SECURITIES AND EXCHANGE COMMISSION
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For Quarter Ended September 30, 1998 Commission file number 0-3576
COUSINS PROPERTIES INCORPORATED
A GEORGIA CORPORATION
I.R.S. EMPLOYER IDENTIFICATION NO. 58-0869052
2500 WINDY RIDGE PARKWAY
ATLANTA, GEORGIA 30339-5683
TELEPHONE: 770-955-2200
Registrant 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, and
has been subject to such filing requirements for the past 90 days.
At October 31, 1998, 31,711,195 shares of common stock of the Registrant
were outstanding.
<PAGE>
<TABLE>
<CAPTION>
COUSINS PROPERTIES INCORPORATED AND CONSOLIDATED ENTITIES
CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
($ in thousands, except per share amounts)
September 30, December 31,
1998 1997
------------- ------------
<S> <C> <C>
ASSETS
- ------
PROPERTIES:
Operating properties, net of accumulated
depreciation of $44,801 as of September 30,
1998 and $33,617 at December 31, 1997 $370,154 $318,334
Land held for investment or future development 15,988 27,948
Projects under construction 138,638 54,778
Residential lots under development 8,292 14,942
-------- --------
Total properties 533,072 416,002
-------- --------
CASH AND CASH EQUIVALENTS, at cost which
approximates market 1,058 32,694
NOTES AND OTHER RECEIVABLES 56,727 38,464
INVESTMENT IN UNCONSOLIDATED JOINT VENTURES 111,857 120,198
OTHER ASSETS 9,519 10,381
-------- --------
TOTAL ASSETS $712,233 $617,739
======== ========
LIABILITIES AND STOCKHOLDERS' INVESTMENT
- ----------------------------------------
NOTES PAYABLE $302,583 $226,348
ACCOUNTS PAYABLE AND ACCRUED LIABILITIES 31,823 20,332
DEPOSITS AND DEFERRED INCOME 850 385
-------- --------
TOTAL LIABILITIES 335,256 247,065
-------- --------
COMMITMENTS AND CONTINGENT LIABILITIES
STOCKHOLDERS' INVESTMENT
Common stock, $1 par value, authorized
50,000,000 shares; issued 31,711,195
shares at September 30, 1998 and
31,472,178 shares at December 31, 1997 31,711 31,472
Additional paid-in capital 240,543 234,237
Cumulative undistributed net income 104,723 104,965
-------- --------
TOTAL STOCKHOLDERS' INVESTMENT 376,977 370,674
-------- --------
TOTAL LIABILITIES AND STOCKHOLDERS' INVESTMENT $712,233 $617,739
======== ========
The accompanying notes are an integral part of these consolidated balance
sheets.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
COUSINS PROPERTIES INCORPORATED AND CONSOLIDATED ENTITIES
CONSOLIDATED STATEMENTS OF INCOME
FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 1998 AND 1997
(UNAUDITED)
($ in thousands, except per share amounts)
Three Months Nine Months
Ended September 30, Ended September 30,
------------------- -------------------
1998 1997 1998 1997
------- ------- ------- -------
REVENUES:
<S> <C> <C> <C> <C>
Rental property revenues $19,168 $15,386 $52,134 $46,390
Development income 803 1,081 2,327 2,535
Management fees 917 863 2,735 2,552
Leasing and other fees 538 197 1,552 387
Residential lot and outparcel sales 5,198 3,737 13,972 9,149
Interest and other 1,039 969 3,011 2,652
------- ------- ------- -------
27,663 22,233 75,731 63,665
------- ------- ------- -------
INCOME FROM UNCONSOLIDATED JOINT VENTURES 4,406 3,737 13,534 10,786
COSTS AND EXPENSES:
Rental property operating expenses 5,039 3,685 13,181 11,191
General and administrative expenses 3,495 3,403 9,460 9,750
Depreciation and amortization 4,380 3,509 11,743 10,577
Stock appreciation right (credit) expense (183) 274 (103) 270
Residential lot and outparcel cost
of sales 4,941 3,489 13,179 8,415
Interest expense 3,369 3,426 8,912 10,701
Property taxes on undeveloped land 221 245 670 458
Other 4 353 113 1,425
------- ------- ------- -------
21,266 18,384 57,155 52,787
------- ------- ------- -------
INCOME FROM OPERATIONS BEFORE INCOME TAXES 10,803 7,586 32,110 21,664
EXPENSE (BENEFIT) FOR INCOME TAXES FROM
OPERATIONS 66 (314) (41) (919)
INCOME BEFORE GAIN ON SALE OF
INVESTMENT PROPERTIES 10,737 7,900 32,151 22,583
GAIN ON SALE OF INVESTMENT PROPERTIES,
NET OF APPLICABLE INCOME TAX PROVISION -- 2,974 1,657 5,370
------- ------- ------- -------
NET INCOME $10,737 $10,874 $33,808 $27,953
======= ======= ======= =======
