UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
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þ☑ | | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended September 30, 20172019
OR
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o☐ | | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the transition period from to
Commission file number: 001-11312
COUSINS PROPERTIES INCORPORATEDINCORPORATED
(Exact name of registrant as specified in its charter)
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| | | | | |
GEORGIA Georgia | | 58-0869052 |
(State or other jurisdiction of incorporation or organization) | 58-0869052
| (I.R.S. Employer Identification No.) |
3344 Peachtree Road NE | Suite 1800 | Atlanta | Georgia | | 30326-4802 |
(Address of principal executive offices) | 30326-4802
| (Zip Code) |
| |
(404) (404) 407-1000
(Registrant’s telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
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| | | | | |
Title of each class | | Trading Symbol(s) | | Name of each exchange on which registered |
Common Stock, $1 par value per share | | CUZ | | New York Stock Exchange | ("NYSE") |
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 þ☑ No o☐
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes þ☑ No o☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer”, “smaller reporting company”, and "emerging growth company" in Rule 12b-2 of the Exchange Act.
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Large accelerated filerþ | ☑ | | Accelerated filero | ☐ |
Non-accelerated filero | ☐ | | Smaller reporting companyo | ☐ |
| | (Do not check if a smaller reporting company) | Emerging growth companyo | ☐ |
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. o☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
Yes o☐ No þ☑
Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.
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Class | | Outstanding at October 20, 201716, 2019 |
Common Stock, $1 par value per share | | 420,020,538146,762,271 shares |
FORWARD-LOOKING STATEMENTS
Certain matters contained in this report are “forward-looking statements” within the meaning of the federal securities laws and are subject to uncertainties and risks, as itemized in Item 1A included in the Annual Report on Form 10-K for the year ended December 31, 20162018, and as itemized herein. These forward-looking statements include information about possible or assumed future results of the business and our financial condition, liquidity, results of operations, plans, and objectives. They also include, among other things, statements regarding subjects that are forward-looking by their nature, such as:
our guidance and underlying assumptions;
business and financial strategy;
•our ability to obtain future financing;debt financings;
•future acquisitions and dispositions of operating assets;assets or joint venture interests;
•future acquisitions and dispositions of land;land, including ground leases;
•future development and redevelopment opportunities, including fee development opportunities;
•future dispositionsissuances and repurchases of land and other non-core assets;common stock;
•future distributions;
projected operating results;capital expenditures;
•market and industry trends;
•entry into new markets;
future distributions;
•projected capital expenditures;
•changes in interest rates;
the impactbenefits of the transaction involving us, Parkway Properties,merger with TIER REIT, Inc. ("Parkway"), and Parkway, Inc. ("New Parkway"TIER"), including all future financial and operating results, plans, objectives, expectations, and intentions;
benefits of the transactions with TIER to tenants, employees, stockholders, and other constituents of the combined company;
integrating TIER with us; and
all statements that address operating performance, events, or developments that we expect or anticipate will occur in the future — including statements relating to creating value for stockholders;
impact of the transactions with Parkway and New Parkway on tenants, employees, stockholders, and other constituents of the combined companies; and
integrating Parkway with us.stockholders.
Any forward-looking statements are based upon management's beliefs, assumptions, and expectations of our future performance, taking into account information that is currently available. These beliefs, assumptions, and expectations may change as a result of possible events or factors, not all of which are known. If a change occurs, our business, financial condition, liquidity, and results of operations may vary materially from those expressed in forward-looking statements. Actual results may vary from forward-looking statements due to, but not limited to, the following:
the availability and terms of capital;
the ability to refinance or repay indebtedness as it matures;
the failure of purchase, sale, or other contracts to ultimately close;
the failure to achieve anticipated benefits from acquisitions, investments, or dispositions;
the potential dilutive effect of common stock or operating partnership unit issuances;
the availability of buyers and pricing with respect to the disposition of assets;
risks and uncertainties related tochanges in national and local economic conditions, the real estate industry, and the commercial real estate markets in which we operate (including supply and demand changes), particularly in Atlanta, Austin, Charlotte, Austin,Phoenix, Tampa, and PhoenixDallas where we have high concentrations of our annualized lease revenue;revenues;
changes to our strategy with regard to land and other non-core holdings that may require impairment losses to be recognized;
leasing risks, including the ability to obtain new tenants or renew expiring tenants, the ability to lease newly developed and/or recently acquired space, the failure of a tenant to commence or complete tenant improvements on schedule or to occupy leased space, and the risk of declining leasing rates;
changes in the needs of our tenants brought about by the desire for co-working arrangements, trends toward utilizing less office space per employee, and the effect of telecommuting;
any adverse change in the financial condition of one or more of our major tenants;
volatility in interest rates and insurance rates;
competition from other developers or investors;
the risks associated with real estate developments (such as zoning approval, receipt of required permits, construction delays, cost overruns, and leasing risk);
cyber security breaches;
changes in senior management and the loss of key personnel;
the potential liability for uninsured losses, condemnation, or environmental issues;
the potential liability for a failure to meet regulatory requirements;
the financial condition and liquidity of, or disputes with, joint venture partners;
any failure to comply with debt covenants under credit agreements;
any failure to continue to qualify for taxation as a real estate investment trust and to meet regulatory requirements;
risks associated with litigation resulting from the transactions with Parkway and from liabilities or contingent liabilities assumed in the transactions with Parkway;
risks associated with any errors or omissions in financial or other information of Parkway that has been previously provided to the public;
the ability to successfully integrate our operations and employees in connection with the transactions with Parkway and New Parkway;
the ability to realize anticipated benefits and synergies of the transactions with Parkway and New Parkway;
potential changes to state, local, or federal regulations applicable to our business;
material changes in the dividend rates on securities or the ability to pay dividends on common shares or other securities;
potential changes to the tax laws impacting REITs and real estate in general;
significantthe ability to successfully integrate our operations and employees in connection with the merger with TIER;
the ability to realize anticipated benefits and synergies of the merger with TIER;
the amount of the costs, fees, expenses, and charges related to uninsured losses, condemnation, or environmental issues;the merger with TIER; and
those additional risks and factors discussed in reports filed with the Securities and Exchange Commission (“SEC”) by the Company and TIER, and those additional risks and factors discussed in reports filed with the SEC by the Company.
The words “believes,” “expects,” “anticipates,” “estimates,” “plans,” “may,” “intend,” “will,” or similar expressions are intended to identify forward-looking statements. Although we believe that our plans, intentions, and expectations reflected in any forward-looking statements are reasonable, we can give no assurance that such plans, intentions, or expectations will be achieved. We undertake no obligation to publicly update or revise any forward-looking statement, whether as a result of future events, new information, or otherwise, except as required under U.S. federal securities laws.
PART I — FINANCIAL INFORMATION
Item 1. Financial Statements.
COUSINS PROPERTIES INCORPORATED AND SUBSIDIARIES CONDENSED CONSOLIDATED BALANCE SHEETS (in thousands, except share and per share amounts) |
| | | | | | | |
| September 30, 2019 | | December 31, 2018 |
| (unaudited) | | |
Assets: | | | |
Real estate assets: | | | |
Operating properties, net of accumulated depreciation of $561,489 and $421,495 in 2019 and 2018, respectively | $ | 5,532,963 |
| | $ | 3,603,011 |
|
Projects under development | 370,755 |
| | 24,217 |
|
Land | 113,578 |
| | 72,563 |
|
| 6,017,296 |
| | 3,699,791 |
|
Real estate assets and other assets held for sale | 29,193 |
| | — |
|
| | | |
Cash and cash equivalents | 12,396 |
| | 2,547 |
|
Restricted cash | 2,268 |
| | 148 |
|
Notes and accounts receivable | 28,792 |
| | 13,821 |
|
Deferred rents receivable | 101,213 |
| | 83,116 |
|
Investment in unconsolidated joint ventures | 186,079 |
| | 161,907 |
|
Intangible assets, net | 255,613 |
| | 145,883 |
|
Other assets | 71,270 |
| | 39,083 |
|
Total assets | $ | 6,704,120 |
| | $ | 4,146,296 |
|
Liabilities: |
|
| |
|
|
Notes payable | $ | 1,850,817 |
| | $ | 1,062,570 |
|
Accounts payable and accrued expenses | 225,632 |
| | 110,159 |
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Deferred income | 57,411 |
| | 41,266 |
|
Intangible liabilities, net of accumulated amortization of $56,414 and $42,473 in 2019 and 2018, respectively | 89,578 |
| | 56,941 |
|
Other liabilities | 131,604 |
| | 54,204 |
|
Total liabilities | 2,355,042 |
| | 1,325,140 |
|
Commitments and contingencies |
|
| |
|
|
Equity: | | | |
Stockholders' investment: | | | |
Preferred stock, $1 par value, 20,000,000 shares authorized, 1,716,837 shares issued and outstanding in 2019 and 2018 | 1,717 |
| | 1,717 |
|
Common stock, $1 par value, 300,000,000 and 175,000,000 shares authorized in 2019 and 2018, respectively, and 149,347,204 and 107,681,130 shares issued in 2019 and 2018, respectively | 149,347 |
| | 107,681 |
|
Additional paid-in capital | 5,493,265 |
| | 3,934,385 |
|
Treasury stock at cost, 2,584,933 shares in 2019 and 2018 | (148,473 | ) | | (148,473 | ) |
Distributions in excess of cumulative net income | (1,211,752 | ) | | (1,129,445 | ) |
Total stockholders' investment | 4,284,104 |
| | 2,765,865 |
|
Nonredeemable noncontrolling interests | 64,974 |
| | 55,291 |
|
Total equity | 4,349,078 |
| | 2,821,156 |
|
Total liabilities and equity | $ | 6,704,120 |
| | $ | 4,146,296 |
|
| | | |
See accompanying notes. | | | |
COUSINS PROPERTIES INCORPORATED AND SUBSIDIARIES CONDENSED CONSOLIDATED BALANCE SHEETS (in thousands, except share and per share amounts) |
| | | | | | | |
| September 30, 2017 | | December 31, 2016 |
| (unaudited) | | |
Assets: | | | |
Real estate assets: | | | |
Operating properties, net of accumulated depreciation of $253,362 and $215,856 in 2017 and 2016, respectively | $ | 3,490,181 |
| | $ | 3,432,522 |
|
Projects under development | 248,242 |
| | 162,387 |
|
Land | 4,221 |
| | 4,221 |
|
| 3,742,644 |
| | 3,599,130 |
|
| | | |
Cash and cash equivalents | 62,167 |
| | 35,687 |
|
Restricted cash | 437 |
| | 15,634 |
|
Notes and accounts receivable, net of allowance for doubtful accounts of $626 and $1,167 in 2017 and 2016, respectively | 16,291 |
| | 27,683 |
|
Deferred rents receivable | 53,483 |
| | 39,464 |
|
Investment in unconsolidated joint ventures | 109,222 |
| | 179,397 |
|
Intangible assets, net of accumulated amortization of $99,063 and $53,483 in 2017 and 2016, respectively | 211,786 |
| | 245,529 |
|
Other assets | 28,170 |
| | 29,083 |
|
Total assets | $ | 4,224,200 |
| | $ | 4,171,607 |
|
Liabilities: |
|
| |
|
|
Notes payable | $ | 1,095,177 |
| | $ | 1,380,920 |
|
Accounts payable and accrued expenses | 160,101 |
| | 109,278 |
|
Deferred income | 35,918 |
| | 33,304 |
|
Intangible liabilities, net of accumulated amortization of $25,709 and $12,227 in 2017 and 2016, respectively | 76,299 |
| | 89,781 |
|
Other liabilities | 39,385 |
| | 44,084 |
|
Total liabilities | 1,406,880 |
| | 1,657,367 |
|
Commitments and contingencies |
|
| |
|
|
Equity: | | | |
Stockholders' investment: | | | |
Preferred stock, $1 par value, 20,000,000 shares authorized, 6,867,357 shares issued and outstanding in 2017 and 2016 | 6,867 |
| | 6,867 |
|
Common stock, $1 par value, 700,000,000 shares authorized, 430,349,620 and 403,746,938 shares issued in 2017 and 2016, respectively | 430,350 |
| | 403,747 |
|
Additional paid-in capital | 3,604,269 |
| | 3,407,430 |
|
Treasury stock at cost, 10,329,082 shares in 2017 and 2016 | (148,373 | ) | | (148,373 | ) |
Distributions in excess of cumulative net income | (1,127,813 | ) | | (1,214,114 | ) |
Total stockholders' investment | 2,765,300 |
| | 2,455,557 |
|
Nonredeemable noncontrolling interests | 52,020 |
| | 58,683 |
|
Total equity | 2,817,320 |
| | 2,514,240 |
|
Total liabilities and equity | $ | 4,224,200 |
| | $ | 4,171,607 |
|
| | | |
See accompanying notes. | | | |
COUSINS PROPERTIES INCORPORATED AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(unaudited,unaudited; in thousands, except per share amounts)
| | | Three Months Ended | | Nine Months Ended | Three Months Ended | | Nine Months Ended |
| September 30, | | September 30, | September 30, | | September 30, |
| 2017 | | 2016 | | 2017 | | 2016 | 2019 | | 2018 | | 2019 | | 2018 |
Revenues: | | | | | | | | | | | | | | |
Rental property revenues | $ | 109,569 |
| | $ | 46,575 |
| | $ | 336,093 |
| | $ | 138,382 |
| $ | 180,826 |
| | $ | 115,719 |
| | $ | 439,624 |
| | $ | 343,764 |
|
Fee income | 2,597 |
| | 1,945 |
| | 6,387 |
| | 5,968 |
| 7,494 |
| | 2,519 |
| | 23,298 |
| | 7,211 |
|
Other | 993 |
| | 153 |
| | 9,593 |
| | 570 |
| 3 |
| | 468 |
| | 154 |
| | 1,561 |
|
| 113,159 |
| | 48,673 |
| | 352,073 |
| | 144,920 |
| 188,323 |
| | 118,706 |
| | 463,076 |
| | 352,536 |
|
Expenses: | |
| | |
| | |
| | |
| |
| | |
| | | | |
Rental property operating expenses | 40,688 |
| | 18,122 |
| | 123,715 |
| | 55,451 |
| 65,646 |
| | 41,579 |
| | 155,838 |
| | 122,501 |
|
Reimbursed expenses | 895 |
| | 795 |
| | 2,667 |
| | 2,463 |
| 1,290 |
| | 955 |
| | 3,269 |
| | 2,757 |
|
General and administrative expenses | 7,193 |
| | 4,368 |
| | 21,993 |
| | 17,301 |
| 5,852 |
| | 3,913 |
| | 25,686 |
| | 18,793 |
|
Interest expense | 7,587 |
| | 5,754 |
| | 25,851 |
| | 16,562 |
| 14,700 |
| | 9,551 |
| | 37,579 |
| | 29,043 |
|
Depreciation and amortization | 47,622 |
| | 16,622 |
| | 152,546 |
| | 49,804 |
| 82,012 |
| | 45,068 |
| | 178,777 |
| | 135,836 |
|
Acquisition and transaction costs | (677 | ) | | 1,446 |
| | 1,499 |
| | 3,889 |
| |
Transaction costs | | 1,048 |
| | — |
| | 50,878 |
| | 228 |
|
Other | 423 |
| | 173 |
| | 1,063 |
| | 681 |
| 297 |
| | 93 |
| | 1,101 |
| | 457 |
|
| 103,731 |
| | 47,280 |
| | 329,334 |
| | 146,151 |
| 170,845 |
| | 101,159 |
| | 453,128 |
| | 309,615 |
|
Income from unconsolidated joint ventures | | 3,241 |
| | 2,252 |
| | 9,779 |
| | 10,173 |
|
Gain (loss) on sale of investment properties | | (27 | ) | | (33 | ) | | 14,388 |
| | 4,912 |
|
Gain on extinguishment of debt | 429 |
| | — |
| | 2,258 |
| | — |
| — |
| | 93 |
| | — |
| | 8 |
|
Income (loss) from continuing operations before unconsolidated joint ventures and gain (loss) on sale of investment properties | 9,857 |
| | 1,393 |
| | 24,997 |
| | (1,231 | ) | |
Income from unconsolidated joint ventures | 2,461 |
| | 1,527 |
| | 43,362 |
| | 5,144 |
| |
Income from continuing operations before gain (loss) on sale of investment properties | 12,318 |
| | 2,920 |
| | 68,359 |
| | 3,913 |
| |
Gain (loss) on sale of investment properties | (33 | ) | | — |
| | 119,729 |
| | 13,944 |
| |
Income from continuing operations | 12,285 |
| | 2,920 |
| | 188,088 |
| | 17,857 |
| |
Income from discontinued operations | — |
| | 8,737 |
| | — |
| | 24,361 |
| |
Net income | 12,285 |
| | 11,657 |
| | 188,088 |
| | 42,218 |
| 20,692 |
| | 19,859 |
| | 34,115 |
| | 58,014 |
|
Net income attributable to noncontrolling interests | (218 | ) | | — |
| | (3,181 | ) | | — |
| (318 | ) | | (374 | ) | | (809 | ) | | (1,210 | ) |
Net income available to common stockholders | $ | 12,067 |
| | $ | 11,657 |
| | $ | 184,907 |
| | $ | 42,218 |
| $ | 20,374 |
| | $ | 19,485 |
| | $ | 33,306 |
| | $ | 56,804 |
|
Per common share information — basic and diluted: | | | |
| | | | |
| |
Income from continuing operations | $ | 0.03 |
| | $ | 0.01 |
| | $ | 0.45 |
| | $ | 0.08 |
| |
Income from discontinued operations | — |
| | 0.05 |
| | — |
| | 0.12 |
| |
Net income | $ | 0.03 |
| | $ | 0.06 |
| | $ | 0.45 |
| | $ | 0.20 |
| |
| | | | |
| | | | |
|
Net income per common share — basic and diluted
| | $ | 0.14 |
| | $ | 0.19 |
| | $ | 0.27 |
| | $ | 0.54 |
|
Weighted average shares — basic | 419,998 |
| | 210,170 |
| | 414,123 |
| | 210,400 |
| 146,762 |
| | 105,096 |
| | 121,758 |
| | 105,069 |
|
Weighted average shares — diluted | 427,300 |
| | 210,326 |
| | 421,954 |
| | 210,528 |
| 148,530 |
| | 106,880 |
| | 123,529 |
| | 106,867 |
|
Dividends declared per common share | $ | 0.06 |
| | $ | 0.08 |
| | $ | 0.24 |
| | $ | 0.24 |
| |
See accompanying notes.
COUSINS PROPERTIES INCORPORATED AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF EQUITY
Nine Months Ended September 30, 2017 and 2016(unaudited; in thousands except per share amounts)
(unaudited, in thousands)
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Preferred Stock | | Common Stock | | Additional Paid-In Capital | | Treasury Stock | | Distributions in Excess of Net Income | | Stockholders’ Investment | | Nonredeemable Noncontrolling Interests | | Total Equity |
Balance December 31, 2016 | | $ | 6,867 |
| | $ | 403,747 |
| | $ | 3,407,430 |
| | $ | (148,373 | ) | | $ | (1,214,114 | ) | | $ | 2,455,557 |
| | $ | 58,683 |
| | $ | 2,514,240 |
|
Net income | | — |
| | — |
| | — |
| | — |
| | 184,907 |
| | 184,907 |
| | 3,181 |
| | 188,088 |
|
Common stock issued pursuant to: | | | | | | | | | | | | | | | | |
Common stock offering, net of issuance costs | | — |
| | 25,000 |
| | 186,774 |
| | — |
| | — |
| | 211,774 |
| | — |
| | 211,774 |
|
Director stock grants | | — |
| | 121 |
| | 889 |
| | — |
| | — |
| | 1,010 |
| | — |
| | 1,010 |
|
Stock based compensation | | — |
| | 282 |
| | (1,168 | ) | | — |
| | — |
| | (886 | ) | | — |
| | (886 | ) |
Spin-off of Parkway, Inc. | | — |
| | — |
| | — |
| | — |
| | 545 |
| | 545 |
| | — |
| | 545 |
|
Common stock redemption by unit holders | | — |
| | 1,203 |
| | 8,865 |
| | — |
| | — |
| | 10,068 |
| | (10,068 | ) | | — |
|
Amortization of stock options and restricted stock, net of forfeitures | | — |
| | (3 | ) | | 1,479 |
| | — |
| | — |
| | 1,476 |
| | — |
| | 1,476 |
|
Contributions from nonredeemable noncontrolling interest | | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | 1,588 |
| | 1,588 |
|
Distributions to nonredeemable noncontrolling interest | | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | (1,364 | ) | | (1,364 | ) |
Common dividends ($0.24 per share) | | — |
| | — |
| | — |
| | — |
| | (99,151 | ) | | (99,151 | ) | | — |
| | (99,151 | ) |
Balance September 30, 2017 | | $ | 6,867 |
| | $ | 430,350 |
| | $ | 3,604,269 |
| | $ | (148,373 | ) | | $ | (1,127,813 | ) | | $ | 2,765,300 |
| | $ | 52,020 |
| | $ | 2,817,320 |
|
| | | | | | | | | | | | | | | | |
Balance December 31, 2015 | | $ | — |
| | $ | 220,256 |
| | $ | 1,722,224 |
| | $ | (134,630 | ) | | $ | (124,435 | ) | | $ | 1,683,415 |
| | $ | — |
| | $ | 1,683,415 |
|
Net income | | — |
| | — |
| | — |
| | — |
| | 42,218 |
| | 42,218 |
| | — |
| | 42,218 |
|
Common stock issued pursuant to stock based compensation | | — |
| | 257 |
| | 76 |
| | — |
| | — |
| | 333 |
| | — |
| | 333 |
|
Amortization of stock options and restricted stock, net of forfeitures | | — |
| | (14 | ) | | 1,252 |
| | — |
| | — |
| | 1,238 |
| | — |
| | 1,238 |
|
Contributions from nonredeemable noncontrolling interests | | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | 2,525 |
| | 2,525 |
|
Repurchase of common stock | | — |
| | — |
| | — |
|
| (13,743 | ) | | — |
| | (13,743 | ) | | — |
| | (13,743 | ) |
Common dividends ($0.24 per share) | | — |
| | — |
| | — |
| | — |
| | (50,549 | ) | | (50,549 | ) | | — |
| | (50,549 | ) |
Balance September 30, 2016 | | $ | — |
| | $ | 220,499 |
| | $ | 1,723,552 |
| | $ | (148,373 | ) | | $ | (132,766 | ) | | $ | 1,662,912 |
| | $ | 2,525 |
| | $ | 1,665,437 |
|
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Three Months Ended September 30, 2019 |
| | Preferred Stock | | Common Stock | | Additional Paid-In Capital | | Treasury Stock | | Distributions in Excess of Net Income | | Stockholders’ Investment | | Nonredeemable Noncontrolling Interests | | Total Equity |
Balance June 30, 2019 | | $ | 1,717 |
| | $ | 149,348 |
| | $ | 5,492,648 |
| | $ | (148,473 | ) | | $ | (1,189,567 | ) | | $ | 4,305,673 |
| | $ | 63,945 |
| | $ | 4,369,618 |
|
Net income (loss) | | — |
| | — |
| | — |
| | — |
| | 20,374 |
| | 20,374 |
| | 318 |
| | 20,692 |
|
Amortization of stock options and restricted stock, net of forfeitures | | — |
| | (1 | ) | | 617 |
| | — |
| | — |
| | 616 |
| | — |
| | 616 |
|
Contributions from nonredeemable noncontrolling interests | | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | 1,191 |
| | 1,191 |
|
Distributions to nonredeemable noncontrolling interests | | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | (480 | ) | | (480 | ) |
Common dividends ($0.29 per share) | | — |
| | — |
| | — |
| | — |
| | (42,559 | ) | | (42,559 | ) | | — |
| | (42,559 | ) |
Balance September 30, 2019 | | $ | 1,717 |
| | $ | 149,347 |
| | $ | 5,493,265 |
| | $ | (148,473 | ) | | $ | (1,211,752 | ) | | $ | 4,284,104 |
| | $ | 64,974 |
| | $ | 4,349,078 |
|
| | | | | | | | | | | | | | | | |
Three Months Ended September 30, 2018 |
| | Preferred Stock | | Common Stock | | Additional Paid-In Capital | | Treasury Stock | | Distributions in Excess of Net Income | | Stockholders’ Investment | | Nonredeemable Noncontrolling Interests | | Total Equity |
Balance June 30, 2018 | | $ | 1,717 |
| | $ | 107,683 |
| | $ | 3,933,248 |
| | $ | (148,473 | ) | | $ | (1,116,640 | ) | | $ | 2,777,535 |
| | $ | 54,809 |
| | $ | 2,832,344 |
|
Net income | | — |
| | — |
| | — |
| | — |
| | 19,485 |
| | 19,485 |
| | 374 |
| | 19,859 |
|
Amortization of stock options and restricted stock, net of forfeitures | | — |
| | (2 | ) | | 563 |
| | — |
| | — |
| | 561 |
| | — |
| | 561 |
|
Contributions from nonredeemable noncontrolling interests | | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | 252 |
| | 252 |
|
Distributions to nonredeemable noncontrolling interests | | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | (1,198 | ) | | (1,198 | ) |
Common dividends ($0.26 per share) | | — |
| | — |
| | — |
| | — |
| | (27,363 | ) | | (27,363 | ) | | — |
| | (27,363 | ) |
Balance September 30, 2018 | | $ | 1,717 |
| | $ | 107,681 |
| | $ | 3,933,811 |
| | $ | (148,473 | ) | | $ | (1,124,518 | ) | | $ | 2,770,218 |
| | $ | 54,237 |
| | $ | 2,824,455 |
|
See accompanying notes.
