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 March 31, 1999 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 April 30, 1999, 32,049,109 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)
March 31, December 31,
1999 1998
--------- ------------
(Unaudited)
<S> <C> <C>
ASSETS
- ------
PROPERTIES:
Operating properties, net of accumulated
depreciation of $24,328 as of March 31, 1999
and $23,419 as of December 31, 1998 $247,010 $235,590
Land held for investment or future development 15,436 15,530
Projects under construction 204,345 178,736
Residential lots under development 7,945 8,771
-------- --------
Total properties 474,736 438,627
-------- --------
CASH AND CASH EQUIVALENTS, at cost which a
pproximates market 2,829 1,347
NOTES AND OTHER RECEIVABLES 35,395 39,470
INVESTMENT IN UNCONSOLIDATED JOINT VENTURES 223,872 264,648
OTHER ASSETS 11,433 8,766
-------- --------
TOTAL ASSETS $748,265 $752,858
======== ========
LIABILITIES AND STOCKHOLDERS' INVESTMENT
- ----------------------------------------
NOTES PAYABLE $190,796 $198,858
ACCOUNTS PAYABLE AND ACCRUED LIABILITIES 28,856 36,104
DEPOSITS AND DEFERRED INCOME 119,841 120,966
-------- --------
TOTAL LIABILITIES 339,493 355,928
-------- --------
MINORITY INTEREST 22,820 17,065
-------- --------
COMMITMENTS AND CONTINGENT LIABILITIES
STOCKHOLDERS' INVESTMENT:
Common stock, $1 par value, authorized
50,000,000 shares; issued 32,038,817
shares at March 31, 1999 and 31,887,298
shares at December 31, 1998 32,039 31,887
Additional paid-in capital 248,787 244,778
Cumulative undistributed net income 105,126 103,200
-------- --------
TOTAL STOCKHOLDERS' INVESTMENT 385,952 379,865
-------- --------
TOTAL LIABILITIES AND STOCKHOLDERS' INVESTMENT $748,265 $752,858
======== ========
The accompanying notes are an integral part of these consolidated balance
sheets.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
COUSINS PROPERTIES INCORPORATED AND CONSOLIDATED ENTITIES
CONSOLIDATED STATEMENTS OF INCOME
FOR THE THREE MONTHS ENDED MARCH 31, 1999 AND 1998
(UNAUDITED)
($ in thousands, except per share amounts)
1999 1998
------- -------
REVENUES:
<S> <C> <C>
Rental property revenues $11,665 $16,134
Development income 1,760 792
Management fees 1,106 890
Leasing and other fees 611 534
Residential lot and outparcel sales 2,677 4,457
Interest and other 865 1,047
------- -------
18,684 23,854
------- -------
INCOME FROM UNCONSOLIDATED JOINT VENTURES 4,107 4,581
COSTS AND EXPENSES:
Rental property operating expenses 3,201 3,834
General and administrative expenses 3,586 3,072
Depreciation and amortization 2,807 3,598
Stock appreciation right (credit) expense (324) 198
Residential lot and outparcel cost of sales 2,289 4,179
Interest expense 365 2,812
Property taxes on undeveloped land 218 222
Other 290 15
------- -------
12,432 17,930
------- -------
INCOME FROM OPERATIONS BEFORE INCOME TAXES
AND GAIN ON SALE OF INVESTMENT PROPERTIES 10,359 10,505
PROVISION (BENEFIT) FOR INCOME TAXES FROM OPERATIONS 865 (18)
INCOME BEFORE GAIN ON SALE OF INVESTMENT PROPERTIES 9,494 10,523
GAIN ON SALE OF INVESTMENT PROPERTIES, NET OF
APPLICABLE INCOME TAX PROVISION 5,508 771
------- -------
NET INCOME $15,002 $11,294
======= =======
WEIGHTED AVERAGE SHARES 31,950 31,496
======= =======
BASIC NET INCOME PER SHARE $ .47 $ .36
======= =======
ADJUSTED WEIGHTED AVERAGE SHARES 32,396 31,962
======= =======
DILUTED NET INCOME PER SHARE $ .46 $ .35
======= =======
CASH DIVIDENDS DECLARED PER SHARE $ .41 $ .36
======= =======
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 THREE MONTHS ENDED MARCH 31, 1999 AND 1998
(UNAUDITED)
($ in thousands)
1999 1998
------- -------
CASH FLOWS FROM OPERATING ACTIVITIES:
<S> <C> <C>
Income before gain on sale of investment properties $ 9,494 $10,523
Adjustments to reconcile income before gain on sale
of investment properties to net cash provided by
operating activities:
Depreciation and amortization 2,807 3,598
Stock appreciation right expense (credit) (324) 198
Cash charges to expense accrual for stock
appreciation rights (63) (24)
Effect of recognizing rental revenues on a