WEIGHTED AVERAGE SHARES 31,628 29,223 31,556 29,137
======= ======= ======= =======
BASIC NET INCOME PER SHARE $ .34 $ .37 $ 1.07 $ .96
======= ======= ======= =======
ADJUSTED WEIGHTED AVERAGE SHARES 32,070 29,672 32,016 29,558
======= ======= ======= =======
DILUTED NET INCOME PER SHARE $ .33 $ .37 $ 1.06 $ .95
======= ======= ======= =======
CASH DIVIDENDS DECLARED PER SHARE $ .36 $ .31 $ 1.08 $ .93
======= ======= ======= =======
The accompanying notes are an integral part of these consolidated statements.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
COUSINS PROPERTIES INCORPORATED AND CONSOLIDATED ENTITIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1998 AND 1997
(UNAUDITED)
($ in thousands)
1998 1997
-------- --------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Income before gain on sale of investment
properties $ 32,151 $ 22,583
Adjustments to reconcile income before gain on
sale of investment properties to net cash
provided by operating activities:
Depreciation and amortization 11,743 10,577
Stock appreciation right expense (103) 270
Cash charges to expense accrual for stock
appreciation rights (201) (778)
Effect of recognizing rental revenues on a
straight-line basis (250) (347)
Income from unconsolidated joint ventures (13,534) (10,786)
Operating distributions from unconsolidated
joint ventures 18,739 17,397
Residential lot and outparcel cost of sales 12,740 7,918
Changes in other operating assets and
liabilities:
Change in other receivables (951) 1,656
Change in accounts payable and
accrued liabilities 6,213 153
-------- --------
Net cash provided by operating activities 66,547 48,643
-------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Gain on sale of investment properties, net of
applicable income tax provision 1,657 5,370
Adjustments to reconcile gain on sale of
investment properties to net cash provided
by sales activities:
Cost of sales 1,200 15,675
Property acquisition and development expenditures (125,259) (53,219)
Non-operating distributions from unconsolidated
joint ventures 22,617 14,670
Investment in unconsolidated joint ventures,
including interest capitalized to equity
investments (19,481) (3,266)
Investment in notes receivable (18,834) (5,587)
Collection of notes receivable 1,428 883
Change in other assets, net 370 (525)
-------- --------
Net cash used in investing activities (136,302) (25,999)
-------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from line of credit 139,578 87,957
Repayment of line of credit (68,705) (109,257)
Dividends paid (34,051) (27,067)
Proceeds from other notes payable -- 25,000
Common stock sold, net of expenses 6,545 5,851
Repayment of other notes payable (5,248) (5,321)
-------- --------
Net cash provided by (used in) financing activities 38,119 (22,837)
-------- --------
NET DECREASE IN CASH AND CASH EQUIVALENTS (31,636) (193)
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 32,694 1,598
-------- --------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 1,058 $ 1,405
======== ========
The accompanying notes are an integral part of these consolidated statements.
</TABLE>
<PAGE>
COUSINS PROPERTIES INCORPORATED AND CONSOLIDATED ENTITIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 1998
(UNAUDITED)
1. BASIS OF PRESENTATION
- --------------------------
The Consolidated Financial Statements include the accounts of Cousins
Properties Incorporated ("Cousins") and its majority and wholly-owned
affiliates, as well as Cousins Real Estate Corporation ("CREC") and its
subsidiaries. All of the entities included in the Consolidated Financial
Statements are hereinafter referred to collectively as the "Company."
Cousins has elected to be taxed as a real estate investment trust
("REIT") and intends to distribute 100% of its federal taxable income to
stockholders, thereby eliminating any liability for future corporate federal
income taxes. Therefore, the results included herein do not include a federal
income tax provision for Cousins. However, CREC and its subsidiaries are taxed
separately from Cousins as a regular corporation. Accordingly, the Consolidated
Statements of Income include a provision (benefit) for CREC's income taxes.