COUSINS PROPERTIES INCORPORATED AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF EQUITY
(unaudited; in thousands except per share amounts)
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Nine Months Ended September 30, 2019 |
| | Preferred Stock | | Common Stock | | Additional Paid-In Capital | | Treasury Stock | | Distributions in Excess of Net Income | | Stockholders’ Investment | | Nonredeemable Noncontrolling Interests | | Total Equity |
Balance December 31, 2018 | | $ | 1,717 |
| | $ | 107,681 |
| | $ | 3,934,385 |
| | $ | (148,473 | ) | | $ | (1,129,445 | ) | | $ | 2,765,865 |
| | $ | 55,291 |
| | $ | 2,821,156 |
|
Net income | | — |
| | — |
| | — |
| | — |
| | 33,306 |
| | 33,306 |
| | 809 |
| | 34,115 |
|
Common stock issued in merger | | — |
| | 41,576 |
| | 1,556,613 |
| | — |
| | — |
| | 1,598,189 |
| | — |
| | 1,598,189 |
|
Common stock issued pursuant to stock based compensation | | — |
| | 91 |
| | 419 |
| | — |
| | — |
| | 510 |
| | — |
| | 510 |
|
Amortization of stock options and restricted stock, net of forfeitures | | — |
| | (1 | ) | | 1,848 |
| | — |
| | — |
| | 1,847 |
| | — |
| | 1,847 |
|
Nonredeemable noncontrolling interests acquired in merger | | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | 5,348 |
| | 5,348 |
|
Contributions from nonredeemable noncontrolling interests | | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | 5,271 |
| | 5,271 |
|
Distributions to nonredeemable noncontrolling interests | | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | (1,745 | ) | | (1,745 | ) |
Common dividends ($0.87 per share) | | — |
| | — |
| | — |
| | — |
| | (115,613 | ) | | (115,613 | ) | | — |
| | (115,613 | ) |
Balance September 30, 2019 | | $ | 1,717 |
| | $ | 149,347 |
| | $ | 5,493,265 |
| | $ | (148,473 | ) | | $ | (1,211,752 | ) | | $ | 4,284,104 |
| | $ | 64,974 |
| | $ | 4,349,078 |
|
| | | | | | | | | | | | | | | | |
Nine Months Ended September 30, 2018 |
| | Preferred Stock | | Common Stock | | Additional Paid-In Capital | | Treasury Stock | | Distributions in Excess of Net Income | | Stockholders’ Investment | | Nonredeemable Noncontrolling Interests | | Total Equity |
Balance December 31, 2017 | | $ | 1,717 |
| | $ | 107,587 |
| | $ | 3,932,689 |
| | $ | (148,373 | ) | | $ | (1,121,647 | ) | | $ | 2,771,973 |
| | $ | 53,138 |
| | $ | 2,825,111 |
|
Net income | | — |
| | — |
| | — |
| | — |
| | 56,804 |
| | 56,804 |
| | 1,210 |
| | 58,014 |
|
Common stock issued pursuant to stock based compensation | | — |
| | 99 |
| | (566 | ) | | (100 | ) | | — |
| | (567 | ) | | — |
| | (567 | ) |
Cumulative effect of change in accounting principle | | — |
| | — |
| | — |
| | — |
| | 22,329 |
| | 22,329 |
| | — |
| | 22,329 |
|
Amortization of stock options and restricted stock, net of forfeitures | | — |
| | (5 | ) | | 1,688 |
| | — |
| | — |
| | 1,683 |
| | — |
| | 1,683 |
|
Contributions from nonredeemable noncontrolling interests | | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | 1,960 |
| | 1,960 |
|
Distributions to nonredeemable noncontrolling interests | | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | (2,071 | ) | | (2,071 | ) |
Common dividends ($0.78 per share) | | — |
| | — |
| | — |
| | — |
| | (82,004 | ) | | (82,004 | ) | | — |
| | (82,004 | ) |
Balance September 30, 2018 | | $ | 1,717 |
| | $ | 107,681 |
| | $ | 3,933,811 |
| | $ | (148,473 | ) | | $ | (1,124,518 | ) | | $ | 2,770,218 |
| | $ | 54,237 |
| | $ | 2,824,455 |
|
See accompanying notes.
COUSINS PROPERTIES INCORPORATED AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited,unaudited; in thousands)
| | | Nine Months Ended September 30, | Nine Months Ended September 30, |
| 2017 | | 2016 | 2019 | | 2018 |
CASH FLOWS FROM OPERATING ACTIVITIES: | | | | | | |
Net income | $ | 188,088 |
| | $ | 42,218 |
| $ | 34,115 |
| | $ | 58,014 |
|
Adjustments to reconcile net income to net cash provided by operating activities: | | | | | | |
Gain on sale of investment properties | (119,729 | ) | | (13,944 | ) | (14,388 | ) | | (4,912 | ) |
Depreciation and amortization, including discontinued operations | 152,546 |
| | 96,192 |
| |
Depreciation and amortization | | 178,777 |
| | 135,836 |
|
Amortization of deferred financing costs and premium/discount on notes payable | (2,543 | ) | | 1,063 |
| 1,723 |
| | 1,808 |
|
Stock-based compensation expense, net of forfeitures | 2,486 |
| | 1,571 |
| 3,209 |
| | 2,825 |
|
Effect of certain non-cash adjustments to rental revenues | (33,379 | ) | | (15,966 | ) | |
Effect of non-cash adjustments to revenues | | (31,166 | ) | | (24,028 | ) |
Income from unconsolidated joint ventures | (43,362 | ) | | (5,144 | ) | (9,779 | ) | | (10,173 | ) |
Operating distributions from unconsolidated joint ventures | 40,207 |
| | 5,893 |
| 6,125 |
| | 15,056 |
|
Gain on extinguishment of debt | (2,258 | ) | | — |
| — |
| | (8 | ) |
Changes in other operating assets and liabilities: | | | | | | |
Change in other receivables and other assets, net | 9,707 |
| | 1,824 |
| (13,638 | ) | | (435 | ) |
Change in operating liabilities | 3,150 |
| | 5,544 |
| |
Change in operating liabilities, net | | 43,387 |
| | 4,054 |
|
Net cash provided by operating activities | 194,913 |
| | 119,251 |
| 198,365 |
| | 178,037 |
|
CASH FLOWS FROM INVESTING ACTIVITIES: | | | | | | |
Proceeds from investment property sales | 171,316 |
| | 21,088 |
| 58,968 |
| | — |
|
Property acquisition, development, and tenant asset expenditures | (229,811 | ) | | (122,357 | ) | (252,034 | ) | | (132,468 | ) |
Purchase of tenant in common interest | (13,382 | ) | | — |
| |
Collection of notes receivable | 5,161 |
| | — |
| |
Investment in unconsolidated joint ventures | (13,862 | ) | | (24,918 | ) | (21,476 | ) | | (43,276 | ) |
Distributions from unconsolidated joint ventures | 40,939 |
| | 4,150 |
| 11 |
| | 2,032 |
|
Cash and restricted cash acquired in merger | | 85,989 |
| | — |
|
Change in notes receivable and other assets | (1,348 | ) | | (5,699 | ) | (71 | ) | | (4,429 | ) |
Change in restricted cash | 15,105 |
| | (3,667 | ) | |
Other | | — |
| | (4,261 | ) |
Net cash used in investing activities | (25,882 | ) | | (131,403 | ) | (128,613 | ) | | (182,402 | ) |
CASH FLOWS FROM FINANCING ACTIVITIES: | | | | | | |
Proceeds from credit facility | 589,300 |
| | 182,800 |
| 904,000 |
| | — |
|
Repayment of credit facility | (723,300 | ) | | (274,800 | ) | (824,000 | ) | | — |
|
Proceeds from issuance of notes payable | 350,000 |
| | 270,000 |
| |
Repayment of notes payable | (493,774 | ) | | (7,239 | ) | (687,207 | ) | | (28,719 | ) |
Issuance of unsecured senior notes | | 650,000 |
| | — |
|
Payment of deferred financing costs | (2,048 | ) | | (1,604 | ) | (2,866 | ) | | (6,166 | ) |
Shares withheld for payment of taxes on restricted stock vesting | (701 | ) | | — |
| |
Common stock issued, net of expenses | 211,598 |
| | — |
| |
Contributions from noncontrolling interests | 1,588 |
| | 2,525 |
| |
Contributions from nonredeemable noncontrolling interests | | 5,271 |
| | 252 |
|
Distributions to nonredeemable noncontrolling interests | (1,364 | ) | | — |
| (1,745 | ) | | (2,071 | ) |
Repurchase of common stock | — |
| | (13,743 | ) | |
Common dividends paid | (73,950 | ) | | (50,549 | ) | (100,372 | ) | | (79,842 | ) |
Other | 100 |
| | — |
| (864 | ) | | (1,709 | ) |
Net cash provided by (used in) financing activities | (142,551 | ) | | 107,390 |
| |
NET INCREASE IN CASH AND CASH EQUIVALENTS | 26,480 |
| | 95,238 |
| |
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD | 35,687 |
| | 2,003 |
| |
CASH AND CASH EQUIVALENTS AT END OF PERIOD | $ | 62,167 |
| | $ | 97,241 |
| |
| | |
|
| |
Interest paid, net of amounts capitalized | $ | 26,927 |
| | $ | 20,792 |
| |
| | | | |
Significant non-cash transactions: | | | |
| |
Transfer from operating properties to real estate assets and other assets held for sale | $ | — |
| | $ | 203,735 |
| |
Transfer from operating properties to liabilities of real estate assets held for sale | — |
| | 106,135 |
| |
Transfer from investment in unconsolidated joint ventures to operating properties | 68,390 |
| | — |
| |
Transfer from projects under development to operating properties | 58,928 |
| | — |
| |
Common stock dividends declared | 25,201 |
| | — |
| |
Transfer from investment in unconsolidated joint ventures to projects under development | — |
| | 5,880 |
| |
Transfer from land held to projects under development | — |
| | 8,099 |
| |
Change in accrued property acquisition, development, and tenant asset expenditures | (18,081 | ) | | (11,384 | ) | |
Net cash used in financing activities | | (57,783 | ) | | (118,255 | ) |
NET INCREASE (DECREASE) IN CASH, CASH EQUIVALENTS, AND RESTRICTED CASH | | 11,969 |
| | (122,620 | ) |
CASH, CASH EQUIVALENTS, AND RESTRICTED CASH AT BEGINNING OF PERIOD | | 2,695 |
| | 205,745 |
|
CASH, CASH EQUIVALENTS, AND RESTRICTED CASH AT END OF PERIOD | | $ | 14,664 |
| | $ | 83,125 |
|
See accompanying notes.
COUSINS PROPERTIES INCORPORATED AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
September 30, 20172019
(Unaudited)
1. DESCRIPTION OF BUSINESS AND BASIS OF PRESENTATION
Description of Business
Cousins Properties Incorporated (“Cousins”), a Georgia corporation, is a publicly traded (NYSE: CUZ), self-administered, and self-managed real estate investment trust (“REIT”). Cousins conducts substantially all of its operations through Cousins Properties LP ("CPLP"). Cousins owns approximately 98%99% of CPLP and consolidates CPLP. Cousins TRS Services LLC ("CTRS"), which is wholly owned by CPLP, is a taxable entity which owns and manages its own real estate portfolio and performs certain real estate related services for other parties. Cousins, CPLP, CTRS, and their subsidiaries are hereinafter referred to collectively as "the Company."
The Company develops, acquires, leases, manages, and owns Class A office and mixed-use properties in SunbeltSun Belt markets with a focus on Arizona, Florida, Georgia, Texas, North Carolina, Arizona, and Texas.Florida. Cousins has elected to be taxed as a REIT and intends to, among other things, distribute 100% of its net taxable income to stockholders, thereby eliminating any liability for federal income taxes under current law. Therefore, the results included herein do not include a federal income tax provision for Cousins.
Basis of Presentation
The condensed consolidated financial statements are unaudited and were prepared by the Company in accordance with accounting principles generally accepted in the United States of America (“GAAP”) for interim financial information and in accordance with the rules and regulations of the Securities and Exchange Commission (“SEC”). In the opinion of management, these financial statements 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 September 30, 20172019 and the results of operations for the three and nine months ended September 30, 20172019 and 2016.2018. The results of operations for the three and nine months ended September 30, 20172019 are not necessarily indicative of results expected for the full year. Certain information and footnote disclosures normally included in financial statements prepared in accordance with GAAP have been condensed or omitted pursuant to the rules and regulations of the SEC. These condensed consolidated 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, 2016.2018. The accounting policies employed are substantially the same as those shown in note 2 to the consolidated financial statements included therein.
On June 14, 2019, the Company restated and amended its articles of incorporation to effect a reverse stock split of the issued and outstanding shares of its common and preferred stock pursuant to which (1) each four shares of the Company's issued and outstanding common stock were combined into one share of the Company's common or preferred stock, respectively, and (2) the authorized number of the Company's common stock was proportionally reduced to 175 million shares. Fractional shares of common stock resulting from the reverse stock split were settled in cash. Fractional shares of preferred stock resulting from the reverse stock split were redeemed without payout. Immediately thereafter, the Company further amended its articles of incorporation to increase the number of authorized shares of its common stock from 175 million to 300 million shares. All shares of common stock, stock options, restricted stock units, and per share information presented in the condensed consolidated financial statements have been adjusted to reflect the reverse stock split on a retroactive basis for all periods presented.
For the three and nine months ended September 30, 20172019 and 2016,2018, there were no items of other comprehensive income. Therefore, no presentation of comprehensive income is required. Additionally, certain subtotals within the condensed consolidated statements of operations for the three and nine months ended September 30, 2018 were removed to conform to the current period presentation.
On January 1, 2019, the Company began recording lease termination fees in rental property revenues on the condensed consolidated statements of operations as a result of the adoption of Accounting Standards Update ("ASU") 2016-02, "Leases," ("ASC 842"). The prior period amounts, which were included in other revenues, were reclassified to conform to the current period presentation.
The Company evaluates all partnerships, joint ventures, and other arrangements with variable interests to determine if the entity or arrangement qualifies as a variable interest entity ("VIE"), as defined in the Financial Accounting Standard Board's ("FASB") Accounting Standards Codification ("ASC"). If the entity or arrangement qualifies as a VIE and the Company is determined to be the primary beneficiary, the Company is required to consolidate the assets, liabilities, and results of operations of the VIE. At September 30, 2019, the Company had no investments or interests in any VIEs.
Recently Issued Accounting Standards
In May 2014, the FASB issued ASU 2014-09, "Revenue from Contracts with Customers." Under the new guidance, companies will recognize revenue when the seller satisfies a performance obligation, which would be when the buyer takes control of the good or service. ASU 2015-14, "Revenue from Contracts with Customers," was subsequently issued modifying the effective date to periods beginning after December 15, 2017, with early adoption permitted for periods beginning after December 15, 2016. The standard allows for either "full retrospective" adoption, meaning the standard is applied to all of the periods presented, or "modified retrospective" adoption, meaning the standard is applied only to the most recent period presented in the financial statements. The Company expects to adopt this guidance effective January 1, 2018 and is in the process of analyzing the impact of the adoption of this guidance. Based on the results of this analysis to date, the Company believes that its management, development, and leasing fees from third parties and with its unconsolidated joint ventures, as well as parking revenue, will be impacted by the new standard. The new guidance specifically excludes revenue associated with lease contracts. However, the Company believes that certain non-lease components of revenue from leases may be impacted by the adoption of the new revenue standard beginningOn January 1, 2019, the effective date ofCompany adopted ASC 842, which amended the new leasingprevious standard (see below). This new guidance could result in different amounts of revenue being recognized and could result in revenue being recognized in different reporting periods than under the current guidance; however, the Company expects that the majority of its non-lease revenues will continue to be recognized during the periods in which services are performed. The Company expects to adopt this guidance using the "modified retrospective" method effective January 1, 2018. The Company is still analyzing potential disclosures that will clearly identify the sources of revenue and the periods over which each is recognized.
In February 2016, the FASB issued ASU 2016-02, "Leases," which amends the existing standards for lease accounting by requiring lessees to recognizerecord most leases on their balance sheets and making targeted changes to lessor accounting and reporting. The new standard will requirerequires lessees to record a right-of-use asset and a lease liability for all leases with a term of greater than 12 months and classify such leases as either finance or operating leases based on the principle of whether or not the lease is effectively a financed purchase of the leased asset by the lessee. ThisThe classification will determineof the leases determines whether the lease expense
is recognized based on an effective interest method (finance leases) or on a straight-line basis over the term of the lease (operating leases). LeasesThe new standard also revised the treatment of indirect leasing costs and permits the capitalization and amortization of direct leasing costs only. For the three and nine months ended September 30, 2018, the Company capitalized $778,000 and $2.8 million of indirect leasing costs, respectively.
The Company adopted the following optional practical expedients provided in ASC 842:
•no reassessment of any expired or existing contracts to determine if they contain a lease;
•no requirement to write-off any unamortized, previously capitalized, initial direct costs for existing leases;
•no recognition of right-of-use assets for leases with a term of 12 monthsone year or less willless;
no requirement to separately classify and disclose non-lease components of revenue in lease contracts from the related lease components provided certain conditions are met; and
no requirement to reassess the classification of existing leases as finance leases versus operating leases.
For those leases where the Company is lessee, specifically ground leases, the adoption of ASC 842 required the Company to record a right-of-use asset and a lease liability in the amount of $56.3 million on the condensed consolidated balance sheet. In calculating the right of use asset and lease liability the Company used a weighted average discount rate of 4.49%, which represented the Company's incremental borrowing rate related to the ground lease assets as of January 1, 2019. Ground leases executed before the adoption of ASC 842 are accounted for as operating leases and did not result in a materially different ground lease expense. However, most ground leases executed after the adoption of ASC 842 are expected to be accounted for similaras finance leases, which will result in ground lease expense being recorded using the effective interest method instead of the straight-line method over the term of the lease, resulting in higher expense associated with the ground lease in the earlier years of a ground lease when compared to existing guidance for operating leases. The new standard requires lessors to account for leases using an approach that is substantially equivalent to existing guidance for sales-type leases, direct financing leases, and operating leases. ASU 2016-02 supersedes previous leasing standards. The guidance is effective for the fiscal years beginning after December 15, 2018, with early adoption permitted.straight line method. The Company expects to adopt this guidance usingused the "modified retrospective" method effective January 1, 2019, and is currently assessing the potential impactupon adoption of adopting the new guidance.