straight-line basis (103) (79)
Income from unconsolidated joint ventures (4,107) (4,581)
Operating distributions from unconsolidated
joint ventures 9,989 7,259
Residential lot and outparcel cost of sales 2,185 4,037
Changes in other operating assets and liabilities:
Change in other receivables (445) (545)
Change in accounts payable and accrued liabilities (5,084) 589
------- -------
Net cash provided by operating activities 14,349 20,975
------- -------
CASH FLOWS FROM INVESTING ACTIVITIES:
Gain on sale of investment properties, net of
applicable income tax provision 5,508 771
Adjustments to reconcile gain on sale of
investment properties to net cash provided
by sales activities:
Cost of sales 10,161 839
Deferred income recognized (1,035) --
Property acquisition and development expenditures (52,920) (39,082)
Investment in unconsolidated joint ventures,
including interest capitalized to equity investments (11,356) (11,089)
Non-operating distributions from unconsolidated joint
ventures 2,000 3,000
Collection of notes receivable 4,620 187
Net cash received in formation of venture 50,000 --
Change in other assets, net (2,869) (221)
------- -------
Net cash provided by (used in) investing activities 4,109 (45,595)
------- -------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from line of credit 85,178 13,162
Repayment of line of credit (91,963) (8,023)
Dividends paid (13,075) (11,331)
Common stock sold, net of expenses 4,161 1,540
Repayment of other notes payable (1,277) (1,301)
------- -------
Net cash used in financing activities (16,976) (5,953)
------- -------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 1,482 (30,573)
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 1,347 32,694
------- -------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 2,829 $ 2,121
======= =======
The accompanying notes are an integral part of these consolidated statements.
</TABLE>
<PAGE>
COUSINS PROPERTIES INCORPORATED AND CONSOLIDATED ENTITIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 1999
(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
March 31, 1999, and results of operations for the three month periods ended
March 31, 1999 and 1998. Results of operations for the interim 1999 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 for the year ended December 31, 1998. The accounting
policies employed are the same as those shown in Note 1 to the Consolidated
Financial Statements included in such Form 10-K.
Certain 1998 amounts have been reclassified to conform with the 1999
presentation.
2. SUPPLEMENTAL INFORMATION CONCERNING CASH FLOWS
- ---------------------------------------------------
Interest (net of $3,425,000 and $1,471,000 capitalized in 1999 and
1998, respectively) and income taxes paid were as follows for the three months
ended March 31, 1999 and 1998 ($ in thousands):
1999 1998
------ ------
Interest paid $1,043 $2,610
Income taxes paid $ 266 $ 110
During the three months ended March 31, 1999, approximately $23,236,000
was transferred from Projects Under Construction to Operating Properties. In
November 1998, the Company entered into a venture arrangement (the "Prudential
Venture") with The Prudential Insurance Company of America ("Prudential"),
whereby the Company contributed nine properties and Prudential is to contribute
a total of $230,469,000 of cash on agreed-upon dates. (See Note 5 of "Notes to
Consolidated Financial Statements" in the Company's Form 10-K for the year ended
December 31, 1998.) Prudential contributed $50,000,000 in the first quarter
1999, bringing the total amount to $155,000,000 as of March 31, 1999. The effect
of this contribution on the Consolidated Balance Sheet as of March 31, 1999 was
a decrease of $44,250,000 in Investment in Unconsolidated Joint Ventures and an
increase of $5,750,000 in Minority Interest.
At March 31, 1999, cash and cash equivalents included approximately
$1,684,000 from a property sale held in escrow pending reinvestment in a
tax-deferred exchange and approximately $822,000 which is restricted under a
municipal bond indenture.
