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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
[x] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the quarterly period ended June 30, 2002
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from..............to..............
Commission file number 0-3576
COUSINS PROPERTIES INCORPORATED
(Exact name of registrant as specified in its charter)
Georgia 58-0869052
(State or other jurisdiction (IRS Employer
of incorporation or organization) Identification No.)
2500 Windy Ridge Parkway
Atlanta, Georgia 30339-5683
(Address of principal executive offices) (Zip Code)
(770) 995-2200
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports) and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No
------ ----
As of July 31, 2002, there were 50,033,282 shares of the registrant's common
stock, par value $1 per share, outstanding.
PART I. FINANCIAL INFORMATION
- ------- ---------------------
Item 1. Financial Statements
COUSINS PROPERTIES INCORPORATED AND CONSOLIDATED ENTITIES
CONSOLIDATED BALANCE SHEETS
($ in thousands, except share amounts)
June 30, December 31,
2002 2001
----------- ------------
(Unaudited)
ASSETS
- ------
PROPERTIES:
Operating properties, net of accumulated
depreciation of $129,494 as of June 30, 2002
and $106,039 as of December 31, 2001 $ 780,906 $ 771,119
Land held for investment or future development 17,069 15,294
Projects under construction 136,685 140,833
Residential lots under development 15,272 12,520
---------- ----------
Total properties 949,932 939,766
CASH AND CASH EQUIVALENTS, at cost which
approximates market 8,867 10,556
NOTES AND OTHER RECEIVABLES 41,478 39,920
INVESTMENT IN UNCONSOLIDATED JOINT VENTURES 180,358 185,397
OTHER ASSETS, including goodwill of $15,612
in 2002 and 2001 37,334 36,377
---------- ----------
TOTAL ASSETS $1,217,969 $1,212,016
========== ==========
LIABILITIES AND STOCKHOLDERS' INVESTMENT
- ----------------------------------------
NOTES PAYABLE $ 600,476 $ 585,275
ACCOUNTS PAYABLE AND ACCRUED LIABILITIES 25,467 27,149
DEPOSITS AND DEFERRED INCOME 2,710 2,422
---------- ----------
TOTAL LIABILITIES 628,653 614,846
---------- ----------
DEFERRED GAIN 105,574 107,676
---------- ----------
MINORITY INTERESTS 27,225 26,821
---------- ----------
COMMITMENTS AND CONTINGENT LIABILITIES
STOCKHOLDERS' INVESTMENT:
Common stock, $1 par value, authorized
150,000,000 shares; issued 50,615,987
shares at June 30, 2002 and 50,106,100
shares at December 31, 2001 50,616 50,106
Additional paid-in capital 283,903 276,268
Treasury stock at cost, 681,000 shares
in 2002 and 2001 (17,465) (17,465)
Unearned compensation (3,076) (3,580)
Cumulative undistributed net income 142,539 157,344
---------- ----------
TOTAL STOCKHOLDERS' INVESTMENT 456,517 462,673
---------- ----------
TOTAL LIABILITIES AND STOCKHOLDERS' INVESTMENT $1,217,969 $1,212,016
========== ==========
The accompanying notes are an integral part of these consolidated balance
sheets.
COUSINS PROPERTIES INCORPORATED AND CONSOLIDATED ENTITIES
CONSOLIDATED STATEMENTS OF INCOME
FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 2002 AND 2001
(UNAUDITED)
(In thousands, except per share amounts)
Three Months Six Months
Ended June 30, Ended June 30,
----------------- -----------------
2002 2001 2002 2001
------- ------- ------- -------
REVENUES:
Rental property revenues $43,412 $35,979 $82,813 $71,635
Development income 972 1,636 2,158 3,262
Management fees 2,288 1,974 4,642 3,445
Leasing and other fees 696 1,669 1,853 2,290
Residential lot and outparcel sales 521 1,519 4,556 3,907
Interest and other 1,114 1,498 2,249 3,093
------- ------- ------- -------
49,003 44,275 98,271 87,632
------- ------- ------- -------
INCOME FROM UNCONSOLIDATED JOINT VENTURES 6,601 5,640 13,630 11,145
------- ------- ------- -------
COSTS AND EXPENSES:
Rental property operating expenses 12,018 10,480 23,527 21,094
General and administrative expenses 6,972 6,841 14,267 12,942
Depreciation and amortization 13,347 11,039 25,366 21,622
Stock appreciation right expense (credit) (7) 122 34 (136)
Residential lot and outparcel cost of sales 444 1,354 3,414 3,353
Interest expense 9,557 6,550 18,089 13,721
Property taxes on undeveloped land 174 173 350 341
Other 1,277 1,648 2,264 2,050
------- ------- ------- -------
43,782 38,207 87,311 74,987
------- ------- ------- -------
INCOME FROM OPERATIONS BEFORE INCOME TAXES
AND GAIN ON SALE OF INVESTMENT PROPERTIES AND
EXTRAORDINARY LOSS 11,822 11,708 24,590 23,790
PROVISION (BENEFIT) FOR INCOME TAXES FROM
OPERATIONS 152 227 1,174 (713)
------- ------- ------- -------
INCOME BEFORE GAIN ON SALE OF INVESTMENT
PROPERTIES AND EXTRAORDINARY LOSS 11,670 11,481 23,416 24,503
GAIN ON SALE OF INVESTMENT PROPERTIES, NET OF
APPLICABLE INCOME TAX PROVISION 1,042 1,077 2,072 19,422
------- ------- ------- -------
INCOME BEFORE EXTRAORDINARY LOSS 12,712 12,558 25,488 43,925
EXTRAORDINARY LOSS - - 3,501 -
------- ------- ------- -------
NET INCOME $12,712 $12,558 $21,987 $43,925
======= ======= ======= =======
WEIGHTED AVERAGE SHARES 49,617 49,256 49,493 49,178
======= ======= ======= =======
BASIC NET INCOME PER SHARE:
Income before extraordinary loss $ .26 $ .25 $ .51 $ .89
Extraordinary loss - - .07 -
------- ------- ------- -------
Basic net income per share $ .26 $ .25 $ .44 $ .89
======= ======= ======= =======
DILUTED WEIGHTED AVERAGE SHARES 50,621 50,395 50,447 50,301
======= ======= ======= =======
DILUTED NET INCOME PER SHARE:
Income before extraordinary loss $ .25 $ .25 $ .51 $ .87
Extraordinary loss - - .07 -
------- ------- ------- -------
Diluted net income per share $ .25 $ .25 $ .44 $ .87
======= ======= ======= =======
CASH DIVIDENDS DECLARED PER SHARE $ .37 $ .34 $ .74 $ .68
======= ======= ======= =======
The accompanying notes are an integral part of these consolidated statements.