In August 2016, the FASB issued ASU 2016-15, "Classification of Certain Cash Receipts and Cash Payments" ("ASU 2016-15")ASC 842, which updated ASC Topic 230, "Statement of Cash Flows." ASU 2016-15 clarifies guidance on the classification of certain cash receipts and payments in the statement of cash flows to reduce diversity in practice with respect to (i) debt prepayment or debt extinguishment costs, (ii) settlement of zero-coupon debt instruments or other debt instruments with coupon interest rates that are insignificant in relation to the effective interest rate of the borrowing, (iii) contingent consideration payments made after a business combination, (iv) proceeds from the settlement of insurance claims, (v) proceeds from the settlement of corporate-owned life insurance policies, including bank-owned life insurance policies, (vi) distributions received from equity method investees, (vii) beneficial interests in securitization transactions, and (viii) separately identifiable cash flows andpermitted application of the predominance principle. ASU 2016-15 is effective for interim and annual reporting periods in fiscal years beginning after December 15, 2017, with early adoption permitted. The Company expects to adopt thisnew standard in the fourth quarter of 2018 and expects thaton the adoption of this standard will changedate as opposed to the classification of cash flows fromearliest comparative period presented in its equity method investments.financial statements. For additional disclosures, see note 4 "Leases."
In November 2016, the FASB issued ASU 2016-18, "Restricted Cash" ("ASU 2016-18") which updated ASC Topic 230, "Statement of Cash Flows." ASU 2016-18 will require companies to include restricted cash and restricted cash equivalents with cash and cash equivalents when reconciling the beginning-of-period and end-of-period total amounts shown on the statement of cash flows. This update is effective for interim and annual reporting periods in fiscal years beginning after December 15, 2017, with early adoption permitted. The Company expects to adopt this standard in the fourth quarter of 2018, which will result in a change in the presentation of cash and cash equivalents on the statements of cash flows.
EffectiveOn January 1, 2017,2018, the Company adopted, ASU 2016-09, "Improvements to Employee Share-Based Payment Accounting." Under this ASU, the additional paid-in capital pool is eliminated, and an entity recognizes all excess tax benefits and tax deficiencies as income tax expense or benefit in the income statement. This ASU also eliminated the requirement to defer recognition of an excess tax benefit until all benefits are realized through a reduction to taxes payable. In the first quarter of 2017, the Company changed the treatment of excess tax benefits as operating cash flows in the statement of cash flows. This ASU also stipulates that cash payments to tax authorities in connection with shares withheld to meet statutory tax withholding requirements be presented as a financing activity in the statement of cash flows. This ASU was adopted prospectively effective January 1, 2017; therefore, prior periods have not been restated to conform to the current period presentation.
In January 2017, the FASB issued ASU 2017-01, "Clarifying the Definition of a Business," which provides a more narrow definition of a business to be used in determining the accounting treatment of an acquisition. As a result, many acquisitions that previously qualified as business combinations will be treated as asset acquisitions. For asset acquisitions, acquisition costs may be capitalized, and the purchase price may be allocated on a relative fair value basis. ASU 2017-01 is effective prospectively for the Company on January 1, 2018, with early adoption permitted. The Company expects that most of its future acquisitions will qualify as asset acquisitions.
In February 2017, the FASB issued ASU No. 2017-05, “Other Income - Gains and Losses from the Derecognition of Nonfinancial Assets (Subtopic 610-20): Clarifying the Scope of Asset Derecognition Guidance and Accounting for Partial Sales of Nonfinancial Assets” (“ASU 2017-05”2017-05"). ASU 2017-05 updates the definitionAs a result of an “in substance nonfinancial asset” and clarifies the derecognition guidance for nonfinancial assets to conform with the new revenue recognition standard. The Company is currently assessing the potential impact that the adoption of ASU 2017-05, will have on its consolidated financial statements. the Company recorded a cumulative effect from change in accounting principle, which credited distributions in excess of cumulative net income by $22.3 million. This ASU is effective for interim and annual reporting periods in fiscal years beginning after December 15, 2017. The Company expectscumulative effect adjustment resulted from the 2013 transfer of a wholly-owned property to adopt this guidance using the "modified retrospective" method effective January 1, 2018.
In May 2017, FASB issued ASU 2017-09, "Scope of Modification Accounting," which amends the scope of modification accounting for share-based payment arrangements and provides guidance on the types of changes to the terms or conditions of share-based payment awards to which an entity would be required to apply modification accounting under ASC 718. This update is effective for interim and annual reporting periods in fiscal years beginning after December 15, 2017, with early adoption permitted. The Company expects to adopt this standard on January 1, 2018. The Company does not believe that the adoption of this standard will havewhich it had a material impact on its financial statements.noncontrolling interest.
2. REAL ESTATE TRANSACTIONSMERGER WITH TIER REIT, INC.
On June 15, 2017, the American Cancer Society Center (the “ACS Center”), a 996,000 square foot office building in Atlanta, Georgia that was included in the Company's Atlanta/Office operating segment, was sold for a gross sales price of $166.0 million.
The Company recognized a net gain of $119.8 million on the sale of the ACS Center. The associated debt was repaid on the date of sale.
The Company has decided to sell three properties totaling 1,038,000 square feet in Orlando, Florida, and determined that these properties met the criteria for held for sale in October 2017. The Company expects to sell these assets in the fourth quarter of 2017 or first quarter of 2018.
3. TRANSACTIONS WITH PARKWAY PROPERTIES, INC.
On October 6, 2016,14, 2019, pursuant to the Agreement and Plan of Merger dated April 28, 2016 (as amended or supplemented from time to time, theMarch 25, 2019 (the “Merger Agreement”), by and among Cousins, Parkway Properties,the Company and TIER REIT, Inc. ("Parkway"(“TIER”), and subsidiaries of Cousins and Parkway, ParkwayTIER merged with and into a wholly-owned subsidiary of the Company (the "Merger"“Merger”), with this subsidiary continuing as the surviving corporation of the Merger. In accordance with the terms and conditions of the Merger Agreement, each outstanding share of ParkwayTIER common stock issued and each outstanding share of Parkway limited voting stockimmediately prior to the Merger, was converted into 1.632.98 newly issued pre-reverse split shares of Cousinsthe Company’s common stock or limited voting preferred stock, respectively.
On October 7, 2016, pursuant towith fractional shares being settled in cash. In the Merger, Agreement and the Separation, Distribution and Transition Services Agreement, dated as of October 5, 2016 (the "Separation Agreement"), by and among Cousins, Parkway, Parkway, Inc. ("New Parkway"), and certain other parties thereto, Cousins distributed pro rata to itsformer TIER common and limited voting preferred stockholders including legacy Parkway common and limited voting stockholders, all of the outstandingreceived approximately 166 million pre-reverse split shares of common and limited voting stock respectively, of New Parkway, a newly-formed entity that contained the combined businesses relatingCompany. As discussed in note 1 to the ownership of real properties in Houston, Texascondensed consolidated financial statements, immediately following the Merger, the Company completed a 1-for-4 reverse stock split.
The Merger has been accounted for as a business combination with the Company as the accounting acquirer, which requires, among other things, that the assets acquired and certain other businesses of Parkway (the "Spin-Off"). In the Spin-Off, Cousins distributed one share of New Parkway common or limited voting stock for every eight shares of common or limited voting preferred stock of Cousins held of record asliabilities assumed be recognized at their acquisition date fair value. The total value of the close of businesstransaction is based on October 6, 2016. New Parkway became an independent public company.
As a result of the Spin-Off, the historical results of operationsclosing stock price of the Company's properties that were contributedcommon stock on June 13, 2019, the day immediately prior to New Parkway have been presented as discontinued operationsthe closing of the Merger. Based on the shares issued in the consolidated statements of operations. The following table includes a summary of discontinued operationstransaction, the total fair value of the Company forassets acquired and liabilities assumed in the Merger was $1.6 billion. During the three and nine months ended September 30, 20162019, the Company incurred expenses related to the Merger of $1.0 million and $50.9 million, respectively.
Management engaged a third party valuation specialist to assist with valuing the real estate assets acquired and liabilities assumed in the Merger. The third party used cash flow analyses as well as an income approach and a cost approach to determine the fair value of real estate assets acquired. Based on additional information that may become available, subsequent adjustments may be made to the purchase price allocation within the allocation period, which typically does not exceed one year.
The purchase price was allocated as follows (in thousands):
|
| | | |
Real estate assets | $ | 2,186,719 |
|
Real estate assets held for sale | 29,193 |
|
Cash and cash equivalents | 84,042 |
|
Restricted cash | 1,947 |
|
Notes and other receivables | 7,447 |
|
Investment in unconsolidated joint ventures | 349 |
|
Intangible assets | 142,316 |
|
Other assets | 10,039 |
|
| 2,462,052 |
|
| |
Notes payable | 747,549 |
|
Accounts payable and accrued expenses | 48,030 |
|
Deferred income | 8,388 |
|
Intangible liabilities | 46,579 |
|
Other liabilities | 7,796 |
|
Nonredeemable noncontrolling interests | 5,348 |
|
| 863,690 |
|
| |
Total purchase price | $ | 1,598,362 |
|
|
| | | | | | | | |
| | Three Months Ended September 30, 2016 | | Nine Months Ended September 30, 2016 |
| | |
Rental property revenues | | $ | 46,046 |
| | $ | 133,450 |
|
Rental property operating expenses | | (19,638 | ) | | (56,598 | ) |
Other revenues | | — |
| | 288 |
|
Interest expense | | (1,956 | ) | | (5,896 | ) |
Depreciation and amortization | | (15,221 | ) | | (46,389 | ) |
Acquisition and transaction costs | | (494 | ) | | (494 | ) |
Income from discontinued operations | | $ | 8,737 |
| | $ | 24,361 |
|
| | | | |
Cash provided by operating activities | | $ | 26,589 |
| | $ | 43,601 |
|
Cash used in investing activities | | $ | (11,130 | ) | | $ | (29,242 | ) |
During the three and nine months ended September 30, 2019, the Company recorded revenues of $52.1 million and $61.7 million, respectively, related to the Merger. The following unaudited supplemental pro forma information is based upon the Company's historical condensed consolidated statements of operations, adjusted as if the Merger had occurred on January 1, 2018. The supplemental pro forma information is not necessarily indicative of future results, or of actual results, that would have been achieved had the Merger been consummated at the beginning of the period. |
| | | | | | | | | | | | | | | | |
| | Three months ended September 30, | | Nine months ended September 30, |
| | 2019 | | 2018 | | 2019 | | 2018 |
| | (unaudited, in thousands) |
Revenues | | $ | 188,323 |
| | $ | 176,711 |
| | $ | 555,324 |
| | $ | 521,945 |
|
Net income | | 21,740 |
| | 44,218 |
| | 110,188 |
| | 30,829 |
|
Net income available to common stockholders | | 21,410 |
| | 43,689 |
| | 108,724 |
| | 30,466 |
|
2019 supplemental pro forma earnings were adjusted to exclude $1.0 million and $50.9 million of transaction costs incurred in the three and nine months ended September 30, 2019, respectively. Supplemental pro forma earnings for the nine months ended September 30, 2018 were adjusted to include this change.
3. TRANSACTIONS WITH NORFOLK SOUTHERN RAILWAY COMPANY
On March 1, 2019, the Company entered into a series of agreements and executed related transactions with Norfolk Southern Railway Company (“NS”) as follows:
Sold land to NS for $52.5 million.
Executed a Development Agreement with NS whereby the Company will receive fees totaling $5 million in consideration for development services for NS’s corporate headquarters that is being constructed on the land sold to NS.
Executed a Consulting Agreement with NS whereby the Company will receive fees totaling $32 million in consideration for consulting services for NS’s corporate headquarters. The Development Agreement and Consulting Agreement are collectively referred to below as the “Fee Agreements.”
Purchased a building from NS (“1200 Peachtree”) for $82 million subject to a three-year market rate lease with NS that covers the entire building.
The Company sold the land to NS for $5.0 million above its carrying amount, which included $37.0 million of land purchased in 2018, $6.5 million of land purchased in 2019, and $4.0 million of site preparation work. The Company purchased 1200 Peachtree from NS for an amount it determined to be $10.3 million below the building’s fair value.
The Company determined that all contracts and transactions associated with NS should be combined for accounting purposes, and the amounts exchanged under the combined contracts should be allocated to the various components of the overall transaction at fair value or market value as discussed below. The Company determined that the purchase of 1200 Peachtree should be recorded at fair value of $92.3 million (see below for allocation of the purchase price). The Company determined that the lease with NS at the 1200 Peachtree building was at market value under ASC 842. The land sale was accounted for under ASC 610-20 and 0 gain or loss was recorded on the derecognition of this non-financial asset as the fair value was determined to equal the carrying amount. Consideration related to various services provided to NS, and accounted for under ASC 606, was determined to be $52.3 million and represents the negotiated market value for the services agreed to by the Company and NS in the contracts. This amount included non-cash consideration of the $10.3 million discount on the purchase of 1200 Peachtree as well as cash consideration of $5 million from the land sale contract (difference between fair value and contract amount), $5 million from the Development Agreement, and $32 million from the Consulting Agreement. Since all of the agreements and contracts above were executed for the purpose of delivering and constructing a corporate headquarters for NS and all of the services and deliverables are highly interdependent, the Company determined that the services represent a single performance obligation under ASC 606.
The Company determined that control of the services to be provided is being transferred over time and, thus, the Company must recognize the $52.3 million contract price in revenue as it satisfies the performance obligation. The Company determined that the inputs method of measuring progress of satisfying the performance obligation was the most appropriate method of recognizing revenue for the services component. Therefore, the Company began recognizing revenue in the quarter ended March 31, 2019, and will recognize future revenue based upon the time spent by the Company’s employees in providing these services as compared to the total estimated time required to satisfy the performance obligation. During the three and nine months ended September 30, 2019, the Company recognized $5.6 million and $17.2 million, respectively, in fee income in its statements of operations related to the services provided to NS.
The following table summarizes the allocations of the estimated fair value of the assets and liabilities of the 1200 Peachtree discussed above (in thousands):
|
| | | |
Tangible assets: | |
Land and improvements | $ | 19,495 |
|
Building | 62,836 |
|
Tangible assets | 82,331 |
|
| |
Intangible assets: | |
In-place leases | 9,969 |
|
Intangible assets | 9,969 |
|
| |
Total assets acquired | $ | 92,300 |
|
4. LEASES
At September 30, 2019, the Company had 5 properties subject to operating ground leases with a weighted average remaining term of 72 years and 2 finance ground leases with a weighted average remaining term of five years. At September 30, 2019, the Company had right-of-use assets of $69.5 million included in operating properties, projects under development, or land on the condensed consolidated balance sheets and a lease liability of $70.1 million included in other liabilities on the condensed consolidated balance sheets. The weighted average discount rate on these ground leases at September 30, 2019 was 4.5%.
Rental payments on these ground leases are adjusted periodically based on either the Consumer Price Index, changes in developed square feet on the underlying leased asset, or on a pre-determined schedule. The monthly payments on a pre-determined schedule are recognized on a straight-line basis over the terms of the respective leases while payments resulting from changes in the Consumer Price Index or future development are reflected in the statement of operations at the time of the change.
For the three and nine months ended September 30, 2019, the Company recognized operating ground lease expense of $1.1 million and $2.8 million, respectively, of which 0 amounts represented variable lease expenses, and recognized interest expense related to finance ground leases of $115,000 and $347,000, respectively. For the three and nine months ended September 30, 2019, the Company paid $478,000 and $1.4 million, respectively, in cash related to operating ground leases and made 0 cash payments related to financing ground leases. At September 30, 2019 and December 31, 2018, respectively, the future minimum payments to be made by consolidated entities for ground leases are as follows (in thousands):
|
| | | | | | | |
September 30, 2019 |
| Operating Ground Leases | | Finance Ground Leases |
2019 | $ | 818 |
| | $ | 462 |
|
2020 | 3,175 |
| | 462 |
|
2021 | 2,959 |
| | 6,562 |
|
2022 | 2,672 |
| | 162 |
|
2023 | 2,614 |
| | 162 |
|
Thereafter | 202,604 |
| | 3,838 |
|
| $ | 214,842 |
| | $ | 11,648 |
|
| | | |
Discount | (155,027 | ) | | (1,572 | ) |
Lease liability | $ | 59,815 |
| | $ | 10,076 |
|
|
| | | | | | | |
December 31, 2018 |
| Operating Ground Leases | | Finance Ground Leases |
2019 | $ | 2,441 |
| | $ | 462 |
|
2020 | 2,460 |
| | 462 |
|
2021 | 2,497 |
| | 6,562 |
|
2022 | 2,497 |
| | 162 |
|
2023 | 2,497 |
| | 162 |
|
Thereafter | 202,603 |
| | 3,838 |
|
| $ | 214,995 |
| | $ | 11,648 |
|
5. INVESTMENT IN UNCONSOLIDATED JOINT VENTURES
The Company describes its investments in unconsolidated joint ventures in note 6 of notes to consolidatedfollowing information summarizes financial statements in its Annual Report on Form 10-K for the year ended December 31, 2016. The following table summarizes balance sheet data and principal activities of the Company's unconsolidated joint venturesventures. The information included in the following table entitled summary of financial position is as of September 30, 20172019 and December 31, 20162018 (in thousands). The information included in the summary of operations table is for the nine months ended September 30, 2019 and 2018 (in thousands):
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Total Assets | | Total Debt | | Total Equity | | Company’s Investment | |
SUMMARY OF FINANCIAL POSITION: | | 2019 | | 2018 | | 2019 | | 2018 | | 2019 | | 2018 | | 2019 | | 2018 | |
Terminus Office Holdings LLC | | $ | 257,554 |
| | $ | 258,060 |
| | $ | 195,290 |
| | $ | 198,732 |
| | $ | 55,502 |
| | $ | 50,539 |
| | $ | 50,781 |
| | $ | 48,571 |
| |
DC Charlotte Plaza LLLP | | 184,544 |
| | 155,530 |
| | — |
| | — |
| | 93,775 |
| | 88,922 |
| | 49,759 |
| | 46,554 |
| |
Austin 300 Colorado Project, LP | | 104,875 |
| | 51,180 |
| | 5,488 |
| | — |
| | 68,054 |
| | 41,298 |
| | 36,462 |
| | 22,335 |
| |
Carolina Square Holdings LP | | 114,486 |
| | 106,187 |
| | 75,514 |
| | 74,638 |
| | 25,860 |
| | 28,844 |
| | 15,221 |
| | 16,840 |
| |
AMCO 120 WT Holdings, LLC | | 70,163 |
| | 36,680 |
| | — |
| | — |
| | 62,185 |
| | 31,372 |
| | 11,966 |
| | 5,538 |
| |
HICO Victory Center LP | | 15,382 |
| | 15,069 |
| | — |
| | — |
| | 15,196 |
| | 14,801 |
| | 10,264 |
| | 10,003 |
| |
Charlotte Gateway Village, LLC | | 112,768 |
| | 112,553 |
| | — |
| | — |
| | 108,176 |
| | 109,666 |
| | 7,480 |
| | 8,225 |
| |
CL Realty, L.L.C. | | 4,159 |
| | 4,169 |
| | — |
| | — |
| | 4,039 |
| | 4,183 |
| | 2,814 |
| | 2,886 |
| |
Temco Associates, LLC | | 1,551 |
| | 1,482 |
| | — |
| | — |
| | 1,448 |
| | 1,379 |
| | 953 |
| | 919 |
| |
TR 208 Nueces Member, LLC | | 3,176 |
| | — |
| | — |
| | — |
| | 1,396 |
| | — |
| | 349 |
| | — |
| |
EP II LLC | | 247 |
| | 247 |
| | — |
| | — |
| | 165 |
| | 165 |
| | 28 |
| | 30 |
| |
EP I LLC | | 461 |
| | 461 |
| | — |
| | — |
| | 296 |
| | 296 |
| | 2 |
| | 6 |
| |
Wildwood Associates | | 11,105 |
| | 11,157 |
| | — |
| | — |
| | 10,998 |
| | 11,108 |
| | (512 | ) | (1) | (460 | ) | (1) |
Crawford Long - CPI, LLC | | 29,052 |
| | 26,429 |
| | 68,347 |
| | 69,522 |
| | (41,326 | ) | | (44,146 | ) | | (19,723 | ) | (1) | (21,071 | ) | (1) |
| | $ | 909,523 |
| | $ | 779,204 |
| | $ | 344,639 |
| | $ | 342,892 |
| | $ | 405,764 |
| | $ | 338,427 |
| | $ | 165,844 |
| | $ | 140,376 |
| |
|
| | | | | | | | | | | | | | | | | | | | | | | | |
| | Total Revenues | | Net Income (Loss) | | Company's Share of Income (Loss) |
SUMMARY OF OPERATIONS: | | 2019 | | 2018 | | 2019 | | 2018 | | 2019 | | 2018 |
Charlotte Gateway Village, LLC | | $ | 20,368 |
| | $ | 20,043 |
| | $ | 7,510 |
| | $ | 7,792 |
| | $ | 3,755 |
| | $ | 3,896 |
|
Terminus Office Holdings LLC | | 34,964 |
| | 33,545 |
| | 4,962 |
| | 4,424 |
| | 2,381 |
| | 2,276 |
|
DC Charlotte Plaza LLLP | | 10,716 |
| | — |
| | 4,196 |
| | — |
| | 2,098 |
| | — |
|
Crawford Long - CPI, LLC | | 9,412 |
| | 9,381 |
| | 2,821 |
| | 2,631 |
| | 1,349 |
| | 1,254 |
|
HICO Victory Center LP | | 356 |
| | 282 |
| | 356 |
| | 282 |
| | 197 |
| | 160 |
|
Austin 300 Colorado Project, LP | | 319 |
| | 385 |
| | 152 |
| | 173 |
| | 76 |
| | 86 |
|
Temco Associates, LLC | | 128 |
| | 128 |
| | 61 |
| | 58 |
| | 35 |
| | 32 |
|
Carolina Square Holdings LP | | 8,757 |
| | 7,403 |
| | 191 |
| | 5 |
| | 5 |
| | (173 | ) |
AMCO 120 WT Holdings, LLC | | 5 |
| | — |
| | (81 | ) | | (28 | ) | | — |
| | — |
|
EP II LLC | | 1 |
| | — |
| | — |
| | (21 | ) | | (1 | ) | | (15 | ) |
EP I LLC | | 3 |
| | 27 |
| | — |
| | 1 |
| | (4 | ) | | (5 | ) |
Wildwood Associates | | — |
| | — |
| | (80 | ) | | (1,108 | ) | | (40 | ) | | 2,739 |
|
CL Realty, L.L.C. | | — |
| | — |
| | (129 | ) | | (116 | ) | | (72 | ) | | (71 | ) |
Other | | — |
| | — |
| | — |
| | (14 | ) | | — |
| | (6 | ) |
| | $ | 85,029 |
| | $ | 71,194 |
| | $ | 19,959 |
| | $ | 14,079 |
| | $ | 9,779 |
| | $ | 10,173 |
|
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Total Assets | | Total Debt | | Total Equity | | Company’s Investment | |
SUMMARY OF FINANCIAL POSITION: | 2017 | | 2016 | | 2017 | | 2016 | | 2017 | | 2016 | | 2017 | | 2016 | |
Terminus Office Holdings | $ | 268,531 |
| | $ | 268,242 |
| | $ | 204,390 |
| | $ | 207,545 |
| | $ | 50,633 |
| | $ | 49,476 |
| | $ | 26,204 |
| | $ | 25,686 |
| |
EP I LLC | 1,517 |
| | 78,537 |
| | — |
| | 58,029 |
| | 1,269 |
| | 18,962 |
| | 738 |
| | 18,551 |
| |
EP II LLC | 392 |
| | 67,754 |
| | — |
| | 44,969 |
| | 296 |
| | 21,743 |
| | 130 |
| | 17,606 |
| |
Charlotte Gateway Village, LLC | 129,109 |
| | 119,054 |
| | — |
| | — |
| | 124,012 |
| | 116,809 |
| | 15,397 |
| | 11,796 |
| |
HICO Victory Center LP | 14,294 |
| | 14,124 |
| | — |
| | — |
| | 14,290 |
| | 13,869 |
| | 9,695 |
| | 9,506 |
| |
Carolina Square Holdings LP | 102,370 |
| | 66,922 |
| | 62,180 |
| | 23,741 |
| | 34,080 |
| | 34,173 |
| | 18,843 |
| | 18,325 |
| |
CL Realty, L.L.C. | 8,287 |
| | 8,047 |
| | — |
| | — |
| | 8,156 |
| | 7,899 |
| | 2,852 |
| | 3,644 |
| |
DC Charlotte Plaza LLLP | 39,156 |
| | 17,940 |
| | — |
| | — |
| | 34,255 |
| | 17,073 |
| | 17,475 |
| | 8,937 |
| |
Temco Associates, LLC | 4,426 |
| | 4,368 |
| | — |
| | — |
| | 4,323 |
| | 4,253 |
| | 864 |
| | 829 |
| |
Wildwood Associates | 16,368 |
| | 16,351 |
| | — |
| | — |
| | 16,227 |
| | 16,314 |
| | (1,186 | ) | (1) | (1,143 | ) | (1) |
Crawford Long - CPI, LLC | 28,621 |
| | 27,523 |
| | 71,690 |
| | 72,822 |
| | (44,787 | ) | | (45,928 | ) | | (21,296 | ) | (1) | (21,866 | ) | (1) |
111 West Rio Building | — |
| | 59,399 |
| | — |
| | 12,852 |
| | — |
| | 32,855 |
| | — |
| | 52,206 |
| |
Courvoisier Centre JV, LLC | 182,262 |
| | 172,197 |
| | 106,500 |
| | 106,500 |
| | 68,480 |
| | 69,479 |
| | 11,719 |
| | 11,782 |
| |
HICO Avalon II, LLC | 987 |
| | — |
| | — |
| | — |
| | 532 |
| | — |
| | 4,366 |
| | — |
| |
AMCO 120 WT Holdings, LLC | 13,286 |
| | 10,446 |
| | — |
| | — |
| | 12,678 |
| | 9,136 |
| | 939 |
| | 184 |
| |
Other | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | 345 |
| |
| $ | 809,606 |
| | $ | 930,904 |
| | $ | 444,760 |
| | $ | 526,458 |
| | $ | 324,444 |
| | $ | 366,113 |
| | $ | 86,740 |
| | $ | 156,388 |
| |
(1) Negative balances are included in deferred income on the balance sheets.