3. NOTES PAYABLE AND INTEREST EXPENSE
- ---------------------------------------
<TABLE>
<CAPTION>
At March 31, 1999 and December 31, 1998, notes payable included the
following ($ in thousands):
March 31, 1999 December 31, 1998
------------------------------------- ------------------------------------
Share of Share of
Unconsolidated Unconsolidated
Company Joint Ventures Total Company Joint Ventures Total
------- -------------- ----- ------- -------------- -----
Floating Rate Lines
<S> <C> <C> <C> <C> <C> <C>
of Credit $ 4,335 $ 84 $ 4,419 $ 11,120 $ -- $ 11,120
Other Debt
(primarily non-recourse
fixed rate mortgages) 186,461 208,244 394,705 187,738 221,498 409,236
-------- -------- -------- -------- -------- --------
$190,796 $208,328 $399,124 $198,858 $221,498 $420,356
======== ======== ======== ======== ======== ========
</TABLE>
For the three months ended March 31, 1999, interest expense was recorded as
follows ($ in thousands):
Share of
Unconsolidated
Company Joint Ventures Total
------- -------------- -----
Interest Expensed $ 365 $3,691 $4,056
Interest Capitalized 3,425 495 3,920
------ ------ ------
$3,790 $4,186 $7,976
====== ====== ======
During the first quarter of 1999, 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 $223 million.
4. EARNINGS PER SHARE DATA
- ---------------------------
Weighted average shares and adjusted weighted average shares are as follows
(in thousands):
March 31, March 31,
1999 1998
--------- ---------
Weighted average shares 31,950 31,496
Dilutive potential common shares 446 466
------ ------
Adjusted weighted average shares 32,396 31,962
====== ======
Anti-dilutive options not included 1,191 565
====== ======
5. REPORTABLE SEGMENTS
- -----------------------
The Company has four reportable segments: Office Division, Retail
Division, Medical Office Division and Land Division. The Office Division, Retail
Division and Medical Office Division develop, lease and manage office buildings,
retail centers and medical office buildings, respectively. The Land Division
owns various tracts of strategically located land which are being held for
future development. The Land Division also develops single-family residential
communities which are parceled into lots and sold to various home builders.
The management of the Company evaluates performance of its reportable
segments based on Funds From Operations ("FFO"). The Company calculates its FFO
using the National Association of Real Estate Investment Trusts ("NAREIT")
definition of FFO adjusted to (I) eliminate the recognition of rental revenues
on a straight-line basis, (ii) reflect stock appreciation right expense on a
cash basis and (ii) recognize certain fee income as cash is received rather than
when recognized in the financial statements. The Company believes its FFO
presentation more properly reflects its operating results. The Company's
reportable segments are broken down based on what type of product the division
provides. The divisions are managed separately because each product they provide
has separate and distinct development issues, leasing and/or sales strategies
and management issues. The notations (100%) and (JV) used in the following
tables indicate wholly-owned and unconsolidated joint ventures, respectively,
and all amounts are in thousands.
<TABLE>
<CAPTION>
Three Months Ended Office Retail Medical Land Unallocated
March 31, 1999 Division Division Office Division Division and Other Total
- ------------------ -------- -------- --------------- -------- ----------- --------
<S> <C> <C> <C> <C> <C> <C>
Rental property revenues (100%) $ 6,013 $ 4,744 $ 718 $ -- $ 88 $ 11,563
Rental property revenues (JV) 15,344 4,454 199 -- -- 19,997
Development income, management
fees and leasing and other fees 2,610 536 271 60 -- 3,477
Other income (100%) -- -- -- 2,677 865 3,542
Other income (JV) -- -- -- 6 28 34
------------------------------------------------------------------------
Total revenues 23,967 9,734 1,188 2,743 981 38,613
------------------------------------------------------------------------
Rental property operating expenses (100%) 1,961 999 210 -- 31 3,201
Rental property operating expenses (JV) 4,568 1,074 65 -- -- 5,707
Other expenses (100%) -- -- -- 2,507 5,315 7,822
Other expenses (JV) -- -- -- 11 3,563 3,574
------------------------------------------------------------------------
Total expenses 6,529 2,073 275 2,518 8,909 20,304
------------------------------------------------------------------------
Consolidated funds from operations 17,438 7,661 913 225 (7,928) 18,309
------------------------------------------------------------------------
Depreciation and amortization (100%) (1,460) (801) (318) -- (82) (2,664)
Depreciation and amortization (JV) (5,019) (1,470) (62) -- -- (6,548)
Effect of the recognition of rental
revenues on a straight-line basis (100%) 102 -- -- -- -- 102
Effect of the recognition of rental
revenues on a straight-line basis (JV) (107) 15 -- -- -- (92)
Adjustment to reflect stock appreciation
right expense on an accrual basis -- -- -- -- 387 387