The Consolidated Financial Statements were prepared by the Company
without audit, but in the opinion of management reflect all adjustments
necessary for the fair presentation of the Company's financial position as of
September 30, 1998, and results of operations for the three and nine month
periods ended September 30, 1998 and 1997. Results of operations for the interim
1998 period are not necessarily indicative of results expected for the full
year. While certain information and footnote disclosures normally included in
financial statements prepared in accordance with generally accepted accounting
principles have been condensed or omitted pursuant to the rules and regulations
of the Securities and Exchange Commission, the Company believes that the
disclosures herein are adequate to make the information presented not
misleading. These condensed financial statements should be read in conjunction
with the Consolidated Financial Statements and the notes thereto included in the
Company's annual report on Form 10-K/A for the year ended December 31, 1997. The
accounting policies employed are the same as those shown in Note 1 to the
Consolidated Financial Statements included in such Form 10-K/A. Certain 1997
amounts have been reclassified to conform with the 1998 presentation.
2. SUPPLEMENTAL INFORMATION CONCERNING CASH FLOWS
- ---------------------------------------------------
Interest (net of $5,259,000 and $2,111,000 capitalized in 1998 and
1997, respectively) and income taxes paid were as follows for the nine months
ended September 30, 1998 and 1997 ($ in thousands):
1998 1997
------ -------
Interest paid $8,897 $10,720
Income taxes paid $ 110 $ 46
During the nine months ended September 30, 1998, approximately
$29,939,000 was transferred from Projects Under Construction to Operating
Properties and approximately $14,115,000 was transferred from Land Held for
Investment or Future Development to Projects Under Construction. In June 1998,
in conjunction with the acquisition of Northside/Alpharetta I, a mortgage note
payable of approximately $10,610,000 was assumed.
At September 30, 1998, cash and cash equivalents included approximately
$806,000 which is restricted under a municipal bond indenture.
3. NOTES PAYABLE AND INTEREST EXPENSE
At September 30, 1998 and December 31, 1997, notes payable included the
following ($ in thousands):
<TABLE>
<CAPTION>
September 30, 1998 December 31, 1997
------------------------------------- ---------------------------------------
Share of Share of
Unconsolidated Unconsolidated
Company Joint Ventures Total Company Joint Ventures Total
------- -------------- ----- ------- -------------- -----
<S> <C> <C> <C> <C> <C> <C>
Floating Rate Lines
of Credit $ 70,874 $ -- $ 70,874 $ -- $ -- $ --
Other Debt
(primarily non-recourse
fixed rate mortgages) 231,709 162,743 394,452 226,348 133,446 359,794
-------- -------- -------- -------- -------- --------
$302,583 $162,743 $465,326 $226,348 $133,446 $359,794
======== ======== ======== ======== ======== ========
</TABLE>
Cousins LORET Venture, L.L.C. completed the $70 million non-recourse
financing of The Pinnacle in May 1998 which is expected to be fully funded by
December 1998. This non-recourse mortgage note payable has an interest rate of
7.11% and a term of twelve years.
Effective in October 1998, the Company increased its line of credit to
a maximum of $150 million up from $100 million. Additionally, in October 1998,
the Company completed the financing of Lakeshore Park Plaza with a $10.8 million
non-recourse mortgage note payable at an interest rate of 6.78% and a term of
ten years.
For the three and nine months ended September 30, 1998, interest
expense was recorded as follows ($ in thousands):
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, 1998 September 30, 1998
------------------------------------- ------------------------------------
Share of Share of
Unconsolidated Unconsolidated
Company Joint Ventures Total Company Joint Ventures Total
------- -------------- ------ ------- -------------- -------
<S> <C> <C> <C> <C> <C> <C>
Interest Expensed $3,369 $2,480 $5,849 $ 8,912 $6,643 $15,555
Interest Capitalized 1,924 597 2,521 5,259 1,653 6,912
------ ------ ------ ------- ------ -------
$5,293 $3,077 $8,370 $14,171 $8,296 $22,467
====== ====== ====== ======= ====== =======
</TABLE>
During the third quarter of 1998, interest was capitalized related to
the Company's and the Company's share of unconsolidated joint venture projects
under construction which had an average balance of approximately $159 million.
4. EARNINGS PER SHARE DATA
- ---------------------------
Weighted average shares and adjusted weighted average shares are as
follows (in thousands):
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
------------------ -----------------
1998 1997 1998 1997
------ ------ ------ ------
<S> <C> <C> <C> <C>
Weighted average shares 31,628 29,223 31,556 29,137
Dilutive potential common shares 442 449 460 421
------ ------ ------ ------
Adjusted weighted average shares 32,070 29,672 32,016 29,558
====== ====== ====== ======
Anit-dilutive options not included 570 -- 570 --
====== ====== ====== ======
</TABLE>
<PAGE>
PART I. FINANCIAL INFORMATION
- ------------------------------
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations for the Three and Nine Months Ended
September 30, 1998 and 1997.
