Cousins Properties Incorporated and Consolidated Entities
CONSOLIDATED BALANCE SHEETS
- --------------------------------------------------------------------------------
($ in thousands, except share and per share amounts)
December 31,
------------------------
2002 2001
---------- ----------
ASSETS
- ------
PROPERTIES:
Operating properties, net of accumulated
depreciation of $155,100 in 2002 and
$105,795 in 2001 $ 757,329 $ 764,810
Operating property held for sale, net of
accumulated depreciation of $244 in 2001 -- 6,309
Land held for investment or future development 16,632 15,294
Projects under construction 171,135 140,833
Residential lots under development 20,100 12,520
------------------------
Total Properties 965,196 939,766
CASH AND CASH EQUIVALENTS, at cost, which
approximates market 9,471 10,556
NOTES AND OTHER RECEIVABLES 50,607 44,533
INVESTMENT IN UNCONSOLIDATED JOINT VENTURES 185,516 185,397
OTHER ASSETS, including goodwill of $15,612 in
2002 and 2001 37,287 36,377
------------------------
TOTAL ASSETS $1,248,077 $1,216,629
========================
LIABILITIES AND STOCKHOLDERS' INVESTMENT
- ----------------------------------------
NOTES PAYABLE $ 669,792 $ 585,275
ACCOUNTS PAYABLE AND ACCRUED LIABILITIES 35,445 31,762
DEPOSITS AND DEFERRED INCOME 3,429 2,422
------------------------
TOTAL LIABILITIES 708,666 619,459
------------------------
DEFERRED GAIN 103,568 107,676
------------------------
MINORITY INTERESTS 26,959 26,821
------------------------
COMMITMENTS AND CONTINGENT LIABILITIES (Note 4)
STOCKHOLDERS' INVESTMENT:
Common stock, $1 par value; authorized
150,000,000 shares, issued 50,843,835 in
2002 and 50,106,110 in 2001 50,844 50,106
Additional paid-in capital 288,172 276,268
Treasury stock at cost, 2,457,482 shares in
2002 and 681,000 shares in 2001 (59,356) (17,465)
Unearned compensation (2,647) (3,580)
Cumulative undistributed net income 131,871 157,344
------------------------
TOTAL STOCKHOLDERS' INVESTMENT 408,884 462,673
------------------------
TOTAL LIABILITIES AND STOCKHOLDERS'
INVESTMENT $1,248,077 $1,216,629
=========================
See notes to consolidated financial statements.
Cousins Properties Incorporated and Consolidated Entities
CONSOLIDATED STATEMENTS OF INCOME
- --------------------------------------------------------------------------------
($ in thousands, except share and per share amounts)
Years Ended December 31,
------------------------------
2002 2001 2000
-------- -------- --------
REVENUES:
Rental property revenues $168,046 $144,754 $113,825
Development income 4,625 6,179 4,251
Management fees 9,313 7,966 4,841
Leasing and other fees 4,297 5,344 1,608
Residential lot and outparcel sales 9,126 6,682 13,951
Interest and other 4,393 6,061 5,995
------------------------------
199,800 176,986 144,471
------------------------------
INCOME FROM UNCONSOLIDATED JOINT VENTURES 26,670 22,897 19,452
------------------------------
COSTS AND EXPENSES:
Rental property operating expenses 49,015 43,826 33,379
General and administrative expenses 27,670 27,010 18,452
Depreciation and amortization 54,248 44,453 32,742
Stock appreciation right expense (credit) 29 (276) 468
Residential lot and outparcel cost of sales 7,309 5,910 11,684
Interest expense 37,423 27,610 13,596
Property taxes on undeveloped land 675 619 40
Other 4,857 4,324 4,086
------------------------------
181,226 153,476 114,447
------------------------------
INCOME FROM CONTINUING OPERATIONS BEFORE
INCOME TAXES 45,244 46,407 49,476
PROVISION (BENEFIT) FOR INCOME TAXES FROM
OPERATIONS 1,526 (691) (1,145)
------------------------------
INCOME FROM CONTINUING OPERATIONS BEFORE
GAIN ON SALE OF INVESTMENT PROPERTIES 43,718 47,098 50,621
GAIN ON SALE OF INVESTMENT PROPERTIES, NET OF
APPLICABLE INCOME TAX PROVISION 6,254 23,496 11,937
------------------------------
INCOME FROM CONTINUING OPERATIONS 49,972 70,594 62,558
------------------------------
DISCONTINUED OPERATIONS, NET OF APPLICABLE
INCOME TAX PROVISION:
Income from discontinued operations 227 221 51
Gain on sale of investment property 1,174 -- --
------------------------------
1,401 221 51
------------------------------
EXTRAORDINARY LOSS (3,501) -- --
CUMULATIVE EFFECT OF CHANGE IN ACCOUNTING
PRINCIPLE -- -- (566)
------------------------------
NET INCOME $ 47,872 $ 70,815 $ 62,043
==============================
BASIC NET INCOME PER SHARE:
Income from continuing operations $ 1.01 $ 1.43 $ 1.29
Discontinued operations .03 .01 --
Extraordinary loss (.07) -- --
Cumulative effect of change in accounting
principle -- -- (0.01)
------------------------------
Basic net income per share $ .97 $ 1.44 $ 1.28
==============================
DILUTED NET INCOME PER SHARE:
Income from continuing operations $ 1.00 $ 1.40 $ 1.26
Discontinued operations .03 .01 --
Extraordinary loss (.07) -- --
Cumulative effect of change in accounting
principle -- -- (0.01)
------------------------------
Diluted net income per share $ .96 $ 1.41 $ 1.25
==============================
CASH DIVIDENDS DECLARED PER SHARE $ 1.48 $ 1.39 $ 1.24
==============================
WEIGHTED AVERAGE SHARES 49,252 49,205 48,632
==============================
DILUTED WEIGHTED AVERAGE SHARES 49,937 50,280 49,731
==============================
See notes to consolidated financial statements.