Gain on sale of investment properties, net
of applicable income tax provision -- -- -- -- 5,508 5,508
------------------------------------------------------------------------
Net income 10,954 5,405 533 225 (2,115) 15,002
------------------------------------------------------------------------
Provision for income taxes from operations -- -- -- -- 865 865
------------------------------------------------------------------------
Income from operations before taxes $ 10,954 $ 5,405 $ 533 $ 225 $(1,250) $ 15,867
========================================================================
Total assets $404,421 $231,877 $55,537 $9,859 $46,571 $748,265
========================================================================
Investment in unconsolidated joint
ventures $142,151 $ 76,286 $ 3,606 $1,812 $ 17 $223,872
========================================================================
Three Months Ended Office Retail Medical Land Unallocated
March 31, 1998 Division Division Office Division Division and Other Total
- ------------------ -------- -------- --------------- -------- --------- -----
Rental property revenues (100%) $ 7,638 $ 7,965 $ 330 $ -- $ 122 $ 16,055
Rental property revenues (JV) 11,927 1,981 -- -- -- 13,908
Development income, management
fees and leasing and other fees 1,885 121 210 -- -- 2,216
Other income (100%) -- -- -- 4,457 1,047 5,504
Other income (JV) -- -- -- 125 23 148
------------------------------------------------------------------------
Total revenues 21,450 10,067 540 4,582 1,192 37,831
------------------------------------------------------------------------
Rental property operating expenses (100%) 2,182 1,499 113 -- 40 3,834
Rental property operating expenses (JV) 5,721 587 -- -- -- 6,308
Other expenses (100%) -- -- -- 4,401 6,025 10,426
Other expenses (JV) -- -- -- 35 -- 35
------------------------------------------------------------------------
Total expenses 7,903 2,086 113 4,436 6,065 20,603
------------------------------------------------------------------------
Consolidated funds from operations 13,547 7,981 427 146 (4,873) 17,228
------------------------------------------------------------------------
Depreciation and amortization (100%) (1,882) (1,416) (77) -- (103) (3,478)
Depreciation and amortization (JV) (2,444) (296) -- -- -- (2,740)
Effect of the recognition of rental
revenues on a straight-line basis (100%) 79 -- -- -- -- 79
Effect of the recognition of rental
revenues on a straight-line basis (JV) (392) -- -- -- -- (392)
Adjustment to reflect stock appreciation
right expense on an accrual basis -- -- -- -- (174) (174)
Gain on sale of investment properties, net
of applicable income tax provision -- -- -- -- 771 771
------------------------------------------------------------------------
Net income 8,908 6,269 350 146 (4,379) 11,294
------------------------------------------------------------------------
Benefit for income taxes from operations -- -- -- -- (18) (18)
------------------------------------------------------------------------
Income from operations before taxes $ 8,908 $ 6,269 $ 350 $ 146 $(4,397) $ 11,276
======== ======== ====== ====== ======= ========
Total assets $311,109 $231,811 $17,080 $13,695 $48,280 $621,975
======== ======== ======= ======= ======= ========
Investment in unconsolidated joint
ventures $103,977 $ 20,555 $ -- $ 1,075 $ 2 $125,609
======== ======== ======= ======= ======= ========
</TABLE>
Reconciliation to Consolidated Revenues
Three Months Ended
----------------------
March 31, March 31,
1999 1998
--------- ---------
Rental property revenues (100%) $11,563 $16,055
Effect of the recognition of rental
revenues on a straight-line basis (100%) 102 79
Development income, management fees
and leasing and other fees 3,477 2,216
Residential lot and outparcel sales 2,677 4,457
Interest and other 865 1,047
---------------------
Total consolidated revenues $18,684 $23,854
=====================
6. ABBOTTS BRIDGE STATION
- ---------------------------
On February 1, 1999, CREC sold Abbotts Bridge Station, an approximately
83,000 square foot neighborhood retail center in suburban Atlanta, Georgia for
$15.7 million, which was approximately $5.2 million over the cost of the center.
Including depreciation recapture of approximately $.3 million and net of an
income tax provision of approximately $2.0 million, the net gain on the sale was
approximately $3.5 million.
7. 285 VENTURE, LTD.
- ----------------------
In March 1999, Cousins and a commingled trust fund advised by J.P.
Morgan Investment Management Inc. formed the 285 Venture, Ltd., each as 50%
partners, for the purpose of developing 1155 Perimeter Center West, an
approximately 358,000 square foot office building complex in suburban Atlanta,
Georgia. The complex is expected to be completed in the third quarter of 2000 at
a total cost of approximately $64 million.
<PAGE>
PART I. FINANCIAL INFORMATION
- ------------------------------
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations for the Three Months Ended March 31, 1999
and 1998.
