, 2018), which will be recognized over a
weighted-average period of 1.1 years. During 2018, total
cash paid for all types of RSUs and related dividend payments
was $3.7 million.
During 2018, 2017, and 2016, $4.6 million, $7.0 million, and
$6.4 million, respectively, was recognized as compensation
expense related to RSUs.
14. 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. Through December 31, 2018, the Company
matched up to 3% of an employee’s eligible pre-tax
Retirement Savings Plan contributions up to certain Code
limits. Through December 31, 2018, employees vested in
Company contributions over a three-year period. Beginning
January 1, 2019, the Company contributes 3% of an
employee’s compensation to the plan that are fully vested
after the employee has been with the company for two years.
The Company may change this percentage at its discretion,
and, in addition, the Company could decide to make
discretionary contributions in the future. The Company
contributed $647,000, $764,000, and $682,000 to the
Retirement Savings Plan for the 2018, 2017, and 2016 plan
years, respectively.
15. INCOME TAXES
The net income tax benefit differs from the amount computed by applying the statutory federal income tax rate to CTRS’
income before taxes follows ($ in thousands):
Federal income tax benefit (expense)
State income tax benefit (expense), net of federal income tax effect
Change in deferred tax assets as a result of change in tax law
Valuation allowance
Other
2018
2017
2016
Amount
Rate
Amount
Rate
Amount
Rate
$ 143
27
—
(174)
4
21% $
4%
—%
(26)%
1%
47
5
(340)
283
5
35%
4%
(254)%
211%
4%
$(1,159)
(132)
—
1,282
9
(35)%
(4)%
—%
39%
—%
Benefit applicable to income (loss) from continuing operations
$ —
—% $ —
—%
$ —
—%
The tax effect of significant temporary differences representing deferred tax assets and liabilities of CTRS as of December 31,
2018 and 2017 are as follows (in thousands):
Income from unconsolidated joint ventures
Federal and state tax carryforwards
Other
Total deferred tax assets
Valuation allowance
Net deferred tax asset
2018
$ 18
763
2
783
(783)
2017
$ 19
590
—
609
(609)
$ —
$ —
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.
F-24
2018 ANNUAL REPORT COUSINS PROPERTIES INCORPORATED As of December 31, 2018 and 2017 the deferred tax asset of
CTRS equaled $783,000 and $609,000, respectively, with
a valuation allowance placed against the full amount of
each. The conclusion that a valuation allowance should be
recorded as of December 31, 2018 and 2017 was based on
the lack of evidence that CTRS could generate future taxable
income to realize the benefit of the deferred tax assets.
16. EARNINGS PER SHARE
The following table sets forth the computation of the basic and diluted earnings per share of the Company's consolidated
statements of operations for the years ended December 31, 2018, 2017 and 2016 (in thousands, except per share amounts):
Earnings per common share - basic:
Numerator:
Income from continuing operations
Net income attributable to noncontrolling interests in CPLP from continuing operations
Net income attributable to other noncontrolling interests from continuing operations
Income from continuing operations available for common stockholders
Income from discontinued operations
Net income available for common stockholders
Denominator:
Weighted average common shares - basic
Earnings per common share - basic:
Income from continuing operations available for common stockholders
Income from discontinued operations available for common stockholders
Net income available for common stockholders
Earnings per common share - diluted:
Numerator:
Year Ended December 31
2018
2017
2016
$ 80,765
(1,345)
(256)
79,164
—
$ 79,164
$219,959
(3,681)
(3)
216,275
—
$216,275
$ 60,941
(784)
(211)
59,946
19,163
$ 79,109
420,305
415,610
253,895
$
$
0.19
—
0.19
$
$
0.52
—
0.52
$
$
0.24
0.07
0.31
Income from continuing operations
Net income attributable to other noncontrolling interests from continuing operations
Income from continuing operations available for common stockholders
Income from discontinued operations available for common stockholders
Net income available for common stockholders before net income attributable to
noncontrolling interests in CPLP
$ 80,765
(256)
80,509
—
$219,959
(3)
219,956
—
$ 60,941
(211)
60,730
19,163
$ 80,509
$219,956
$ 79,893
Denominator:
Weighted average common shares - basic
Add:
Potential dilutive common shares - stock options
Weighted average units of CPLP convertible into common shares
Weighted average common shares - diluted
Earnings per common share - diluted:
Income from continuing operations available for common stockholders
Income from discontinued operations available for common stockholders
Net income available for common stockholders
420,305
415,610
253,895
194
6,974
427,473
312
7,375
423,297
178
1,950
256,023
$
$
0.19
—
0.19
$
$
0.52
—
0.52
$
$
0.24
0.07
0.31
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. As of
December 31, 2017 and 2016, the number of anti-dilutive
stock options was 24,000 and 762,000, respectively. There
were no anti-dilutive stock options outstanding as of
December 31, 2018.
