SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For Quarter Ended June 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 July 31, 1998, 31,578,117 shares of common stock of the Registrant were
outstanding.
<PAGE>
<TABLE>
<CAPTION>
COUSINS PROPERTIES INCORPORATED AND CONSOLIDATED ENTITIES
CONSOLIDATED BALANCE SHEETS
($ in thousands, except per share amounts)
June 30, December 31,
1998 1997
----------- ------------
(Unaudited)
<S> <C> <C>
ASSETS
- ------
PROPERTIES:
Operating properties, net of accumulated
depreciation of $40,259 as of June 30, 1998
and $33,369 as of December 31, 1997 $360,240 $318,901
Land held for investment or future development 15,917 27,948
Projects under construction 114,343 54,778
Residential lots under development 11,251 14,942
-------- --------
Total properties 501,751 416,569
CASH AND CASH EQUIVALENTS, at cost which
approximates market 1,782 32,694
NOTES AND OTHER RECEIVABLES 44,542 38,464
INVESTMENT IN UNCONSOLIDATED JOINT VENTURES 110,196 120,198
OTHER ASSETS 8,122 9,814
-------- --------
TOTAL ASSETS $666,393 $617,739
======== ========
LIABILITIES AND STOCKHOLDERS' INVESTMENT
- ----------------------------------------
NOTES PAYABLE $269,426 $226,348
ACCOUNTS PAYABLE AND ACCRUED LIABILITIES 22,229 20,332
DEPOSITS AND DEFERRED INCOME 895 385
-------- --------
TOTAL LIABILITIES 292,550 247,065
-------- --------
COMMITMENTS AND CONTINGENT LIABILITIES
STOCKHOLDERS' INVESTMENT:
Common stock, $1 par value, authorized
50,000 shares; issued 31,572,217
shares at June 30, 1998 and 31,472,178
shares at December 31, 1997 31,572 31,472
Additional paid-in capital 236,916 234,237
Cumulative undistributed net income 105,355 104,965
-------- --------
TOTAL STOCKHOLDERS' INVESTMENT 373,843 370,674
-------- --------
TOTAL LIABILITIES AND STOCKHOLDERS' INVESTMENT $666,393 $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 SIX MONTHS ENDED JUNE 30, 1998 AND 1997
(UNAUDITED)
(In thousands, except per share amounts)
Three Months Six Months
Ended June 30, Ended June 30,
-------------- --------------
1998 1997 1998 1997
---- ---- ---- ----
REVENUES:
<S> <C> <C> <C> <C>
Rental property revenues $16,832 $15,749 $32,966 $31,004
Development income 732 480 1,524 1,454
Management fees 928 855 1,818 1,689
Leasing and other fees 480 53 1,014 190
Residential lot and outparcel sales 4,317 3,151 8,774 5,412
Interest and other 925 853 1,972 1,683
------- ------- ------- -------
24,214 21,141 48,068 41,432
------- ------- ------- -------
INCOME FROM UNCONSOLIDATED JOINT VENTURES 4,547 3,467 9,128 7,049
COSTS AND EXPENSES:
Rental property operating expenses 4,308 3,797 8,142 7,506
General and administrative expenses 2,893 3,088 5,965 6,347
Depreciation and amortization 3,765 3,639 7,363 7,068
Stock appreciation right expense (credit) (118) 127 80 (4)
Residential lot and outparcel cost of sales 4,059 2,980 8,238 4,926
Interest expense 2,731 3,619 5,543 7,275
Property taxes on undeveloped land 227 (46) 449 213
Other 94 593 109 1,072
------- ------- ------- -------
17,959 17,797 35,889 34,403
------- ------- ------- -------
INCOME FROM OPERATIONS BEFORE INCOME TAXES 10,802 6,811 21,307 14,078
BENEFIT FOR INCOME TAXES FROM OPERATIONS (89) (644) (107) (605)
------- ------- ------- -------
INCOME BEFORE GAIN ON SALE OF
INVESTMENT PROPERTIES 10,891 7,455 21,414 14,683
GAIN ON SALE OF INVESTMENT PROPERTIES, NET
OF APPLICABLE INCOME TAX PROVISION 886 -- 1,657 2,396
------- ------- ------- -------
NET INCOME $11,777 $ 7,455 $23,071 $17,079
======= ======= ======= =======
WEIGHTED AVERAGE SHARES 31,545 29,189 31,520 29,093
======= ======= ======= =======
BASIC NET INCOME PER SHARE $ .37 $ .26 $ .73 $ .59
======= ======= ======= =======
ADJUSTED WEIGHTED AVERAGE SHARES 32,029 29,609 31,996 29,499
======= ======= ======= =======
DILUTED NET INCOME PER SHARE $ .37 $ .25 $ .72 $ .58
======= ======= ======= =======
CASH DIVIDENDS DECLARED PER SHARE $ .36 $ .31 $ .72 $ .62
======= ======= ======= =======
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 SIX MONTHS ENDED JUNE 30, 1998 AND 1997
(UNAUDITED)
($ in thousands)
1998 1997
---- ----
CASH FLOWS FROM OPERATING ACTIVITIES:
<S> <C> <C>