Cousins Properties Incorporated and Consolidated Entities
- -----------------------------------------------------------------------------------------------------------------------
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' INVESTMENT
Years Ended December 31, 2002, 2001 and 2000
($ in thousands)
Additional Cumulative
Common Paid-In Treasury Unearned Undistributed
Stock Capital Stock Compensation Net Income Total
-------- -------- -------- ------------ ------------- -------
BALANCE, December 31, 1999 $48,415 $240,901 $ (4,990) $ -- $153,396 $437,722
Net income, 2000 -- -- -- -- 62,043 62,043
Common stock issued pursuant to:
Exercise of options and
director stock plan 195 727 -- -- -- 922
Dividend reinvestment plan 489 11,436 -- -- -- 11,925
Stock grant 265 6,595 -- (4,690) -- 2,170
Dividends declared -- -- -- -- (60,315) (60,315)
---------------------------------------------------------------------------------
BALANCE, December 31, 2000 49,364 259,659 (4,990) (4,690) 155,124 454,467
Net income, 2001 -- -- -- -- 70,815 70,815
Common stock issued pursuant to:
Exercise of options and
director stock plan 162 3,339 -- -- -- 3,501
Dividend reinvestment plan 578 13,299 -- -- -- 13,877
Stock grant and related
amortization, net of
forfeitures 2 (29) -- 1,110 -- 1,083
Dividends declared -- -- -- -- (68,595) (68,595)
Purchase of treasury stock -- -- (12,475) -- -- (12,475)
---------------------------------------------------------------------------------
BALANCE, December 31, 2001 50,106 276,268 (17,465) (3,580) 157,344 462,673
Net income, 2002 -- -- -- -- 47,872 47,872
Common stock issued pursuant to:
Exercise of options and
director stock plan 750 12,234 -- -- -- 12,984
Stock grant and related
amortization, net of
forfeitures (12) (330) -- 933 -- 591
Dividends declared -- -- -- -- (73,345) (73,345)
Purchase of treasury stock -- -- (41,891) -- -- (41,891)
---------------------------------------------------------------------------------
BALANCE, December 31, 2002 $50,844 $288,172 $(59,356) $(2,647) $131,871 $408,884
=================================================================================
See notes to consolidated financial statements.
Cousins Properties Incorporated and Consolidated Entities
CONSOLIDATED STATEMENTS OF CASH FLOWS
- -------------------------------------------------------------------------------------------------------------------------
($ in thousands)
Years Ended December 31,
-------------------------------
2002 2001 2000
-------- -------- --------
CASH FLOWS FROM OPERATING ACTIVITIES:
Income from continuing operations before gain on sale of investment
properties $ 43,718 $ 47,098 $ 50,621
Adjustments to reconcile income from continuing operations before gain on
sale of investment properties to net cash provided by operating activities:
Depreciation and amortization, net of minority interest's share 54,248 44,357 31,480
Amortization of unearned compensation 591 1,019 --
Stock appreciation right expense (credit) 29 (276) 468
Cash charges to expense accrual for stock appreciation rights (347) (975) (536)
Effect of recognizing rental revenues on a straight-line basis (2,137) (2,380) (2,111)
Residential lot and outparcel cost of sales 5,715 4,445 10,576
Changes in other operating assets and liabilities:
Change in other receivables (2,634) 2,042 (2,763)
Change in accounts payable and accrued liabilities 3,562 (5,159) 2,692
-------------------------------
Net cash provided by operating activities of continuing operations 102,745 90,171 90,427
-------------------------------
Net cash provided by operating activities of discontinued operations 366 420 93
-------------------------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Gain on sale of investment properties, net of applicable income tax provision 7,428 23,496 11,937
Adjustments to reconcile gain on sale of investment properties to net cash
provided by sales activities:
Cost of sales 6,118 36,253 17,510
Deferred income recognized (4,104) (4,126) (4,112)
Non-cash gain on disposition of leasehold interests -- (236) --
Property acquisition and development expenditures (87,988) (140,346) (215,958)
Distributions in excess of income from unconsolidated joint ventures 9,366 22,081 13,086
Investment in unconsolidated joint ventures, including interest
capitalized to equity investments (9,485) (44,030) (36,820)
Investment in notes receivable (1,308) (1,308) (1,214)
Collection of notes receivable 5 2,916 2,742
Change in other assets, net (2,992) (9,839) (4,998)
Net cash paid in acquisition of a business -- (2,126) --
-------------------------------
Net cash used in investing activities (82,960) (117,265) (217,827)
-------------------------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Repayment of credit facility (246,362) (318,510) (287,711)
Proceeds from credit facility 251,703 298,030 331,356
Common stock sold, net of expenses 12,984 16,414 15,017
Common stock repurchases (41,891) (12,475) --
Dividends paid (73,345) (68,595) (60,315)
Proceeds from other notes payable 152,843 126,500 154,500
Repayment of other notes payable (73,667) (5,830) (25,317)
Extraordinary loss (3,501) -- --
-------------------------------
Net cash (used in) provided by financing activities (21,236) 35,534 127,530
-------------------------------
NET (DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS (1,085) 8,860 223
CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR 10,556 1,696 1,473
-------------------------------
CASH AND CASH EQUIVALENTS AT END OF YEAR $ 9,471 $ 10,556 $ 1,696
===============================
See notes to consolidated financial statements.
Cousins Properties Incorporated and Consolidated Entities
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
December 31, 2002, 2001 and 2000
1. SIGNIFICANT ACCOUNTING POLICIES
Consolidation and Presentation:
The Consolidated Financial Statements include the accounts of Cousins
Properties Incorporated ("Cousins"), its majority-owned partnerships and
wholly-owned subsidiaries, Cousins Real Estate Corporation ("CREC") and its
subsidiaries and CREC II Inc. ("CREC II") and its subsidiaries. Information
regarding CREC and CREC II is included in Note 2. All of the entities included
in the Consolidated Financial Statements are hereinafter referred to
collectively as the "Company." The Company's investments in its
non-majority-owned and/or non-controlled joint ventures are recorded using the
equity method of accounting. Information regarding the non-majority-owned and/or
non-controlled joint ventures is included in Note 5.