The following table summarizes statement of operations information of the Company's unconsolidated joint ventures for the nine months ended September 30, 2017 and 2016 (in thousands):
|
| | | | | | | | | | | | | | | | | | | | | | | | |
| Total Revenues | | Net Income (Loss) | | Company's Share of Income (Loss) | |
SUMMARY OF OPERATIONS: | 2017 | | 2016 | | 2017 | | 2016 | | 2017 | | 2016 | |
Terminus Office Holdings | $ | 33,503 |
| | $ | 31,630 |
| | $ | 4,907 |
| | $ | 3,874 |
| | $ | 2,453 |
| | $ | 1,937 |
| |
EP I LLC | 4,094 |
| | 7,919 |
| | 44,865 |
| | 1,417 |
| | 28,479 |
| | 1,206 |
| |
EP II LLC | 2,644 |
| | 3,605 |
| | 13,023 |
| | (1,194 | ) | | 9,768 |
| | (1,043 | ) | |
Charlotte Gateway Village, LLC | 20,125 |
| | 26,245 |
| | 7,202 |
| | 11,077 |
| | 3,601 |
| | 1,447 |
| |
HICO Victory Center LP | 320 |
| | 307 |
| | 320 |
| | 300 |
| | 171 |
| | 131 |
| |
Carolina Square Holdings LP | 640 |
| | — |
| | (100 | ) | | — |
| | 19 |
| | — |
| |
CL Realty, L.L.C. | 2,899 |
| | 327 |
| | 2,657 |
| | 105 |
| | 408 |
| | 70 |
| |
DC Charlotte Plaza LLLP | 2 |
| | 47 |
| | 2 |
| | 45 |
| | 1 |
| | 24 |
| |
Temco Associates, LLC | 144 |
| | 180 |
| | 70 |
| | 83 |
| | 35 |
| | 122 |
| |
Wildwood Associates | — |
| | — |
| | (86 | ) | | (106 | ) | | (43 | ) | | (53 | ) | |
Crawford Long - CPI, LLC | 9,017 |
| | 9,101 |
| | 2,285 |
| | 2,005 |
| | 1,142 |
| | 1,003 |
| |
111 West Rio Building | — |
| | — |
| | — |
| | — |
| | (2,592 | ) | | — |
| |
Courvoisier Centre JV, LLC | 12,701 |
| | — |
| | (1,000 | ) | | — |
| | (80 | ) | | — |
| |
HICO Avalon II, LLC | — |
| | — |
| | (68 | ) | | — |
| | — |
| | — |
| |
AMCO 120 WT Holdings, LLC | — |
| | — |
| | (22 | ) | | — |
| | — |
| | — |
| |
Other | — |
| | — |
| | — |
| | — |
| | — |
| | 300 |
| |
| $ | 86,089 |
| | $ | 79,361 |
| | $ | 74,055 |
| | $ | 17,606 |
| | $ | 43,362 |
| | $ | 5,144 |
| |
On May 3, 2017, EP I LLC and EP II LLC sold the properties that they owned for a combined gross sales price of $199.0 million. After repayment of debt,October 1, 2019, the Company receivedpurchased its partner's interest in Terminus Office Holdings LLC ("TOH") for $148 million in a distributiontransaction that valued Terminus 100 and Terminus 200 at $503 million. In the fourth quarter of $70.0 million2019, the Company will consolidate TOH and recognizedrecord the assets and liabilities at fair value. The Company expects to recognize a gain of $37.9approximately $94 million which is recordedon this acquisition achieved in income from unconsolidated joint ventures.
In June 2017, HICO Avalon II, LLC ("Avalon II"), a joint venture between the Company and Hines Avalon II Investor, LLC ("Hines II") was formed for the purpose of acquiring and potentially developing an office building in Alpharetta, Georgia. Pursuant to the joint venture agreement, all predevelopment expenditures are funded 75% by Cousins and 25% by Hines II. The Company has accounted for its investment in Avalon II using the equity method as the Company does not currently control the activities of the venture. If Avalon II commences construction, subsequent development expenditures will be funded 90% by Cousins and 10% by Hines II. Additionally, Cousins will have control over the operational aspects of the venture, and the Company expects to consolidate the venture at that time.
stages.
5.6.INTANGIBLE ASSETS
Intangible assets on the balance sheets as of September 30, 20172019 and December 31, 20162018 included the following (in thousands):
|
| | | | | | | | |
| | 2019 | | 2018 |
In-place leases, net of accumulated amortization of $162,263 and $125,130 in 2019 and 2018, respectively | | $ | 204,023 |
| | $ | 105,964 |
|
Above-market tenant leases, net of accumulated amortization of $24,649 and $19,502 in 2019 and 2018, respectively | | 32,332 |
| | 20,453 |
|
Below-market ground lease, net of accumulated amortization of $828 and $621 in 2019 and 2018, respectively | | 17,584 |
| | 17,792 |
|
Goodwill | | 1,674 |
| | 1,674 |
|
| | $ | 255,613 |
| | $ | 145,883 |
|
|
| | | | | | | | |
| | September 30, 2017 | | December 31, 2016 |
In-place leases, net of accumulated amortization of $85,806 and $46,899 in 2017 and 2016, respectively | | $ | 158,395 |
| | $ | 185,251 |
|
Above-market tenant leases, net of accumulated amortization of $12,981 and $6,515 in 2017 and 2016, respectively | | 33,580 |
| | 40,260 |
|
Below-market ground lease, net of accumulated amortization of $276 and $69 in 2017 and 2016, respectively | | 18,137 |
| | 18,344 |
|
Goodwill | | 1,674 |
| | 1,674 |
|
| | $ | 211,786 |
| | $ | 245,529 |
|
The following is a summarycarrying amount of goodwill activity fordid not change during the nine months ended September 30, 20172019 and 2016 (in thousands):
|
| | | | | | | |
| Nine Months Ended September 30, |
| 2017 | | 2016 |
Beginning balance | $ | 1,674 |
| | $ | 3,647 |
|
Allocated to property sales | — |
| | (21 | ) |
Ending balance | $ | 1,674 |
| | $ | 3,626 |
|
2018.6.7.OTHER ASSETS
Other assets on the balance sheets as of September 30, 20172019 and December 31, 20162018 included the following (in thousands):
|
| | | | | | | | |
| | 2019 | | 2018 |
Predevelopment costs and earnest money | | $ | 33,997 |
| | $ | 8,249 |
|
Furniture, fixtures and equipment, leasehold improvements, and other deferred costs, net of accumulated depreciation of $28,082 and $25,193 in 2019 and 2018, respectively | | 17,355 |
| | 14,942 |
|
Prepaid expenses and other assets | | 9,603 |
| | 5,087 |
|
Lease inducements, net of accumulated amortization of $2,111 and $1,545 in 2019 and 2018, respectively | | 5,423 |
| | 4,961 |
|
Line of credit deferred financing costs, net of accumulated amortization of $2,576 and $1,451 in 2019 and 2018, respectively | | 4,892 |
| | 5,844 |
|
| | $ | 71,270 |
| | $ | 39,083 |
|
|
| | | | | | | | |
| | September 30, 2017 | | December 31, 2016 |
Furniture, fixtures and equipment, leasehold improvements, and other deferred costs, net of accumulated depreciation of $24,008 and $23,135 in 2017 and 2016, respectively | | $ | 14,849 |
| | $ | 15,773 |
|
Lease inducements, net of accumulated amortization of $892 and $1,278 in 2017 and 2016, respectively | | 2,049 |
| | 2,517 |
|
Prepaid expenses and other assets | | 9,764 |
| | 8,432 |
|
Line of credit deferred financing costs, net of accumulated amortization of $2,905 and $2,264 in 2017 and 2016, respectively | | 1,428 |
| | 2,182 |
|
Predevelopment costs and earnest money | | 80 |
| | 179 |
|
| | $ | 28,170 |
| | $ | 29,083 |
|
8. NOTES PAYABLE
The following table detailssummarizes the terms and amounts of the Company’s outstanding notes payable outstanding at September 30, 20172019 and December 31, 2016 ($ in2018 (in thousands):
| | Description | | Interest Rate | | Maturity | | September 30, 2017 | | December 31, 2016 | | Interest Rate | | Maturity (1) | | 2019 | | 2018 |
2019 Senior Notes, Unsecured | | | 3.95% | | 2029 | | $ | 275,000 |
| | $ | — |
|
Term Loan, Unsecured | | 2.43 | % | | 2021 | | $ | 250,000 |
| | $ | 250,000 |
| | 3.22% | | 2021 | | 250,000 |
| | 250,000 |
|
Senior Notes, Unsecured | | 3.91 | % | | 2025 | | 250,000 |
| | — |
| |
2017 Senior Notes, Unsecured | | | 3.91% | | 2025 | | 250,000 |
| | 250,000 |
|
2019 Senior Notes, Unsecured | | | 3.86% | | 2028 | | 250,000 |
| | — |
|
Fifth Third Center | | 3.37 | % | | 2026 | | 147,306 |
| | 149,516 |
| | 3.37% | | 2026 | | 141,131 |
| | 143,497 |
|
2019 Senior Notes, Unsecured | | | 3.78% | | 2027 | | 125,000 |
| | — |
|
Colorado Tower | | 3.45 | % | | 2026 | | 120,000 |
| | 120,000 |
| | 3.45% | | 2026 | | 117,677 |
| | 119,427 |
|
2017 Senior Notes, Unsecured | | | 4.09% | | 2027 | | 100,000 |
| | 100,000 |
|
Promenade | | 4.27 | % | | 2022 | | 103,113 |
| | 105,342 |
| | 4.27% | | 2022 | | 96,813 |
| | 99,238 |
|
Senior Notes, Unsecured | | 4.09 | % | | 2027 | | 100,000 |
| | — |
| |
816 Congress | | 3.75 | % | | 2024 | | 83,702 |
| | 84,872 |
| | 3.75% | | 2024 | | 80,415 |
| | 81,676 |
|
Credit Facility, Unsecured | | | 3.07% | | 2023 | | 80,000 |
| | — |
|
Legacy Union One | | | 4.24% | | 2023 | | 66,000 |
| | — |
|
Meridian Mark Plaza | | 6.00 | % | | 2020 | | 24,162 |
| | 24,522 |
| | 6.00% | | 2020 | | 23,117 |
| | 23,524 |
|
The Pointe | | 4.01 | % | | 2019 | | 22,620 |
| | 22,945 |
| |
Credit Facility, Unsecured | | 2.33 | % | | 2019 | | — |
| | 134,000 |
| |
3344 Peachtree | | 4.75 | % | | 2017 | | — |
| | 78,971 |
| |
One Eleven Congress | | 6.08 | % | | 2017 | | — |
| | 128,000 |
| |
The ACS Center | | 6.45 | % | | 2017 | | — |
| | 127,508 |
| |
San Jacinto Center | | 6.05 | % | | 2017 | | — |
| | 101,000 |
| |
Two Buckhead Plaza | | 6.43 | % | | 2017 | | — |
| | 52,000 |
| |
| | | | | | 1,100,903 |
| | 1,378,676 |
| | | | | | $ | 1,855,153 |
| | $ | 1,067,362 |
|
Unamortized premium, net | | | | 270 |
| | 6,792 |
| |
Unamortized premium | | | 2,335 |
| | — |
|
Unamortized loan costs | | | | (5,996 | ) | | (4,548 | ) | | (6,671 | ) | | (4,792 | ) |
Total Notes Payable | | | | $ | 1,095,177 |
| | $ | 1,380,920 |
| | $ | 1,850,817 |
| | $ | 1,062,570 |
|
(1) Weighted average maturity of notes payable outstanding at September 30, 2019 was 6.3 years.
Credit Facility
The Company has a $500 million$1 billion senior unsecured line of credit (the "Credit Facility") that matures on May 28, 2019. The Credit Facility may be expanded to $750 million at the election of the Company, subject to the receipt of additional commitments from the lenders and other customary conditions.
January 3, 2023. The Credit Facility contains financial covenants that require, among other things, the maintenance of an unencumbered interest coverage ratio of at least 2.00;1.75; a fixed charge coverage ratio of at least 1.50; a secured leverage ratio of no more than 40%; and an overall leverage ratio of no more than 60%; and a minimum shareholders' equity in an amount equal to $1.0 billion, plus a portion of the net cash proceeds from certain equity issuances.. The Credit Facility also contains customary representations and warranties and affirmative and negative covenants, as well as customary events of default. The amounts outstanding under the Credit Facility may be accelerated upon the occurrence of any events of default.
The interest rate applicable to the Credit Facility varies according to the Company’sCompany's leverage ratio, and may, at the election of the Company, be determined based on either (1) the current London Interbank Offered Rate ("LIBOR")LIBOR plus a spread of between 1.10%1.05% and 1.45%, based on leverage or (2) the greater of Bank of America's prime rate, the federal funds rate plus 0.50%, or the one-month LIBOR plus 1.0% (the “Base Rate”"Base Rate"), plus a spread of between 0.10% andor 0.45%, based on leverage. The Company also pays an annual facility fee on the total commitments under the Credit Facility of between 0.15% and 0.30% based on leverage.
At September 30, 2017,2019, the Credit Facility's spread over LIBOR was 1.1%1.05%. The amount that the Company may draw under the Credit Facility is a defined calculation based on the Company's unencumbered assets and other factors. The total available borrowing capacity under the Credit Facility was $499$920.0 million at September 30, 2017.2019.
Term Loan
The Company has a $250 million senior unsecured term loan (the "Term Loan") that matures on December 2, 2021. The Term Loan containshas financial covenants consistent with those of the Credit Facility. The interest rate applicable to the Term Loan varies according to the Company’s leverage ratio and may, at the election of the Company, be determined based on either (1) the current London Interbank Offered Rate ("LIBOR")LIBOR plus a spread of between 1.20% and 1.70%, based on leverage or (2) the greater of Bank of America's prime rate, the federal funds rate plus 0.50%, or the one-month LIBOR plus 1.0%1.00% (the “Base Rate”), plus a spread of between 0.00% and 0.75%, based on leverage. At September 30, 2017,2019, the Term Loan's spread over LIBOR was 1.2%1.20%.
Unsecured Senior Notes
In April 2017, theThe Company closed a $350 million private placementhas unsecured senior notes of senior unsecured notes, which$1.0 billion that were funded in two5 tranches. The first tranche of $100 million was fundedis due in April 2017, has a 10-year maturity,2027 and has a fixed annual interest rate of 4.09%. The second tranche of $250 million was fundedis due in July 2017, has an 8-year maturity,2025 and has a fixed annual interest rate of 3.91%.
$125 million is due in 2027 and has a fixed annual interest rate of 3.78%. The fourth tranche of $250 million is due in 2028 and has a fixed annual interest rate of 3.86%. The fifth tranche of $275 million is due in 2029 and has a fixed annual interest rate of 3.95%.
The unsecured senior unsecured notes contain financial covenants that require, among other things, the maintenance of an unencumbered interest coverage ratio of at least 2.00;1.75; a fixed charge coverage ratio of at least 1.50; an overall leverage ratio of no more than 60%; and a minimum shareholders' equity in an amount equal to $1.9 billion, plus a portionsecured leverage ratio of the net cash proceeds from certain equity issuances.no more than 40%. The senior notes also contain customary representations and warranties and affirmative and negative covenants, as well as customary events of default. The amounts outstanding under the senior notes may be accelerated upon the occurrence of any events of default.
Fair ValueOther Debt Information
At September 30, 20172019 and December 31, 2016,2018, the aggregate estimated fair valuesvalue of the Company'sCompany’s notes payable were $1.1$1.9 billion and $1.4$1.1 billion, respectively, calculated by discounting the debt's remaining contractual cash flows at estimated rates at which similar loans could have been obtained at those respective dates.September 30, 2019 and December 31, 2018. The estimate of the current market rate, which is the most significant input in the discounted cash flow calculation, is intended to replicate debt of similar maturity and loan-to-value relationship. These fair value calculations are considered to be Level 2 under the guidelines as set forth in ASC 820 "Fair Value Measurement," as the Company utilizes market rates for similar type loans from third-partythird party brokers.
Other Information
For the three and nine months ended September 30, 20172019 and 2016,2018, interest expense was recorded as follows (in thousands):
|
| | | | | | | | | | | | | | | |
| Three Months Ended September 30, | | Nine Months Ended September 30, |
| 2019 | | 2018 | | 2019 | | 2018 |
Total interest incurred | $ | 18,918 |
| | $ | 11,087 |
| | $ | 43,928 |
| | $ | 33,064 |
|
Interest capitalized | (4,218 | ) | | (1,536 | ) | | (6,349 | ) | | (4,021 | ) |
Total interest expense | $ | 14,700 |
| | $ | 9,551 |
| | $ | 37,579 |
| | $ | 29,043 |
|
|
| | | | | | | | | | | | | | | |
| Three Months Ended September 30, | | Nine Months Ended September 30, |
| 2017 | | 2016 | | 2017 | | 2016 |
Total interest incurred | $ | 10,288 |
| | $ | 8,939 |
| | $ | 32,360 |
| | $ | 25,446 |
|
Less interest - discontinued operations | — |
| | (1,956 | ) | | — |
| | (5,896 | ) |
Interest capitalized | (2,701 | ) | | (1,229 | ) | | (6,509 | ) | | (2,988 | ) |
Total interest expense | $ | 7,587 |
| | $ | 5,754 |
| | $ | 25,851 |
| | $ | 16,562 |
|
In April 2017, the Company repaid in full, without penalty, the $128.0 million One Eleven Congress mortgage note and the $101.0 million San Jacinto Center mortgage note. In May 2017, the Company repaid in full, without penalty, the $52.0 million Two Buckhead Plaza mortgage note. In July 2017, the Company repaid in full, without penalty, the $77.9 million 3344 Peachtree mortgage note. In connection with these repayments, the Company recorded gains on extinguishment of debt of $2.3 million, which represented the unamortized premium recorded on the notes at the time of the Merger.
In June 2017, the Company sold the ACS Center. A portion of the proceeds from the sale were used to repay the $127.0 million mortgage note on the associated property, and the Company recorded a loss on extinguishment of debt of $376,000, which represented the remaining unamortized loan costs and other costs associated with repaying the debt.
8. 9. COMMITMENTS AND CONTINGENCIES
Commitments
At September 30, 2017,2019, the Company had outstanding letters of credit and performance bonds totaling $3.7 million.$487,000. As a lessor, the Company had $188.3$206.6 million in future obligations under leases to fund tenant improvements and other future construction obligations at September 30, 2017.2019. As a lessee, the Company had future obligations under ground and otherfor operating leases other than ground leases of $209.5 million$333,000 at September 30, 2017.2019.