COUSINS PROPERTIES INCORPORATED AND CONSOLIDATED ENTITIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE SIX MONTHS ENDED JUNE 30, 2002 AND 2001
(UNAUDITED)
($ in thousands)
2002 2001
-------- --------
CASH FLOWS FROM OPERATING ACTIVITIES:
Income before gain on sale of investment properties and extraordinary loss $ 23,416 $ 24,503
Adjustments to reconcile income before gain on sale of investment
properties and extraordinary loss to net cash provided by operating
activities:
Depreciation and amortization, net of minority interest's share 25,366 21,526
Amortization of unearned compensation 299 556
Stock appreciation right expense (credit) 34 (136)
Cash charges to expense accrual for stock appreciation rights (288) (373)
Effect of recognizing rental revenues on a straight-line basis (1,092) (1,597)
Income from unconsolidated joint ventures (13,630) (11,145)
Operating distributions from unconsolidated joint ventures 21,744 14,777
Residential lot and outparcel cost of sales 2,741 2,684
Changes in other operating assets and liabilities:
Change in other receivables 185 402
Change in accounts payable and accrued liabilities (1,829) (2,608)
-------- --------
Net cash provided by operating activities 56,946 48,589
-------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Gain on sale of investment properties, net of applicable income tax provision 2,072 19,422
Adjustments to reconcile gain on sale of investment properties
to net cash provided by sales activities:
Cost of sales - 35,674
Deferred income recognized (2,062) (2,023)
Non-cash gain on disposition of leasehold interests - (236)
Property acquisition and development expenditures (36,193) (82,443)
Investment in unconsolidated joint ventures, including interest
capitalized to equity investments (3,075) (18,723)
(Investment in) collection of notes receivable, net (652) 869
Net cash paid in acquisition of business - (2,126)
Change in other assets, net (1,983) (3,999)
-------- --------
Net cash used in investing activities (41,893) (53,585)
-------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from credit facility 119,426 137,324
Repayment of credit facility (184,497) (131,781)
Proceeds from other notes payable 150,000 31,000
Repayment of other notes payable (69,728) (2,746)
Dividends paid (36,792) (33,513)
Common stock sold, net of expenses 8,350 7,745
Extraordinary loss (3,501) -
-------- --------
Net cash (used in) provided by financing activities (16,742) 8,029
-------- --------
NET (DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS (1,689) 3,033
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 10,556 1,696
-------- --------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 8,867 $ 4,729
======== ========
The accompanying notes are an integral part of these consolidated statements.
COUSINS PROPERTIES INCORPORATED AND CONSOLIDATED ENTITIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2002
(UNAUDITED)
1. BASIS OF PRESENTATION
- --------------------------
The Consolidated Financial Statements include the accounts of
Cousins Properties Incorporated ("Cousins"), its majority owned partnerships
and wholly owned subsidiaries, Cousins Real Estate Corporation ("CREC") and its
subsidiaries and CREC II Inc. ("CREC II") 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 and CREC II
and its subsidiaries are taxed separately from Cousins as regular corporations.
Accordingly, the Consolidated Statements of Income include a provision (benefit)
for CREC and CREC II's income taxes.
The Consolidated Financial Statements were prepared by the Company
without audit, but in the opinion of management reflect all adjustments
necessary (which adjustments are of a normal and recurring nature) for the fair
presentation of the Company's financial position as of June 30, 2002 and results
of operations for the three and six month periods ended June 30, 2002 and 2001.
Results of operations for the interim 2002 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 accounting principles generally accepted in the United States 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, 2001. The accounting
policies employed are the same as those shown in Note 1 to the Consolidated
Financial Statements included in such Form 10-K.
2. SUPPLEMENTAL INFORMATION CONCERNING CASH FLOWS
- ---------------------------------------------------
Interest paid (net of $3,130,000 and $4,730,000 capitalized in 2002 and
2001, respectively) and income taxes (refunded) paid were as follows for the six
months ended June 30, 2002 and 2001 ($ in thousands):
2002 2001
------- -------
Interest paid $16,954 $14,242
Income taxes (refunded) paid $(1,168) $ 200
During the six months ended June 30, 2002, approximately $26,836,000
was transferred from Projects Under Construction to Operating Properties.
3. NOTES PAYABLE AND INTEREST EXPENSE
- ---------------------------------------
At June 30, 2002 and December 31, 2001, notes payable included the
following ($ in thousands):
June 30, 2002 December 31, 2001
------------------------------------ -------------------------------------
Share of Share of
Unconsolidated Unconsolidated
Company Joint Ventures Total Company Joint Ventures Total
-------- -------------- -------- -------- --------------- ---------
Floating Rate Credit Facility
and Floating Rate Debt $ 88,745 $ 7,114 $ 95,859 $153,816 $ 7,614 $161,430
Other Debt
(primarily non-recourse
fixed rate mortgages) 511,731 263,838 775,569 431,459 268,299 699,758
-------- -------- -------- -------- -------- --------
$600,476 $270,952 $871,428 $585,275 $275,913 $861,188
======== ======== ======== ======== ======== ========
For the three and six months ended June 30, 2002, interest expense was
recorded as follows ($ in thousands):
Three Months Ended Six Months Ended
June 30, 2002 June 30, 2002
------------------------------------ -----------------------------------
Share of Share of
Unconsolidated Unconsolidated
Company Joint Ventures Total Company Joint Ventures Total
------- -------------- ------- ------- -------------- -------
Interest Expensed $ 9,557 $4,808 $14,365 $18,089 $9,678 $27,767
Interest Capitalized 1,233 - 1,233 3,130 - 3,130
------- ------ ------- ------- ------ -------
$10,790 $4,808 $15,598 $21,219 $9,678 $30,897
======= ====== ======= ======= ====== =======
During the first six months of 2002, 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 $97
million.
4. EARNINGS PER SHARE DATA
- ---------------------------
Weighted average shares and diluted weighted average shares are as
follows (in thousands):
Three Months Ended Six Months Ended
June 30, June 30,
-------------------- -------------------
2002 2001 2002 2001
------ ------ ------ ------
Weighted average shares 49,617 49,256 49,493 49,178
Dilutive potential common shares 1,004 1,139 954 1,123
------ ------ ------ ------
Diluted weighted average shares 50,621 50,395 50,447 50,301
====== ====== ====== ======
Anti-dilutive options not included 892 901 935 901
====== ====== ====== ======
5. NEW ACCOUNTING PRONOUNCEMENTS
- ---------------------------------
In June 2001, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 142, "Goodwill and Other Intangible
Assets" ("SFAS 142"). Under the provisions of SFAS 142, there will be no
amortization of goodwill and other intangible assets that have indefinite useful
lives. Instead, these assets must be tested for impairment upon the adoption of
SFAS 142 and annually thereafter. The Company has goodwill totaling
approximately $15.6 million which is subject to SFAS 142. The Company adopted
SFAS 142 effective January 1, 2002 and completed its initial impairment test of
this goodwill in the first quarter of 2002, which resulted in no impairment.
Amortization expense recorded related to this goodwill was approximately
$180,000 and $291,000 for the three and six months ended June 30, 2001,
respectively. Had amortization expense not been recorded in 2001, diluted
earnings per share would have been $.25 and $.88 for the three and six month
2001 periods, respectively.
In August 2001, SFAS No. 144, "Accounting for the Impairment or
Disposal of Long-Lived Assets," was issued, which the Company adopted effective
January 1, 2002. SFAS No. 144 addresses financial accounting and reporting for
the impairment of long-lived assets and long-lived assets to be disposed of.
This statement supersedes SFAS No. 121, "Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to Be Disposed Of," and establishes
criteria beyond that previously specified in SFAS No. 121 to determine when a
long-lived asset is to be considered as held for sale. The Company believes that
the impairment provisions of SFAS No. 144 are similar to SFAS No. 121 and the
adoption had no impact on the Company's financial statements. SFAS No. 144 also
requires that the gains and losses from the disposition of certain real estate
assets and the related historical operating results be included in discontinued
operations in the statements of income for all periods presented. In the normal
course of business, the Company recycles invested capital by disposing of
existing assets and redeploying the proceeds in order to enhance total returns
to stockholders. Although net income will not be affected, the Company will
reclassify results previously included in continuing operations to discontinued
operations for any qualifying dispositions it may have in the future in
accordance with SFAS No. 144.