Income before gain on sale of investment properties $21,414 $14,683
Adjustments to reconcile income before gain on sale of
investment properties to net cash provided by
operating activities:
Depreciation and amortization 7,363 7,068
Stock appreciation right expense (credit) 80 (4)
Cash charges to expense accrual for stock
appreciation rights (39) (684)
Effect of recognizing rental revenues on a
straight-line basis (155) (238)
Income from unconsolidated joint ventures (9,128) (7,049)
Operating distributions from unconsolidated
joint ventures 14,609 13,463
Residential lot and outparcel cost of sales 7,965 4,422
Changes in other operating assets and liabilities:
Change in other receivables (1,335) 1,353
Change in accounts payable and accrued liabilities 3,961 (4,727)
------- -------
Net cash provided by operating activities 44,735 28,287
------- -------
CASH FLOWS FROM INVESTING ACTIVITIES:
Gain on sale of investment properties, net of
applicable income tax provision 1,657 2,396
Adjustments to reconcile gain on sale of investment
properties to net cash provided by sales activities:
Cost of sales 1,200 287
Property acquisition and development expenditures (92,263) (33,221)
Non-operating distributions from unconsolidated joint
ventures 22,617 14,600
Investment in unconsolidated joint ventures,
including interest capitalized to equity investments (18,096) (145)
Investment in notes receivable (5,969) (5,564)
Change in other assets, net 1,374 (315)
Collection of notes receivable 1,267 829
------- -------
Net cash used in investing activities (88,213) (21,133)
------- -------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from line of credit 85,062 68,177
Repayment of line of credit (49,087) (55,477)
Dividends paid (22,681) (18,012)
Repayment of other notes payable (3,507) (3,577)
Common stock sold, net of expenses 2,779 5,003
------- -------
Net cash provided by (used in) financing activities 12,566 (3,886)
------- -------
NET (DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS (30,912) 3,268
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 32,694 1,598
------- -------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 1,782 $ 4,866
======= =======
The accompanying notes are an integral part of these consolidated statements.
</TABLE>
<PAGE>
COUSINS PROPERTIES INCORPORATED AND CONSOLIDATED ENTITIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 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
June 30, 1998, and results of operations for the three and six month periods
ended June 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.
2. SUPPLEMENTAL INFORMATION CONCERNING CASH FLOWS
Interest (net of $3,335,000 and $1,270,000 capitalized in 1998 and
1997, respectively) and income taxes paid were as follows for the six months
ended June 30, 1998 and 1997 ($ in thousands):
1998 1997
---- ----
Interest paid $ 5,458 $7,190
Income taxes paid $ 110 $ --
During the six months ended June 30, 1998, approximately $17,163,000
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 (see Notes 3 and 5).
At June 30, 1998, cash and cash equivalents included approximately
$1,060,000 which is restricted under a municipal bond indenture.
3. NOTES PAYABLE AND INTEREST EXPENSE
At June 30, 1998 and December 31, 1997, notes payable included the
following ($ in thousands):
<TABLE>
<CAPTION>
June 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 $ 35,975 $ -- $ 35,975 $ -- $ -- $ --
Other Debt
(primarily non-recourse
fixed rate mortgages) 233,451 157,033 390,484 226,348 133,446 359,794
-------- -------- -------- -------- -------- --------
$269,426 $157,033 $426,459 $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. In June 1998, Wildwood Associates completed
the financing of the 4200 Wildwood Parkway Building with a $44 million
non-recourse mortgage note payable at an interest rate of 6.78% and a term of
fifteen and three-quarters years. Also in June 1998, the Company assumed a $10.6
million non-recourse mortgage note payable pursuant to the acquisition of the
Northside/Alpharetta I medical office building (see Note 5). This mortgage note
payable has an interest rate of 7.7% and a remaining term of eight years.