Litigation
The Company is subject to various legal proceedings, claims, and administrative proceedings arising in the ordinary course of business, some of which are expected to be covered by liability insurance. Management makes assumptions and estimates concerning the likelihood and amount of any potential loss relating to these matters using the latest information available. The Company records a liability for litigation if an unfavorable outcome is probable and the amount of loss or range of loss can be reasonably estimated. If an unfavorable outcome is probable and a reasonable estimate of the loss is a range, the Company accrues the best estimate within the range. If no amount within the range is a better estimate than any other amount, the Company accrues the minimum amount within the range. If an unfavorable outcome is probable but the amount of the loss cannot be reasonably estimated, the Company discloses the nature of the litigation and indicates that an estimate of the loss or range of loss cannot be made. If an unfavorable outcome is reasonably possible and the estimated loss is material, the Company discloses the nature and estimate of the possible loss of the litigation. The Company does not disclose information with respect to litigation where an unfavorable outcome is considered to be remote or where the estimated loss would not be material. Based on current expectations, such matters, both individually and in the aggregate, are not expected to have a material adverse effect on the liquidity, results of operations, business, or financial condition of the Company.
9. STOCKHOLDERS' EQUITY
On September 19, 2017, the Company declared a cash dividend of $0.06 per common share, which was paid October 12, 2017 to shareholders of record on October 2, 2017.
During the nine months ended September 30, 2017, certain holders of CPLP units redeemed 1,203,286 units in exchange for shares of the Company's common stock. The aggregate value at the time of these transactions was $10.1 million based upon the value of the Company's common stock at the time of the transactions.
10. STOCK-BASED COMPENSATION
The Company has several types of stock-based compensation - stock options, restricted stock, and restricted stock units (“RSUs”) - which are described in note 13 of the notes to consolidated financial statements in the Company's Annual Report on Form 10-K for the year ended December 31, 2016.2018. The expense related to a portion of the stock-based compensationstock option and restricted stock awards is fixed. The expense related to other stock-based compensation awardsRSUs fluctuates from period to period dependent, in part, on the Company's stock price and stock performance relative to its peers. The Company recorded stock-based compensation expense, net of forfeitures, of $3.3 million$67,000 and $141,000$403,000 for the three months ended September 30, 20172019 and 2016,2018, respectively, and $7.9$6.7 million and $4.8$6.4 million for the nine months ended September 30, 20172019 and 2016,2018, respectively.
On April 23, 2019, the Company's stockholders approved the Cousins Properties Incorporated 2019 Omnibus Incentive Stock Plan (the "2019 Plan"). The Company also maintains the Cousins Properties Incorporated 2009 Incentive Stock Plan (the "2009 Plan") and the Cousins Properties Incorporated 2005 Restricted Stock Unit Plan (the “RSU Plan”). although no further issuances are permitted under the 2009 plan or RSU Plan. Under the 2009 Plan, during the quarter ended March 31, 2019, the Company made restricted stock grants in 2017 of 308,28965,822 shares to key employees, which vest ratably over a three-year period. Under the RSU Plan, during the quarter ended March 31, 2019, the Company awarded two2 types of performance-based RSUs in 2017 to key employees based on the following metrics: (1) Total Stockholder Return of the Company, as defined in the RSU Plan, as compared to the companies in the SNL US REIT Office index (“TSR RSUs”), and (2) the ratio of cumulative funds from operations per share to targeted cumulative funds from operations per share (“FFO RSUs”), as defined in the RSU Plan. The performance period for both awards is January 1, 20172019 to December 31, 2019,2021, and the targeted units awarded of TSR RSUs and FFO RSUs was 267,01365,247 and 132,266,27,963, respectively. The ultimate payout of these awards can range from 0% to 200% of the targeted number of units depending on the achievement of the market and performance metrics described above. These RSU awards cliff vest on December 31, 20192021 and are to be settled in cash with payment dependent on upon attainment of required service, market, and performance criteria. The number of RSUs vesting will be determined by the Compensation Committee, and the payout per unit will be equal to the average closing price on each trading day during the 30-day period ending on December 31, 2019.2021. The Company expenses an estimate of the fair value of the TSR RSUs over the performance period using a quarterly Monte Carlo valuation. The FFO RSUs are expensed over the vesting period using the fair market value of the Company's stock at the reporting date multiplied by the anticipated number of units to be paid based on the current estimate of what the ratio is expected to be upon vesting. Dividend equivalents on the TSR RSUs and the FFO RSUs will also be paid based upon the percentage vested. The Company expects to make all future grants of restricted stock and restricted stock units under the 2019 Plan.
In addition,Under the Company granted 166,132 time-vested RSUs to key employees in 2017. The value of each unit is equal to2019 Plan, during the fair value of one share of common stock. The vesting period for this award is three years. These RSUs are to be settled in cash with payment dependent upon the attainment of the required service criteria. Dividend equivalents will be paid upon vesting based on the number of RSUs granted with such payments made concurrently with payment of common dividends.
During the nine monthsquarter ended SeptemberJune 30, 2017,2019, the Company issued 120,87837,166 shares of common stock at fair value to members of its board of directors in lieu of fees and recorded $1.0$1.4 million in general and administrative expense related to these issuances.
11. REVENUE RECOGNITIION
The Company categorizes its primary sources of revenue into revenue from contracts with customers and other revenue accounted for as leases under ASC 842 as follows:
Rental property revenues consist of (1) contractual revenues from leases recognized on a straight-line basis over the term of the respective lease; (2) percentage rents recognized once a specified sales target is achieved; (3) parking revenue; (4) termination fees; and (5) the reimbursement of the tenants' share of real estate taxes, insurance, and other operating expenses. The Company's leases typically include renewal options and are classified and accounted for as operating leases. Rental property revenues are accounted for in accordance with the guidance set forth in ASC 842.
Fee income consists of development fees, management fees, and leasing fees earned from unconsolidated joint ventures and from third parties. Fee income is accounted for in accordance with the guidance set forth in ASC 606.
For the three and nine months ended September 30, 2017 related2019, the Company recognized rental property revenues of $180.8 million and $439.6 million, respectively, of which $53.9 million and $122.8 million, respectively, represented variable rental revenue. For the three and nine months ended September 30, 2018, the Company recognized rental property revenues of $115.7 million and $343.8 million, respectively. For the three and nine months ended September 30, 2019, the Company recognized fee and other revenue of $7.5 million and $23.5 million, respectively. For the three and nine months ended September 30, 2018, the Company recognized fee and other revenue of $3.0 million and $8.8 million, respectively. The following tables set forth the future minimum rents to the issuances.be received by consolidated entities under existing non-cancellable leases as of September 30, 2019 and December 31, 2018, respectively (in thousands):
|
| | | |
September 30, 2019 |
| |
2019 | $ | 139,270 |
|
2020 | 572,471 |
|
2021 | 547,573 |
|
2022 | 496,473 |
|
2023 | 455,942 |
|
Thereafter | 1,954,183 |
|
| $ | 4,165,912 |
|
|
| | | |
December 31, 2018 |
| |
2019 | $ | 328,607 |
|
2020 | 330,477 |
|
2021 | 314,410 |
|
2022 | 280,959 |
|
2023 | 256,233 |
|
Thereafter | 1,115,490 |
|
| $ | 2,626,176 |
|
12. SALE OF AIR RIGHTS
On February 26, 2019, the Company sold air rights that cover 8 acres within Downtown Atlanta for a gross sales price of $13.25 million and recorded a gain of $13.1 million.
11. 13. EARNINGS PER SHARE
The following table sets forth the computation of basic and diluted earnings per share for the three and nine months ended September 30, 20172019 and 20162018 (in thousands):
|
| | | | | | | | | | | | | | | |
| Three Months Ended September 30, | | Nine Months Ended September 30, |
| 2019 | | 2018 | | 2019 | | 2018 |
Earnings per Common Share - basic: | | | | | | | |
Numerator: | | | | | | | |
Net income | $ | 20,692 |
| | $ | 19,859 |
| | $ | 34,115 |
| | $ | 58,014 |
|
Net income attributable to noncontrolling interests in CPLP from continuing operations | (241 | ) | | (326 | ) | | (564 | ) | | (1,023 | ) |
Net income attributable to other noncontrolling interests | (77 | ) | | (48 | ) | | (245 | ) | | (187 | ) |
Net income available to common stockholders | $ | 20,374 |
| | $ | 19,485 |
| | $ | 33,306 |
| | $ | 56,804 |
|
| | | | | | | |
Denominator: | | | | | | | |
Weighted average common shares - basic | 146,762 |
| | 105,096 |
| | 121,758 |
| | 105,069 |
|
Net income per common share - basic | $ | 0.14 |
| | $ | 0.19 |
| | $ | 0.27 |
| | $ | 0.54 |
|
| | | | | | | |
Earnings per common share - diluted: | | | | | | | |
Numerator: | | | | | | | |
Net income | $ | 20,692 |
| | $ | 19,859 |
| | $ | 34,115 |
|
| $ | 58,014 |
|
Net income attributable to other noncontrolling interests | (77 | ) | | (48 | ) | | (245 | ) | | (187 | ) |
Net income available for common stockholders before net income attributable to noncontrolling interests in CPLP | $ | 20,615 |
| | $ | 19,811 |
| | $ | 33,870 |
| | $ | 57,827 |
|
| | | | | | | |
Denominator: | | | | | | | |
Weighted average common shares - basic | 146,762 |
| | 105,096 |
| | 121,758 |
| | 105,069 |
|
Add: | | | | | | | |
Potential dilutive common shares - stock options | 24 |
| | 40 |
| | 27 |
| | 54 |
|
Weighted average units of CPLP convertible into common shares | 1,744 |
| | 1,744 |
| | 1,744 |
| | 1,744 |
|
Weighted average common shares - diluted | 148,530 |
| | 106,880 |
| | 123,529 |
| | 106,867 |
|
Net income per common share - diluted | $ | 0.14 |
| | $ | 0.19 |
| | $ | 0.27 |
|
| $ | 0.54 |
|
| | | | | | | |
Anti-dilutive stock options outstanding | — |
| | — |
| | — |
| | 2 |
|
|
| | | | | | | | | | | | | | | | |
| Three Months Ended September 30, | | Nine Months Ended September 30, | |
| 2017 | | 2016 | | 2017 | | 2016 | |
Earnings per Common Share - basic: | | | | | | | | |
Numerator: | | | | | | | | |
Income from continuing operations | $ | 12,285 |
| | $ | 2,920 |
| | $ | 188,088 |
| | $ | 17,857 |
| |
Net income attributable to noncontrolling interests in CPLP from continuing operations | (213 | ) | | — |
| | (3,170 | ) | | — |
| |
Net income attributable to other noncontrolling interests | (5 | ) | | — |
| | (11 | ) | | — |
| |
Income from continuing operations available for common stockholders | 12,067 |
| | 2,920 |
| | 184,907 |
|
| 17,857 |
| |
Income from discontinued operations | — |
| | 8,737 |
| | — |
| | 24,361 |
| |
Net income available for common stockholders | $ | 12,067 |
| | $ | 11,657 |
| | $ | 184,907 |
| | $ | 42,218 |
| |
| | | | | | | | |
Denominator: | | | | | | | | |
Weighted average common shares - basic | 419,998 |
| | 210,170 |
| | 414,123 |
| | 210,400 |
| |
Earnings per common share - basic: | | | | | | | | |
Income from continuing operations available for common stockholders | $ | 0.03 |
| | $ | 0.01 |
| | $ | 0.45 |
| | $ | 0.08 |
| |
Income from discontinued operations available for common stockholders | — |
| | 0.05 |
| | — |
| | 0.12 |
| |
Earnings per common share - basic | $ | 0.03 |
| | $ | 0.06 |
| | $ | 0.45 |
| | $ | 0.20 |
| |
| | | | | | | | |
Earnings per common share - diluted: | | | | | | | | |
Numerator: | | | | | | | | |
Income from continuing operations | $ | 12,285 |
| | $ | 2,920 |
| | $ | 188,088 |
|
| $ | 17,857 |
| |
Net income attributable to other noncontrolling interests from continuing operations | (5 | ) | | — |
| | (11 | ) | | — |
| |
Income from continuing operations available for common stockholders before net income attributable to noncontrolling interests in CPLP | 12,280 |
| | 2,920 |
| | 188,077 |
|
| 17,857 |
| |
Income from discontinued operations available for common stockholders | — |
| | 8,737 |
| | — |
| | 24,361 |
| |
Net income available for common stockholders before net income attributable to noncontrolling interests in CPLP | $ | 12,280 |
| | $ | 11,657 |
| | $ | 188,077 |
| | $ | 42,218 |
| |
| | | | | | | | |
Denominator: | | | | | | | | |
Weighted average common shares - basic | 419,998 |
| | 210,170 |
| | 414,123 |
| | 210,400 |
| |
Add: | | | | | | | | |
Potential dilutive common shares - stock options | 328 |
| | 156 |
| | 320 |
| | 128 |
| |
Weighted average units of CPLP convertible into common shares | 6,974 |
| | — |
| | 7,511 |
| | — |
| |
Weighted average common shares - diluted | 427,300 |
| | 210,326 |
| | 421,954 |
| | 210,528 |
| |
Earnings per common share - diluted: | | | | | | | | |
Income from continuing operations available for common stockholders before net income attributable to noncontrolling interests in CPLP | $ | 0.03 |
| | $ | 0.01 |
| | $ | 0.45 |
| | $ | 0.08 |
| |
Income from discontinued operations available for common stockholders | — |
| | 0.05 |
| | — |
| | 0.12 |
| |
Earnings per common share - diluted | $ | 0.03 |
| | $ | 0.06 |
| | $ | 0.45 |
|
| $ | 0.20 |
| |
| | | | | | | | |
Weighted average anti-dilutive stock options outstanding | 731 |
| | 1,103 |
| | 740 |
| | 1,110 |
| |
For the nine months ended September 30, 2018, anti-dilutive stock represents stock options whose exercise price exceeds the average market value of the Company's stock. These anti-dilutive stock options are not included in the current calculation of dilutive weighted average shares but could be dilutive in the future.
12. 14. CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS - SUPPLEMENTAL INFORMATION
Supplemental information related to the cash flows, including significant non-cash activity affecting the condensed consolidated statement of cash flows, for the nine months ended September 30, 2019 and 2018 is as follows (in thousands):
|
| | | | | | | |
| 2019 | | 2018 |
Interest paid | $ | 39,592 |
| | $ | 31,601 |
|
Non-Cash Transactions: | | | |
Non-cash assets and liabilities assumed in TIER transaction | 1,512,373 |
| | — |
|
Ground lease right-of-use assets and associated liabilities | 56,294 |
| | — |
|
Common stock dividends declared and accrued | 42,567 |
| | 27,364 |
|
Change in accrued property, acquisition, development, and tenant expenditures | 22,599 |
| | 21,920 |
|
Non-cash consideration for property acquisition | 10,071 |
| | — |
|
Transfers from projects under development to operating properties | — |
| | 212,628 |
|
Cumulative effect of change in accounting principle | — |
| | 22,329 |
|
Transfer from investment in unconsolidated joint venture to projects under development | — |
| | 7,025 |
|
The following table provides a reconciliation of cash, cash equivalents, and restricted cash recorded on the balance sheets to cash, cash equivalents, and restricted cash in the statements of cash flows (in thousands):
|
| | | | | | | |
| September 30, 2019 | | December 31, 2018 |
Cash and cash equivalents | $ | 12,396 |
| | $ | 2,547 |
|
Restricted cash | 2,268 |
| | 148 |
|
Total cash, cash equivalents, and restricted cash | $ | 14,664 |
| | $ | 2,695 |
|
15. REPORTABLE SEGMENTS
The Company's segments are based on the Company'sits method of internal reporting, which classifies operations by property type and geographical area. The segments by property type are: Office and Mixed-Use. The segments by geographical region are: Atlanta, Austin, Charlotte, Orlando,Dallas, Phoenix, Tampa, and Other. In conjunction with the MergerIncluded in Other is a property held for sale in Cherry Hill, New Jersey and Spin-Off completedproperties located in the fourth quarter of 2016, the Company added the Orlando, Phoenix,Chapel Hill, Fort Worth, and Tampa segments, and removed the Houston segment.Houston. These reportable segments represent an aggregation of operating segments reported to the Chief Operating Decision Maker based on similar economic characteristics that include the type of property and the geographical location. Each segment includes both consolidated operations and the Company's share of unconsolidated joint venture operations.
Company management evaluates the performance of its reportable segments in part based on net operating income (“NOI”). NOI represents rental property revenues, less termination fees, less rental property operating expenses. NOI is not a measure of cash flows or operating results as measured by GAAP, is not indicative of cash available to fund cash needs, and should not be considered an alternative to cash flows as a measure of liquidity. All companies may not calculate NOI in the same manner. The Company considers NOI to be an appropriate supplemental measure to net income as it helps both management and investors understand the core operations of the Company's operating assets. NOI excludes corporate general and administrative expenses, interest expense, depreciation and amortization, impairments, gains/loss on sales of real estate, and other non-operating items.