6. REFINANCING OF BANK OF AMERICA PLAZA
- -----------------------------------------
On February 22, 2002, CSC Associates, L.P. ("CSC"), a 50% owned joint
venture, completed a $150 million non-recourse mortgage note payable with an
interest rate of 6.9575% and a maturity of March 1, 2012. This non-recourse
mortgage note payable is secured by CSC's interest in the Bank of America Plaza
building and related leases and agreements. CSC loaned the $150 million proceeds
of the non-recourse mortgage note payable to the Company under a non-recourse
loan (the "Cousins Loan") secured by the Company's interest in CSC under the
same payment terms as those of the non-recourse mortgage note payable. The
Company paid all costs of issuing the non-recourse mortgage note payable and the
Cousins Loan, including a $750,000 fee to an affiliate of Bank of America
Corporation.
On March 15, 2002, $65,873,925 of the proceeds from this financing was
used to pay off in full the existing collateralized non-recourse mortgage notes
("existing mortgage notes"). The $65,873,925 included $65,525,710 for the payoff
of the principal balance as of February 15, 2002 (the last payment date of the
existing mortgage notes) and $348,215 for accrued interest from February 15,
2002 through March 14, 2002. The existing non-recourse loan to CSC, which is
secured by the Company's interest in CSC under the same payment terms as those
of the existing mortgage notes, was also repaid in full.
In connection with the prepayment in full of the existing mortgage
notes, the Company paid a prepayment premium in the amount of $2,871,925. This
prepayment premium of $2,871,295, along with the unamortized balance of closing
costs paid by the Company related to the existing mortgage notes in the amount
of $629,278, were expensed as an Extraordinary Item in the accompanying
Consolidated Statements of Income.
7. REPORTABLE SEGMENTS
- -----------------------
The Company has three reportable segments: Office Division, Retail
Division and Land Division. The Office Division and Retail Division develop,
lease and manage office buildings and retail centers, respectively. The Land
Division owns various tracts of strategically located land which are being held
for sale or 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 the 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 and (ii) reflect stock appreciation
right expense on a cash basis. 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.
Three Months Ended Office Retail Land Unallocated
June 30, 2002 Division Division Division and Other Total
- ------------------ -------- -------- -------- ----------- -------
Rental property revenues (100%) $33,298 $ 9,906 $ - $ 25 $43,229
Rental property revenues (JV) 19,377 632 - - 20,009
Development income, management
fees and leasing and other fees (100%) 3,467 414 75 - 3,956
Development income, management
fees and leasing and other fees (JV) - - - - -
Other income (100%) - - 521 1,114 1,635
Other income (JV) - - 408 - 408
--------------------------------------------------------
Total revenues 56,142 10,952 1,004 1,139 69,237
--------------------------------------------------------
Rental property operating expenses (100%) 10,243 2,293 - 1 12,537
Rental property operating expenses (JV) 5,715 150 - - 5,865
Other expenses (100%) 4,719 1,539 978 11,583 18,819
Other expenses (JV) - - 11 3,293 3,304
--------------------------------------------------------
Total expenses 20,677 3,982 989 14,877 40,525
--------------------------------------------------------
Consolidated funds from operations 35,465 6,970 15 (13,738) 28,712
--------------------------------------------------------
Depreciation and amortization (100%) (9,555) (3,260) - (2) (12,817)
Depreciation and amortization (JV) (4,340) (234) - - (4,574)
Effect of the recognition of rental
revenues on a straight-line basis (100%) 183 - - - 183
Effect of the recognition of rental
revenues on a straight-line basis (JV) (73) - - - (73)
Adjustment to reflect stock appreciation
right expense on an accrual basis - - - 239 239
Gain on sale of investment properties, net
of applicable income tax provision 473 569 - - 1,042
--------------------------------------------------------
Net income 22,153 4,045 15 (13,501) 12,712
--------------------------------------------------------
Provision for income taxes from operations - - - 152 152
--------------------------------------------------------
Income from operations before taxes $22,153 $ 4,045 $ 15 $(13,349) $12,864
========================================================
Six Months Ended Office Retail Land Unallocated
June 30, 2002 Division Division Division and Other Total
- ---------------- -------- -------- -------- ----------- ----------
Rental property revenues (100%) $ 63,225 $ 18,443 $ - $ 53 $ 81,721
Rental property revenues (JV) 38,273 1,261 - - 39,534
Development income, management
fees and leasing and other fees (100%) 7,613 793 247 - 8,653
Development income, management
fees and leasing and other fees (JV) - - - - -
Other income (100%) - - 4,556 2,249 6,805
Other income (JV) - - 1,452 - 1,452
-----------------------------------------------------------
Total revenues 109,111 20,497 6,255 2,302 138,165
-----------------------------------------------------------
Rental property operating expenses (100%) 19,853 4,388 - 5 24,246
Rental property operating expenses (JV) 11,462 321 - - 11,783
Other expenses (100%) 9,438 3,110 4,454 23,177 40,179
Other expenses (JV) - - 25 6,642 6,667
-----------------------------------------------------------
Total expenses 40,753 7,819 4,479 29,824 82,875
-----------------------------------------------------------
Consolidated funds from operations 68,358 12,678 1,776 (27,522) 55,290
-----------------------------------------------------------
Depreciation and amortization (100%) (18,186) (6,126) - (3) (24,315)
Depreciation and amortization (JV) (8,372) (477) - - (8,849)
Effect of the recognition of rental
revenues on a straight-line basis (100%) 1,092 - - - 1,092
Effect of the recognition of rental
revenues on a straight-line basis (JV) (56) - - - (56)
Adjustment to reflect stock appreciation
right expense on an accrual basis - - - 254 254
Gain on sale of investment properties, net
of applicable income tax provision 947 1,125 - - 2,072
Extraordinary loss - - - (3,501) (3,501)
-----------------------------------------------------------
Net income 43,783 7,200 1,776 (30,772) 21,987
-----------------------------------------------------------
Provision for income taxes from operations - - - 1,174 1,174
-----------------------------------------------------------
Income from operations before taxes $ 43,783 $ 7,200 $ 1,776 $(29,598) $ 23,161
===========================================================
Total assets $850,205 $262,914 $28,004 $76,846 $1,217,969
===========================================================
Investment in unconsolidated joint ventures $151,837 $ 16,556 $11,965 $ - $ 180,358
===========================================================
Reconciliation to Consolidated Revenues
- ---------------------------------------
Three Months Ended Six Months Ended
June 30, June 30,
--------------------- ---------------------
2002 2001 2002 2001
------- ------- ------- -------
Rental property revenues (100%) $43,229 $35,644 $81,721 $70,054
Effect of the recognition of rental
revenues on a straight-line basis (100%) 183 335 1,092 1,581
Development income, management fees
and leasing and other fees (100%) 3,956 5,279 8,653 8,997
Residential lot and outparcel sales 521 1,519 4,556 3,907
Interest and other 1,114 1,498 2,249 3,093
--------------------- ---------------------
Total consolidated revenues $49,003 $44,275 $98,271 $87,632
===================== =====================
Three Months Ended Office Retail Land Unallocated
June 30, 2001 Division Division Division and Other Total
- ------------------ -------- -------- -------- ----------- -------
Rental property revenues (100%) $27,578 $7,976 $ -- $ 90 $35,644
Rental property revenues (JV) 16,899 604 -- -- 17,503
Development income, management
fees and leasing and other fees (100%) 4,896 275 108 -- 5,279
Development income, management
fees and leasing and other fees (JV) -- -- -- -- -
Other income (100%) -- -- 1,519 1,498 3,017
Other income (JV) -- -- 624 - 624
----------------------------------------------------------
Total revenues 49,373 8,855 2,251 1,588 62,067
----------------------------------------------------------
Rental property operating expenses (100%) 8,603 2,396 -- 49 11,048
Rental property operating expenses (JV) 4,992 173 -- -- 5,165
Other expenses (100%) 3,954 1,696 1,697 9,569 16,916
Other expenses (JV) -- -- 1 3,464 3,465
----------------------------------------------------------
Total expenses 17,549 4,265 1,698 13,082 36,594
----------------------------------------------------------
Consolidated funds from operations 31,824 4,590 553 (11,494) 25,473
----------------------------------------------------------
Depreciation and amortization (100%) (8,367) (2,349) -- (2) (10,718)
Depreciation and amortization (JV) (3,793) (216) -- -- (4,009)
Effect of the recognition of rental
revenues on a straight-line basis (100%) 335 -- -- -- 335
Effect of the recognition of rental
revenues on a straight-line basis (JV) 152 -- -- -- 152