Results of Operations:
- ----------------------
Rental Property Revenues and Operating Expenses. Rental property
revenues were approximately $4,469,000 lower in 1999. Rental property revenues
from the Company's office portfolio decreased approximately $1,602,000. Rental
property revenues decreased approximately $1,612,000, $693,000 and $705,000 in
1999 from the contribution of three office properties, First Union Tower, 100
North Point Center East and 200 North Point Center East, respectively, in
November 1998 to the Prudential Venture (see Note 2). Grandview II was also
contributed to the Prudential Venture but was not operational for financial
reporting purposes in the first quarter 1998. Additionally, rental property
revenues from 615 Peachtree Street decreased $201,000 due partially to the
receipt of two cancellation penalties in the first quarter 1998 and partially to
lower average economic occupancy in 1999. Average economic occupancy for such
building decreased from 73% in the first quarter 1998 to 60% in the first
quarter 1999. The decrease was partially offset by an increase in rental
property revenues of $642,000 from the June 1998 acquisition of Lakeshore Park
Plaza and an increase of approximately $722,000 in rental property revenues from
333 North Point Center East which became partially operational for financial
reporting purposes in June 1998.
Rental property revenues from the Company's retail portfolio decreased
approximately $3,221,000 in 1999. Rental property revenues decreased
approximately $1,445,000, $1,296,000, $826,000 and $331,000 in 1999 from the
contribution of North Point MarketCenter, Greenbrier MarketCenter, Los Altos
MarketCenter and Mansell Crossing II, respectively, to the aforementioned
Prudential Venture in November 1998. The decrease was partially offset by an
increase of approximately $613,000 in 1999 from Laguna Niguel Promenade, which
became partially operational in July 1998.
Rental property revenues from the Company's medical office portfolio
increased approximately $388,000 in 1999. The June 1998 acquisition of
Northside/Alpharetta I contributed to the increase in rental property revenues
of approximately $655,000 in the first quarter of 1999. This increase was
partially offset by a decrease of approximately $330,000 due to the contribution
of Presbyterian Medical Plaza at University to the aforementioned Prudential
Venture in November 1998.
Rental property operating expenses decreased approximately $633,000,
which decrease was primarily related to the contribution of the three office
buildings, the four retail centers and one medical office building to the
Prudential Venture, partially offset by the June 1998 acquisitions of Lakeshore
Park Plaza and Northside/Alpharetta I, as well as 333 North Point Center East
and Laguna Niguel Promenade becoming partially operational in June 1998 and July
1998, respectively.
Development Income. Development income was approximately $968,000
higher in 1999. The increase in development income was partially due to
development fees recognized from three of the Company's joint ventures
developing Gateway Village ($245,000), 1155 Perimeter Center West ($143,000)
(see Note 7) and The Pinnacle ($133,000). Development income was also recognized
from a build to suit for Walgreens on an outparcel at Colonial Plaza
MarketCenter. Partially offsetting the aforementioned increases in development
income was a decrease in development income of approximately $121,000 from the
Brad Cous Golf Venture, Ltd. developing World Golf Village and by a decrease of
$115,000 from the Dusseldorf project.
Management Fees. Management fees were approximately $216,000 higher in
1999 primarily due to approximately $163,000 of management fees recognized from
the aforementioned Prudential Venture for the management of the nine contributed
properties.
Residential Lot and Outparcel Sales and Cost of Sales. Residential lot
and outparcel sales decreased approximately $1,780,000 in 1999. The decrease was
partially due to a decrease in residential lot sales from 84 lots in 1998 to 66
lots in 1999, which decreased residential lot sales recognized by approximately
$980,000. Also contributing to the decrease were two outparcel sales recognized
by CREC and one of its subsidiaries in 1998 totaling $800,000, as compared to no
outparcel sales in 1999.
Residential lot and outparcel cost of sales decreased approximately
$1,890,000 in 1999 due to the decreases in residential lot and outparcel sales
discussed above. The decrease in cost of sales was greater than the
corresponding decrease in sales due to an increase in first quarter 1999 in
gross profit percentages used to calculate the cost of sales on residential lot
sales in certain of the residential developments.
Interest and Other Income. Interest and other income decreased
approximately $182,000 in 1999. The decrease was primarily due to a decrease in
interest income recognized from temporary investments. In the three months ended
March 31, 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. No similar amounts were invested in the three months ended
March 31, 1999.
Income from Unconsolidated Joint Ventures. (All amounts reflect the
Company's share of joint venture income.) Income from unconsolidated joint
ventures decreased approximately $474,000 in 1999.
Income from CSC Associates, L.P. increased approximately $177,000 in
1999 primarily due to the continued lease-up of NationsBank Plaza. Average
economic occupancy increased to 98% in the first quarter 1999 from 92% in the
first quarter 1998.