For the three and six months ended June 30, 1998, interest expense
was recorded as follows ($ in thousands):
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, 1998 June 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 $2,731 $2,047 $4,778 $5,543 $4,163 $ 9,706
Interest Capitalized 1,864 570 2,434 3,335 1,056 4,391
------ ------ ------ ------ ------ -------
$4,595 $2,617 $7,212 $8,878 $5,219 $14,097
====== ====== ====== ====== ====== =======
</TABLE>
During the second 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 $132 million.
4. EARNINGS PER SHARE DATA
Weighted average shares and adjusted weighted average shares are as
follows (in thousands):
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
------------------ ----------------
1998 1997 1998 1997
---- ---- ---- ----
<S> <C> <C> <C> <C>
Weighted average shares 31,545 29,189 31,520 29,093
Dilutive potential common shares 484 420 476 406
------ ------ ------ ------
Adjusted weighted average shares 32,029 29,609 31,996 29,499
====== ====== ====== ======
Anit-dilutive options not included -- -- 585 --
====== ====== ====== ======
</TABLE>
5. NORTHSIDE/ALPHARETTA I AND II
In June 1998, the Company acquired Northside/Alpharetta I, an
approximately 100,000 rentable square foot medical office building, located in
suburban Atlanta, which is 100% leased. The purchase price was approximately $16
million including the assumption of a $10.6 million non-recourse mortgage note
payable (see Note 3). Construction also commenced in June 1998 on Phase II,
which consists of an approximately 198,000 rentable square foot medical office
building which is 41% pre-leased. The building is expected to be completed in
the second quarter of 1999 at a total cost of approximately $21 million.
6. LAKESHORE PARK PLAZA
In June 1998, the Company acquired Lakeshore Park Plaza, an
approximately 193,000 rentable square foot office building, located in
Birmingham, Alabama, which is 100% leased. The purchase price was approximately
$15 million.
7. 2500 UNIVERSITY PARK
In June 1998, the Company purchased the land for, and commenced
construction of, 2500 University Park, an approximately 123,000 rentable square
foot office building in Birmingham, Alabama. The Company purchased the
approximately 10 acre site for approximately $1.9 million. The office building
is expected to be completed in the third quarter of 1999 at a total cost of
approximately $19 million.
<PAGE>
PART I. FINANCIAL INFORMATION
- ------------------------------
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations for the Three and Six Months Ended June 30,
1998 and 1997.
Results of Operations:
- ----------------------
Rental Property Revenues and Operating Expenses. Rental property
revenues were approximately $1,083,000 and $1,962,000 higher in the three and
six month 1998 periods, respectively. Rental property revenues from the
Company's office portfolio increased approximately $555,000 and $498,000 in the
three and six month 1998 periods, respectively. This increase was partially due
to an increase of approximately $191,000 for both the three and six month 1998
periods from 333 North Point Center East, which became partially operational in
June 1998. Additionally, rental property revenues increased approximately
$85,000 and $216,000 for the three and six month 1998 periods, respectively,
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 first half of 1997. The increase in the six month 1998 period was
partially offset by a decrease in rental property revenues of $129,000 for 101
Independence Center caused by a decrease in the average economic occupancy of
this office building to 93% in 1998 from 97% in 1997. 101 Independence Center
was 96% leased as of June 30, 1998.
Rental property revenues from the Company's retail portfolio increased
approximately $97,000 and $708,000 for the three and six month 1998 periods,
respectively. The increase in the six month 1998 period is partially due to
increases in Greenbrier MarketCenter ($259,000) and Los Altos MarketCenter
($265,000), 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 first half of 1997. Rental property revenues also
increased approximately $300,000 due to an expansion in April 1997 of
Presidential MarketCenter, approximately $136,000 due to the completion in May
1997 of Mansell Crossing Phase II, and approximately $592,000 from Abbotts
Bridge Station which became partially operational for financial reporting
purposes in February 1998. The overall increase in rental property revenues was
partially offset by a decrease in rental property revenues of approximately
$224,000 and $450,000 for the three and six month 1998 periods, respectively,
from Lovejoy Station and $413,000 and $654,000 for the three and six month 1998
periods, respectively, from Rivermont Station, both of which were sold in July
1997.