Adjustment to reflect stock appreciation
right expense on an accrual basis -- -- -- 248 248
Gain on sale of investment properties, net
of applicable income tax provision 475 593 9 -- 1,077
----------------------------------------------------------
Net income 20,626 2,618 562 (11,248) 12,558
----------------------------------------------------------
Provision for income taxes from operations -- -- -- 227 227
----------------------------------------------------------
Income from operations before taxes $20,626 $2,618 $ 562 $(11,021) $12,785
==========================================================
Six Months Ended Office Retail Land Unallocated
June 30, 2001 Division Division Division and Other Total
- ---------------- -------- -------- -------- ----------- ---------
Rental property revenues (100%) $ 53,124 $ 16,765 $ -- $ 165 $ 70,054
Rental property revenues (JV) 35,783 1,202 -- -- 36,985
Development income, management
fees and leasing and other fees (100%) 8,092 731 174 -- 8,997
Development income, management
fees and leasing and other fees (JV) 1,050 -- -- -- 1,050
Other income (100%) -- -- 3,907 3,093 7,000
Other income (JV) -- -- 892 25 917
----------------------------------------------------------
Total revenues 98,049 18,698 4,973 3,283 125,003
----------------------------------------------------------
Rental property operating expenses (100%) 16,924 4,690 -- 50 21,664
Rental property operating expenses (JV) 10,601 329 -- -- 10,930
Other expenses (100%) 5,405 3,235 4,096 19,528 32,264
Other expenses (JV) -- -- 24 9,182 9,206
----------------------------------------------------------
Total expenses 32,930 8,254 4,120 28,760 74,064
----------------------------------------------------------
Consolidated funds from operations 65,119 10,444 853 (25,477) 50,939
Depreciation and amortization (100%) (16,073) (4,779) -- (3) (20,855)
Depreciation and amortization (JV) (7,677) (426) -- -- (8,103)
Effect of the recognition of rental
revenues on a straight-line basis (100%) 1,581 -- -- -- 1,581
Effect of the recognition of rental
revenues on a straight-line basis (JV) 432 -- -- -- 432
Adjustment to reflect stock appreciation
right expense on an accrual basis -- -- -- 509 509
Gain on sale of investment properties, net
of applicable income tax provision 1,185 18,228 9 -- 19,422
----------------------------------------------------------
Net income 44,567 23,467 862 (24,971) 43,925
----------------------------------------------------------
Benefit for income taxes from operations -- -- -- (713) (713)
----------------------------------------------------------
Income from operations before taxes $ 44,567 $ 23,467 $ 862 $(25,684) $ 43,212
==========================================================
Total assets $815,197 $260,934 $16,640 $70,323 $1,163,094
==========================================================
Investment in unconsolidated joint ventures $152,502 $ 16,988 $ 9,285 $ - $ 178,775
==========================================================
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,
2002 and 2001
Critical Accounting Policies:
- -----------------------------
A critical accounting policy is one which is both important to the
portrayal of a company's financial condition and results and requires
significant judgment or complex estimation processes. As the Company is in the
business of developing, owning and managing office and retail real estate
properties and developing single-family residential communities which are
parceled into lots and sold to various home builders, its critical accounting
policies relate to cost capitalization, depreciation and amortization,
impairment of long-lived assets and residential lot sales profit recognition.
The Company expenses predeveloment costs incurred on a potential
project until it becomes probable that the project will go forward. After a
project becomes probable, all subsequently incurred predevelopment costs, as
well as interest, real estate taxes, and certain internal personnel and
associated costs directly related to the project under development are
capitalized. If the decision is made to not commence development of a project
that had been deemed probable, all previously capitalized costs are expensed.
From the date a project receives its certificate of occupancy and for one year
thereafter, the Company continues capitalizing interest, real estate taxes and
certain internal personnel and associated costs directly related to the project
under development based on the portion of the project which remains under
construction.
When a project is completed and placed in service, it is depreciated on
a straight-line basis over its estimated useful life. Projects which the Company
developed are depreciated over 30 to 40 years and projects the Company acquired
are depreciated over 15 to 30 years. Leasehold improvements are amortized over
the lesser of the life of the applicable lease or the estimated useful life of
the asset.
As required by accounting principles generally accepted in the United
States, the Company periodically evaluates its real estate assets to determine
if there has been any impairment in their carrying values and records impairment
losses if the undiscounted cash flows estimated to be generated by those assets
are less than the assets' carrying amounts or there are other indicators of
impairment. At June 30, 2002, the Company did not own any real estate assets
that were impaired.
In its determination of the gross profit percentages to be applied to
its residential lot sales in order to calculate the profits to be recognized on
these sales, the Company utilizes several estimates. Gross profit percentages
are calculated based on the estimated lot sales prices divided by the estimated
costs of the development. The Company must estimate the prices of the lots to be
sold, the costs to complete the development of the residential community and the
time period over which the lots, once completed, will be ultimately sold.
Results of Operations:
- ----------------------
Rental Property Revenues and Operating Expenses. Rental property
revenues increased approximately $7,433,000 and $11,178,000 in the three and six
month 2002 periods, respectively. Rental property revenues from the Company's
office portfolio increased approximately $5,568,000 and $9,612,000 in the three
and six month 2002 periods, respectively. Two office buildings, Cerritos
Corporate Center-Phase II and 55 Second Street, which became partially
operational for financial reporting purposes in June 2001 and February 2002,
respectively, contributed approximately $763,000 and $1,672,000 in the three and
six month 2002 periods, respectively, and $4,297,000 and $6,901,000 in the three
and six month 2002 periods, respectively, to the increase. Additionally, rental
property revenues from 101 Second Street increased approximately $731,000 and
$867,000 in the three and six month 2002 periods, respectively, primarily due to
the recognition of a termination fee paid to effect the early termination of a
tenant's lease of approximately $778,000 in the three month 2002 period. Rental
property revenues at the 3301 Windy Ridge Parkway Building increased
approximately $285,000 in the six month 2002 period due to the renewal of the
single tenant's lease at a higher rental rate beginning May 2001. Furthermore,
rental property revenues from 1900 Duke Street, which became partially
operational for financial reporting purposes in October 2000, increased
approximately $314,000 in the six month 2002 period, and rental property
revenues from Meridian Mark Plaza increased approximately $290,000 in the six
month 2002 period, as its average economic occupancy increased from 94% in 2001
to 97% in 2002. The increases in rental property revenues were partially offset
by decreases of approximately $557,000 and $1,148,000 in the three and sixth
month 2002 periods, respectively, from The Points at Waterview, as its average
economic occupancy for the six month period decreased from 96% in 2001 to 49% in
2002.
Rental property revenues from the Company's retail portfolio increased
approximately $1,930,000 and $1,678,000 in the three and six month 2002 periods,
respectively. Rental property revenues increased approximately $1,135,000 and
$1,905,000 in the three and six month 2002 periods, respectively, from The
Avenue Peachtree City due both to the property becoming partially operational
for financial reporting purposes in March 2001 and to the recognition of a
termination fee of approximately $719,000 in the three month 2002 period. Rental
property revenues increased approximately $619,000 and $713,000 in the three and
six month 2002 periods, respectively, from The Avenue of the Peninsula, as its
average economic occupancy for the six month period increased from 72% in 2001
to 79% in 2002. Rental property revenues from Presidential MarketCenter
increased approximately $222,000 in the six month 2002 period, as its average
economic occupancy increased from 91% in 2001 to 98% in 2002. Rental property
revenues decreased approximately $1,064,000 in the six month 2002 period from
the February 2001 sale of Colonial Plaza MarketCenter, which partially offset
the increase in rental property revenues in the six month 2002 period.