Segment net income, amount of capital expenditures, and total assets are not presented in the following tables because management does not utilize these measures when analyzing its segments or when making resource allocation decisions. Information on the Company's segments along with a reconciliation of NOI to net income for the three and nine months ended September 30, 20172019 and 20162018 are as follows (in thousands):
|
| | | | | | | | | | | | |
Three Months Ended September 30, 2017 | | Office | | Mixed-Use | | Total |
Net Operating Income: | | | | | | |
Atlanta | | $ | 25,247 |
| | $ | — |
| | $ | 25,247 |
|
Austin | | 15,074 |
| | — |
| | 15,074 |
|
Charlotte | | 15,489 |
| | — |
| | 15,489 |
|
Orlando | | 3,356 |
| | — |
| | 3,356 |
|
Tampa | | 7,412 |
| | — |
| | 7,412 |
|
Phoenix | | 8,667 |
| | — |
| | 8,667 |
|
Other | | 525 |
| | 45 |
| | 570 |
|
Total Net Operating Income | | $ | 75,770 |
| | $ | 45 |
| | $ | 75,815 |
|
| | Three Months Ended September 30, 2016 | | Office | | Mixed-Use | | Total | |
Three Months Ended September 30, 2019 | | | Office | | Mixed-Use | | Total |
Net Operating Income: | | | | | | | | | | | | |
Houston | | $ | 26,408 |
| | $ | — |
| | $ | 26,408 |
| |
Atlanta | | 22,593 |
| | 1,753 |
| | 24,346 |
| | $ | 38,926 |
| | $ | — |
| | $ | 38,926 |
|
Austin | | 6,023 |
| | — |
| | 6,023 |
| | 29,452 |
| | — |
| | 29,452 |
|
Charlotte | | 4,905 |
| | — |
| | 4,905 |
| | 21,692 |
| | — |
| | 21,692 |
|
Dallas | | | 3,416 |
| | — |
| | 3,416 |
|
Phoenix | | | 8,913 |
| | — |
| | 8,913 |
|
Tampa | | | 8,309 |
| | — |
| | 8,309 |
|
Other | | (61 | ) | | — |
| | (61 | ) | | 9,266 |
| | 668 |
| | 9,934 |
|
Total Net Operating Income | | $ | 59,868 |
| | $ | 1,753 |
| | $ | 61,621 |
| | $ | 119,974 |
| | $ | 668 |
| | $ | 120,642 |
|
|
| | | | | | | | | | | | |
Three Months Ended September 30, 2018 | | Office | | Mixed-Use | | Total |
Net Operating Income: | | | | | | |
Atlanta | | $ | 32,296 |
| | $ | — |
| | $ | 32,296 |
|
Austin | | 15,180 |
| | — |
| | 15,180 |
|
Charlotte | | 15,924 |
| | — |
| | 15,924 |
|
Phoenix | | 9,265 |
| | — |
| | 9,265 |
|
Tampa | | 7,446 |
| | — |
| | 7,446 |
|
Other | | 310 |
| | 437 |
| | 747 |
|
Total Net Operating Income | | $ | 80,421 |
| | $ | 437 |
| | $ | 80,858 |
|
|
| | | | | | | | | | | | |
Nine Months Ended September 30, 2019 | | Office | | Mixed-Use | | Total |
Net Operating Income: | | | | | | |
Atlanta | | $ | 115,692 |
| | $ | — |
| | $ | 115,692 |
|
Austin | | 63,977 |
| | — |
| | 63,977 |
|
Charlotte | | 55,550 |
| | — |
| | 55,550 |
|
Dallas | | 4,086 |
| | — |
| | 4,086 |
|
Phoenix | | 27,694 |
| | — |
| | 27,694 |
|
Tampa | | 24,869 |
| | — |
| | 24,869 |
|
Other | | 11,678 |
| | 2,244 |
| | 13,922 |
|
Total Net Operating Income | | $ | 303,546 |
| | $ | 2,244 |
| | $ | 305,790 |
|
|
| | | | | | | | | | | | |
Nine Months Ended September 30, 2018 | | Office | | Mixed-Use | | Total |
Net Operating Income: | | | | | | |
Atlanta | | $ | 96,639 |
| | $ | — |
| | $ | 96,639 |
|
Austin | | 45,209 |
| | — |
| | 45,209 |
|
Charlotte | | 47,197 |
| | — |
| | 47,197 |
|
Phoenix | | 27,119 |
| | — |
| | 27,119 |
|
Tampa | | 22,816 |
| | — |
| | 22,816 |
|
Other | | 1,183 |
| | 1,468 |
| | 2,651 |
|
Total Net Operating Income | | $ | 240,163 |
| | $ | 1,468 |
| | $ | 241,631 |
|
|
| | | | | | | | | | | | |
Nine Months Ended September 30, 2017 | | Office | | Mixed-Use | | Total |
Net Operating Income: | | | | | | |
Atlanta | | $ | 84,437 |
| | $ | 3,125 |
| | $ | 87,562 |
|
Austin | | 44,113 |
| | — |
| | 44,113 |
|
Charlotte | | 46,117 |
| | — |
| | 46,117 |
|
Orlando | | 10,464 |
| | — |
| | 10,464 |
|
Tampa | | 21,700 |
| | — |
| | 21,700 |
|
Phoenix | | 24,722 |
| | — |
| | 24,722 |
|
Other | | 1,374 |
| | 45 |
| | 1,419 |
|
Total Net Operating Income | | $ | 232,927 |
| | $ | 3,170 |
| | $ | 236,097 |
|
|
| | | | | | | | | | | | |
Nine Months Ended September 30, 2016 | | Office | | Mixed-Use | | Total |
Net Operating Income: | | | | | | |
Houston | | $ | 76,851 |
| | $ | — |
| | $ | 76,851 |
|
Atlanta | | 66,763 |
| | 5,101 |
| | 71,864 |
|
Austin | | 16,978 |
| | — |
| | 16,978 |
|
Charlotte | | 14,485 |
| | — |
| | 14,485 |
|
Other | | (36 | ) | | — |
| | (36 | ) |
Total Net Operating Income | | $ | 175,041 |
| | $ | 5,101 |
| | $ | 180,142 |
|
The following reconciles Net Operating Income to Net Income for each of the periods presented (in thousands):
|
| | | | | | | | | | | | | | | |
| Three Months Ended September 30, | | Nine Months Ended September 30, |
| 2019 | | 2018 | | 2019 | | 2018 |
Net Operating Income | $ | 120,642 |
| | $ | 80,858 |
| | $ | 305,790 |
| | $ | 241,631 |
|
Net operating income from unconsolidated joint ventures | (9,037 | ) | | (6,994 | ) | | (26,289 | ) | | (21,643 | ) |
Fee income | 7,494 |
| | 2,519 |
| | 23,298 |
| | 7,211 |
|
Termination fee income | 3,575 |
| | 276 |
| | 4,285 |
| | 1,275 |
|
Other income | 3 |
| | 468 |
| | 154 |
| | 1,561 |
|
Reimbursed expenses | (1,290 | ) | | (955 | ) | | (3,269 | ) | | (2,757 | ) |
General and administrative expenses | (5,852 | ) | | (3,913 | ) | | (25,686 | ) | | (18,793 | ) |
Interest expense | (14,700 | ) | | (9,551 | ) | | (37,579 | ) | | (29,043 | ) |
Depreciation and amortization | (82,012 | ) | | (45,068 | ) | | (178,777 | ) | | (135,836 | ) |
Acquisition and transaction costs | (1,048 | ) | | — |
| | (50,878 | ) | | (228 | ) |
Other expenses | (297 | ) | | (93 | ) | | (1,101 | ) | | (457 | ) |
Income from unconsolidated joint ventures | 3,241 |
| | 2,252 |
| | 9,779 |
| | 10,173 |
|
Gain (loss) on sale of investment properties | (27 | ) | | (33 | ) | | 14,388 |
| | 4,912 |
|
Gain on extinguishment of debt | — |
| | 93 |
| | — |
| | 8 |
|
Net Income | $ | 20,692 |
|
| $ | 19,859 |
| | $ | 34,115 |
| | $ | 58,014 |
|
|
| | | | | | | | | | | | | | | |
| Three Months Ended September 30, | | Nine Months Ended September 30, |
| 2017 | | 2016 | | 2017 | | 2016 |
Net Operating Income | $ | 75,815 |
| | $ | 61,621 |
| | $ | 236,097 |
| | $ | 180,142 |
|
Net operating income from unconsolidated joint ventures | (6,934 | ) | | (6,760 | ) | | (23,719 | ) | | (20,359 | ) |
Net operating income from discontinued operations | — |
| | (26,408 | ) | | — |
| | (76,852 | ) |
Fee income | 2,597 |
| | 1,945 |
| | 6,387 |
| | 5,968 |
|
Other income | 993 |
| | 153 |
| | 9,593 |
| | 570 |
|
Reimbursed expenses | (895 | ) | | (795 | ) | | (2,667 | ) | | (2,463 | ) |
General and administrative expenses | (7,193 | ) | | (4,368 | ) | | (21,993 | ) | | (17,301 | ) |
Interest expense | (7,587 | ) | | (5,754 | ) | | (25,851 | ) | | (16,562 | ) |
Depreciation and amortization | (47,622 | ) | | (16,622 | ) | | (152,546 | ) | | (49,804 | ) |
Acquisition and transaction costs | 677 |
| | (1,446 | ) | | (1,499 | ) | | (3,889 | ) |
Gain on extinguishment of debt | 429 |
| | — |
| | 2,258 |
| | — |
|
Other expenses | (423 | ) | | (173 | ) | | (1,063 | ) | | (681 | ) |
Income from unconsolidated joint ventures | 2,461 |
| | 1,527 |
| | 43,362 |
| | 5,144 |
|
Gain (loss) on sale of investment properties | (33 | ) | | — |
| | 119,729 |
| | 13,944 |
|
Income from discontinued operations | — |
| | 8,737 |
| | — |
| | 24,361 |
|
Net Income | $ | 12,285 |
|
| $ | 11,657 |
| | $ | 188,088 |
| | $ | 42,218 |
|
Revenues by reportable segment, including a reconciliation to total rental property revenues on the condensed consolidated statements of operations, for three and nine months ended September 30, 20172019 and 20162018 are as follows (in thousands):
|
| | | | | | | | | | | | |
Three Months Ended September 30, 2019 | | Office | | Mixed-Use | | Total |
Revenues: | | | | | | |
Atlanta | | $ | 60,486 |
| | $ | — |
| | $ | 60,486 |
|
Austin | | 50,614 |
| | — |
| | 50,614 |
|
Charlotte | | 34,762 |
| | — |
| | 34,762 |
|
Dallas | | 4,274 |
| | — |
| | 4,274 |
|
Phoenix | | 12,754 |
| | — |
| | 12,754 |
|
Tampa | | 14,335 |
| | — |
| | 14,335 |
|
Other | | 17,290 |
| | 1,101 |
| | 18,391 |
|
Total segment revenues | | 194,515 |
| | 1,101 |
| | 195,616 |
|
Less Company's share of rental property revenues from unconsolidated joint ventures | | (13,689 | ) | | (1,101 | ) | | (14,790 | ) |
Total rental property revenues | | $ | 180,826 |
| | $ | — |
| | $ | 180,826 |
|
|
| | | | | | | | | | | | |
Three Months Ended September 30, 2018 | | Office | | Mixed-Use | | Total |
Revenues: | | | | | | |
Atlanta | | $ | 51,248 |
| | $ | — |
| | $ | 51,248 |
|
Austin | | 26,493 |
| | — |
| | 26,493 |
|
Charlotte | | 23,274 |
| | — |
| | 23,274 |
|
Tampa | | 12,857 |
| | — |
| | 12,857 |
|
Phoenix | | 12,228 |
| | — |
| | 12,228 |
|
Other | | 1,104 |
| | 429 |
| | 1,533 |
|
Total segment revenues | | 127,204 |
| | 429 |
| | 127,633 |
|
Less Company's share of rental property revenues from unconsolidated joint ventures | | (11,485 | ) | | (429 | ) | | (11,914 | ) |
Total rental property revenues | | $ | 115,719 |
| | $ | — |
| | $ | 115,719 |
|
| | Three Months Ended September 30, 2017 | | Office | | Mixed-Use | | Total | |
Nine Months Ended September 30, 2019 | | | Office | | Mixed-Use | | Total |
Revenues: | | | | | | | | | | | | |
Atlanta | | $ | 41,507 |
| | $ | — |
| | $ | 41,507 |
| | $ | 177,455 |
| | $ | — |
| | $ | 177,455 |
|
Austin | | 25,385 |
| | — |
| | 25,385 |
| | 110,521 |
| | — |
| | 110,521 |
|
Charlotte | | 23,153 |
| | 143 |
| | 23,296 |
| | 85,258 |
| | — |
| | 85,258 |
|
Orlando | | 6,408 |
| | — |
| | 6,408 |
| |
Dallas | | | 5,078 |
| | — |
| | 5,078 |
|
Phoenix | | | 38,562 |
| | — |
| | 38,562 |
|
Tampa | | 11,815 |
| | — |
| | 11,815 |
| | 40,776 |
| | — |
| | 40,776 |
|
Phoenix | | 11,692 |
| | — |
| | 11,692 |
| |
Other | | 915 |
| | — |
| | 915 |
| | 21,416 |
| | 3,378 |
| | 24,794 |
|
Total segment revenues | | 120,875 |
| | 143 |
| | 121,018 |
| | 479,066 |
| | 3,378 |
| | 482,444 |
|
Less Company's share of rental property revenues from unconsolidated joint ventures | | (11,306 | ) | | (143 | ) | | (11,449 | ) | | (39,442 | ) | | (3,378 | ) | | (42,820 | ) |
Total rental property revenues | | $ | 109,569 |
| | $ | — |
| | $ | 109,569 |
| | $ | 439,624 |
| | $ | — |
| | $ | 439,624 |
|
|
| | | | | | | | | | | | |
Nine Months Ended September 30, 2018 | | Office | | Mixed-Use | | Total |
Revenues: | | | | | | |
Atlanta | | $ | 151,479 |
| | $ | — |
| | $ | 151,479 |
|
Austin | | 79,516 |
| | — |
| | 79,516 |
|
Charlotte | | 69,316 |
| | — |
| | 69,316 |
|
Tampa | | 37,556 |
| | — |
| | 37,556 |
|
Phoenix | | 37,147 |
| | — |
| | 37,147 |
|
Other | | 3,238 |
| | 997 |
| | 4,235 |
|
Total segment revenues | | 378,252 |
| | 997 |
| | 379,249 |
|
Less Company's share of rental property revenues from unconsolidated joint ventures | | (34,488 | ) | | (997 | ) | | (35,485 | ) |
Total rental property revenues | | $ | 343,764 |
| | $ | — |
| | $ | 343,764 |
|
|
| | | | | | | | | | | | |
Three Months Ended September 30, 2016 | | Office | | Mixed-Use | | Total |
Revenues: | | | | | | |
Houston | | $ | 46,046 |
| | $ | — |
| | $ | 46,046 |
|
Atlanta | | 36,693 |
| | 3,197 |
| | 39,890 |
|
Austin | | 10,469 |
| | — |
| | 10,469 |
|
Charlotte | | 6,799 |
| | — |
| | 6,799 |
|
Other | | (57 | ) | | — |
| | (57 | ) |
Total segment revenues | | 99,950 |
| | 3,197 |
| | 103,147 |
|
Less discontinued operations | | (46,046 | ) | | — |
| | (46,046 | ) |
Less Company's share of rental property revenues from unconsolidated joint ventures | | (7,329 | ) | | (3,197 | ) | | (10,526 | ) |
Total rental property revenues | | $ | 46,575 |
| | $ | — |
| | $ | 46,575 |
|
|
| | | | | | | | | | | | |
Nine Months Ended September 30, 2017 | | Office | | Mixed-Use | | Total |
Revenues | | | | | | |
Atlanta | | $ | 135,319 |
| | $ | 5,049 |
| | $ | 140,368 |
|
Austin | | 75,348 |
| | — |
| | 75,348 |
|
Charlotte | | 68,495 |
| | 143 |
| | 68,638 |
|
Orlando | | 19,380 |
| | — |
| | 19,380 |
|
Tampa | | 34,913 |
| | — |
| | 34,913 |
|
Phoenix | | 33,689 |
| | — |
| | 33,689 |
|
Other | | 2,492 |
| | — |
| | 2,492 |
|
Total segment revenues | | $ | 369,636 |
| | $ | 5,192 |
| | $ | 374,828 |
|
Less Company's share of rental property revenues from unconsolidated joint ventures | | (33,543 | ) | | (5,192 | ) | | (38,735 | ) |
Total rental property revenues | | $ | 336,093 |
| | $ | — |
| | $ | 336,093 |
|
|
| | | | | | | | | | | | |
Nine Months Ended September 30, 2016 | | Office | | Mixed-Use | | Total |
Revenues: | | | | | | |
Houston | | $ | 133,450 |
| | $ | — |
| | $ | 133,450 |
|
Atlanta | | 110,915 |
| | 9,200 |
| | 120,115 |
|
Austin | | 29,825 |
| | — |
| | 29,825 |
|
Charlotte | | 19,533 |
| | — |
| | 19,533 |
|
Other | | (54 | ) | | — |
| | (54 | ) |
Total segment revenues | | 293,669 |
| | 9,200 |
| | 302,869 |
|
Less discontinued operations | | (133,450 | ) | | — |
| | (133,450 | ) |
Less Company's share of rental property revenues from unconsolidated joint ventures | | (21,837 | ) | | (9,200 | ) | | (31,037 | ) |
Total rental property revenues | | $ | 138,382 |
| | $ | — |
| | $ | 138,382 |
|
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations
Overview:
Cousins Properties Incorporated ("Cousins") (and collectively, with its subsidiaries, the "Company," "we," "our," or "us") is a publicly traded (NYSE: CUZ), self-administered, and self-managed real estate investment trust, or REIT. Cousins conducts substantially all of its business through Cousins Properties, LP ("CPLP"). Cousins owns approximately 99% of CPLP and consolidates CPLP. CPLP owns Cousins TSR Services LLC, a taxable entity which owns and manages its own real estate portfolio and performs certain real estate related services for other parties. Our core focusstrategy is on the acquisition, development, leasing, management, andto create value for our stockholders through ownership of Class-Athe premier urban office and mixed-use propertiesportfolio in Sunbeltthe Sun Belt markets, with a particular focus on Arizona, Florida, Georgia, Texas, North Carolina, Arizona, and Texas.Florida. This strategy is based on a disciplined approach to capital allocation that includes strategic acquisitions, selective development projects, and timely dispositions of non-core assets. This strategy is also based on a simple, flexible, and low-leveraged balance sheet that allows us to pursue investment opportunities at the most advantageous points in the cycle. To implement this strategy, we leverage our strong local operating platforms within each of our major markets.
Consistent with this strategy, on June 14, 2019, we merged with TIER REIT, Inc. ("TIER") in a stock-for-stock transaction (the "Merger"). As a result, we acquired interests in nine operating properties containing 5.8 million square feet of space, two office properties under development that are expected to add 620,000 square feet of space upon completion, and seven strategically located land parcels on which up to 2 million square feet of additional space may be developed. As a part of this transaction, we issued $650 million in senior unsecured debt at a weighted average interest rate of 3.88%, which effectively replaced the majority of the TIER debt assumed and repaid by the Credit Facility in the Merger. We believe that this merger creates a company with an attractive portfolio of trophy office assets balanced across the premier Sun Belt markets. We believe that the Merger will enhance our position in our existing markets of Austin and Charlotte, provide a strategic entry into Dallas, and balance our exposure in Atlanta. The Merger is also expected to enhance growth and to provide value-add opportunities as a result of TIER's active and attractive development portfolio and land bank. As of September 30, 2017,quarter-end, our portfolio of real estate assets consisted of interests in 3238 operating properties (31(37 office and one mixed use), containing 15.921.8 million square feet of space, and fourfive projects (three(four office and one mixed-use) under active development. We have a comprehensive strategy in place based on a simple platform, trophy assets, and opportunistic investments. This streamlined strategy enables us to maintain a targeted, asset-specific approach to investing where
During the quarter, we seek to leverage our development skills, relationships, market knowledge, and operational expertise. We intend to generate returns and create value for stockholders through the continued lease-up of our portfolio, through the execution of our development pipeline, and through opportunistic investments in office and mixed-use projects within our core markets.
We leased or renewed 334,905741,000 square feet of office space during the third quarter of 2017.space. The weighted average net effective rent of these leases, representing base rent less operating expense reimbursements and leasing costs, was $20.73$27.03 per square foot. For those leases that were previously occupied within the past year, net effective rent increased 16.9%17.2%. Same property net operating income (defined below) for consolidated properties and our share of unconsolidated properties increased by 1.3%0.3% between the three months ended September 30, 20172019 and 2016.2018.
On June 14, 2019, we restated and amended our articles of incorporation to effect a reverse stock split of the issued and outstanding shares of its common stock pursuant to which, (1) each four shares of our issued and outstanding common stock were combined into one share of our common stock and (2) the authorized number of our common stock was proportionally reduced to 175 million shares. Fractional shares of common stock resulting from the reverse stock split were settled in cash. Fractional shares of preferred stock resulting from the reverse stock split were redeemed without payout. Immediately thereafter, we further amended our articles of incorporation to increase the number of authorized shares of our common stock from 175 million to 300 million shares.
On October 1, 2019, we purchased our partner's interest in Terminus Office Holdings LLC ("TOH") for $148 million in a transaction that valued Terminus 100 and Terminus 200 at $503 million. In the fourth quarter of 2019, we will consolidate TOH and record the assets and liabilities at fair value. We expect to recognize a gain of approximately $94 million on this acquisition achieved in stages.
Results of Operations
General
Our financial results have been significantly affected by the mergerMerger. In addition, our results have been affected by a series of transactions we entered into on March 1, 2019 with Parkway Properties, Inc.Norfolk Southern Railway Company ("the Merger"NS") whereby we executed an agreement to develop NS's corporate headquarters in Midtown Atlanta and the spin-off of the combined companies' Houston business to Parkway, Inc. (the "Spin-Off")purchased 1200 Peachtree, a 370,000 square foot office building in October 2016 (collectively, the "Parkway Transactions").Midtown Atlanta, from NS that is 100% leased by NS. Accordingly, our historical financial statements may not be indicative of future operating results.
Rental Property Revenue, Rental Property Operating Expenses, and Net Operating Income
The following table summarizes rental property revenues, rental property operating expenses, and net operating income ("NOI") for each of the periods presented, including our same property portfolio. NOI represents rental property revenue (excluding lease termination fees) less rental property operating expenses. Our same property portfolio is comprised of office properties that have been fully operational in each of the comparable reporting periods. A fully operational property is one that has achieved 90% economic occupancy or has been substantially completecompleted and owned by us for each of the periods presented. Same property amounts for the 2017 versus 2016 comparison are from properties that have been owned since January 1, 2016 through the end of the current reporting period, excluding dispositions. This information is presented for consolidated properties only and does not include net operating income from our unconsolidated joint ventures.
| | | Three Months Ended September 30, | | Nine Months Ended September 30, | Three Months Ended September 30, | | Nine Months Ended September 30, |
| 2017 | | 2016 | | $ Change | | % Change | | 2017 | | 2016 | | $ Change | | % Change | 2019 | | 2018 | | $ Change | | % Change | | 2019 | | 2018 | | $ Change | | % Change |
Rental Property Revenues | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Same Property | $ | 35,691 |
| | $ | 33,404 |
| | $ | 2,287 |
| | 6.8 | % | | $ | 106,918 |
| | $ | 100,608 |
| | $ | 6,310 |
| | 6.3 | % | $ | 112,357 |
| | $ | 107,844 |
| | $ | 4,513 |
| | 4.2 | % | | $ | 334,135 |
| | $ | 320,260 |
| | $ | 13,875 |
| | 4.3 | % |
Non-Same Property | 73,878 |
| | 13,171 |
| | 60,707 |
| | 460.9 | % | | 229,175 |
| | 37,774 |
| | 191,401 |
| | 506.7 | % | |
Legacy TIER Properties | | 52,095 |
| | — |
| | 52,095 |
| | 100.0 | % | | 61,746 |
| | — |
| | 61,746 |
| | 100.0 | % |
Other Non-Same Properties | | 16,374 |
| | 7,875 |
| | 8,499 |
| | 107.9 | % | | 43,743 |
| | 23,504 |
| | 20,239 |
| | 86.1 | % |
Total Rental Property Revenues | $ | 109,569 |
| | $ | 46,575 |
| | $ | 62,994 |
| | 135.3 | % | | $ | 336,093 |
| | $ | 138,382 |
| | $ | 197,711 |
| | 142.9 | % | $ | 180,826 |
| | $ | 115,719 |
| | $ | 65,107 |
| | 56.3 | % | | $ | 439,624 |
| | $ | 343,764 |
| | $ | 95,860 |
| | 27.9 | % |
| | | | | | |
| | | | | | | | | | | | | | |
| | | | | | | | |
Rental Property Operating Expenses | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Same Property | $ | 13,486 |
| | $ | 11,494 |
| | $ | 1,992 |
| | 17.3 | % | | $ | 39,449 |
| | $ | 36,194 |
| | $ | 3,255 |
| | 9.0 | % | $ | 40,882 |
| | $ | 39,550 |
| | $ | 1,332 |
| | 3.4 | % | | $ | 121,799 |
| | $ | 116,885 |
| | $ | 4,914 |
| | 4.2 | % |
Non-Same Property | 27,202 |
| | 6,628 |
| | 20,574 |
| | 310.4 | % | | 84,266 |
| | 19,257 |
| | 65,009 |
| | 337.6 | % | |
Legacy TIER Properties | | 20,012 |
| | — |
| | 20,012 |
| | 100.0 | % | | 23,245 |
| | — |
| | 23,245 |
| | 100.0 | % |
Other Non-Same Properties | | 4,752 |
| | 2,029 |
| | 2,723 |
| | 134.2 | % | | 10,794 |
| | 5,616 |
| | 5,178 |
| | 92.2 | % |
Total Rental Property Operating Expenses | $ | 40,688 |
| | $ | 18,122 |
| | $ | 22,566 |
| | 124.5 | % | | $ | 123,715 |
| | $ | 55,451 |
| | $ | 68,264 |
| | 123.1 | % | $ | 65,646 |
| | $ | 41,579 |
| | $ | 24,067 |
| | 57.9 | % | | $ | 155,838 |
| | $ | 122,501 |
| | $ | 33,337 |
| | 27.2 | % |
| | | | | | |
| | | | | | | | | | | | | | |
| | | | | | | | |
Net Operating Income | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Same Property NOI | $ | 22,205 |
|
| $ | 21,910 |
| | $ | 295 |
| | 1.3 | % | | $ | 67,469 |
| | $ | 64,414 |
| | $ | 3,055 |
| | 4.7 | % | $ | 68,426 |
| | $ | 68,018 |
| | $ | 408 |
| | 0.6 | % | | $ | 208,578 |
| | $ | 202,101 |
| | $ | 6,477 |
| | 3.2 | % |
Non-Same Property NOI | 46,676 |
|
| 6,543 |
| | 40,133 |
| | 613.4 | % | | 144,909 |
| | 18,517 |
| | 126,392 |
| | 682.6 | % | |
Legacy TIER Properties | | 31,556 |
| | — |
| | 31,556 |
| | 100.0 | % | | 37,975 |
| | — |
| | 37,975 |
| | 100.0 | % |
Other Non-Same Properties | | 11,623 |
|
| 5,846 |
| | 5,777 |
| | 98.8 | % | | 32,948 |
| | 17,887 |
| | 15,061 |
| | 84.2 | % |
Total NOI | $ | 68,881 |
|
| $ | 28,453 |
| | $ | 40,428 |
| | 142.1 | % | | $ | 212,378 |
| | $ | 82,931 |
| | $ | 129,447 |
| | 156.1 | % | $ | 111,605 |
| | $ | 73,864 |
| | $ | 37,741 |
| | 51.1 | % | | $ | 279,501 |
| | $ | 219,988 |
| | $ | 59,513 |
| | 27.1 | % |
Same property NOIrental property revenues increased $295,000 (1.3%) and $3.1 million (4.7%) betweenin the three months ended and nine months ended 2017month periods as a result of termination fees at Hearst Tower in connection with the BB&T/SunTrust lease and 2016, respectively. The increases were primarily due to increasedhigher occupancy rates at Fifth ThirdNorthpark, Corporate Center, and 816 Congress, offset byHayden Ferry. Same property rental property operating expense increases in real estate taxes, repairs and maintenance, and parking between the periods.