Income from Wildwood Associates decreased approximately $326,000 in
1999. The decrease was due partially to a decrease in interest capitalization of
$285,000 in 1999 and an increase in depreciation and amortization of
approximately $175,000, as the 4200 Wildwood Parkway Building became partially
operational in June 1998. Additionally, interest expense increased approximately
$369,000 due to the $44 million non-recourse financing of the 4200 Wildwood
Parkway Building which was completed in June 1998. The overall decrease was
partially offset by income before depreciation, amortization and interest
expense of $310,000 from the 4200 Wildwood Parkway Building. Income before
depreciation, amortization and interest expense also favorably impacted results
by approximately $205,000 due to the continued lease-up of the 2300 Windy Ridge
Parkway, 2500 Windy Ridge Parkway and 3200 Windy Hill Road Buildings, which also
partially offset the overall decrease in income from Wildwood Associates.
Income from Cousins LORET decreased approximately $157,000. The
decrease was primarily due to an increase in interest expense before
capitalization of approximately $626,000 due to the funding of the $70 million
non-recourse financing of The Pinnacle, which was completed on December 30,
1998. Partially offsetting the decrease was an increase of approximately
$295,000 in interest capitalized to The Pinnacle. Income before depreciation,
amortization and interest expense from The Pinnacle also partially offset the
decrease by approximately $294,000, which became partially operational for
financial reporting purposes in March 1999 and by approximately $105,000 from
the lease-up of Two Live Oak.
General and Administrative Expenses. General and administrative
expenses increased approximately $514,000 in 1999. The increase was primarily
due to the Company's continued expansion, partially offset by an increased level
of salaries and overhead being capitalized to a higher level of projects under
development in 1999.
Depreciation and Amortization. Depreciation and amortization decreased
approximately $791,000 in 1999. The decrease was due to the aforementioned
contribution of nine properties to the Prudential Venture, partially offset by
the June 1998 acquisitions of Lakeshore Park Plaza and Northside/Alpharetta I,
and 333 North Point Center East and Laguna Niguel Promenade becoming partially
operational in June 1998 and July 1998, respectively.
Stock Appreciation Right (Credit) Expense. The credit to stock
appreciation right expense increased approximately $522,000 from an expense of
$198,000 in 1998 to a credit of $324,000 in 1999. This non-cash item is
primarily related to the Company's stock price, which was $32.25 and $28.9375 at
December 31, 1998 and March 31, 1999, respectively; and $29.3125 and $30.875 at
December 31, 1997, and March 31, 1998, respectively.
Interest Expense. Interest expense decreased approximately $2,447,000
in 1999. Interest expense before capitalization decreased approximately $493,000
to $3,790,000 in 1999 from $4,283,000 in 1998 due to lower debt levels. Further
contributing to this decrease was an increase of approximately $1,954,000 in
interest capitalized to projects under development (a reduction of interest
expense) to $3,425,000 in 1999 from $1,471,000 in 1998.
Other Expenses. Other expenses increased approximately $275,000 in
1999 due primarily to the recognition of Prudential's minority interest in the
aforementioned Prudential Venture.
Gain on Sale of Investment Properties. Gain on sale of investment
properties increased approximately $4,737,000 in 1999. The 1999 gain included
the following: the January 1999 sale of 3 acres of McMurray land ($.1 million
gain), the February 1999 sale of Abbotts Bridge Station, a neighborhood retail
center ($3.5 million gain), the March 1999 sale of Kennesaw Crossings
neighborhood retail center ($.9 million gain) and amortization of deferred gain
from the aforementioned formation of the Prudential Venture ($1.0 million). The
1998 gain included the following: the February 1998 sale of 43 acres of land
adjacent to Lawrenceville MarketCenter (a retail center formerly owned by the
Company) ($.2 million gain) and the March 1998 sale of 6 acres of land at the
Company's North Point development ($.6 million gain).
Liquidity and Capital Resources:
- --------------------------------
Financial Condition. The Company's debt (including its pro rata share
of unconsolidated joint venture debt) was 30% of total market capitalization at
March 31, 1999.
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 March 31, 1999.
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 Cousins' Common Stock.
Cash Flows. Net cash provided by operating activities decreased
approximately $6.6 million in 1999. Changes in other operating assets and
liabilities decreased approximately $5.6 million. Residential lot and outparcel
cost of sales decreased $1.9 million due to a decrease in the number of
residential lots and outparcels sold in 1999. A decrease of $1.0 million in
income before gain on sale of investment properties also contributed to the
decrease, as well as a decrease in depreciation and amortization of $.8 million
due to the aforementioned contribution of the properties to the Prudential
Venture. Operating distributions from unconsolidated joint ventures increased
$2.7 million, which partially offset the aforementioned decreases, primarily due
to $2.0 million of operating distributions from Cousins LORET.