The Company expects additional termination fees will be recognized as
rental property revenues during the second half of 2002 as a result of its
ongoing negotiations to terminate leases with other tenants in certain of its
properties. In August 2002, the Company did enter into a termination agreement
with Arthur Andersen which terminated its 148,000 square foot lease at 101
Second Street. The result of the termination agreement with Arthur Andersen will
not have a material impact on rental property revenues in 2002. However, there
will be no economic benefit to the Company or its rental property revenues from
the Arthur Andersen lease in 2003 and beyond. The Company is in active
negotiations with prospective tenants to lease approximately one-half of the
Arthur Andersen and Reflect.com space located in 101 Second Street. While the
Company is hopeful, there is no guarantee that these negotiations will result in
executed leases. In addition, the San Francisco market continues to be a
difficult leasing market. Due to the uncertainties surrounding both the ongoing
negotiations and the market, the Company cannot currently estimate the result of
its efforts to re-lease the 101 Second Street building and the resulting impact
on rental property revenues in 2003 and beyond.
Rental property operating expenses increased approximately $1,538,000
and $2,433,000 in the three and six month 2002 periods, respectively, due to the
aforementioned office buildings and retail center becoming partially operational
for financial reporting purposes. The increase in rental property operating
expenses in the six month 2002 period was partially offset by a decrease in
rental property operating expenses of approximately $316,000 from the
aforementioned sale of Colonial Plaza MarketCenter.
Development Income. Development income decreased approximately $664,000
and $1,104,000 in the three and six month 2002 periods, respectively.
Development income decreased approximately $570,000 and $642,000 in the three
and six month 2002 periods, respectively, from CPI/FSP I, L.P., as construction
of Austin Research Park Buildings III and IV was completed. Additionally,
development income decreased approximately $209,000 in the six month 2002 period
from 285 Venture, LLC, as construction of 1155 Perimeter Center West was
completed, and approximately $409,000 in the six month 2002 period from the
third party development of the Turner Tower. The decrease in development income
was partially offset by an increase in development income of approximately
$234,000 in the six month 2002 period from the third party retail redevelopment
of a center in Albuquerque.
Management Fees. Management fees increased approximately $314,000 and
$1,197,000 in the three and six month 2002 periods, respectively. Management
fees increased approximately $233,000 and $1,005,000 in the three and six month
2002 periods, respectively, from Cousins Properties Services LP ("CPS").
Effective March 1, 2001, CREC II purchased the remaining 25% interest in CPS at
which point the operations of CPS were consolidated, whereas the operations had
been previously accounted for using the equity method of accounting and
therefore recognized as joint venture income. Approximately $301,000 and
$612,000 of the CPS increase in the three and six month 2002 periods,
respectively, was from the Concourse Corporate Center in Atlanta, Georgia, of
which CPS commenced management in October 2001. Additionally, management fees
increased by approximately $107,000 in the six month 2002 period from CPI/FSP I,
L.P., as Austin Research Park Buildings III and IV became partially operational
for financial reporting purposes in June 2001 and September 2001, respectively.
Leasing and Other Fees. Leasing and other fees decreased approximately
$973,000 and $437,000 in the three and six month 2002 periods, respectively.
Leasing and other fees decreased approximately $544,000 in both the three and
six month 2002 periods from CPI/FSP I, L.P., as leasing fees were recognized for
Austin Research Park Buildings III and IV in 2001. A decrease in leasing and
other fees from CPS also contributed to the decrease by approximately $365,000
in the three month 2002 period due to a significant third party leasing fee
recognized in the three month 2001 period. Leasing and other fees also decreased
approximately $100,000 in the three month 2002 period from 285 Venture, LLC from
leasing fees recognized in the three month 2001 period related to the lease-up
of 1155 Perimeter Center West. Furthermore, leasing and other fees decreased
approximately $143,000 in the six month 2002 period from CSC Associates, L.P.,
which owns Bank of America Plaza, and approximately $151,000 in the six month
2002 period from CP Venture Two, LLC. Leasing and other fees from CPS increased
approximately $256,000 in the six month 2002 period, which partially offset the
six month 2002 decrease in leasing and other fees, primarily related to leasing
at the aforementioned Concourse Corporate Center. Also partially offsetting the
decrease in both the three and six month 2002 periods was an increase in leasing
and other fees of approximately $267,000 from Ten Peachtree Place Associates.
Residential Lot and Outparcel Sales and Cost of Sales. Residential lot
and outparcel sales decreased approximately $998,000 in the three month 2002
period and increased $649,000 in the six month 2002 period. Residential lots
sold decreased from 30 lots in the three month 2001 period to 5 lots in the
three month 2002 period and increased from 75 lots in the six month 2001 period
to 96 lots in the six month 2002 period.
Residential lot and outparcel cost of sales decreased approximately
$910,000 in the three month 2002 period and increased approximately $61,000 in
the six month 2002 period due to the aforementioned fluctuation in the number of
lots sold. The decrease in cost of sales in the three month 2002 period and the
increase in cost of sales in the six month 2002 period was less than the
corresponding decrease and increase in the three and six month sales,
respectively, due to an increase in 2002 of the gross profit percentages used to
calculate the cost of sales of lot sales in certain of the residential
developments.
Interest and Other Income. Interest and other income decreased
approximately $384,000 and $844,000 in the three and six month 2002 periods,
respectively, primarily due to interest income recognized in the 2001 periods
from the $18.6 million note receivable from Charlotte Gateway Village, LLC
("Gateway") that was repaid in full in November 2001.
Income from Unconsolidated Joint Ventures. (All amounts reflect the
Company's share of joint venture income.) Income from unconsolidated joint
ventures increased approximately $961,000 and $2,485,000 in the three and six
month 2002 periods, respectively.
Income from Wildwood Associates increased approximately $385,000 in the
six month 2002 period primarily due to an increase in income before
depreciation, amortization and interest expense of approximately $258,000 in the
six month 2002 period from the 3200 Windy Hill Road Building, as its average
economic occupancy increased from 99% in 2001 to 100% in 2002.
Income from Temco Associates decreased approximately $227,000 in the
three month 2002 period and increased approximately $559,000 in the six month
2002 period. Lot sales in its Bentwater residential development decreased from
89 lots in the three month 2001 period to 79 lots in the three month 2002
period, which contributed to the three month 2002 decrease, and increased from
138 lots in the six month 2001 period to 180 lots in the six month 2002 period,
which contributed to the six month 2002 increase. Additionally, approximately
213 acres of the option related to the fee simple interest was exercised and
simultaneously sold in the three month 2001 period. CREC's share of the gain was
approximately $360,000. No tract sales occurred in the three month 2002 period.
Approximately 559 acres of the option related to the fee simple interest was
exercised and simultaneously sold in the six month 2002 period. CREC's share of
the gain was approximately $371,000.
Income from CPI/FSP I, L.P. increased approximately $550,000 and
$976,000 in the three and six month 2002 periods, respectively, as Austin
Research Park Buildings III and IV became partially operational for financial
reporting purposes in June 2001 and September 2001, respectively.
Income from Gateway increased approximately $197,000 and $408,000 in
the three and six month 2002 periods, respectively. The Company recognizes an
11.46% current preferred return on its equity in Gateway, which increased from
$3,200,000 to $10,556,000 in November 2001.