Results of Operations:
- ----------------------
Rental Property Revenues and Operating Expenses. Rental property
revenues were approximately $3,782,000 and $5,744,000 higher in the three and
nine month 1998 periods, respectively. Rental property revenues from the
Company's office portfolio increased approximately $1,749,000 and $2,246,000 in
the three and nine month 1998 periods, respectively. The increase was partially
due to the acquisition of Lakeshore Park Plaza in June 1998, which contributed
$665,000 and $718,000 to the increase in the three and nine month 1998 periods,
respectively. The increase was also partially due to an increase of
approximately $617,000 and $808,000 for the three and nine month 1998 periods,
respectively, from 333 North Point Center East, which became partially
operational in June 1998. Additionally, Grandview II became partially
operational for financial reporting purposes in August 1998, which contributed
$285,000 in both the three and nine month 1998 periods. Rental property revenues
increased approximately $262,000 for the nine month 1998 period from 200 North
Point Center East, which became partially operational for financial reporting
purposes in November 1996 and therefore was in the lease-up phase in the nine
month 1997 period.
Rental property revenues from the Company's retail portfolio increased
approximately $1,248,000 and $1,956,000 in the three and nine month 1998
periods, respectively. The increase was partially due to approximately $420,000
and $1,012,000 in the three and nine month 1998 periods, respectively, from
Abbotts Bridge Station, which became partially operational for financial
reporting purposes in February 1998. Additionally, Laguna Niguel Promenade
became partially operational in July 1998, which contributed approximately
$350,000 to both the three and nine month 1998 increases. Rental property
revenues increased approximately $134,000 and $226,000 at North Point
MarketCenter and approximately $119,000 and $419,000 at Presidential
MarketCenter for the three and nine month periods, respectively, due to
expansions of both of these centers. The increase in the nine month 1998 period
was also partially due to increases at Greenbrier MarketCenter ($331,000) and
Los Altos MarketCenter ($310,000) as these centers, which became partially
operational for financial reporting purposes in October 1996 and November 1996,
respectively, were in the lease-up phase in the nine month 1997 period.
Additionally, rental property revenues also increased for the nine month 1998
period by approximately $169,000 due to the completion of Mansell Crossing Phase
II in May 1997 and approximately $100,000 due to increased occupancy at Colonial
Plaza MarketCenter. The overall increase in rental property revenues was
partially offset by a decrease for the nine month 1998 period in rental property
revenues of approximately $450,000 from Lovejoy Station and approximately
$644,000 from Rivermont Station, both of which were sold in July 1997.
Rental property revenues from the Company's medical office portfolio
increased approximately $787,000 and $1,544,000 in the three and nine month 1998
periods, respectively, primarily due to the acquisition of Northside/Alpharetta
I in June 1998, which contributed approximately $694,000 and $791,000 of the
increase for the three and nine month 1998 periods, respectively. Presbyterian
Medical Plaza at University which became partially operational for financial
reporting purposes in July 1997 and was 100% leased and occupied as of January
1, 1998, contributed approximately $94,000 and $752,000 of the increase for the
three and nine month 1998 periods, respectively.
Rental property operating expenses increased approximately $1,354,000
and $1,990,000 for the three and nine month 1998 periods, respectively, which
increase was primarily related to the aforementioned retail centers and office
buildings becoming operational, the expansion of certain of the retail centers
and the June 1998 acquisitions of Lakeshore Park Plaza and Northside/Alpharetta
I. The increase for the nine month period was partially offset by decreases of
approximately $91,000 and $108,000 from Lovejoy Station and Rivermont Station,
both of which were sold in July 1997.
Development Income. Development income decreased approximately $278,000
and $208,000 in the three and nine month 1998 periods, respectively. Development
income recognized by the Company's retail division from third party retail
developments decreased approximately $614,000 and $1,468,000 in the three and
nine month 1998 periods. Development income received from the Dusseldorf project
also decreased approximately $235,000 and $120,000 for the three and nine month
1998 periods, respectively. Further contributing to the decrease in the nine
month 1998 period was a decrease in development income recognized of
approximately $302,000 from the 4200 Wildwood Parkway Building.