Net cash used in investing activities decreased approximately $47.7
million in 1999 to net cash provided by investing activities of $4.1 million.
Net cash received related to the Prudential Venture increased $50 million in
1999 (see Note 2) which primarily caused the decrease in the net cash used in
investing activities to net cash provided by investing activities. Also
contributing to the decrease in net cash used in investing activities to net
cash provided by investing activities was an increase in net cash provided by
sales activities of $14.1 million. This increase was due to three sales in the
first quarter of 1999: Abbotts Bridge Station, Kennesaw Crossings and McMurray
land. The collection of notes receivable also increased $4.4 million due to the
repayment of the Cousins LORET note receivable in the first quarter 1999. The
decrease in net cash used in investing activities to net cash provided by
investing activities was partially offset by an increase of $13.8 million in
property acquisition and development expenditures, as a result of the Company
having a higher level of projects under development in 1999. Non-operating
distributions from unconsolidated joint ventures decreased $1.0 million, which
also partially offset the decrease in net cash used in investing activities. In
the first quarter 1999, Cousins LORET distributed $2.0 million, which
represented a portion of the proceeds from the aforementioned $70 million
financing of The Pinnacle in December 1998. In 1998, the Company received a
distribution from Wildwood Associates of $3.0 million, which was a partial
prepayment of the proceeds anticipated to be distributed to each partner from
the $44 million financing of the 4200 Wildwood Parkway Building. No such
distribution occurred in 1999. Deferred income recognized increased
approximately $1.0 million which related to the Prudential Venture (see Note 5
of "Notes to Consolidated Financial Statements" in the Company's annual report
on Form 10-K for the year ended December 31, 1998) and also partially offset the
aforementioned decreases. Change in other assets, net, also decreased $2.6
million, which further offset the aforementioned decreases.
Net cash used in financing activities increased approximately $11.0
million in 1999, which was primarily attributable to a decrease of $11.9 million
in the net amount drawn on the Company's line of credit. An increase in the
dividends paid per share to $.41 in 1999 from $.36 in 1998 and an increase in
the number of shares outstanding also contributed to the increase in net cash
used in financing activities, as dividends paid increased approximately $1.7
million. Partially offsetting the increase in net cash used in financing
activities was an increase of approximately $2.6 million in the proceeds
received from common stock sold, net of expenses.
Quantitative and Qualitative Disclosure About Market Risk:
- ----------------------------------------------------------
There have been no significant changes in the Company's market risk
related to its notes payable and notes receivable from that disclosed in the
Company's annual report on Form 10-K for the year ended December 31, 1998.
Year 2000:
- ----------
The "Year 2000 issue" is the result of certain computer systems,
software, electronic equipment or embedded chips (collectively known as
"computer systems") being written using two digits rather than four to define
the applicable year. Therefore, certain computer systems may not distinguish
between 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 mainly include the systems
utilized in the operations of its real estate properties and in the processing
of its accounting data.
The Company has substantially completed an inventory of the material
computer systems being utilized in its existing operating real estate properties
which may be adversely affected by the Year 2000 issue. Such systems include,
but are not limited to, building control systems, 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 represented to be Year 2000
compliant, as they define it. The Company expects to have the installation of
the upgrade completed by the third quarter of 1999. The hardware and operating
system used to run the accounting software has been represented to be Year 2000
compliant. The Company has also assessed its non-financial computer systems, and
is replacing, upgrading or modifying such systems as needed. The cost of the
upgrades to the accounting software and non-financial computer systems is not
expected to be material.
The Company has significantly completed its survey of all material
third party vendors to determine their Year 2000 compliance status and has
received 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 the extent
the Year 2000 issue has a material adverse effect on the business operations or
financial condition of third parties with which the Company has material
relationships, such as vendors, suppliers, tenants and financial institutions,
the Year 2000 issue could also have a material adverse effect on the Company's
business, results of operations and financial condition.
To date, the cost to analyze and prepare for the Year 2000 issue has
not been material. 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.
The Company is currently developing contingency plans on a property by
property basis. This involves assessing critical tenants, systems and vendors.
Certain servicing arrangements have been contracted with particular vendors to
provide immediate response if the need arises and the Company is arranging for
specific employees to staff certain properties in case of need.