Income from Crawford Long - CPI, LLC increased approximately $199,000
and $306,000 in the three and six month 2002 periods, respectively, as the Emory
Crawford Long Medical Office Tower became partially operational for financial
reporting purposes in February 2002.
Income from Ten Peachtree Place Associates decreased approximately
$260,000 and $561,000 in the three and six month 2002 periods, respectively, as
its average economic occupancy for the six month period decreased from 100% in
2001 to 16% in 2002.
Income from CSC Associates, L.P. increased approximately $199,000 and
$299,000 in the three and six month 2002 periods, respectively, due to an
increase in rental revenues from a tenant whose increase in rental rate did not
require straight-lining under Statement of Financial Accounting Standards No.
13.
Income from 285 Venture, LLC increased approximately $177,000 and
$191,000 in the three and six month 2002 periods, respectively, as the average
economic occupancy for the six month period of 1155 Perimeter Center West
increased from 87% in 2001 to 100% in 2002.
General and Administrative Expenses. General and administrative
expenses increased approximately $131,000 and $1,325,000 in the three and six
month 2002 periods, respectively. The increase in the three month 2002 period
was partially due to an increase in moving expenses and salaries and employee
benefits. The increase in the six month 2002 period was primarily attributable
to the aforementioned consolidation of CPS and partially to an increase in
moving expenses. The increases in the three and six month 2002 periods were
partially offset by a decrease in general and administrative expenses resulting
from the capitalization of additional general and administrative expenses to
offset the partial elimination of certain development and leasing fees from
joint ventures.
Depreciation and Amortization. Depreciation and amortization increased
approximately $2,308,000 and $3,744,000 in the three and six month 2002 periods,
respectively, due to the aforementioned office buildings and retail center
becoming partially operational for financial reporting purposes, which increase
was partially offset by the February 2001 sale of Colonial Plaza MarketCenter.
Interest Expense. Interest expense increased approximately $3,007,000
and $4,368,000 in the three and six month 2002 periods, respectively.
Interest expense before capitalization increased to approximately $10,790,000
and $21,219,000 in the three and six month 2002 periods, respectively, from
approximately $8,966,000 and $18,451,000 in the three and six month 2001
periods, respectively, due to higher average debt levels. The Company completed
four non-recourse mortgages in 2001: Presidential MarketCenter in May 2001, 600
University Park Place in July 2001 and 333 John Carlyle/1900 Duke Street and
333/555 North Point Center East in November 2001. Also contributing to the
increase in interest expense was a decrease of approximately $1,183,000 and
$1,600,000 in the three and six month 2002 periods, respectively, in interest
capitalized to projects under development (a reduction of interest expense) to
approximately $1,233,000 and $3,130,000 in the three and six month 2002 periods,
respectively, from approximately $2,416,000 and $4,730,000 in the three and six
month 2001 periods, respectively, due to a lower level of projects under
development in 2002.
Other Expenses. Other expenses decreased approximately $371,000 in the
three month 2002 period and increased approximately $214,000 in the six month
2002 period. Predevelopment expense decreased approximately $281,000 in the
three month 2002 period. Minority interest expense increased approximately
$194,000 in the six month 2002 period primarily due to an increase in minority
interest expense from 55 Second Street, which became partially operational for
financial reporting purposes in February 2002.
Provision(Benefit) for Income Taxes from Operations. The benefit for
income taxes from operations decreased approximately $1,887,000 to a provision
for income taxes from operations in the six month 2002 period. The decrease in
the benefit for income taxes from operations was primarily due to an increase in
income before income taxes and gain on sale of investment properties from CREC
and its subsidiaries in the six month 2002 period. This increase is primarily
due to increases in income from residential lot sales, net of cost of sales,
income from Temco Associates, leasing fees and a decrease in general and
administrative expenses. The increase in income before income taxes and gain on
sale of investment properties from CREC and its subsidiaries was partially
offset by a decrease in development income and an increase in interest expense
in the six month 2002 period.
The decrease in the benefit for income taxes from operations was
partially offset by an increase in the loss before income taxes and gain on sale
of investment properties from CREC II and its subsidiaries in the six month 2002
period. The decrease is mainly due to a decrease in income from CPS.
Gain on Sale of Investment Properties. Gain on sale of investment
properties decreased approximately $17,350,000 in the six month 2002 period. The
2002 gain included the amortization of deferred gain from CP Venture LLC ($2.1
million) (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, 2001). The
2001 gain included the following: the February 2001 sale of Colonial Plaza
MarketCenter ($17.1 million), the February 2001 disposition of leasehold
interests in Summit Green ($.2 million) and the amortization of deferred gain
from CP Venture LLC ($2.1 million) (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, 2001).
Extraordinary Loss. The Company recognized an extraordinary loss of
approximately $3,501,000 in the six month 2002 period due to the refinancing of
the CSC Associates, L.P. non-recourse mortgage note payable (see Note 6 to the
Company's consolidated financial statements included in this report).
Liquidity and Capital Resources:
- --------------------------------
Financial Condition. The Company's adjusted debt (including its pro
rata share of unconsolidated joint venture debt) was 39% of total market
capitalization at June 30, 2002. Adjusted debt is defined as the Company's debt
and the Company's pro rata share of unconsolidated joint venture debt as
disclosed in Note 4 of "Notes to Consolidated Financial Statements" in the
Company's Annual Report on Form 10-K for the year ended December 31, 2001,
excluding the Gateway debt as it is fully exculpated debt which is supported by
a long-term lease to Bank of America Corporation. The Company had $89 million
drawn on its $275 million revolving credit facility as of June 30, 2002.
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 credit facility (increasing the credit facility as required), long-term
non-recourse financing on the Company's unleveraged projects, joint ventures,
project sales and other financings as market conditions warrant. In September
1996, the Company filed a shelf registration statement with the Securities and
Exchange Commission ("SEC") for the offering from time to time of up to $200
million of common stock, warrants to purchase common stock and debt securities,
of which approximately $132 million remains available at June 30, 2002.
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 stockholders. 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 $8.4 million in the six month 2002 period. Operating distributions
from unconsolidated joint ventures increased approximately $7.0 million in 2002,
which contributed to the increase in net cash provided by operating activities.
The increase in operating distributions from unconsolidated joint ventures is
mainly due to increases in operating distributions of approximately $5.0 million
from Wildwood Associates and approximately $1.8 million from CPI/FSP I, L.P.
Depreciation and amortization increased approximately $3.8 million due to the
aforementioned office buildings and retail center becoming partially operational
for financial reporting purposes, which contributed to the increase in net cash
provided by operating activities. Income before gain on sale of investment
properties and extraordinary loss decreased approximately $1.1 million and
income from unconsolidated joint ventures increased approximately $2.5 million,
both of which partially offset the increase in net cash provided by operating
activities.
Net cash used in investing activities decreased approximately $11.7
million in the six month 2002 period. The decrease in net cash used in investing
activities was primarily due to a decrease of approximately $46.3 million in
property acquisition and development expenditures, as a result of the Company
having a lower level of projects under development in the six month 2002 period.
Investment in unconsolidated joint ventures decreased approximately $15.6
million, which also contributed to the decrease in net cash used in investing
activities. This decrease was primarily due to a decrease in contributions of
approximately $9.3 million to CPI/FSP I, L.P., as construction of Austin
Research Park Buildings III and IV was completed in 2001, a decrease of
approximately $4.7 million to Crawford Long - CPI, LLC in 2002, as construction
of the Emory Crawford Long Medical Office Tower was substantially completed in
February 2002, and a decrease of approximately $1.0 million to 285 Venture, LLC,
as construction of 1155 Perimeter Center West was completed in 2001. The
decrease in net cash paid in acquisition of business of approximately $2.1
million, which resulted from the acquisition of the remaining 25% interest in
CPS in the first quarter of 2001, and a decrease in change in other assets, net,
of approximately $2.0 million, both further contributed to the decrease in net
cash used in investing activities. Net cash provided by sales activities
decreased approximately $52.8 million due primarily to the sale of Colonial
Plaza MarketCenter in February 2001, which partially offset the decrease in net
cash used in investing activities. Investment in, net of collection of notes
receivable, decreased approximately $1.5 million, which also partially offset
the decrease in net cash used in investing activities.