Rental property revenues from the Company's medical office portfolio
increased approximately $427,000 and $756,000 for the three and six month 1998
periods, respectively, primarily due to 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.
Rental property operating expenses increased approximately $511,000 and
$636,000 for the three and six month 1998 periods, respectively, which increase
was primarily related to the aforementioned increased occupancy and expansion of
certain of the retail centers and Presbyterian Medical Plaza at University
becoming operational.
Development Income. Development income increased approximately $252,000
and $70,000 for the three and six month 1998 periods, respectively. The increase
in the three month 1998 period is partially due to development fees recognized
from two unconsolidated joint ventures; $245,000 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 $182,000 from the Brad Cous Golf Venture, Ltd. (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 contributing to
the increase was an increase of approximately $103,000 in development fees
recognized from the fee development of Total Systems' corporate headquarters in
Columbus, Georgia. The increase was partially offset by approximately $169,000
of development income recognized in the three month 1997 period from a retail
center in Cuyahoga Falls, Ohio. No similar income was recognized in 1998.
Management Fees. Management fees increased $73,000 and $129,000 for the
three and six month 1998 periods, respectively. This increase is 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 10K/A for the year ended December 31, 1997).
Leasing and Other Fees. Leasing and other fees increased approximately
$427,000 and $824,000 for the three and six month 1998 periods, respectively.
The increase in both the three and six month 1998 periods was due to
approximately $432,000 in leasing fees related to the lease-up of the 4200
Wildwood Parkway Building. The increase in the six month 1998 period was also
due to leasing fees recognized related to the lease-up of NationsBank Plaza
(approximately $243,000), and The Pinnacle and Two Live Oak (approximately
$219,000).
Residential Lot and Outparcel Sales and Cost of Sales. Residential lot
and outparcel sales increased approximately $1,166,000 and $3,362,000 for the
three and six month 1998 periods, respectively. The increase in the three month
1998 period is due to residential lot sales increasing from 65 lots for the
three month 1997 period to 92 lots for the three month 1998 period, which
increased residential lot sales recognized by approximately $1,576,000.
Partially offsetting this increase was one outparcel sale in the three month
1997 period for $410,000. No such outparcel sale occurred in the three month
1998 period.
The increase in the six month 1998 period was primarily due to an
increase in residential lot sales from 104 lots for the six month 1997 period to
176 lots for the six month 1998 period, which increased residential lot sales
recognized by approximately $4,057,000. Partially offsetting the aforementioned
increase was a decrease in outparcel sales recognized by CREC and one of its
subsidiaries to $800,000 in the six month 1998 period from $1,494,000 in the six
month 1997 period; there were two outparcel sales in 1998 and three outparcel
sales in 1997.
Residential lot and outparcel cost of sales increased approximately
$1,079,000 and $3,312,000 for the three and six month 1998 periods,
respectively, mainly due to increases in residential lot sales. This increase
was partially offset by one less outparcel sale in 1998 as compared to 1997, as
discussed above.
Interest and Other Income. Interest and other income increased
approximately $72,000 and $289,000 for the three and six month 1998 periods,
respectively. The increase in the six month 1998 period was primarily due to an
increase in interest income recognized from temporary investments. In the six
months ended June 30, 1998, the Company recognized interest income on temporary
investments made with the remaining proceeds from the December 1997 common stock
offering of 2,150,000 shares (see Note 6 of "Notes to Consolidated Financial
Statements" in the Company's annual report on Form 10-K/A for the year ended
December 31, 1997). No similar amounts were invested in the six months ended
June 30, 1997.
Income from Unconsolidated Joint Ventures. (All amounts reflect the
Company's share of joint venture income.) Income from unconsolidated joint
ventures increased approximately $1,080,000 and $2,079,000 for the three and six
month 1998 periods, respectively.