Partially offsetting the aforementioned decreases were increases in
development fees recognized from two unconsolidated joint ventures:
approximately $247,000 and $757,000 for the three and nine month 1998 periods,
respectively, from the Cousins LORET Venture, L.L.C. ("Cousins LORET") (see Note
5 of "Notes to Consolidated Financial Statements" in the Company's annual report
on Form 10-K/A for the year ended December 31, 1997) and approximately $182,000
and $484,000 for the three and nine month periods, respectively, from the Brad
Cous Golf Venture, Ltd. ("Brad Cous") (see Note 6 of "Notes to Consolidated
Financial Statements" in the Company's quarterly report on Form 10-Q for the
quarter ended March 31, 1998). Also partially offsetting the decrease in the
nine month 1998 period was an increase of approximately $282,000 in development
fees recognized from the fee development of Total Systems' corporate
headquarters in Columbus, Georgia.
Management Fees. Management fees increased approximately $183,000 in
the nine month 1998 period. The increase was mainly due to the management fees
recognized from Cousins LORET related to the Two Live Oak office building (see
Note 5 of "Notes to Consolidated Financial Statements" in the Company's annual
report on Form 10-K/A for the year ended December 31, 1997).
Leasing and Other Fees. Leasing and other fees increased approximately
$341,000 and $1,165,000 in the three and nine month 1998 periods, respectively.
The increases were due to leasing fees recognized related to the lease-up of
NationsBank Plaza (approximately $106,000 and $350,000 in the three and nine
month periods, respectively), and The Pinnacle and Two Live Oak (approximately
$152,000 and $371,000 in the three and nine month periods, respectively). Also,
the increase in the nine month 1998 period was due to approximately $432,000 in
leasing fees recognized related to the lease-up of the 4200 Wildwood Parkway
Building.
Residential Lot and Outparcel Sales and Cost of Sales. Residential lot
and outparcel sales increased approximately $1,461,000 and $4,823,000 in the
three and nine month 1998 periods, respectively. The increase in the three month
1998 period was due to residential lot sales increasing from 68 lots in the
three month 1997 period to 111 lots in the three month 1998 period, which
increased residential lot sales recognized by approximately $2,586,000.
Partially offsetting this increase was two outparcel sales recognized in the
three month 1997 period for approximately $1,125,000. No outparcel sales
occurred in the three month 1998 period.
The increase in the nine month 1998 period was primarily due to an
increase in residential lot sales from 170 lots in the nine month 1997 period to
287 lots in the nine month 1998 period, which increased residential lot sales
recognized by approximately $6,642,000. Partially offsetting the aforementioned
increase was a decrease in outparcel sales recognized by CREC and one of its
subsidiaries to $800,000 in the nine month 1998 period from $2,619,000 in the
nine month 1997 period; there were two outparcel sales in 1998 and five
outparcel sales in 1997.
Residential lot and outparcel cost of sales increased approximately
$1,452,000 and $4,764,000 in the three and nine month 1998 periods,
respectively, mainly due to the aforementioned increases in residential lot
sales. Both 1998 periods were negatively impacted by a $350,000 writedown of one
residential development because of changes in lot sales price assumptions. The
increase in the nine month 1998 period was partially offset by three less
outparcel sales in 1998 as compared to 1997, as discussed above.
Interest and Other Income. Interest and other income increased
approximately $359,000 in the nine month 1998 period. This increase was
primarily due to interest income of approximately $272,000 recognized from a
note receivable from Cousins LORET. The Company began lending funds in June 1998
to Cousins LORET at a slightly higher rate than its borrowing costs. The Company
will continue to lend funds until December 1998, when Cousins LORET will draw
funds from the $70 million financing of The Pinnacle office building (see Note
3).
Income from Unconsolidated Joint Ventures. (All amounts reflect the
Company's share of joint venture income.) Income from unconsolidated joint
ventures increased approximately $669,000 and $2,748,000 in the three and nine
month 1998 periods, respectively.
Income from CSC Associates, L.P. increased approximately $375,000 and
$1,119,000 in the three and nine month 1998 periods, respectively, primarily due
to the increase in rental income at NationsBank Plaza from a tenant whose
increase in rental rate did not require straight-lining under Statement of
Financial Accounting Standards No. 13, and the continued lease-up of the
building.
Income from Haywood Mall Associates increased approximately $128,000
and $548,000 in the three and nine month 1998 periods, respectively, due to
continued lease-up of the expansion of Haywood Mall.
Income from Cousins LORET increased approximately $239,000 and $602,000
in the three and nine month 1998 periods, respectively. Two Live Oak, a 278,000
rentable square foot office building owned by Cousins LORET, became partially
operational for financial reporting purposes in October 1997 (see Note 5 of
"Notes to Consolidated Financial Statements" in the Company's annual report on
Form 10-K/A for the year ended December 31, 1997).