Income Taxes:
Since 1987, Cousins has elected to be taxed as a real estate investment
trust ("REIT"). As a REIT, Cousins is not subject to corporate federal income
taxes to the extent that it distributes 100% of its taxable income (excluding
the consolidated taxable income of CREC and its wholly-owned subsidiaries and
CREC II and its wholly-owned subsidiaries) to stockholders, which is Cousins'
current intention. The Company computes taxable income on a basis different from
that used for financial reporting purposes (see Note 7). CREC and its
wholly-owned subsidiaries and CREC II and its wholly-owned subsidiaries each
file a consolidated federal income tax return.
Depreciation and Amortization:
Real estate assets are stated at depreciated cost. Buildings are
depreciated over 30 years. Buildings that were acquired are depreciated over 15,
25 or 30 years. Furniture, fixtures and equipment are depreciated over three to
five years. Tenant improvements, leasing costs and leasehold improvements are
amortized over the life of the applicable leases or the estimated useful life of
the assets, whichever is shorter. Deferred expenses are amortized over the
period of estimated benefit. The straight-line method is used for all
depreciation and amortization.
Long-Lived Assets:
Long-lived assets include property, goodwill and other assets which are
held and used by an entity. Effective January 1, 2002, the Company values its
long-lived assets in accordance with Statement of Financial Accounting Standards
("SFAS") No. 144. The carrying value of long-lived assets is periodically
reviewed by management, and impairment losses, if any, are recognized when the
expected undiscounted future operating cash flows derived from such assets are
less than their carrying value. Management believes no such impairments have
occurred during any of the periods presented. See "Recent Accounting
Pronouncements" for a further discussion of SFAS No. 144.
Fee Income and Cost Capitalization:
Development, construction and leasing fees received from unconsolidated
joint ventures and related salaries and other direct costs incurred by the
Company are recognized as income and expense based on the percentage of the
joint venture which the Company does not own. Correspondingly, investment in
unconsolidated joint ventures is adjusted for these fees and related costs based
on the percentage of the unconsolidated joint venture which the Company owns.
Management fees received from unconsolidated joint ventures are recognized
as earned. The Company expenses salaries and other direct costs related to these
management fees.
Development, construction, and leasing fees between consolidated entities
are eliminated in consolidation. These fees totaled $2,784,000, $2,585,000 and
$3,048,000 in 2002, 2001 and 2000, respectively. Management fees received from
consolidated entities are eliminated in consolidation, and related salaries and
other direct costs are reflected in rental property operating expenses. Costs
related to planning, developing, leasing and constructing a property (including
related general and administrative expenses) are capitalized to the basis of the
property.
Interest, real estate taxes and operating expenses of properties are also
capitalized from the date a project receives its certificate of occupancy and
for one year thereafter based on the percentage of the project available for
occupancy. Interest is capitalized to investments accounted for by the equity
method when the investee has property under development with a carrying value in
excess of the investee's borrowings. Deferred leasing and other capitalized
costs associated with a particular property are classified with Properties in
the Consolidated Balance Sheets.
Stock-Based Employee Compensation:
The Company has several stock-based employee compensation plans which are
described fully in Note 6. The Company has elected to account for its plans
under Accounting Principles Board ("APB") No. 25, "Accounting for Stock Issued
to Employees," which requires the recording of compensation expense for some,
but not all, stock-based compensation, rather than the alternative accounting
permitted by SFAS No. 123, "Accounting for Stock-Based Compensation." No
stock-based employee compensation cost is reflected in net income for options
granted under the plans, as all options granted had an exercise price equal to
the market value of the underlying common stock on the date of grant.
Stock-based employee compensation cost is reflected in net income for stock
appreciation rights ("SARs") and restricted stock grants issued under the plans.
For purposes of the pro forma disclosures required by SFAS No. 123, the
Company has computed the value of all stock awards and stock options granted
during 2002, 2001 and 2000 using the Black-Scholes option pricing model with the
following weighted average assumptions and results:
2002 2001 2000
----- ----- -----
Assumptions
- -----------
Risk-free interest rate 4.51% 4.70% 5.33%
Assumed dividend yield 6.12% 5.97% 4.91%
Assumed lives of option
awards 8 years 8 years 8 years
Assumed volatility 0.192 0.197 0.202
Results
- -------
Weighted average
fair value of
options granted $2.33 $2.62 $4.20
The Black-Scholes option valuation model was developed for use in
estimating the fair value of traded options which have no vesting restrictions
and are fully transferable. In addition, option valuation models require the
input of highly subjective assumptions. In the Company's opinion, because the
Company's stock-based compensation awards have characteristics significantly
different from traded options and because changes in the subjective assumptions
can materially affect the fair value estimate, the results obtained from the
valuation model do not necessarily provide a reliable single measure of the
value of its stock-based compensation awards.
If the Company had accounted for its stock-based compensation awards in
2002, 2001 and 2000 in accordance with SFAS No. 123, pro forma results would
have been as follows ($ in thousands, except per share amounts):
2002 2001 2000
------- ------- ------
Net income, as reported $47,872 $70,815 $62,043
Add: Stock-based employee
compensation expense included
in reported net income, net of
related tax effects 607 1,055 1,180
Deduct: Total stock-based employee
compensation expense determined
under fair-value-based method for
all awards, net of related tax effects (3,040) (3,393) (2,780)
-------------------------
Pro forma net income $45,439 $68,477 $60,443
=========================
Net income per share:
Basic - as reported $ .97 $ 1.44 $ 1.28
=========================
Basic - pro forma $ .92 $ 1.39 $ 1.24
=========================
Diluted - as reported $ .96 $ 1.41 $ 1.25
=========================
Diluted - pro forma $ .91 $ 1.36 $ 1.22
=========================
Earnings Per Share ("EPS"):
Basic EPS is calculated as net income available to common stockholders
divided by the weighted average number of common shares outstanding during the
period. Diluted EPS is calculated as net income available to common stockholders
divided by the diluted weighted average number of common shares outstanding
during the period. Diluted weighted average number of common shares is
calculated to reflect the potential dilution that would occur if stock options
or other contracts to issue common stock were exercised and resulted in
additional common shares outstanding. The net income amount used in the
Company's EPS calculations is the same for both basic and diluted EPS.