Income from CSC Associates, L.P. increased approximately $362,000 and
$744,000 for the three and six 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 $162,000
and $420,000 for the three and six month 1998 periods, respectively, due to
continued lease-up of the expansion of Haywood Mall.
Income from Wildwood Associates increased approximately $295,000 and
$515,000 in the three and six month 1998 periods, respectively. Income before
depreciation, amortization and interest expense was favorably impacted by
approximately $262,000 and $509,000 for the three and six month 1998 periods,
respectively, 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
$69,000 of income before depreciation, amortization and interest expense in both
the three and six month 1998 periods. An increase in interest capitalized to
projects under development of approximately $117,000 also favorably impacted the
results in the six month 1998 period. Partially offsetting the increase in
income from Wildwood Associates in the six month 1998 period was an increase in
interest expense before interest capitalization of approximately $174,000
primarily due to the completion of the financing of the 4100 and 4300 Wildwood
Parkway Buildings on March 20, 1997.
Income from Cousins LORET increased approximately $240,000 and $363,000
for the three and six 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).
General and Administrative Expenses. General and administrative
expenses decreased approximately $195,000 and $382,000 for the three and six
month 1998 periods, respectively. 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 $126,000 and $295,000 for the three and six month 1998 periods,
respectively. The increase was partially due to Presbyterian Medical Plaza at
University becoming operational, as previously discussed, which contributed
$78,000 and $155,000 of the increase for the three and six month 1998 periods,
respectively. The increase is also partially due to increased depreciation and
amortization of $106,000 and $110,000 for the three and six month 1998 periods,
respectively, from 101 Independence Center due to increased depreciation and
amortization upon completion of certain upgrades to the building. Partially
offsetting the aforementioned increases was a decrease of approximately $142,000
and $270,000 for the three and six month 1998 periods, respectively, due to the
sale of Lovejoy Station and Rivermont Station in July 1997.
Stock Appreciation Right Expense (Credit). The stock appreciation right
expense decreased approximately $245,000 to a credit of $118,000 for the three
month 1998 period. The credit to stock appreciation right expense decreased
approximately $84,000 to an expense of $80,000 for the six month 1998 period.
This non-cash item is primarily related to the Company's stock price, which was
$29.3125, $30.875 and $29.875 at December 31, 1997, March 31, 1998 and June 30,
1998, respectively, and $28.125, $27.25 and $27.75 at December 31, 1996, March
31, 1997 and June 30, 1997, respectively.
Interest Expense. Interest expense decreased approximately $888,000 and
$1,732,000 for the three and six month 1998 periods, respectively. Interest
expense before capitalization increased to approximately $4,595,000 and
$8,878,000 in 1998 from $4,299,000 and $8,545,000 in 1997 for the three and six
month periods, respectively, due to higher debt levels. Offsetting this increase
was an increase in interest capitalized to projects under development (a
reduction of interest expense) to $1,864,000 and $3,335,000 in 1998 from
$680,000 and $1,270,000 in 1997 for the three and six month periods,
respectively.
Property Taxes on Undeveloped Land. Property taxes on undeveloped land
increased $273,000 and $236,000 for the three and six month 1998 periods,
respectively. The increase in both periods is 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 $499,000 and
$963,000 in the three and six month 1998 periods, respectively, due to a
decrease in predevelopment expense.
Benefit for Income Taxes from Operations. Benefit for income taxes from
operations decreased $555,000 and $498,000 for the three and six month 1998
periods, respectively. The decrease in both periods was due to decreases in CREC
and its subsidiaries' loss before provision for income taxes and gain on sale of
investment properties of $1,649,000 and $1,147,000 for the three and six 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 and increase in development fees in the three
and six months 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 six month 1998 periods.
Gain on Sale of Investment Properties. Gain on sale of investment
properties increased approximately $886,000 for the three month 1998 period and
decreased approximately $739,000 for the six month 1998 period. The 1998 gain
was from two parcels sold at the Company's North Point development: the March
1998 sale of 6 acres of land ($.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).