Income from Wildwood Associates increased approximately $442,000 in the
nine month 1998 period. Income before depreciation, amortization and interest
expense was favorably impacted by approximately $819,000 due to the continued
lease-up of the 2300 Windy Ridge Parkway, 2500 Windy Ridge Parkway and 3200
Windy Hill Road Buildings. Additionally, the 4200 Wildwood Parkway Building
became operational in June 1998, which generated approximately $278,000 of
income before depreciation, amortization and interest expense. Partially
offsetting the increase in income from Wildwood Associates was an increase in
interest expense before interest capitalization of approximately $235,000 due to
the completion of the financing of the 4100 and 4300 Wildwood Parkway Buildings
in March 1997 and approximately $381,000 due to the completion of financing of
the 4200 Wildwood Parkway Building in June 1998.
General and Administrative Expenses. General and administrative
expenses decreased approximately $290,000 in the nine month 1998 period. The
decrease was primarily due to an increase in salaries and overhead being
capitalized to a higher level of projects under development in 1998.
Depreciation and Amortization. Depreciation and amortization increased
approximately $871,000 and $1,166,000 in the three and nine month 1998 periods,
respectively. The increases in both 1998 periods were partially due to 333 North
Point Center East, Presbyterian Medical Plaza at University, Grandview II,
Abbotts Bridge Station and Laguna Niguel Promenade becoming operational.
Additionally, the June 1998 acquisitions of Lakeshore Park Plaza and
Northside/Alpharetta I contributed to the increase in the three and nine month
1998 periods. Partially offsetting the aforementioned increases was a decrease
of approximately $270,000 for the nine month 1998 period due to the sales of
Lovejoy Station and Rivermont Station in July 1997.
Stock Appreciation Right (Credit) Expense. The stock appreciation right
expense decreased approximately $457,000 and $373,000 to a credit of $183,000
and $103,000 in the three and nine month 1998 periods, respectively. This
non-cash item is primarily related to the Company's stock price, which was
$29.3125, $29.875 and $28.0625 at December 31, 1997, June 30, 1998 and September
30, 1998, respectively, and $28.125, $27.75 and $29.9375 at December 31, 1996,
June 30, 1997 and September 30, 1997, respectively.
Interest Expense. Interest expense decreased approximately $1,789,000
in the nine month 1998 period. Interest expense before capitalization increased
in the nine month period to approximately $14,171,000 in 1998 from $12,812,000
in 1997 due to higher debt levels. Offsetting the increase in the nine month
period was an increase in interest capitalized to projects under development (a
reduction of interest expense) to $5,259,000 in 1998 from $2,111,000 in 1997.
Property Taxes on Undeveloped Land. Property taxes on undeveloped land
increased $212,000 in the nine month 1998 period. The increase was due to the
favorable settlement of property tax appeals in the second quarter of 1997 on
the Company's North Point land related to 1994, 1995 and 1996 tax years.
Other Expenses. Other expenses decreased approximately $349,000 and
$1,312,000 in the three and nine month 1998 periods, respectively, due to a
decrease in predevelopment expense.
Benefit for Income Taxes from Operations. Benefit for income taxes from
operations decreased $380,000 to an expense of $66,000 in the three month 1998
period. Benefit for income taxes from operations decreased approximately
$878,000 in the nine month 1998 period. The decrease in both 1998 periods was
due to decreases in CREC and its subsidiaries' loss before provision for income
taxes and gain on sale of investment properties of $1,021,000 and $2,166,000 in
the three and nine month 1998 periods, respectively. CREC and its subsidiaries'
loss before income taxes and gain on sale of investment properties decreased due
to the aforementioned decrease in predevelopment expense, increases in both
residential lot sales and development fees in the three and nine month 1998
periods. Certain development fees recorded on CREC and its subsidiaries' books
are intercompany fee income which is eliminated in consolidation, but the tax
effect is not, and such intercompany fees increased in both the three and nine
month 1998 periods.
Gain on Sale of Investment Properties. Gain on sale of investment
properties decreased approximately $2,974,000 and $3,713,000 in the three and
nine month 1998 periods, respectively. The 1998 gain was from two parcels sold
at the Company's North Point development: the March 1998 sale of 6 acres of land
($.6 million gain) and the April 1998 sale of approximately 23 acres ($1.0
million gain). The 1997 gain was from the January 1997 sale of 28 acres of land
at the Company's North Point development ($2.4 million gain) and from the July
1997 sale of Rivermont Station and Lovejoy Station, two Atlanta neighborhood
retail centers ($3.0 million gain).
Liquidity and Capital Resources:
- --------------------------------
Financial Condition. The Company's debt (including its pro rata share
of unconsolidated joint venture debt) was 34% of total market capitalization at
September 30, 1998.