Share data is as follows (in thousands):
2002 2001 2000
---- ---- ----
Weighted average shares 49,252 49,205 48,632
Dilutive potential common shares 685 1,075 1,099
------------------------
Diluted weighted average shares 49,937 50,280 49,731
========================
Anti-dilutive options not included 976 957 906
========================
Cash and Cash Equivalents:
Cash and cash equivalents include cash and highly liquid money market
instruments. Highly liquid money market instruments include securities and
repurchase agreements with original maturities of three months or less, money
market mutual funds, and securities on which the interest or dividend rate is
adjusted to market rate at least every three months. At December 31, 2002 and
2001, cash and cash equivalents included approximately $2,838,000 and $804,000,
respectively, which is restricted under debt agreements.
Rental Property Revenues:
In accordance with SFAS No. 13, "Accounting for Leases," income on leases
which include scheduled increases in rental rates over the lease term (other
than scheduled increases based on the Consumer Price Index) and/or periods of
free rent is recognized on a straight-line basis.
The Company makes valuation adjustments to all tenant-related revenue based
upon the tenant's credit and business risk. The Company generally suspends the
accrual of income on specific tenants where rental payments or reimbursements
are delinquent 90 days or more.
Recent Accounting Pronouncements:
In June 2001, the Financial Accounting Standards Board ("FASB") issued SFAS
No. 142, "Goodwill and Other Intangible Assets." Under the provisions of SFAS
No. 142, there will be no amortization of goodwill and other intangible assets
that have indefinite useful lives. Instead, these assets must be tested for
impairment upon the adoption of SFAS No. 142 and annually thereafter. On January
1, 2002, the adoption date, the Company had goodwill totaling approximately
$15.6 million. The Company's initial impairment test of this goodwill in the
first quarter 2002 and the annual test in the fourth quarter 2002 both resulted
in no impairment. Amortization expense recorded related to this goodwill was
approximately $654,000 and $321,000 for the years ended December 31, 2001 and
2000, respectively. Had amortization expense not been recorded in 2001 and 2000,
diluted net income per share would have been $1.42 and $1.25 for the years ended
December 31, 2001 and 2000, respectively.
In August 2001, SFAS No. 144, "Accounting for the Impairment or Disposal of
Long-Lived Assets," was issued, which the Company adopted effective January 1,
2002. SFAS No. 144 addresses financial accounting and reporting for the
impairment of long-lived assets and long-lived assets to be disposed of. This
statement supersedes SFAS No. 121, "Accounting for the Impairment of Long-Lived
Assets and for Long-Lived Assets to Be Disposed Of," and establishes criteria
beyond that previously specified in SFAS No. 121 to determine when a long-lived
asset is to be considered as held for sale. The Company believes that the
impairment provisions of SFAS No. 144 are similar to SFAS No. 121, and the
adoption had no impact on the Company's financial statements. SFAS No. 144 also
requires that the gains and losses from the disposition of certain real estate
assets and the related historical operating results be included in a separate
line item, Income from Discontinued Operations, in the Consolidated Statements
of Income for all periods presented. In the normal course of business, the
Company recycles invested capital by disposing of existing assets and
redeploying the proceeds in order to enhance total returns to stockholders.
In October 2002, the Company sold Salem Road Station, a 67,000 square foot
retail neighborhood center, which met the criteria of a qualifying disposition
in accordance with SFAS No. 144 in the third quarter 2002. The Company
reclassified the carrying amount of Salem Road Station to an Operating Property
Held for Sale as of December 31, 2001 in the accompanying Consolidated Balance
Sheets. Additionally, the results of operations for Salem Road Station were
reclassified as Income from Discontinued Operations in the accompanying
Consolidated Statements of Income for all periods presented. The following table
details the adjustments made to the Consolidated Statements of Income ($ in
thousands):
2002 2001 2000
------ ---- ----
Rental property revenues $ 626 $715 $161
Rental property operating expenses 121 159 37
Depreciation and amortization 139 199 42
Provision for income taxes 139 136 31
------ ---- ----
Income from discontinued operations $ 227 $221 $ 51
====== ==== ====
Gain on sale of investment property $1,320
Provision for income taxes 146
------
Gain on sale of investment property,
net $1,174
======
In April 2002, SFAS No. 145, "Rescission of FASB Nos. 4, 44 and 64,
Amendment of FASB No. 13, and Technical Corrections," was issued. SFAS No. 145,
which will be effective for the Company January 1, 2003, among other things
eliminates the requirement that all gains and losses from the extinguishment of
debt be aggregated and, if material, classified as an extraordinary item.
However, a gain or loss arising from such an event or transaction would continue
to be classified as an extraordinary item if the event or transaction is both
unusual in nature and infrequent in occurrence per the criteria in APB No. 30,
"Reporting the Results of Operations - Reporting the Effects of Disposal of a
Segment of a Business, and Extraordinary, Unusual and Infrequently Occurring
Events and Transactions." As part of the transition guidance, although net
income would not be affected, gains and losses from debt extinguishment in prior
periods that do not meet the criteria in APB No. 30 cannot be treated as
extraordinary items for all periods presented. The Company anticipates that the
extraordinary item recognized in 2002 will be reclassified to recurring
operations upon adoption of SFAS No. 145.
In November 2002, the FASB issued FASB Interpretation No. 45, "Guarantor's
Accounting and Disclosure Requirements for Guarantees, Including Indirect
Guarantees of Indebtedness of Others, an interpretation of SFAS Nos. 5, 57, and
107, and rescission of FASB Interpretation No. 34." The interpretation
elaborates on the disclosures to be made by a guarantor in its financial
statements. It also requires a guarantor to recognize a liability for the fair
value of the obligation undertaken in issuing the guarantee at the inception of
a guarantee. This interpretation, which the Company adopted in the fourth
quarter 2002, had no effect on the financial position or results of operations
of the Company.
In January 2003, the FASB issued FASB Interpretation No. 46, "Consolidation
of Variable Interest Entities, an Interpretation of ARB No. 51." The
interpretation addresses consolidation by business enterprises of variable
interest entities. The Company does not anticipate that adoption will have a
material effect on the Company's consolidated financial statements.
Cumulative Effect of Change in Accounting Principle:
The cumulative effect of change in accounting principle is related to the
Company's adoption of SFAS No. 133, "Accounting for Derivative Instruments and
Hedging Activities," in 2000.