Non-same property revenues and expenses increased betweenin the three and nine month periods primarily fromas a result of an increase in real estate taxes due to higher assessments of value in the Austin and Charlotte markets.
Revenues and expenses for Legacy TIER properties represent amounts recorded for the properties acquired in the Merger, offset by the salesMerger.
Revenues and expenses of the ACS CenterOther Non-Same Properties increased in the first quarter 2017 and 191 Peachtree in the fourth quarter 2016.
Other Income
Other income increased $840,000 and $9.0 million between the the three and nine month periods respectively. These increases areprimarily as a result of the operations of 1200 Peachtree, which was acquired in the first quarter of 2019, and Spring & 8th, whose final phase commenced operations in the fourth quarter of 2018.
Fee Income
Fee income increased $5.0 million (197%) between the 2019 and 2018 three month periods and increased $16.1 million (223%) between the 2019 and 2018 nine month periods. The increase is primarily driven by lease termination fees at 3350 Peachtree, Nascar Plaza, Hayden Ferry, Fifth Third Center, and Northpark.fee income related to the transactions with NS.
General and Administrative Expenses
General and administrative expenses increased $2.8$1.9 million (65%(50%) between the 2019 and 2018 three month periods and increased $4.7$6.9 million (27%(37%) between the 2019 and 2018 nine month periods. These increases are primarily driven by long-term compensation expense increases as a result of fluctuations in our common stock price relative to our office peers included in the SNL US Office REIT Index.
Interest Expense
Interest expense, net of amounts capitalized, increased $1.8$5.1 million (32%(54%) between the 2019 and 2018 three month periods and increased $9.3$8.5 million (56%(29%) between the 2019 and 2018 nine month periods. The increase in both the three and nine month periods is due to interest incurred on the unsecured senior notes that were issued on June 19, 2019, interest incurred on a mortgage loan assumed in the Merger, and an increase in the average debt outstanding betweenbalance on our credit facility.
Depreciation and Amortization
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended September 30, | | Nine Months Ended September 30, |
| 2019 | | 2018 | | $ Change | | % Change | | 2019 | | 2018 | | $ Change | | % Change |
Depreciation and Amortization | | | | | | | | | | | | | | | |
Same Property | $ | 51,595 |
| | $ | 42,074 |
| | $ | 9,521 |
| | 22.6 | % | | $ | 133,426 |
| | $ | 126,907 |
| | $ | 6,519 |
| | 5.1 | % |
Legacy TIER Properties | 24,973 |
| | — |
| | 24,973 |
| | 100.0 | % | | 29,890 |
| | — |
| | 29,890 |
| | 100.0 | % |
Other Non-Same Properties | 5,444 |
| | 2,994 |
| | 2,450 |
| | 81.8 | % | | 15,461 |
| | 8,929 |
| | 6,532 |
| | 73.2 | % |
Total Depreciation and Amortization | $ | 82,012 |
| | $ | 45,068 |
| | $ | 36,944 |
| | 82.0 | % | | $ | 178,777 |
| | $ | 135,836 |
| | $ | 42,941 |
| | 31.6 | % |
Same property depreciation and amortization increased in the three and nine month periods due primarily to the acceleration of amortization of tenant improvements and in-place leases on tenants who terminated their leases at Hearst Tower in connection with the
BB&T/Suntrust lease. For the nine month period this was partially offset by an increasethe acceleration of amortization of tenant improvements and in-place leases on tenants who terminated their leases in capitalized interest from increased development projects.
Depreciation and Amortizationearly 2018.
Depreciation and amortization for Legacy TIER properties represent amounts recorded on the properties acquired in the Merger.
Depreciation and amortization of Other Non-Same Properties increased $31.0 million (186%) betweenin the three month periods, and increased $102.7 million (206%) between the nine month periods primarily from propertiesas a result of depreciation and amortization of 1200 Peachtree, which was acquired in the Merger, offset by decreases from the salesfirst quarter of 191 Peachtree2019, and Spring & 8th, whose final phase commenced operations in the fourth quarter 2016 the ACS Center in the second quarter 2017.of 2018.
Acquisition and Transaction Costs
Acquisition and transactionTransaction costs decreased $2.1 million (147%) infor the three month periods, and decreased $2.4 million (61%) between the nine month periods. Amounts in all periods represent costs associated with the Merger, and the amount recorded in the three months ended September 30, 2017 represents a true-up2019 relate to the Merger. These costs include financial advisory, legal, accounting, severance, and other costs of Merger-related accruals. The Company does not believe it will incur significant additional Merger costs.combining our operations with TIER.
Income from Unconsolidated Joint Ventures
Income from unconsolidated joint ventures consisted of the Company's share of the following (in thousands):
| | | Three Months Ended September 30, | | Nine Months Ended September 30, | Three Months Ended September 30, | | Nine Months Ended September 30, |
| 2017 | | 2016 | | $ Change | | 2017 | | 2016 | | $ Change | 2019 | | 2018 | | $ Change | | % Change | | 2019 | | 2018 | | $ Change | | % Change |
Net operating income | $ | 6,934 |
| | $ | 6,760 |
| | $ | 174 |
| | $ | 23,719 |
| | $ | 20,359 |
| | $ | 3,360 |
| $ | 9,037 |
| | $ | 6,994 |
| | $ | 2,043 |
| | 29.2 | % | | $ | 26,289 |
| | $ | 21,643 |
| | $ | 4,646 |
| | 21.5 | % |
Termination fee income | | 9 |
| | — |
| | 9 |
| | 100.0 | % | | 16 |
| | — |
| | 16 |
| | 100.0 | % |
Other income, net | 165 |
| | 72 |
| | 93 |
| | 1,868 |
| | 614 |
| | 1,254 |
| 20 |
| | 36 |
| | (16 | ) | | (44.4 | )% | | 99 |
| | 83 |
| | 16 |
| | 19.3 | % |
Gain on sale of undepreciated property | | — |
| | — |
| | — |
| | — | % | | — |
| | 2,779 |
| | (2,779 | ) | | (100.0 | )% |
Depreciation and amortization | (2,862 | ) | | (3,267 | ) | | 405 |
| | (10,535 | ) | | (9,758 | ) | | (777 | ) | (4,148 | ) | | (3,119 | ) | | (1,029 | ) | | 33.0 | % | | (11,556 | ) | | (9,554 | ) | | (2,002 | ) | | 21.0 | % |
Interest expense | (1,776 | ) | | (2,038 | ) | | 262 |
| | (6,022 | ) | | (6,071 | ) | | 49 |
| (1,677 | ) | | (1,657 | ) | | (20 | ) | | 1.2 | % | | (5,064 | ) | | (4,763 | ) | | (301 | ) | | 6.3 | % |
Net gain on sale of investment property | — |
| | — |
| | — |
| | 34,332 |
| | — |
| | 34,332 |
| |
Net loss on sale of investment property | | — |
| | (2 | ) | | 2 |
| | (100.0 | )% | | (5 | ) | | (15 | ) | | 10 |
| | (66.7 | )% |
Income from unconsolidated joint ventures | $ | 2,461 |
| | $ | 1,527 |
| | $ | 934 |
| | $ | 43,362 |
| | $ | 5,144 |
| | $ | 38,218 |
| $ | 3,241 |
| | $ | 2,252 |
| | $ | 989 |
| | 43.9 | % | | $ | 9,779 |
| | $ | 10,173 |
| | $ | (394 | ) | | (3.9 | )% |
Net operating income and depreciation and amortization from unconsolidated joint ventures increased $3.4 million (16.5%) between the three and nine month periods primarily due to a changethe commencement of operations in the partnership structure at Gateway Village whereby we began receiving 50%first quarter of cash flows versus a preferred return, effective December 1, 2016, and2019 of Dimensional Place, the additionoffice building owned by the DC Charlotte Plaza LLLP joint venture. Gain on sale of Courvoisier Centre which was acquiredundepreciated property from unconsolidated joint ventures in the Merger. These increases were offset bynine month 2018 period relates to the sale of properties owneda parcel of land held by EPI, LLC and EPII, LLC ("Emory Point I and II") in the second quarter 2017. Other income increased $1.3 million between the nine month periods primarily as a result of lease termination fees recognized at the Terminus 200 and 111 West Rio buildings and as a result of the sale of mineral rights at CL Realty. The decrease in depreciation and amortization between the three month periods results from the Emory Point I and II sales, offset by increases resulting from the Gateway Village revised structure and the addition of Courvoisier Centre. Depreciation and amortization increased $777,000 between the nine month periods from the Gateway Village revised structure and the addition of Courvoisier. The gain on sale of depreciated property of $34.3 million resulted from the sale of Emory Point I and II in the second quarter 2017, less a $3.5 million loss on the purchase of the remaining 25.4% interest in the 111 West Rio building and the related consolidation of the building immediately following the purchase.Wildwood Associates joint venture.
Gain (Loss) on Sale of Investment Properties
The gain on the sale of investment properties in the nine months ended September 30, 2017 relates primarily to the sale of the American Cancer Society Center (the “ACS Center”). The gain on sale of investment properties infor the nine months ended September 30, 2016 relates to2019 includes the sale of 100 North Point Center East.
Discontinued Operations
Discontinued operations in 2016 contains the operationsCompany's air rights that cover approximately eight acres within an area of Post Oak Central and Greenway Plaza (the "Houston Properties"),Downtown Atlanta as well as the properties that were included incondemnation of land by the Spin-Off. Because we decided to exit the Houston market in connection with the Parkway Transactions, the Spin-Off represented a strategic shift that had a significant impact on our operations. As such, the Spin-OffCity of these properties qualified for discontinued operations treatment. Accordingly, the operationsTempe at two of the Houston Properties have been reclassified into discontinued operations for the three and nine months ended September 30, 2016.Company's properties.
Funds From Operations
The table below shows Funds from Operations (“FFO”) and the related reconciliation to net income available to common stockholders. We calculate FFO in accordance with the National Association of Real Estate Investment Trusts’ (“NAREIT”) definition, which is net income available to common stockholders (computed in accordance with GAAP), excluding extraordinary items, cumulative effect of change in accounting principle, and gains on sale or impairment losses on depreciable property, plus depreciation and amortization of real estate assets, and after adjustments for unconsolidated partnerships and joint ventures to reflect FFO on the same basis.
FFO is used by industry analysts and investors as a supplemental measure of a REIT’s operating performance. Historical cost accounting for real estate assets implicitly assumes that the value of real estate assets diminishes predictably over time. Since real estate values instead have historically risen or fallen with market conditions, many industry investors and analysts have considered presentation of operating results for real estate companies that use historical cost accounting to be insufficient by themselves. Thus, NAREIT created FFO as a supplemental measure of REIT operating performance that excludes historical cost depreciation, among other items, from GAAP net income. The use of FFO, combined with the required primary GAAP presentations, has been fundamentally beneficial, improving the understanding of operating results of REITs among the investing public and making comparisons of REIT operating results more meaningful. Company management evaluates operating performance in part based on FFO. Additionally, we use FFO, along with other measures, to assess performance in connection with evaluating and granting incentive compensation to its officers and other key employees. The reconciliation of net income to FFO is as follows for the three and nine months ended September 30, 20172019 and 20162018 (in thousands, except per share information):
| | | Three Months Ended September 30, | | Nine Months Ended September 30, | Three Months Ended September 30, | | Nine Months Ended September 30, |
| 2017 | | 2016 | | 2017 | | 2016 | 2019 | | 2018 | | 2019 | | 2018 |
Net Income Available to Common Stockholders | $ | 12,067 |
| | $ | 11,657 |
| | $ | 184,907 |
| | $ | 42,218 |
| $ | 20,374 |
| | $ | 19,485 |
| | $ | 33,306 |
| | $ | 56,804 |
|
Depreciation and amortization of real estate assets: | | | | |
| |
| | | | |
| |
|
Consolidated properties | 47,161 |
| | 16,293 |
| | 151,169 |
| | 48,763 |
| 81,569 |
| | 44,599 |
| | 177,424 |
| | 134,426 |
|
Share of unconsolidated joint ventures | 2,862 |
| | 3,268 |
| | 10,535 |
| | 9,758 |
| 4,148 |
| | 3,119 |
| | 11,556 |
| | 9,554 |
|
Discontinued Operations | — |
| | 15,221 |
| | — |
| | 46,389 |
| |
Partners' share of real estate depreciation | (4 | ) | | — |
| | (4 | ) | | — |
| (171 | ) | | (72 | ) | | (366 | ) | | (211 | ) |
(Gain) loss on sale of depreciated properties: | | | | | | | | | | | | | | |
Consolidated properties | 36 |
| | — |
| | (119,713 | ) | | (13,944 | ) | 48 |
| | 33 |
| | 102 |
| | (4,912 | ) |
Share of unconsolidated joint ventures | — |
| | — |
| | (34,332 | ) | | — |
| — |
| | — |
| | 5 |
| | 15 |
|
Non-controlling Interests related to unit holders | 212 |
| | — |
| | 3,169 |
| | — |
| |
Non-controlling interest related to unitholders | | 241 |
| | 326 |
| | 564 |
| | 1,023 |
|
Funds From Operations | $ | 62,334 |
| | $ | 46,439 |
| | $ | 195,731 |
| | $ | 133,184 |
| $ | 106,209 |
| | $ | 67,490 |
| | $ | 222,591 |
| | $ | 196,699 |
|
Per Common Share — Diluted: | | | | |
| |
| | | | |
| |
|
Net Income Available Available to Common Shareholders | $ | 0.03 |
| | $ | 0.06 |
| | $ | 0.45 |
| | $ | 0.20 |
| |
Funds from Operations | $ | 0.15 |
| | $ | 0.22 |
| | $ | 0.46 |
| | $ | 0.63 |
| |
Net Income Available to Common Stockholders | | $ | 0.14 |
| | $ | 0.19 |
| | $ | 0.27 |
| | $ | 0.54 |
|
Funds From Operations | | $ | 0.72 |
| | $ | 0.63 |
| | $ | 1.80 |
| | $ | 1.84 |
|
Weighted Average Shares — Diluted | 427,300 |
| | 210,326 |
| | 421,954 |
| | 210,528 |
| 148,530 |
| | 106,880 |
| | 123,529 |
| | 106,867 |
|
Net Operating Income
Company management evaluates the performance of its property portfolio in part based on NOI. NOI represents rental property revenues, less termination fees, less rental property operating expenses. NOI is not a measure of cash flows or operating results as measured by GAAP, is not indicative of cash available to fund cash needs, and should not be considered an alternative to cash flows as a measure of liquidity. All companies may not calculate NOI in the same manner. The Company considers NOI to be an appropriate
supplemental measure to net income as it helps both management and investors understand the core operations of the Company's operating assets. NOI excludes corporate general and administrative expenses, interest expense, depreciation and amortization, impairments, gains/loss on sales of real estate, and other non-operating items.
The following table reconciles NOI for consolidated properties to Net Incomenet income for each of the periods presented (in thousands):
| | | Three Months Ended September 30, | | Nine Months Ended September 30, | Three Months Ended September 30, | | Nine Months Ended September 30, |
| 2017 | | 2016 | | 2017 | | 2016 | 2019 | | 2018 | | 2019 | | 2018 |
Net Income | $ | 12,285 |
| | $ | 11,657 |
| | $ | 188,088 |
| | $ | 42,218 |
| |
Net income | | $ | 20,692 |
| | $ | 19,859 |
| | $ | 34,115 |
| | $ | 58,014 |
|
Fee income | (2,597 | ) | | (1,945 | ) | | (6,387 | ) | | (5,968 | ) | (7,494 | ) | | (2,519 | ) | | (23,298 | ) | | (7,211 | ) |
Termination fee income | | (3,575 | ) | | (276 | ) | | (4,285 | ) | | (1,275 | ) |
Other income | (993 | ) | | (153 | ) | | (9,593 | ) | | (570 | ) | (3 | ) | | (468 | ) | | (154 | ) | | (1,561 | ) |
Reimbursed expenses | 895 |
| | 795 |
| | 2,667 |
| | 2,463 |
| 1,290 |
| | 955 |
| | 3,269 |
| | 2,757 |
|
General and administrative expenses | 7,193 |
| | 4,368 |
| | 21,993 |
| | 17,301 |
| 5,852 |
| | 3,913 |
| | 25,686 |
| | 18,793 |
|
Interest expense | 7,587 |
| | 5,754 |
| | 25,851 |
| | 16,562 |
| 14,700 |
| | 9,551 |
| | 37,579 |
| | 29,043 |
|
Depreciation and amortization | 47,622 |
| | 16,622 |
| | 152,546 |
| | 49,804 |
| 82,012 |
| | 45,068 |
| | 178,777 |
| | 135,836 |
|
Acquisition and transaction costs | (677 | ) | | 1,446 |
| | 1,499 |
| | 3,889 |
| 1,048 |
| | — |
| | 50,878 |
| | 228 |
|
Other expenses | 423 |
| | 173 |
| | 1,063 |
| | 681 |
| 297 |
| | 93 |
| | 1,101 |
| | 457 |
|
Income from unconsolidated joint ventures | (2,461 | ) | | (1,527 | ) | | (43,362 | ) | | (5,144 | ) | (3,241 | ) | | (2,252 | ) | | (9,779 | ) | | (10,173 | ) |
Gain (loss) on sale of investment properties | 33 |
| | — |
| | (119,729 | ) | | (13,944 | ) | 27 |
| | 33 |
| | (14,388 | ) | | (4,912 | ) |
Gain on extinguishment of debt | (429 | ) | | — |
| | (2,258 | ) | | — |
| — |
| | (93 | ) | | — |
| | (8 | ) |
Income from discontinued operations | — |
| | (8,737 | ) | | — |
| | (24,361 | ) | |
Net Operating Income | $ | 68,881 |
| | $ | 28,453 |
| | $ | 212,378 |
| | $ | 82,931 |
| $ | 111,605 |
| | $ | 73,864 |
| | $ | 279,501 |
| | $ | 219,988 |
|
Liquidity and Capital Resources
Our primary short-term and long-term liquidity needs include the following:
property and land acquisitions;
expenditures on development projects;
building improvements, tenant improvements, and leasing costs;
principal and interest payments on indebtedness; and
operating partnership distributions and common stock dividends.dividends and distributions to outside unitholders of CPLP.
We may satisfy these needs with one or more of the following:
cash and cash equivalents on hand;
net cash from operations;
proceeds from the sale of assets;
borrowings under our Credit Facility;credit facility;
proceeds from mortgage notes payable;
proceeds from construction loans;
proceeds from unsecured loans;
proceeds from offerings of debt or equity securities; and
joint venture formations.
As of September 30, 2017,2019, we had no amounts$80.0 million drawn under our Credit Facility and $1.0 million drawn under our letters of credit, with the ability to borrow an additional $499.0 million under our Credit Facility.
In April 2017, we closed a $350 million private placement of senior unsecured notes, which were funded in two tranches. The first tranche of $100 million was funded in April 2017, has a 10-year maturity, and has a fixed annual interest rate of 4.09%. The second tranche of $250 million was funded in July 2017, has an 8-year maturity, and has a fixed annual interest rate of 3.91%. We used the proceeds from the private placement to repay mortgages scheduled to mature during 2017.
In April 2017, we repaid in full, without penalty, the $128.0 million One Eleven Congress mortgage note and the $101.0 million San Jacinto Center mortgage note. In May 2017, we repaid in full, without penalty, the $52.0 million Two Buckhead Plaza mortgage note. In July 2017, we repaid in full, without penalty, the $77.9 million 3344 Peachtree mortgage note. We used the proceeds from the sales of the ACS Center, Emory Point I, and Emory Point II to repay the associated mortgages.$920.0 million.
Contractual Obligations and Commitments
The following table sets forth information as of September 30, 20172019 with respect to our outstanding contractual obligations and commitments (in thousands):
| | | | Total | | Less than 1 Year | | 1-3 Years | | 3-5 Years | | More than 5 years | | Total | | Less than 1 Year | | 1-3 Years | | 3-5 Years | | More than 5 years |
Contractual Obligations: | | | | | | | | | | | | | | | | | | | | |
Company debt: | | | | | | | | | | | | | | | | | | | | |
Term Loan | | $ | 250,000 |
| | $ | — |
| | $ | — |
| | $ | 250,000 |
| | $ | — |
| |
Unsecured Senior Notes | | 350,000 |
| | — |
| | — |
| | — |
| | 350,000 |
| |
Unsecured Credit Facility | | — |
| | — |
| | — |
| | — |
| | — |
| |
Unsecured credit facility | | | $ | 80,000 |
| | $ | — |
| | $ | — |
| | $ | 80,000 |
| | $ | — |
|
Unsecured senior notes | | | 1,000,000 |
| | — |
| | — |
| | — |
| | 1,000,000 |
|
Term loan | | | 250,000 |
| | — |
| | 250,000 |
| | — |
| | — |
|
Mortgage notes payable | | 500,903 |
| | 8,688 |
| | 66,925 |
| | 22,730 |
| | 402,560 |
| | 525,153 |
| | 2,788 |
| | 45,082 |
| | 171,316 |
| | 305,967 |
|
Interest commitments (1) | | 274,381 |
| | 40,243 |
| | 78,207 |
| | 68,437 |
| | 87,494 |
| | 456,622 |
| | 67,663 |
| | 140,012 |
| | 103,914 |
| | 145,033 |
|
Ground leases | | 208,030 |
| | 2,321 |
| | 4,642 |
| | 4,713 |
| | 196,354 |
| | 226,698 |
| | 3,702 |
| | 12,900 |
| | 5,523 |
| | 204,573 |
|
Other operating leases | | 1,429 |
| | 515 |
| | 696 |
| | 218 |
| | — |
| | 333 |
| | 188 |
| | 145 |
| | — |
| | — |
|
Total contractual obligations | | $ | 1,584,743 |
| | $ | 51,767 |
| | $ | 150,470 |
| | $ | 346,098 |
| | $ | 1,036,408 |
| | $ | 2,538,806 |
| | $ | 74,341 |
| | $ | 448,139 |
| | $ | 360,753 |
| | $ | 1,655,573 |
|
Commitments: | | | | | | | | | | | | | | | | | | | | |
Unfunded tenant improvements and construction obligations | | $ | 188,339 |
| | $ | 171,731 |
| | $ | 16,608 |
| | $ | — |
| | $ | — |
| | $ | 206,596 |
| | $ | 202,186 |
| | $ | 4,410 |
| | $ | — |
| | $ | — |
|
Letters of credit | | 1,000 |
| | 1,000 |
| | — |
| | — |
| | — |
| |
Performance bonds | | 2,747 |
| | 314 |
| | 1,650 |
| | — |
| | 783 |
| | 487 |
| | 487 |
| | — |
| | — |
| | — |
|
Total commitments | | $ | 192,086 |
| | $ | 173,045 |
| | $ | 18,258 |
| | $ | — |
| | $ | 783 |
| | $ | 207,083 |
| | $ | 202,673 |
| | $ | 4,410 |
| | $ | — |
| | $ | — |
|
| |
(1) | Interest on variable rate obligations is based on rates effective as of September 30, 2017.2019. |
In addition, we have several standing or renewable service contracts mainly related to the operation of buildings. These contracts are in the ordinary course of business and are generally one year or less. These contracts are not included in the above table and are usually reimbursed in whole or in part by tenants.