The Company has development and acquisition projects in various
planning stages. The Company currently intends to finance these projects, as
well as the completion of projects currently under construction, using its
existing lines of credit (one of which was increased effective October 1998 to a
maximum of $150 million from $100 million (see Note 3)); long-term non-recourse
financing on the Company's unleveraged projects, other financings, and the sale
of common stock, warrants to purchase common stock and debt securities under a
$200 million shelf registration statement the Company filed with the Securities
and Exchange Commission in September 1996, of which approximately $132 million
remains available at September 30, 1998. The Company completed a $10.8 long-term
non-recourse financing in October 1998 (see Note 3).
The Company from time to time evaluates opportunities and strategic
alternatives, including but not limited to joint ventures, mergers and
acquisitions and new private or publicly-owned entities created to hold existing
assets and acquire new assets. These alternatives may also include sales of
single or multiple assets when the Company perceives opportunities to capture
value and redeploy proceeds or distribute proceeds to shareholders. The
Company's consideration of these alternatives is part of its ongoing strategic
planning process. There can be no assurance that any such alternative, if
undertaken and consummated, would not materially adversely affect the Company or
the market price of the Company's Common Stock.
Cash Flows. Net cash provided by operating activities increased
approximately $17.9 million in 1998. An increase of approximately $9.6 million
in income before gain on sale of investment properties favorably impacted net
cash provided by operating activities. Operating distributions from
unconsolidated joint ventures increased approximately $1.3 million primarily due
to an increase in distributions of $1.7 million from Haywood Mall and a $.4
million distribution received from Cousins LORET, partially offset by a decrease
in distributions of approximately $.9 million from CSC Associates, L.P.
Residential lot and outparcel cost of sales increased approximately $4.8 million
due to increases in the number of residential lots sold in 1998. Cash flows from
operating activities were also positively impacted by changes in other operating
assets and liabilities, an increase of approximately $3.5 million.
Net cash used in investing activities increased approximately $110.3
million in 1998 primarily due to an increase of approximately $72 million in
property acquisition and development expenditures, as a result of the Company
acquiring two properties in 1998 and having a higher level of projects under
development. Also contributing to the increase in cash used in investing
activities was a decrease of approximately $18.2 million in 1998 in gain on sale
of investment properties, including cost of sales. Investment in unconsolidated
joint ventures increased approximately $16.2 million primarily due to
contributions to Cousins LORET of approximately $13.6 million and to Brad Cous
of approximately $3.0 million, which are being used to fund the development of
The Pinnacle and The Shops at World Golf Village, respectively. Investment in
notes receivable increased by approximately $13.2 million due to the
aforementioned note receivable from Cousins LORET. An increase in non-operating
distributions from unconsolidated joint ventures of approximately $7.9 million
partially offset the increase in net cash used in investing activities. The
increase in non-operating distributions from unconsolidated joint ventures was
due to an increase in distributions received from Wildwood Associates in 1998 of
approximately $10.1 million, primarily due to the completion of financing of the
4200 Wildwood Parkway building, partially offset by a decrease of approximately
$2.1 million in distributions from Norfolk Hotel Associates in 1998; all
remaining assets of Norfolk Hotel Associates were distributed in 1997, and the
venture was then liquidated.
Net cash provided by financing activities increased approximately $61
million in 1998, which was primarily attributable to an increase of
approximately $92.2 million in the net amount drawn on the Company's line of
credit. An increase in the dividends paid per share to $1.08 in 1998 from $.93
in 1997 and an increase in the number of shares outstanding also partially
offset the increase in net cash provided by financing activities, as dividends
paid increased approximately $7 million. Also partially offsetting the increase
was a decrease in proceeds from other notes payable of $25 million. In July
1997, the Company completed the $25 million financing of the 100 and 200 North
Point Center East Buildings. No similar financing occurred in 1998.
Year 2000
- ---------
The "Year 2000 issue" is the result of certain computer systems being
written using two digits rather than four to define the applicable year.
Therefore, certain computer systems may not recognize a year that begins with a
"20" rather than a "19." This could result in system failures which could cause
disruptions of operations. The Company has completed its initial assessment of
the impact of the Year 2000 issue on its business and operations and has
identified the areas which rely on computer systems and may be potentially
impacted, which include the systems utilized in the operations of its real
estate properties and in the processing of its accounting data.