Use of Estimates:
The preparation of financial statements in conformity with accounting
principles generally accepted in the United States requires management to make
estimates and assumptions that affect the amounts reported in the accompanying
financial statements and notes. Actual results could differ from those
estimates.
Reclassifications:
Certain 2001 and 2000 amounts have been reclassified to conform with the
2002 presentation.
2. CREC AND CREC II
CREC develops and owns an interest in certain real estate projects and
provides development, management and leasing services to the Company and to
other owners. Cousins provides all the operating capital for CREC and has
approval rights over services CREC performs. At December 31, 2002, 2001 and
2000, Cousins owned 100% of CREC's $5,025,000 par value 8% cumulative preferred
stock and 100% of CREC's non-voting common stock, which is entitled to 95% of
any dividends of CREC after preferred dividend requirements. T. G. Cousins,
Chairman of the Board of Cousins and an officer and director of CREC, owns 100%
of the voting common stock of CREC, which he purchased for $100 and which voting
common stock is entitled to 5% of any dividends of CREC after preferred dividend
requirements. CREC is included in the Company's Consolidated Financial
Statements, but is taxed as a regular corporation. CREC has paid no common
dividends to date, and for financial reporting purposes, none of CREC's income
is attributable to Mr. Cousins' minority interest because the face amount of
CREC's preferred stock plus accumulated dividends thereon ($11,055,000 in
aggregate) exceeds CREC's $9,104,456 of equity.
CREC II owns the Company's investment in Cousins Properties Services LP
(see Note 5). Cousins provides all of the operating capital for CREC II and has
approval rights over services CREC II performs. Cousins owns 100% of CREC II's
$835,000 par value, 10% cumulative preferred stock and 100% of CREC II's
non-voting common stock, which is entitled to 95% of any dividends of CREC II
after preferred dividend requirements. Mr. Cousins, who is also an officer and
director of CREC II, owns 100% of the voting common stock of CREC II, which he
purchased for $64,000 and which voting common stock is entitled to 5% of any
dividends of CREC II after preferred dividend requirements. CREC II is included
in the Company's Consolidated Financial Statements, but is taxed as a regular
corporation. CREC II has paid no common dividends to date and as of December 31,
2002, undistributed cumulative preferred dividends were $83,500. Minority
interest has been recognized for Mr. Cousins' ownership.
- --------------------------------------------------------------------------------
3. NOTES AND OTHER RECEIVABLES
At December 31, 2002 and 2001, notes and other receivables included the
following ($ in thousands):
2002 2001
------- -------
650 Massachusetts Avenue Mortgage Note $26,309 $25,001
Miscellaneous Notes 12 18
Cumulative rental revenue recognized on a
straight-line basis in excess of revenue
accrued in accordance with lease terms
(see Note 1) 10,022 7,885
Other Receivables, net (see Note 1) 14,264 11,629
--------------------
Total Notes and Other Receivables $50,607 $44,533
====================
- --------------------------------------------------------------------------------
650 Massachusetts Avenue Mortgage Notes - On March 10, 1994, the Company
purchased from the Resolution Trust Corporation ("RTC") two notes aggregating
$37 million (a $32 million and a $5 million note) at a total cost of
approximately $28 million. The two notes, which resulted from the RTC's
restructuring in December 1993 of a $53 million note, are secured by a first
deed of trust on an office building containing approximately 250,000 rentable
square feet located at 650 Massachusetts Avenue, NW, in Washington, D.C. The
notes mature December 31, 2003, at which time their unamortized balance will be
a maximum of approximately $27.6 million. The notes require minimum monthly
payments totaling $2,818,000 annually, which are supported by a U.S. government
agency lease. For financial reporting purposes, the discounted notes are treated
as non-amortizing notes to the extent of the minimum required payments, with the
minimum required payments treated as interest income. Amounts in excess of the
minimum required payments ($543,000 and $750,000 in 2001 and 2000, respectively)
were treated as a reduction of principal. During 2000, it became probable that
the Company's $5 million note would be repaid in full (which subsequently
occurred in April 2001), thus reducing the carrying value of the $32 million
note to $23 million, which was substantially lower than the balance of the $32
million note originally estimated to be approximately $27.6 million. As a
result, beginning in the third quarter of 2000 and continuing until the notes
mature December 31, 2003, the Company is amortizing into interest income this
difference of approximately $4.6 million between the Company's carrying value
and the amount due under the note, which equals $327,000 per quarter.
Fair Value - The estimated fair value of the Company's $26.3 million and
$25.0 million of notes receivable at December 31, 2002 and 2001, respectively,
was $27.2 million and $29.2 million, respectively, calculated by discounting
future cash flows from the notes receivable at estimated rates at which similar
loans would be made currently.