F-25
COUSINS PROPERTIES INCORPORATED 2018 ANNUAL REPORT 17. CONSOLIDATED STATEMENTS OF CASH FLOWS - SUPPLEMENTAL INFORMATION
Supplemental information related to cash flows, including significant non-cash activity affecting the consolidated statements
of cash flows, for the years ended December 31, 2018, 2017, and 2016 is as follows (in thousands):
Interest paid, net of amounts capitalized
Income taxes paid
Non-Cash Transactions:
Transfer from projects under development to operating properties
Common stock dividends declared and accrued
Cumulative effect of change in accounting principle
Transfer from investment in unconsolidated joint ventures to projects under development
Change in accrued property acquisition, development, and tenant asset expenditures
Transfer from investment in unconsolidated joint venture to operating properties
Non-cash assets and liabilities assumed in Merger
Non-cash assets and liabilities distributed in Spin-Off
Mortgage note payable legally defeased
Transfer from land held to projects under development
2018
2017
2016
$ 43,166
$30,572
$
32,215
—
—
325,490
27,326
22,329
7,025
(18,104)
—
—
—
—
—
58,928
25,202
—
—
5,965
68,498
—
—
—
—
—
—
—
—
5,880
7,918
—
1,856,255
(948,306 )
20,170
8,099
The following table provides a reconciliation of cash, cash equivalents, and restricted cash recorded on the balance sheet to
cash, cash equivalents, and restricted cash in the statements of cash flows (in thousands):
Cash and cash equivalents
Restricted cash
Total cash, cash equivalents, and restricted cash
Year Ended December 31,
2018
$ 2,547
148
$ 2,695
2017
2016
$148,929
56,816
$205,745
$35,687
15,634
$51,321
18. REPORTABLE SEGMENTS
The Company's segments are based on the method of
internal reporting which classifies operations by property
type and geographical area. The segments by property type
are: Office and Mixed-Use. The segments by geographical
region are: Atlanta, Charlotte, Austin, Phoenix, Tampa,
Orlando, Houston, and Other. In 2016, the Company
disposed of its Houston properties as part of the Spin-Off.
In 2017, the Company sold its Orlando Properties. 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 geographical location. Each segment
includes both consolidated operations and the Company's
share of joint venture operations.
Company management evaluates the performance of its
reportable segments in part based on net operating income
(“NOI”). NOI represents rental property revenues less
rental property operating expenses. NOI is not a measure
of cash flows or operating results as measured by GAAP,
is not indicative of cash available to fund cash needs and
should not be considered an alternative to cash flows as a
measure of liquidity. All companies may not calculate NOI
in the same manner. The Company considers NOI to be
an appropriate supplemental measure to net income as it
helps both management and investors understand the core
operations of the Company's operating assets. NOI excludes
corporate general and administrative expenses, interest
expense, depreciation and amortization, impairments, gains/
loss on sales of real estate, and other non-operating items.
F-26
2018 ANNUAL REPORT COUSINS PROPERTIES INCORPORATED Segment net income, amount of capital expenditures, and
total assets are not presented in the following tables because
management does not utilize these measures when analyzing
its segments or when making resource allocation decisions.
Information on the Company's segments along with a
reconciliation of NOI to net income available to common
stockholders is as follows (in thousands):
Office
Mixed-Use
Total
$131,564
62,812
60,474
36,875
30,514
1,581
$323,820
$ — $131,564
62,812
60,474
36,875
30,514
3,824
$326,063
—
—
—
—
2,243
$2,243
Office
Mixed-Use
Total
$109,706
62,708
58,648
34,074
29,426
13,029
1,632
$309,223
$3,278
—
—
—
—
—
705
$3,983
$112,984
62,708
58,648
34,074
29,426
13,029
2,337
$313,206
Office
Mixed-Use
Total
$ 98,032
78,590
29,865
28,418
7,130
6,067
3,265
1,504
$252,871
$7,411
—
—
—
—
—
—
—
$7,411
$105,443
78,590
29,865
28,418
7,130
6,067
3,265
1,504
$260,282
Year ended December 31, 2018
Net Operating Income:
Atlanta
Charlotte
Austin
Phoenix
Tampa
Other
Total Net Operating Income
Year ended December 31, 2017
Net Operating Income:
Atlanta
Charlotte
Austin
Phoenix
Tampa
Orlando
Other
Total Net Operating Income
Year ended December 31, 2016
Net Operating Income:
Atlanta
Houston
Austin
Charlotte
Tampa
Phoenix
Orlando
Other
Total Net Operating Income
F-27