The Company has significantly completed an inventory of the computer
systems being utilized in its existing operating real estate properties to
determine if they will be adversely affected by the Year 2000 issue. Such
systems include, but are not limited to, heating and air conditioning controls,
elevator controls, fire alarms and security devices. Certain of these systems
are being replaced, upgraded or modified as deemed necessary, the cost of which
is not expected to be material.
The Company is currently in the process of upgrading its accounting
software to a version that its software vendor has certified to be Year 2000
compliant. The Company expects to have the installation of the upgrade completed
by the first quarter of 1999. The hardware used to run the accounting software
is Year 2000 compliant. The cost of the upgrades to the accounting software is
not expected to be material.
The Company is also surveying all material third party vendors to
determine their Year 2000 compliance status and receiving certificates, where
possible, as to their compliancy. No estimates can be made as to any potential
adverse impact resulting from the failure of any third party vendor or service
provider to be Year 2000 compliant.
To date, the cost to analyze and prepare for the Year 2000 issue has
not been material. The Company does not currently anticipate the need for a
contingency plan. There can be no assurance that the Company will be able to
identify and correct all aspects of the effect of the Year 2000 issue on the
Company. However, the Company does not currently expect the Year 2000 issue will
have a material impact on the Company's business, operations or financial
condition.
Certain matters pertaining to the Year 2000 are forward-looking statements
within the meaning of the federal securities laws and are subject to
uncertainties and risks, including, but not limited to, general economic
conditions, local real estate conditions, interest rates, the Company's ability
to obtain favorable financing, and other risks detailed from time to time in the
Company's filings with the Securities and Exchange Commission, included in the
Form 10-Q for the quarter ended March 31, 199
Supplemental Financial Information:
- -----------------------------------
Depreciation and amortization expense included the following components for
the three and nine months ended September 30, 1998 ($ in thousands):
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, 1998 September 30, 1998
-------------------------------- --------------------------------
Share of Share of
Unconsolidated Unconsolidated
Company Joint Ventures Total Company Joint Ventures Total
------- -------------- ----- ------- -------------- -----
<S> <C> <C> <C> <C> <C> <C>
Furniture, fixtures and equipment $ 132 $ -- $ 132 $ 370 $ 1 $ 371
Deferred financing costs -- 7 7 -- 13 13
Goodwill and related business
acquisition costs 81 15 96 234 52 286
Real estate related:
Building (including tenant
first generation) 3,900 2,773 6,673 10,370 7,994 18,364
Tenant second generation 267 94 361 769 534 1,303
------ ------ ------ ------- ------ -------
$4,380 $2,889 $7,269 $11,743 $8,594 $20,337
====== ====== ====== ======= ====== =======
</TABLE>
Exclusive of new developments and purchases of furniture, fixtures and
equipment, the Company had the following capital expenditures during the three
and nine months ended September 30, 1998, including its share of unconsolidated
joint ventures ($ in thousands):
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, 1998 September 30, 1998
-----------------------
Office Retail Total Office Retail Total
------ ------ ----- ------ ------ -----
<S> <C> <C> <C> <C> <C> <C>
Second generation related costs $288 $ 45 $333 $761 $ 45 $806
Building improvements -- -- -- -- -- --
---- ---- ---- ---- ---- ----
$288 $ 45 $333 $761 $ 45 $806
==== ==== ==== ==== ==== ====
</TABLE>
<PAGE>
PART II. OTHER INFORMATION
- ---------------------------
Item 6. Exhibits and Reports on Form 8-K
--------------------------------
(a) Exhibits
--------
27 Financial Data Schedule
(b) Reports on Form 8-K
-------------------
There were no reports on Form 8-K filed by the
Registrant during the third quarter ended September
30, 1998.
<PAGE>
SIGNATURES
----------
Pursuant to the requirements 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.
COUSINS PROPERTIES INCORPORATED
Registrant
/s/ Kelly H. Barrett
--------------------------------
Kelly H. Barrett
Senior Vice President - Finance
(Authorized Officer)
(Principal Accounting Officer)
November 12, 1998
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> SEP-30-1998
<CASH> 1,058
<SECURITIES> 0
<RECEIVABLES> 56,727
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 577,873
<DEPRECIATION> 44,801
<TOTAL-ASSETS> 712,233
<CURRENT-LIABILITIES> 31,823
<BONDS> 302,583
0
0
<COMMON> 31,711
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 712,233
<SALES> 0
<TOTAL-REVENUES> 89,265
<CGS> 0
<TOTAL-COSTS> 57,155
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 8,912
<INCOME-PRETAX> 32,110
<INCOME-TAX> 32,151
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 33,808
<EPS-PRIMARY> 1.07
<EPS-DILUTED> 1.06
</TABLE>