4. NOTES PAYABLE, COMMITMENTS AND CONTINGENT LIABILITIES
At December 31, 2002 and 2001, notes payable included the following ($ in
thousands):
2002 2001
------------------------------------ -------------------------------------
Share of Share of
Unconsolidated Unconsolidated
Company Joint Ventures Total Company Joint Ventures Total
-------- -------------- -------- -------- --------------- --------
Floating Rate Credit Facility
and Floating Rate Debt $160,253 $ 6,606 $166,859 $153,816 $ 7,614 $161,430
Other Debt (primarily non-recourse
fixed rate mortgages) 509,539 259,248 768,787 431,459 268,299 699,758
-------------------------------------------------------------------------------
$669,792 $265,854 $935,646 $585,275 $275,913 $861,188
===============================================================================
The following table summarizes the terms of the debt outstanding at December
31, 2002 ($ in thousands):
Term/
Amortization Balance at
Period Final December 31,
Description Rate (Years) Maturity 2002
----------- -------------- ------------ -------- ------------
Company Debt:
- -------------
Credit facility (a maximum of $275,000), Floating based
unsecured on LIBOR 3/N/A 8/31/04 $159,157
Perimeter Expo mortgage note 8.04% 10/30 8/15/05 19,792
Northside/Alpharetta I mortgage note 7.70% 8/28 1/01/06 9,903
101 Independence Center mortgage note 8.22% 11/25 12/01/07 44,928
Lakeshore Park Plaza mortgage note 6.78% 10/30 11/01/08 10,088
101 Second Street mortgage note 8.33% 10/30 4/19/10 88,055
The Avenue East Cobb mortgage note 8.39% 10/30 8/01/10 38,255
Meridian Mark Plaza mortgage note 8.27% 10/28 10/01/10 24,926
Presidential MarketCenter mortgage note 7.65% 10/30 5/02/11 27,667
600 University Park Place mortgage note 7.38% 10/30 8/10/11 13,822
333 John Carlyle/1900 Duke Street mortgage note 7.00% 10/25 11/01/11 48,459
333/555 North Point Center East mortgage note 7.00% 10/30 11/01/11 31,960
Note secured by Company's interest in
CSC Associates, L.P. 6.958% 10/20 3/01/12 148,283
Other miscellaneous notes Various Various Various 4,497
--------
669,792
--------
Share of Unconsolidated Joint Venture Debt:
- -------------------------------------------
Wildwood Associates:
2300 Windy Ridge Parkway mortgage note 7.56% 10/25 12/01/05 28,831
2500 Windy Ridge Parkway mortgage note 7.45% 10/20 12/15/05 10,406
3200 Windy Hill Road mortgage note 8.23% 10/28 1/01/07 31,969
4100/4300 Wildwood Parkway mortgage note 7.65% 15/25 4/01/12 13,444
4200 Wildwood Parkway mortgage note 6.78% 15.75/18 3/31/14 20,403
Cousins LORET Venture, L.L.C.:
Two Live Oak Center mortgage note 7.90% 10/30 10/01/07 14,263
The Pinnacle mortgage note 7.11% 12/30 12/31/09 33,877
CP Venture Two LLC:
North Point MarketCenter mortgage note 8.50% 10/25 7/15/05 3,037
100/200 North Point Center East mortgage note 7.86% 10/25 8/01/07 2,630
Ten Peachtree Place Associates mortgage note LIBOR + 0.75% 7/18 12/31/08 6,606
CC-JM II Associates mortgage note 7.00% 17/17 4/01/13 9,622
Charlotte Gateway Village, LLC mortgage note 6.41% 15/15 12/01/16 90,766
--------
265,854
--------
$935,646
========
- --------------------------------------------------------------------------------
In 1996, CSC Associates, L.P. ("CSC"), an entity in which the Company owns
a 50% equity interest, issued $80 million of 6.377% collateralized non-recourse
mortgage notes (the "Prior Notes") secured by CSC's interest in the Bank of
America Plaza building and related leases and agreements. CSC loaned the $80
million proceeds of the Prior Notes to the Company under a non-recourse loan
(the "Prior Cousins Loan") secured by the Company's interest in CSC under the
same payment terms as those of the Prior Notes. The Company paid all costs of
issuing the Prior Notes and the Prior Cousins Loan, including a $400,000 fee to
an affiliate of Bank of America Corporation. In addition, the Company paid a fee
to an affiliate of Bank of America Corporation of .3% per annum of the
outstanding principal balance of the Prior Notes.
On February 22, 2002, CSC refinanced the Prior Notes, completing a $150
million non-recourse mortgage note payable (the "New Loan") with an interest
rate of 6.958% and a maturity of March 1, 2012. The New Loan is secured by CSC's
interest in the Bank of America Plaza building and related leases and
agreements. CSC loaned the $150 million proceeds of the non-recourse mortgage
note payable to the Company under a non-recourse loan (the "New Cousins Loan")
secured by the Company's interest in CSC under the same payment terms as those
of the New Loan. The Company paid all costs of issuing the New Loan and the New
Cousins Loan, including a $750,000 fee to an affiliate of Bank of America
Corporation.
On March 15, 2002, $65,873,925 of the proceeds from the New Loan was used
to pay off in full the Prior Notes. The $65,873,925 included $65,525,710 for the
payoff of the principal balance as of February 15, 2002 (the last payment date
of the Prior Notes) and $348,215 for accrued interest from February 15, 2002
through March 14, 2002. The Prior Cousins Loan to CSC was also repaid in full.
In connection with the prepayment in full of the Prior Notes, the Company
paid a prepayment premium in the amount of $2,871,925. This prepayment premium,
along with the unamortized balance of closing costs paid by the Company related
to the Prior Notes in the amount of $629,278, were expensed as an Extraordinary
Item in the accompanying Consolidated Statements of Income.
Because CSC loaned the proceeds of the Prior Notes and the New Loan to the
Company, the Prior Notes and the New Loan and their related interest expense and
maturities are disclosed as obligations of the Company and are not included in
the unconsolidated joint venture balances disclosed in the above table or in
Note 5. (The related note receivable and interest income are also not included
in Note 5).
The Wildwood Associates 2300 Windy Ridge Parkway, 3200 Windy Hill Road,
4100/4300 Wildwood Parkway and 4200 Wildwood Parkway mortgage notes and the
CC-JM II Associates mortgage note provide for additional amortization in the
later years of the notes (over that required by the amortization periods
disclosed in the table) concurrent with scheduled rent increases.
The Company has a credit facility with Bank of America, Wachovia and
certain other banks for $275 million, which expires August 31, 2004. The credit
facility is unsecured and bears interest at a rate equal to the London Interbank
Offering Rate ("LIBOR") plus a spread which is based on the ratio of total debt
to total assets, as defined by the credit facility, according to the following
table:
Applicable
Leverage Ratio Spread
------------------ ----------
<= to 35% 1.05%
>35.00% but <= 45% 1.15%
>45.00% but <= 50% 1.25%
>50.00% but <= 55% 1.45%
>55% 1.70%
At December 31, 2002, the Company had outstanding letters of credit
totaling $4,657,000, and assets, including the Company's share of joint venture
assets, with carrying values of $670,003,000 were pledged as security on the
debt of the Company and its share of unconsolidated joint venture debt. The
fixed rate long-term mortgage debt of the Company and its unconsolidated joint
ventures is non-recourse to the Company.
As of December 31, 2002, the weighted average maturity of the Company's
debt, including its share of unconsolidated joint ventures, was eight years.