The preceding "Year 2000" discussion contains various forward-looking
statements, within the meaning of the federal securities laws, which represent
the Company's beliefs or expectations regarding future events. When used in this
discussion, the words "expects" and "anticipates" and similar expressions are
intended to identify forward-looking statements. Forward-looking statements
include, without limitation, the Company's expectations as to when it will
complete its Year 2000 evaluation, the estimated costs of achieving Year 2000
readiness and the Company's expectation that Year 2000 issues will not have a
material impact on the Company's business, operations or financial condition.
All forward-looking statements involve a number of risks and uncertainties that
could cause the actual results to differ materially from the projected results.
Factors that may cause these differences include, but are not limited to, the
availability of qualified personnel, technology resources, any actions of third
parties with respect to Year 2000 problems and other risks detailed from time to
time in the Company's filings with the Securities and Exchange Commission.
Supplemental Financial Information:
- -----------------------------------
Depreciation and amortization expense included the following components for
the three months ended March 31, 1999 ($ in thousands):
Share of
Unconsolidated
Company Joint Ventures Total
------- -------------- -----
Furniture, fixtures and equipment $ 143 $ 1 $ 144
Deferred financing costs -- 4 4
Goodwill and related business
acquisition costs 75 5 80
Real estate related:
Building (including tenant
first generation) 2,327 6,305 8,632
Tenant second generation 262 238 500
------ ------ ------
$2,807 $6,553 $9,360
====== ====== ======
Exclusive of new developments and purchases of furniture, fixtures and
equipment, the Company had the following capital expenditures during the three
months ended March 31, 1999, including its share of unconsolidated joint
ventures ($ in thousands):
Office Retail Medical Total
------ ------ ------- -----
Second generation related costs $249 $ -- $ -- $249
Building improvements -- -- -- --
---- ---- ---- ----
$249 $ -- $ -- $249
==== ==== ==== ====
<PAGE>
PART II. OTHER INFORMATION
- ---------------------------
Item 4. Submission of Matters to a Vote of Security Holders
---------------------------------------------------
(a) The Company's Annual Meeting of Stockholders was held on
May 4, 1999.
(b) Not applicable.
(c) The following proposals were adopted by the stockholders
of the Company:
<TABLE>
<CAPTION>
(i) The election of seven Directors.
The vote on the above was:
For Against Abstained
--- ------- ---------
<S> <C> <C> <C>
Richard W. Courts, II 26,017,426 -- 45,302
Thomas G. Cousins 26,021,051 -- 41,677
Lillian C. Giornelli 26,016,908 -- 45,820
Terence C. Golden 26,017,426 -- 45,302
Boone A. Knox 26,017,426 -- 45,302
William Porter Payne 26,014,701 -- 48,027
Richard E. Salomon 26,021,051 -- 41,677
</TABLE>
(ii) A proposal to adopt the Cousins Properties
Incorporated 1999 Stock Incentive Plan,
which plan replaces the existing 1995 Stock
Incentive Plan, the Stock Plan for Outside
Directors and the Stock Appreciation Right
Plan.
The vote on the above proposal was:
For 21,674,722
Against 4,343,349
Abstained 44,657
(iii) A proposal to amend the Company's Restated
and Amended Articles of Incorporation to
increase the number of shares of Common
Stock, $1 par value per share, authorized
for issuance from 50 million to 150 million
shares.
The vote on the above proposal was:
For 23,052,798
Against 2,966,428
Abstained 43,502
Item 6. Exhibits and Reports on Form 8-K
--------------------------------
(a) Exhibits
--------
10(e) The 1999 Stock Incentive Plan approved by
the Stockholders on May 4, 1999, filed as
Exhibit A to the Registrant's Proxy
Statement dated March 29, 1999, and
incorporated herein by reference.
27 Financial Data Schedule
(b) Reports on Form 8-K
-------------------
There have been no reports on Form 8-K
filed by the Registrant during the
quarter ended March 31, 1999.
<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)
May 14, 1999
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-END> MAR-31-1999
<CASH> 2,829
<SECURITIES> 0
<RECEIVABLES> 35,395
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 499,064
<DEPRECIATION> 24,328
<TOTAL-ASSETS> 748,265
<CURRENT-LIABILITIES> 28,856
<BONDS> 190,796
0
0
<COMMON> 32,039
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 748,265
<SALES> 0
<TOTAL-REVENUES> 22,791
<CGS> 0
<TOTAL-COSTS> 12,432
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 365
<INCOME-PRETAX> 10,359
<INCOME-TAX> 9,494
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 15,002
<EPS-PRIMARY> .47
<EPS-DILUTED> .46
</TABLE>