Liquidity and Capital Resources:
- --------------------------------
Financial Condition. The Company's debt (including its pro rata share
of unconsolidated joint venture debt) was 31% of total market capitalization at
June 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 (increasing those lines of credit as required),
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 June 30, 1998. Also, two of the
Company's unconsolidated joint ventures completed financings with two
non-recourse mortgage note payables of $44 million and $70 million, respectively
(Company's share $22 million and $35 million, respectively) (see Note 3). The
Company also assumed a $10.6 million non-recourse mortgage note payable in
connection with the acquisition of a medical office building (see Note 5).
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 $16.4 million in 1998. An increase of approximately $6.7 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 $1.1 million due primarily
to an increase in distributions of $1.2 million from Haywood Mall and a $.4
million distribution received from Cousins LORET, partially offset by a decrease
in distributions of approximately $.5 million from CSC Associates, L.P.
Residential lot and outparcel cost of sales increased approximately $3.5 million
due to increases in the number of residential lots sales in 1998. Cash flows
from operating activities were also positively impacted by changes in other
operating assets and liabilities, an increase of approximately $6 million.
Net cash used in investing activities increased approximately $67.1
million in 1998 primarily due to an increase of approximately $59 million in
property acquisition and development expenditures, as a result of the Company
acquiring two properties in the six month 1998 period (see Notes 5 and 6) and
having a higher level of projects under development. Investment in
unconsolidated joint ventures increased approximately $18.0 million primarily
due to contributions to Cousins LORET of approximately $16.5 million and to Brad
Cous Golf Ventures, Ltd. of approximately $1.6 million, which are being used to
fund the development of The Pinnacle and The Shops at World Golf Village,
respectively. An increase in non-operating distributions from unconsolidated
joint ventures of approximately $8 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 (see Note 3), 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. The change in other assets decreased approximately $1.7 million
in 1998.
Net cash provided by financing activities increased approximately $27.1
million in 1998, which was primarily attributable to an increase of
approximately $23.2 million in the net amount drawn on the Company's line of
credit. Partially offsetting the increase was a decrease of approximately $2.2
million in the proceeds received from common stock sold, net of expenses. An
increase in the dividends paid per share to $.72 in 1998 from $.62 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 $4.7 million.
Supplemental Financial Information:
- -----------------------------------
Depreciation and amortization expense included the following components
for the three and six months ended June 30, 1998 ($ in thousands):
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, 1998 June 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 $ 118 $ 1 $ 119 $ 238 $ 1 $ 239
Deferred financing costs -- 3 3 -- 6 6
Goodwill and related business
acquisition costs 76 27 103 153 37 190
Real estate related:
Building (including tenant
first generation) 3,276 2,706 5,982 6,470 5,221 11,691
Tenant second generation 295 225 520 502 440 942
------ ------ ------ ------ ------ -------
$3,765 $2,962 $6,727 $7,363 $5,705 $13,068
====== ====== ====== ====== ====== =======
</TABLE>
Exclusive of new developments and purchases of furniture, fixtures and
equipment, the Company had the following capital expenditures during the three
and six months ended June 30, 1998, including its share of unconsolidated joint
ventures ($ in thousands):
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, 1998 June 30, 1998
------------------------ -----------------------
Office Retail Total Office Retail Total
------ ------ ----- ------ ------ -----
<S> <C> <C> <C> <C> <C> <C>
Second generation related costs $375 $ -- $375 $473 $ -- $473
Building improvements -- -- -- -- -- --
---- ---- ---- ---- ---- ----
$375 $ -- $375 $473 $ -- $473
==== ==== ==== ==== ==== ====
</TABLE>
<PAGE>
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
Financial Data Schedule
(aa) Reports on Form 8-K
There were no reports on Form 8-K filed by the
Registrant during the second quarter ended June 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)
August 13, 1998
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> JUN-30-1998
<CASH> 1,782
<SECURITIES> 0
<RECEIVABLES> 44,542
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 542,010
<DEPRECIATION> 40,259
<TOTAL-ASSETS> 666,393
<CURRENT-LIABILITIES> 23,124
<BONDS> 269,426
0
0
<COMMON> 31,572
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 666,393
<SALES> 0
<TOTAL-REVENUES> 57,196
<CGS> 0
<TOTAL-COSTS> 35,889
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 5,543
<INCOME-PRETAX> 21,307
<INCOME-TAX> 21,414
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 23,071
<EPS-PRIMARY> .73
<EPS-DILUTED> .72
</TABLE>