COUSINS PROPERTIES INCORPORATED 2018 ANNUAL REPORT The following reconciles Net Income to Net Operating Income for each of the periods presented (in thousands):
Net income
Net operating income from unconsolidated joint ventures
Net operating income from discontinued operations
Fee income
Other income
Reimbursed expenses
General and administrative expenses
Interest expense
Depreciation and amortization
Acquisition and transaction costs
Other expenses
(Gain) loss on extinguishment of debt
Income from unconsolidated joint ventures
Gain on sale of investment properties
Income from discontinued operations
Year Ended December 31,
2018
2017
2016
$ 80,765
28,888
—
(10,089)
(3,270)
3,782
22,040
39,430
$ 219,959
31,053
—
(8,632)
(11,518)
3,527
27,523
33,524
181,382
196,745
248
556
(8)
(12,224)
(5,437)
—
1,661
1,796
(2,258)
(47,115)
(133,059)
—
$ 80,104
28,785
78,591
(8,347)
(1,050)
3,259
25,592
26,650
97,948
24,521
5,888
5,180
(10,562)
(77,114)
(19,163)
Net Operating Income
$326,063
$ 313,206
$260,282
Revenues by reportable segment, including a reconciliation to total revenues on the consolidated statements of operations for
years ended December 31, 2018, 2017, and 2016 are as follows (in thousands):
Year ended December 31, 2018
Office
Mixed-Use
Total
Revenues:
Atlanta
Austin
Charlotte
Phoenix
Tampa
Other
Total segment revenues
$206,129
104,329
92,454
50,696
49,812
2,206
$ —
—
—
—
—
3,724
$206,129
104,329
92,454
50,696
49,812
5,930
505,626
3,724
509,350
Less: Company's share of rental property revenues from unconsolidated joint ventures
(43,773)
(3,724)
(47,497)
Total rental property revenues
$461,853
$ —
$461,853
F-28
2018 ANNUAL REPORT COUSINS PROPERTIES INCORPORATED Year ended December 31, 2017
Office Mixed-Use
Total
Revenues:
Atlanta
Austin
Charlotte
Tampa
Phoenix
Orlando
Other
Total segment revenues
$176,190
100,939
91,434
47,402
46,186
24,862
3,021
$ 5,237
—
—
—
—
—
999
$181,427
100,939
91,434
47,402
46,186
24,862
4,020
490,034
6,236
496,270
Less: Company's share of rental property revenues from unconsolidated joint ventures
(43,999)
(6,236)
(50,235)
Total rental property revenues
$446,035
$
—
$446,035
Year ended December 31, 2016
Office
Mixed-Use
Total
Revenues:
Atlanta
Houston
Austin
Charlotte
Tampa
Phoenix
Orlando
Other
Total segment revenues
$ 160,540
136,926
52,769
39,448
10,994
8,902
5,896
2,443
$ 13,043
—
—
—
—
—
—
—
$ 173,583
136,926
52,769
39,448
10,994
8,902
5,896
2,443
417,918
13,043
430,961
Less: Company's share of rental property revenues from unconsolidated joint ventures
(31,177)
(13,043)
Less: Revenues included in discontinued operations
Total rental property revenues
(136,927)
$ 249,814
$
—
—
(44,220)
(136,927)
$ 249,814
F-29
COUSINS PROPERTIES INCORPORATED 2018 ANNUAL REPORT 2018
DIRECTORS
Larry L. Gellerstedt III
Executive Chairman of the Board of Directors
Cousins Properties
S. Taylor Glover
Lead Director of the Board of Directors
Cousins Properties
Chief Executive Officer
Turner Enterprises, Inc.
Charles T. Cannada
Private Investor
Edward M. Casal
Chief Executive Officer
LaSalle Global Partner Solutions
Robert M. Chapman
Chief Executive Officer
CenterPoint Properties Trust
M. Colin Connolly
President and Chief Executive Officer
Cousins Properties
Lillian C. Giornelli
Chairman, Chief Executive Officer and Trustee
The Cousins Foundation, Inc.
Donna W. Hyland
President and Chief Executive Officer
Children’s Healthcare of Atlanta
R. Dary Stone
President and Chief Executive Officer
R. D. Stone Interests
Thomas G. Cousins
Chairman Emeritus
EXECUTIVE
OFFICERS
Larry L. Gellerstedt III
Executive Chairman of the Board of Directors
M. Colin Connolly
President and Chief Executive Officer
Gregg D. Adzema
Executive Vice President and
Chief Financial Officer
Richard G. Hickson IV
Executive Vice President
John S. McColl
Executive Vice President
Pamela F. Roper
Executive Vice President
General Counsel and
Corporate Secretary
John D. Harris, Jr.
Senior Vice President
Chief Accounting Officer
Treasurer and Assistant Secretary
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, 2018 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 3344 Peachtree
Road, NE, Suite 1800, Atlanta, Georgia 30326.
Exhibits are available if requested.
The Form 10K is also posted on the Company’s
Website at cousins.com or may be obtained
from the SEC’s website at www.sec.gov.
Investor Relations Contact
Roni Imbeaux
Vice President, Finance & Investor Relations
Telephone Number: 404.407.1104
rimbeaux@cousins.com
3344 PEACHTREE ROAD NE, SUITE 1800, ATLANTA, GA 30326
404.407.1000 - COUSINS.COM