Net cash provided by financing activities decreased approximately $24.8
million in the six month 2002 period to net cash used in financing activities.
The decrease in net cash provided by financing activities was primarily
attributable to a decrease in net amounts drawn on the credit facility of
approximately $70.6 million. Also contributing to the decrease in net cash
provided by financing activities was an increase of approximately $67.0 million
in repayment of other notes payable and an increase in extraordinary loss of
approximately $3.5 million, both due to the refinancing of Bank of America Plaza
(see Note 6 to the Company's consolidated financial statements included in this
report). An increase in the dividends paid per share to $.74 in 2002 from $.68
in 2001 and an increase in the number of shares outstanding also contributed to
the decrease in net cash provided by financing activities as dividends paid
increased approximately $3.3 million. The increase in proceeds from other notes
payable of approximately $119.0 million due to the aforementioned refinancing of
Bank of America Plaza (see Note 6 to the Company's consolidated financial
statements included in this report) partially offset the decrease in net cash
provided by financing activities.
CSC Non-Recourse Mortgage Note Payable. As discussed in Note 6 to the
Company's consolidated financial statements included in this report, CSC
completed a $150 million non-recourse mortgage note payable on the Bank of
America Plaza building. Pursuant to the loan agreement, CSC must maintain all of
the insurance required under the loan agreement with insurance companies having
certain claims paying ability ratings. In July 2002, the claims paying ability
rating of CSC's insurance carrier was downgraded to a level immediately below
that required by the loan agreement. The Company notified the lender of such
downgrading. The lender is not requiring that CSC obtain replacement insurance
at this time, but has reserved the right to require CSC to do so at a later
time.
On the advice of its insurance consultants, the Company believes that
the insurance coverage currently required under the loan agreement is available
from insurance companies that meet the minimum claims paying ability rating
requirements under the loan agreement. If required to provide insurance from a
carrier with the required rating, there can be no assurance, however, that such
insurance can be obtained, or if obtainable, that such insurance can be obtained
without significant additional cost to CSC. Pursuant to the loan agreement, the
lender permits insurance to be issued by insurance companies with a lower claims
paying ability rating under certain circumstances, including obtaining written
confirmation from the rating agencies that the ratings of any securities issued
or to be issued as the result of a securitization of this mortgage note payable
will not be qualified, downgraded or withdrawn as a result of such lower claims
paying ability rating. There can be no assurance that if requested, the rating
agencies would approve a reduction in the claims paying ability rating of
insurance companies. In the event that CSC is required to obtain insurance from
an insurance company with the required rating and cannot obtain such insurance,
and, in the further event that the rating agencies will not confirm that the
rating of the related securities will not be qualified, downgraded or withdrawn
due to the use of an insurance company with a lower rating, CSC could ultimately
be in default under the loan agreement and related documents.
Quantitative and Qualitative Disclosure About Market Risk:
- ----------------------------------------------------------
There has been no material change 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, 2001.
Square Feet Expiring:
- ---------------------
As of July 31, 2002, the Company's office portfolio included
thirty-eight commercial office buildings. The weighted average remaining lease
term of these office buildings, excluding all properties currently under
construction and/or in lease-up and One Ninety One Peachtree Tower, as it is
less than 10% owned by the Company, was approximately 8 years as of July 31,
2002. Most of the Company's leases in these buildings provide for pass through
of operating expenses and base rents which escalate over time. The leases expire
as follows:
2011
&
2002 2003 2004 2005 2006 2007 2008 2009 2010 Thereafter Total
---- ---- ---- ---- ---- ---- ---- ---- ---- ---------- -----
OFFICE
- ------
Consolidated:
- -------------
Square Feet
Expiring (a) 47,616 127,437 157,592 353,399 349,048 156,725 307,060 667,361 276,062 1,478,573 3,920,873(b)
% of Leased
Space 1% 3% 4% 9% 9% 4% 8% 17% 7% 38% 100%
Annual Base
Rent (c) 716,488 2,241,529 3,044,949 6,719,441 5,527,422 3,369,649 6,544,415 13,559,815 7,037,926 42,306,807 91,068,441
Annual Base
Rent/Sq.
Ft. (c) 15.05 17.59 19.32 19.01 15.84 21.50 21.31 20.32 25.49 28.61 23.23
Joint Venture:
- --------------
Square Feet
Expiring (a) 225,941 477,988 471,912 468,951 603,257 708,786 168,103 360,595 155,996 3,542,370 7,183,899(d)
% of Leased
Space 3% 7% 7% 7% 8% 10% 2% 5% 2% 49% 100%
Annual Base
Rent (c) 4,091,971 8,353,331 8,813,615 8,235,128 10,942,692 17,232,315 2,995,182 8,440,713 3,696,238 78,852,275 151,653,460
Annual Base
Rent/Sq.
Ft. (c) 18.11 17.48 18.68 17.56 18.14 24.31 17.82 23.41 23.69 22.26 21.11
Total (including only Company's % share of Joint Venture Properties):
- ----------------------------------------------------------------------
Square Feet
Expiring (a) 156,213 357,129 454,642 551,773 628,201 488,488 379,074 818,271 326,971 3,253,206 7,413,968
% of Leased
Space 2% 5% 6% 7% 9% 7% 5% 11% 4% 44% 100%
Annual Base
Rent (c) 2,582,055 6,238,863 8,487,266 10,234,634 10,595,617 11,601,444 7,838,451 17,266,034 8,342,742 81,735,260 164,922,366
Annual Base
Rent/Sq.
Ft. (c) 16.53 17.47 18.67 18.55 16.87 23.75 20.68 21.10 25.52 25.12 22.24
(a) Where a tenant has the option to cancel its lease without penalty,
the lease expiration date used in the table above reflects the cancellation
option date rather than the lease expiration date.
(b) Rentable square feet leased as of July 31, 2002 out of approximately
4,097,000 total rentable square feet.
(c) Annual base rent excludes the operating expense reimbursement portion of the
rent payable. If the lease does not provide for pass through of such
operating expense reimbursements, an estimate of operating expenses is
deducted from the rental rate shown. The base rental rate shown is the
estimated rate in the year of expiration. Amounts disclosed are in dollars.
(d) Rentable square feet leased as of July 31, 2002 out of approximately
7,473,000 total rentable square feet.
As of July 31, 2002, the Company's medical office portfolio included
six medical office properties. The weighted average remaining lease term of
these medical office buildings, excluding the property currently under
construction and in lease-up, was approximately 8 years as of July 31, 2002.
Most of the Company's leases in the buildings provide for pass through of
operating expenses and base rents which escalate over time. The leases expire as
follows:
2011
&
2002 2003 2004 2005 2006 2007 2008 2009 2010 Thereafter Total
---- ---- ---- ---- ---- ---- ---- ---- ---- ---------- -----
MEDICAL OFFICE
- --------------
Consolidated:
- -------------
Square Feet
Expiring 0 35,388 42,246 23,723 9,210 33,337 35,571 130,041 10,535 144,986 465,037(a)
% of Leased
Space 0% 8% 9% 5% 2% 7% 8% 28% 2% 31% 100%
Annual Base
Rent (b) 0 676,258 791,772 409,956 124,046 686,226 812,145 2,639,662 202,799 3,619,463 9,962,327
Annual Base
Rent/Sq.