Other Debt Information
Our existing mortgage debt is primarily non-recourse, fixed-rate mortgage notes secured by various real estate assets. Many of our non-recourse mortgages contain covenants which, if not satisfied, could result in acceleration of the maturity of the debt. We expect to either refinance the non-recourse mortgages at maturity or repay the mortgages with proceeds from asset sales, debt, or other capital sources.
Over 80% of our debt bears interest at a fixed rate. Our variable-interest debt instruments, including our Credit Facility and $250 million term loan, may use London Interbank Offering Rate ("LIBOR") as a benchmark for establishing the rate. LIBOR is the subject of recent regulatory guidance and proposals for reform. These reforms may cause LIBOR to no longer be provided or to perform differently than in the past. If LIBOR is no longer widely available, or otherwise at our option, our Credit Facility and term loan facilities provide for alternate interest rate calculations.
There can be no assurances as to what alternative interest rates may be and whether such interest rate will be more or less favorable than LIBOR and any other unforeseen impacts of the potential discontinuation of LIBOR. The Company intends to continue monitoring the developments with respect to the potential phasing out of LIBOR after 2021 and work with its lenders to ensure any transition away from LIBOR will have minimal impact on its financial condition, but can provide no assurances regarding the impact of the discontinuation of LIBOR.
Future Capital Requirements
OverTo meet capital requirements for future investment activities over the long term, we intend to actively manage our portfolio of properties, generating internal cash flows, and strategically sell assets to generate capital for future investment activities.assets. We expect to continue to utilize indebtedness to fund future commitments, if available and under appropriate terms. We may also seek equity capital and capital from joint venture partners to implement our strategy.
Our business model is dependent upon raising or recycling capital to meet obligations and to fund development and acquisition activity. If one or more sources of capital are not available when required, we may be forced to reduce the number of projects we acquire or develop and/or raise capital on potentially unfavorable terms, or we may be unable to raise capital, which could have an adverse effect on our financial position or results of operations.
Cash Flows Summary
We report and analyze our cash flows based on operating activities, investing activities, and financing activities. The following table sets forth the changes in cash flows (in thousands):
| | | Nine Months Ended September 30, | Nine Months Ended September 30, |
| 2017 | | 2016 | | Change | 2019 | | 2018 | | Change |
Net cash provided by operating activities | $ | 194,913 |
| | $ | 119,251 |
| | $ | 75,662 |
| $ | 198,365 |
| | $ | 178,037 |
| | $ | 20,328 |
|
Net cash used in investing activities | (25,882 | ) | | (131,403 | ) | | 105,521 |
| (128,613 | ) | | (182,402 | ) | | 53,789 |
|
Net cash provided by (used in) financing activities | (142,551 | ) | | 107,390 |
| | (249,941 | ) | |
Net cash used in financing activities | | (57,783 | ) | | (118,255 | ) | | 60,472 |
|
The reasons for significant increases and decreases in cash flows between the periods are as follows:
Cash Flows from Operating Activities. Cash flows from operating activities increased $75.7$20.3 million between the 20172019 and 20162018 nine month periods primarily due to net cash received from the commencement of operations at the second and final phase of Spring & 8th in the fourth quarter of 2018, 1200 Peachtree in the first quarter of 2019, and properties acquired in the Merger in the second quarter of 2019, offset by cash paid for transaction costs.
Cash Flows from Investing Activities. Cash flows used in investing activities decreased $53.8 million between the 2019 and 2018 nine month periods primarily due to cash received in the Merger and cash received from the sale of land to NS, offset by an increase in cash used for acquisitions due to the purchase of 1200 Peachtree and cash used for the development of new properties.
Cash Flows from Financing Activities. Cash flows used in financing activities decreased $60.5 million between the 2019 and 2018 nine month periods primarily due to an increase in cash generated from property operations as a result of the Merger and an increase in operating distributions from joint ventures, offset by an increase in cash interest paid between the periods.net borrowings during 2019.
Cash Flows from Investing Activities. Cash flows from investing activities increased $105.5 million between the 2017 and 2016 nine month periods primarily due to proceeds from the ACS Center sale, offset by an increase in property acquisition, development, and tenant asset expenditures. These increases were also impacted by larger contributions to and increased distributions from unconsolidated joint ventures which are primarily related to the sale of Emory Point I and II.
Cash Flows from Financing Activities. Cash flows from financing activities decreased $249.9 million between the 2017 and 2016 nine month periods, primarily due to the repayment of mortgage notes payable and an increase in payments under the credit facility, offset by the proceeds from the common stock equity offering and increase in notes payable between the periods.
Capital Expenditures. We incur costs related to our real estate assets that include acquisition of properties, development of new properties, redevelopment of existing or newly purchased properties, leasing costs for new or replacement tenants, and ongoing property repairs and maintenance.
Capital expenditures for assets we develop or acquire and then hold and operate are included in the property acquisition, development, and tenant asset expenditures line item within investing activities on the condensed consolidated statements of cash flows. Amounts accrued are removed from the table below (accrued capital adjustment) to show the components of these costs on a cash basis. Components of costs included in this line item for the nine months ended September 30, 20172019 and 20162018 are as follows (in thousands):
| | | Nine Months Ended September 30, | Nine Months Ended September 30, |
| 2017 | | 2016 | 2019 | | 2018 |
Acquisition of property | | $ | 82,120 |
| | $ | — |
|
Development | $ | 144,116 |
| | $ | 69,899 |
| 98,331 |
| | 47,842 |
|
Operating — leasing costs | 53,809 |
| | 53,425 |
| 31,991 |
| | 29,359 |
|
Operating — building improvements | 38,097 |
| | 2,063 |
| 44,670 |
| | 22,711 |
|
Purchase of land held for investment | | 6,548 |
| | — |
|
Capitalized interest | 6,509 |
| | 2,988 |
| 6,349 |
| | 4,021 |
|
Capitalized personnel costs | 5,361 |
| | 5,366 |
| 4,624 |
| | 6,615 |
|
Change in accrued capital expenditures | (18,081 | ) | | (11,384 | ) | (22,599 | ) | | 21,920 |
|
Total property acquisition and development expenditures | $ | 229,811 |
| | $ | 122,357 |
| |
Total property acquisition, development, and tenant asset expenditures | | $ | 252,034 |
| | $ | 132,468 |
|
Capital expenditures, including capitalized interest, increased $119.6 million between the 2019 and 2018 nine month periods primarily due to anthe purchase of 1200 Peachtree, the purchase of land, and the increase in the number of developmentspending for projects between the periods and an increase in building improvement projects.under development. Tenant improvements and leasing costs, as well as related capitalized personnel costs, are a function of the number and size of newly executed leases or renewals of existing leases. The amounts of tenant improvement and leasing costs for our office portfolio on a per square foot basis for the nine months ended September 30, 2019 and 2018 were as follows:
| | | | Nine Months Ended September 30, | | | | |
| | 2017 | | 2016 | | 2019 | | 2018 |
New leases | | $6.98 | | $7.13 | | $5.77 | | $8.18 |
Renewal leases | | $4.21 | | $4.07 | | $5.82 | | $5.03 |
Expansion leases | | $6.36 | | $6.48 | | $8.16 | | $7.02 |
The amounts of tenant improvement and leasing costs on a per square foot basis vary by lease and by market. GivenDuring the levelfirst quarter of expected leasing and renewal activity, management expects2019, the Company executed a new full-building lease at 1200 Peachtree with NS that had lower than average tenant improvementsimprovement and leasing costs. This is partially offset by a new lease with BB&T Corporation that had higher than average leasing costs, per square foot in future periods to remain consistent with those experiencedexecuted in the first nine monthssecond quarter of 2017.2019.
Dividends. We paid common dividends of $74.0$100.4 million and $50.5$79.8 million in the 20172019 and 20162018 nine month periods, respectively. We funded the common dividends with cash provided by operating activities. We expect to fund our future quarterly common dividends with cash provided by operating activities, also using proceeds from investment property sales, distributions from unconsolidated joint ventures, and indebtedness, if necessary.
On a quarterly basis, we review the amount of the common dividend in light of current and projected future cash flows from the sources noted above and also consider the requirements needed to maintain our REIT status. In addition, we have certain covenants under credit agreements which could limit the amount of common dividends paid. In general, common dividends of any amount can be paid as long as leverage, as defined in our credit agreements, is less than 60% and we are not in default. Certain conditions also apply in which we can still pay common dividends if leverage is above that amount. We routinely monitor the status of our common dividend payments in light of the covenants of our credit agreements.
Off Balance Sheet Arrangements
General. We have a number of off balance sheet joint ventures with varying structures, as described in note 6 of our 20162018 Annual Report on Form 10-K and note 45 of this Form 10-Q. The joint ventures in which we have an interest are involved in the ownership, acquisition, and/or development of real estate. A venture will fund capital requirements or operational needs with cash from operations or financing proceeds, if possible. If additional capital is deemed necessary, a venture may request a contribution from the partners, and we will evaluate such request.
Debt. At September 30, 2017,2019, our unconsolidated joint ventures had aggregate outstanding indebtedness to third parties of $444.8$344.6 million. These loans are generally mortgage or construction loans, most of which are non-recourse to us except as described in the paragraph below. In addition, in certain instances, we provide “non-recourse carve-out guarantees” on these non-recourse loans. Certain of these loans have variable interest rates, which creates exposure to the ventures in the form of market risk from interest rate changes.
We guarantee 12.5% of the loan amount related to the Carolina Square construction loan, which has a lending capacity of $79.8 million, and an outstanding balance of $62.2$75.5 million as of September 30, 2017.2019. At September 30, 2017,2019, we guaranteed $7.8$9.4 million of the amount outstanding.
Critical Accounting Policies
There have been no material changes in the critical accounting policies from those disclosed in our Annual Report on Form 10-K for the year ended December 31, 2016.2018.
Item 3. Quantitative and Qualitative Disclosures About Market Risk.
Our primary exposure to market risk results from our debt, which bears interest at both fixed and variable rates. We attempt to mitigate this risk by limiting our debt exposure in total and our maturities in any one year and weighting more towards fixed-rate debt in our portfolio. The fixed rate debt obligations limit the risk of fluctuating interest rates, and generally are mortgage loans secured by certain of our real estate assets and senior unsecured loans.rates. At September 30, 20172019 and December 31, 2018, we had $850.9$1.5 billion and $817.4 million of fixed rate debt outstanding at a weighted average interest raterates of 3.89% and 3.86%. At December 31, 2016, we had $994.7 million of fixed rate debt outstanding at a weighted average interest rate of 4.87%., respectively. The amount of fixed-rate debt outstanding decreased and the weighted average interest rate decreasedprimarily increased from December 31, 20162018 to September 30, 20172019 as a result of repaymentthe funding of mortgage notes payable, repayments on our credit facilitythree tranches of Senior Unsecured Notes for a total of $650 million and the issuance of senior unsecured notes at lower rates. See note 7assumption of the notes to condensed consolidated financial statements includedLegacy Union One mortgage note of $66 million, assumed in this Quarterly Report on Form 10-Q for additional information regarding 2017 debt activity.the Merger with TIER.
At September 30, 2017,2019, we had $250.0 million of variable rate debt outstanding, which consisted of a $250.0 million term loan with an interest rate of 2.43%. At December 31, 2016, we had $384.0$330 million of variable rate debt outstanding, which consisted of the Credit Facility with an$80 million outstanding balance of $134.0 million at a weighted averagean interest rate of 1.87%3.07% and a $250.0$250 million term loan with a weighted averagean interest rate of 1.97%3.22%. As of December 31, 2018, we had $250 million of variable rate debt outstanding, which consisted of the Credit Facility with no outstanding balance at an interest rate of 3.55% and a $250 million term loan with an interest rate of 3.70%. Based on our average variable rate debt balances infor the nine months ended September 30, 2017,2019, interest incurred would have increased by $2.5$2.6 million in the nine months ended September 30, 2017 if these interest rates had been 1% higher.
The following table summarizes our market risk associated with notes payable as of September 30, 2017.2019. It includes the principal maturing, an estimate of the weighted average interest rates on those expected principal maturity datesremaining debt obligations, and the fair values of the Company’s fixed and variable rate notes payable. Fair value was calculated by discounting future principal payments at estimated rates at which similar loans could have been obtained at September 30, 2017.2019. The information presented below should be read in conjunction with note 78 of the notes to condensed consolidated financial statements included in this Quarterly Report on Form 10-Q. NotesWe did not have a significant level of notes receivable at September 30, 2017 were not material,2019, and the table does not include information related to notes receivable.
| | | Twelve Months Ended September 30, | | | | | | | Twelve Months Ended September 30, | | | | | | |
($ in thousands) | 2018 | | 2019 | | 2020 | | 2021 | | 2022 | | Thereafter | | Total | | Estimated Fair Value | 2020 | | 2021 | | 2022 | | 2023 | | 2024 | | Thereafter | | Total | | Estimated Fair Value |
Notes Payable: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Fixed Rate | $ | 8,688 |
| | $ | 33,062 |
| | $ | 33,863 |
| | $ | 11,154 |
| | $ | 11,576 |
| | $ | 752,560 |
| | $ | 850,903 |
| | $ | 855,103 |
| $ | 33,863 |
| | $ | 11,154 |
| | $ | 11,577 |
| | $ | 160,497 |
| | $ | 8,492 |
| | $ | 1,299,570 |
| | $ | 1,525,153 |
| | $ | 1,594,516 |
|
Average Interest Rate | 3.95 | % | | 3.95 | % | | 5.28 | % | | 3.73 | % | | 3.73 | % | | 3.80 | % | | 3.86 | % | | | |
Weighted Average Interest Rate (1) | | 3.35 | % | | 3.35 | % | | 3.34 | % | | 3.45 | % | | 3.45 | % | | 3.66 | % | | 3.89 | % | | |
Variable Rate | $ | — |
| | $ | — |
| | $ | — |
| | $ | — |
| | $ | 250,000 |
| | $ | — |
| | $ | 250,000 |
| | $ | 250,000 |
| $ | — |
| | $ | — |
| | $ | 250,000 |
| | $ | 80,000 |
| | $ | — |
| | $ | — |
| | $ | 330,000 |
| | $ | 335,063 |
|
Average Interest Rate (1) | — |
| | — |
| | — | % | | — | % | | 2.43 | % | | — |
| | 2.43 | % | | | |
Weighted Average Interest Rate (2) | | — |
| | — |
| | 3.22 | % | | 3.07 | % | | — |
| | — |
| | 3.18 | % | | |
(1) Represents weighted average interest rate for debt projected to be outstanding at the end of the period indicated, based on scheduled principal payments and scheduled maturities. The weighted average interest rate in the Total column represents the weighted average interest rate for fixed rate debt as of September 30, 2019.
(2) Interest rates on variable rate notes payable are equal to the variable rates in effect on September 30, 2017.
2019. The weighted average interest rate in the Total column represents the weighted average interest rate for variable rate debt as of September 30, 2019.
Item 4. Controls and Procedures.
We maintain disclosure controls and procedures that are designed to ensure that information required to be disclosed in our Exchange Act reports is recorded, processed, summarized, and reported within the time periods specified in the SEC’s rules and forms, and that such information is accumulated and communicated to management, including the Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure. Management necessarily applied its judgment in assessing the costs and benefits of such controls and procedures, which, by their nature, can provide only reasonable assurance regarding management’s control objectives.
As of the end of the period covered by this report, we carried out an evaluation, under the supervision and with the participation of management, including the Chief Executive Officer along with the Chief Financial Officer, of the effectiveness, design and operation of our disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)). Based upon the foregoing, the Chief Executive Officer along with the Chief Financial Officer concluded that our disclosure controls and procedures were effective. In addition, based on such evaluation we have identified no changes in our internal control over financial reporting that occurred during the
most recent fiscal quarter that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
PART II. OTHER INFORMATION
Item 1. Legal Proceedings.
Information regarding legal proceedings is described under the subheading "Litigation" in note 89 to the unaudited condensed consolidated financial statements set forth in this Form 10-Q.
Item 1A. Risk Factors
Risk factors that affect our business and financial results are discussed in Part I, "Item 1A. Risk Factors," of our Annual Report on Form 10-K for the year ended December 31, 2016.2018. There have been no material changes in our risk factors from those previously disclosed in our Annual Report.Report and our Quarterly Reports other than as set forth below. You should carefully consider the risks described in our Annual Report and below, which could materially affect our business, financial condition or future results. The risks described in our Annual Report and below are not the only risks we face. Additional risks and uncertainties not currently known to us or that we currently deem immaterial also may materially adversely affect our business, financial condition, and/or operating results. If any of the risks actually occur, our business, financial condition, and/or results of operations could be negatively affected.
We may be unable to integrate the business of TIER successfully or realize the anticipated synergies and related benefits of our merger with TIER or do so within the anticipated time frame.
The ongoing integration of the TIER business into our own will require significant management and resources. We may encounter difficulties in the integration process or in realizing any of the expected benefits from the Merger, including the following:
the inability to successfully combine our business and TIER's business in a manner that permits us to achieve the cost savings anticipated to result from the Merger which would result in some anticipated benefits of the Merger not being realized in the time frame currently anticipated or at all;
lost sales and tenants as a result of certain tenants deciding not do do business with us;
the complexities associated with integrating personnel;
the additional complexities of combining two companies with different histories, cultures, regulatory restrictions, markets and customer bases;
our failure to retain key employees;
potential unknown liabilities and unforeseen increased expenses, delays or regulatory conditions associated with the Merger; and
performance shortfalls as a result of the diversion of management's attention caused by completing the Merger.
For all these reasons, it is possible that the integration process could result in the distraction of our management, the disruption or our ongoing business or inconsistencies in our services, standards, controls, procedures and policies, any of which could adversely affect our ability to maintain relationships with tenants, customers, vendors and employees.
As a result of the Merger, the composition of our Board of Directors has changed.
Concurrent with the closing of the Merger, the Board of Directors has changed and currently consists of ten members, eight of which served on our Board of Directors prior to the Merger and two of which served on TIER's Board of Directors prior to the Merger.
Our future results will suffer if we do not effectively manage our operations following the Merger.
Following the Merger, we may continue to expand our operations through additional acquisitions, development opportunities, and other strategic transactions, some of which involve complex challenges. Our future success will depend, in part, upon our ability to manage our expansion opportunities, which poses substantial challenges for us to integrate new operations into our existing business in an efficient and timely manner, and to successfully monitor our operations, costs, regulatory compliance and service quality, and to maintain other necessary internal controls. We cannot assure you that our expansion or acquisition opportunities will be successful, or that they will realize their expected operating efficiencies, cost savings, revenue enhancements, synergies or other benefits.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.
We did not make any sales of unregistered securities during the third quarter of 2017.
We purchased the following common shares during the third quarter of 2017:
|
| | | | | | |
| Total Number of Shares Purchased* | | Average Price Paid per Share* |
July 1 - 31 | 274,852 |
| | $ | 8.84 |
|
August 1 - 31 | — |
| | — |
|
September 1 - 30 | 220,389 |
| | 9.35 |
|
| 495,241 |
| | $ | 9.07 |
|
*Activity for the third quarter of 2017 related to the remittances of shares for stock option exercises. For information on our equity compensation plans, see note 13 of our Annual Report on Form 10-K, and note 10 to the unaudited condensed consolidated financial statements set forth in this Form 10-Q. We did not make any sales of unregistered securities during the third quarter of 2019. We did not purchase any common shares during the third quarter of 2019.
|
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| | Agreement and Plan of Merger, dated April 28, 2016,March 25, 2019, by and among Parkway Properties, Inc., Parkway Properties LP, the Registrant, Murphy Subsidiary Holdings Corporation, and Clinic Sub Inc,TIER REIT, Inc., filed as Exhibit 2.1 to the Registrant’s Current Report on Form 8-K filed on April 29, 2016,March 25, 2019, and incorporated herein by reference. |
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11.0 | * | Computation |
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101 | † | The following financial information for the Registrant, formatted in XBRL (Extensible Business Reporting Language): (i) the condensed consolidated balance sheets, (ii) the condensed consolidated statements of operations, (iii) the condensed consolidated statements of equity, (iv) the condensed consolidated statements of cash flows, and (v) the notes to condensed consolidated financial statements. |
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* | | Data required by ASC 260, “Earnings per Share,” is provided in note 11 to the condensed consolidated financial statements included in this report. |
† | | Filed herewith. |
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.
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| COUSINS PROPERTIES INCORPORATED |
| /s/ Gregg D. Adzema |
| Gregg D. Adzema |
| Executive Vice President and Chief Financial Officer (Duly Authorized Officer and Principal Financial Officer) |
Date: October 25, 201723, 2019