- --------------------------------------------------------------------------------
The aggregate maturities of the indebtedness at December 31, 2002
summarized above are as follows ($ in thousands):
Share of
Unconsolidated
Company Joint Ventures Total
-------- -------------- ---------
2003 $ 8,274 $ 10,318 $ 18,592
2004 168,867 11,146 180,013
2005 37,035 48,957 85,992
2006 9,040 10,737 19,777
2007 47,933 39,554 87,487
Thereafter 398,643 145,142 543,785
-------------------------------------------
$669,792 $265,854 $935,646
===========================================
For each of the years ended December 31, 2002, 2001 and 2000, interest
expense was recorded as follows ($ in thousands):
Share of Unconsolidated
Company Joint Ventures Total
------------------------------ ------------------------------ ------------------------------
Year Expensed Capitalized Total Expensed Capitalized Total Expensed Capitalized Total
- ---- -------- ----------- ----- -------- ----------- ----- -------- ----------- -----
2002 $37,423 $ 5,934 $43,357 $13,208 $ -- $13,208 $50,631 $ 5,934 $56,565
2001 27,610 9,712 37,322 17,086 1,186 18,272 44,696 10,898 55,594
2000 13,596 15,285 28,881 14,819 3,545 18,364 28,415 18,830 47,245
- --------------------------------------------------------------------------------------------------------------------
The Company has future lease commitments under land leases aggregating
$45.9 million over an average remaining term of 57 years. As of December 31,
2002, outstanding commitments for the construction and design of real estate
projects, including the Company's share of unconsolidated joint venture
commitments, totaled approximately $131.5 million. At December 31, 2002 and
2001, the estimated fair value of the Company's notes payable, including its
share of unconsolidated joint ventures, was $989 million and $882 million,
respectively.
5. INVESTMENT IN UNCONSOLIDATED JOINT VENTURES
The following information summarizes financial data and principal
activities of unconsolidated joint ventures in which the Company had ownership
interests ($ in thousands). Audited financial statements for CSC Associates,
L.P. are included in the Company's Annual Report on Form 10-K for the year ended
December 31, 2002.
Company's
Total Assets Total Debt Total Equity Investment
---------------------- ------------------- ------------------- -------------------
2002 2001 2002 2001 2002 2001 2002 2001
---------- ---------- -------- -------- -------- -------- -------- --------
SUMMARY OF FINANCIAL POSITION:
Wildwood Associates $ 226,342 $ 237,729 $210,103 $217,794 $ 8,266 $ 12,674 $(37,565) $(35,144)
Charlotte Gateway Village, LLC 203,648 209,360 181,531 189,370 20,861
18,903 10,655 10,828
CSC Associates, L.P. 168,493 171,731 -- -- 163,870 168,937 84,133 86,793
Cousins LORET Venture, L.L.C. 113,129 120,482 96,279 97,430 13,629 20,156 6,599 9,918
285 Venture, LLC 58,929 60,203 -- -- 57,716 58,971 31,031 31,554
CPI/FSP I, L.P. 50,971 50,393 -- -- 48,925 49,111 25,277 25,659
Crawford Long - CPI, LLC 49,599 43,218 -- -- 47,894 40,701 25,434 21,214
Ten Peachtree Place Associates 27,586 19,743 13,212 15,228 11,665 4,216 4,262 693
Temco Associates 24,405 20,728 -- -- 24,241 20,391 12,678 10,332
CC-JM II Associates 23,133 23,973 19,243 20,418 3,364 2,944 2,204 1,998
Brad Cous Golf Venture, Ltd. 11,789 11,966 -- -- 11,541 11,678 5,767 5,839
CP Venture LLC -- -- -- -- -- -- 12,957 13,900
CP Venture Two LLC 228,225 238,317 49,285 50,380 177,579 186,558 1,777 1,864
Other 700 -- -- -- 700 -- 307 (51)
---------------------- ------------------- ------------------- -------------------
$1,186,949 $1,207,843 $569,653 $590,620 $590,251 $595,240 $185,516 $185,397
====================== =================== =================== ===================
Company's Share
Total Revenues Net Income (Loss) of Net Income (Loss)
---------------------------- -------------------------- -------------------------
2002 2001 2000 2002 2001 2000 2002 2001 2000
-------- -------- -------- ------- ------- ------- ------- ------- -------
SUMMARY OF OPERATIONS:
SUMMARY OF OPERATIONS:
Wildwood Associates $ 55,755 $ 53,631 $ 50,918 $12,720 $10,917 $ 7,688 $ 6,360 $ 5,223 $ 3,844
Charlotte Gateway Village, LLC 29,377 16,029 2,841 3,167 (232) (593) 1,184 620 762
CSC Associates, L.P. 42,489 39,948 39,339 23,083 21,574 21,378 11,466 10,711 10,613
Cousins LORET Venture, L.L.C. 21,226 21,604 20,717 (1,376) (107) (767) (729) (54) (384)
285 Venture, LLC 11,490 11,217 3,434 5,774 5,312 1,684 2,725 2,596 831
CPI/FSP I, L.P. 8,670 2,198 -- 4,412 775 -- 2,119 352 --
Crawford Long - CPI, LLC 5,336 -- -- 1,924 -- -- 927 -- --
Ten Peachtree Place Associates 1,172 4,324 4,438 (1,708) 737 959 (854) 169 279
Temco Associates 14,428 12,378 10,023 3,850 3,815 2,708 1,949 1,720 678
CC-JM II Associates 4,722 4,509 4,356 1,158 952 786 546 464 381
Brad Cous Golf Venture, Ltd. 1,142 1,011 853 (137) (134) 61 (68) (67) 31
CP Venture LLC -- -- -- -- -- -- 955 923 611
CP Venture Two LLC 32,681 34,048 34,046 9,099 8,792 5,815 91 87 58
Cousins Properties Services LP -- 1,400 10,076 -- 203 3,161 -- 153 1,649
Other -- -- 55 (1) -- 55 (1) -- 99
---------------------------- -------------------------- -------------------------
$228,488 $202,297 $181,096 $61,965 $52,604 $42,935 $26,670 $22,897 $19,452
============================ ========================== =========================
Company's Share Of
------------------------------------------------------
Cash Flows From Cash Flows From
Operating Activities Operating Activities Cash Distributions
--------------------------- --------------------------- -------------------------
2002 2001 2000 2002 2001 2000 2002 2001 2000
------- ------- ------- ------- ------- ------- ------- ------- ------
SUMMARY OF OPERATING CASH FLOWS:
Wildwood Associates $ 22,085 $19,712 $18,430 $11,043 $ 9,856 $ 9,215 $ 8,564 $ 1,500 $ 6,000
Charlotte Gateway Village, LLC 9,710 1,240 1,524 4,855 620 762 1,408 19,053 731
CSC Associates, L.P. 32,000 30,482 28,410 16,000 15,241 14,205 14,075 14,860 13,990