Ft. (b) 0 19.11 18.74 17.28 13.47 20.58 22.83 20.30 19.25 24.96 21.42
Joint Venture:
- --------------
Square Feet
Expiring 0 0 0 3,445 0 24,756 0 0 0 40,503 68,704(c)
% of Leased
Space 0% 0% 0% 5% 0% 36% 0% 0% 0% 59% 100%
Annual Base
Rent (b) 0 0 0 56,498 0 422,558 0 0 0 772,392 1,251,448
Annual Base
Rent/Sq.
Ft. (b) 0 0 0 16.40 0 17.07 0 0 0 19.07 18.22
Total (including only Company's % share of Joint Venture Properties):
- ----------------------------------------------------------------------
Square Feet
Expiring 0 35,388 42,246 24,119 9,210 36,184 35,571 130,041 10,535 149,644 472,938
% of Leased
Space 0% 7% 9% 5% 2% 8% 8% 27% 2% 32% 100%
Annual Base
Rent (b) 0 676,258 791,772 416,453 124,046 734,821 812,145 2,639,662 202,799 3,708,288 10,106,244
Annual Base
Rent/Sq.
Ft. (b) 0 19.11 18.74 17.27 13.47 20.31 22.83 20.30 19.25 24.78 21.37
(a) Rentable square feet leased as of July 31, 2002 out of approximately 512,000
total rentable square feet.
(b) Annual base rent excludes the operating expense reimbursement portion of
the rent payable. If the lease does not provide for pass through of such
operating expense reimbursements, an estimate of operating expenses is
deducted from the rental rate shown. The base rental rate shown is the
estimated rate in the year of expiration. Amounts disclosed are in dollars.
(c) Rentable square feet leased as of July 31, 2002 out of approximately 69,000
total rentable square feet.
As of July 31, 2002, the Company's retail portfolio included twelve
retail properties. The weighted average remaining lease term of these retail
properties was approximately 11 years as of July 31, 2002. Most of the major
tenant leases in these retail properties provide for pass through of operating
expenses and base rents which escalate over time. The leases expire as follows:
2011
&
2002 2003 2004 2005 2006 2007 2008 2009 2010 Thereafter Total
---- ---- ---- ---- ---- ---- ---- ---- ---- ---------- -----
RETAIL
- ------
Consolidated:
- -------------
Square Feet
Expiring 13,228 11,444 76,953 130,897 90,280 39,672 35,127 21,530 142,457 589,123 1,150,711(a)
% of Leased
Space 1% 1% 7% 11% 8% 4% 3% 2% 12% 51% 100%
Annual Base
Rent (b) 112,500 240,595 1,412,303 3,111,965 2,087,754 872,878 309,118 733,820 2,972,158 10,300,811 22,153,902
Annual Base
Rent/Sq.
Ft. (b) 8.50 21.02 18.35 23.77 23.13 22.00 8.80 34.08 20.86 17.48 19.25
Joint Venture:
- --------------
Square Feet
Expiring 0 20,011 34,343 86,802 173,539 85,968 40,358 62,256 140,895 1,200,037 1,844,209(c)
% of Leased
Space 0% 1% 2% 5% 9% 5% 2% 3% 8% 65% 100%
Annual Base
Rent (b) 0 313,945 717,124 1,558,926 2,527,672 1,887,378 751,247 722,712 2,104,236 16,772,187 27,355,427
Annual Base
Rent/Sq.
Ft. (b) 0.00 15.69 20.88 17.96 14.57 21.95 18.61 11.61 14.93 13.98 14.83
Total (including only Company's % share of Joint Venture Properties):
- ----------------------------------------------------------------------
Square Feet
Expiring 13,228 13,745 83,525 171,454 134,892 76,832 67,210 31,719 193,455 1,085,636 1,871,696
% of Leased
Space 1% 1% 4% 9% 7% 4% 4% 2% 10% 58% 100%
Annual Base
Rent (b) 112,400 276,698 1,555,547 3,990,369 3,066,329 1,752,466 915,834 894,391 4,065,300 17,767,268 34,396,602
Annual Base
Rent /Sq.
Ft. (b) 8.50 20.13 18.62 23.27 22.73 22.81 13.63 28.20 21.01 16.37 18.38
(a) Gross leasable area leased as of July 31, 2002 out of approximately
1,217,000 total gross leasable area.
(b) Annual base rent excludes the operating expense reimbursement portion of
the rent payable and any percentage rents due. If the lease does not
provide for pass through of such operating expense reimbursements, an
estimate of operating expenses is deducted from the rental rate shown. The
base rental rate shown is the estimated rate in the year of expiration.
Amounts disclosed are in dollars.
(c) Gross leasable area leased as of July 31, 2002 out of approximately
1,883,000 total gross leasable area.
Supplemental Financial Information:
- -----------------------------------
Depreciation and amortization expense included the following components
for the three and six months ended June 30, 2002 ($ in thousands):
Three Months Ended Six Months Ended
June 30, 2002 June 30, 2002
----------------------------------- -----------------------------------
Share of Share of
Unconsolidated Unconsolidated
Company Joint Ventures Total Company Joint Ventures Total
------- -------------- ------- ------- -------------- -------
Furniture, fixtures and equipment $ 526 $ 2 $ 528 $ 1,048 $ 5 $ 1,053
Deferred financing costs - - - - - -
Specifically identifiable
intangible assets 7 - 7 13 - 13
Real estate related:
Building (including tenant
first generation) 12,562 4,284 16,846 23,382 8,282 31,664
Tenant second generation 351 187 538 1,111 376 1,487
------- ------ ------- ------- ------ -------
$13,446 $4,473 $17,919 $25,554 $8,663 $34,217
======= ====== ======= ======= ====== =======
Exclusive of new developments and purchases of furniture, fixtures and
equipment, the Company had the following capital expenditures during the three
and six months ended June 30, 2002, including its share of unconsolidated joint
ventures ($ in thousands):
Three Months Ended Six Months Ended
June 30, 2002 June 30, 2002
--------------------------- ---------------------------
Office Retail Total Office Retail Total
------ ------ ----- ------ ------ -----
Second generation related costs $750 $38 $788 $1,040 $ 51 $1,091
Building improvements 103 36 139 389 83 472
---- --- ---- ------ ---- ------
$853 $74 $927 $1,429 $134 $1,563
==== === ==== ====== ==== ======
PART II. OTHER INFORMATION
- ---------------------------
Item 6. Reports on Form 8-K
-------------------
(a) Exhibits
--------
Exhibit 3.1 Restated and
Amended Articles of Incorporation
of the Registrant, as amended
August 9, 1999.
Exhibit 3.2 Bylaws of the Registrant, as
amended April 29, 1993.
Exhibit 11 Computation of Per Share Earnings.*
Exhibit 99.1 Certification Pursuant to 18 U.S.C.
Section 1350, as Adopted Pursuant to
Section 906 of the Sarbanes-Oxley
Act of 2002.
Exhibit 99.2 Certification Pursuant to 18 U.S.C.
Section 1350, as Adopted Pursuant to
Section 906 of the Sarbanes-Oxley
Act of 2002.
(b) Reports on Form 8-K
-------------------
On July 13, 2002, the Company filed a Form 8-K
detailing a change in certifying accountant.
* Data required by SFAS No. 128, "Earnings Per Share," is provided in Note 4 to
the consolidated financial statements in this report.
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
/s/ Kelly H. Barrett
-------------------------------------------------
Kelly H. Barrett
Senior Vice President and Chief Financial Officer
(Duly Authorized Officer and Principal Financial
Officer)
August 12, 2002