Cousins LORET Venture, L.L.C. 4,939 7,584 6,830 2,470 3,792 3,415 2,575 2,950 2,900
285 Venture, LLC 6,797 5,738 1,840 3,399 2,869 920 3,296 2,918 1,044
CPI/FSP I, L.P. 6,356 1,514 -- 3,178 757 -- 700 846 --
Crawford Long - CPI, LLC 2,776 -- -- 1,388 -- -- 1,000 -- --
Ten Peachtree Place Associates (978) 1,836 1,113 (489) 278 367 -- 183 200
Temco Associates 3,898 3,440 1,356 1,949 1,720 678 -- -- 1,800
CC-JM II Associates 2,152 1,988 1,826 1,076 994 913 339 595 468
Brad Cous Golf Venture, Ltd. 696 558 454 348 279 227 -- -- --
CP Venture LLC -- -- -- -- -- -- 1,898 1,824 2,068
CP Venture Two LLC 19,808 20,878 21,764 2,278 2,401 2,426 181 174 197
Cousins Properties Services LP -- 204 265 -- 153 -- -- 75 3,140
Other -- -- 55 -- -- -- -- -- --
---------------------------- --------------------------- --------------------------
$110,239 $95,174 $83,867 $47,495 $38,960 $33,128 $36,036 $44,978 $32,538
============================ =========================== ==========================
- --------------------------------------------------------------------------------
Wildwood Associates - Wildwood Associates was formed in 1985 between the
Company and IBM, each as 50% partners. The partnership owns six office buildings
totaling 2.1 million rentable square feet, other income-producing commercial
properties and additional developable land in Wildwood Office Park ("Wildwood")
in Atlanta, Georgia. Wildwood is an office park containing a total of
approximately 285 acres, of which approximately 90 acres are owned by Wildwood
Associates and an estimated 13 acres are committed to be contributed to Wildwood
Associates by the Company; the Company owns the balance of the developable
acreage in the office park. The 13 acres of land which are committed to be
contributed to Wildwood Associates by the Company are included in Wildwood
Associates' financial statements under the caption "Land Committed to be
Contributed" and are not included in "Land Held for Investment or Future
Development" in the Company's financial statements. All costs associated with
the land are borne by Wildwood Associates.
Through December 31, 2002, IBM had contributed $46.6 million in cash plus
properties having an agreed-upon value of $16.3 million for its one-half
interest in Wildwood Associates. The Company has contributed $84,000 in cash
plus properties having an agreed-upon value of $54.5 million for its one-half
interest in the partnership and is obligated to contribute the aforesaid
estimated 13 acres of additional land with an agreed-upon value of $8.3 million.
The Company and IBM each lease office space from the partnership at rates
comparable to those charged to third parties.
The Company's investment as recorded in the Consolidated Balance Sheets,
which was a negative investment of $37.6 million at December 31, 2002 due to
partnership distributions in excess of contributions, is based upon the
Company's historical cost of the properties at the time they were contributed or
committed to be contributed to the partnership, whereas its investment as
recorded on Wildwood Associates' books ($4.1 million at December 31, 2002) is
based on the agreed-upon values at the time the partnership was formed.
Charlotte Gateway Village, LLC ("Gateway") - On December 14, 1998, the
Company and a wholly-owned subsidiary of Bank of America Corporation formed
Gateway for the purpose of developing and owning Gateway Village, a 1.1 million
rentable square foot office building complex in downtown Charlotte, North
Carolina. Construction of Gateway Village commenced in July 1998. The project,
which is 100% leased to Bank of America Corporation with a term of 15 years,
became partially operational for financial reporting purposes in November 2000.
Gateway's net income or loss and cash distributions are allocated to the members
as follows: first to the Company so that it receives a cumulative compounded
return equal to 11.46% on its capital contributions, second to a wholly-owned
subsidiary of Bank of America Corporation until it has received an amount equal
to the aggregate amount distributed to the Company and then 50% to each member.
CSC Associates, L.P. ("CSC") - CSC was formed in 1989 between the Company
and a wholly-owned subsidiary of Bank of America Corporation, each as 50%
partners. CSC owns the 1.3 million rentable square foot Bank of America Plaza in
midtown Atlanta, Georgia.
CSC's net income or loss and cash distributions are allocated to the
partners based on their percentage interests. See Note 4 for a discussion of the
presentation of certain CSC assets, liabilities, revenues and expenses.
Cousins LORET Venture, L.L.C. ("Cousins LORET") - Effective July 31, 1997,
Cousins LORET was formed between the Company and LORET Holdings, L.L.L.P.
("LORET"), each as 50% members. LORET contributed Two Live Oak Center, a 279,000
rentable square foot office building located in Atlanta, Georgia, which was
renovated in 1997. LORET also contributed an adjacent four--acre site on which
construction of The Pinnacle, a 424,000 rentable square foot office building,
was completed in November 1998. The Company contributed $25 million of cash to
Cousins LORET to match the value of LORET's agreed-upon equity.
285 Venture, LLC - In March 1999, the Company and a commingled trust fund
advised by J.P. Morgan Investment Management Inc. (the "J.P. Morgan Fund")
formed 285 Venture, LLC, each as 50% partners, for the purpose of developing and
owning 1155 Perimeter Center West, an approximately 362,000 rentable square foot
office building complex in Atlanta, Georgia. The J.P. Morgan Fund contributed
the approximately six-acre site upon which 1155 Perimeter Center West was
developed. The land had an agreed-upon value of approximately $5.4 million,
which the Company matched with a cash contribution. In January 2000, 1155
Perimeter Center West became partially operational for financial reporting
purposes.
CPI/FSP I, L.P. - In May 2000, CPI/FSP I, L.P., a limited partnership, was
formed. 50% of the venture is owned by the Company through a general
partnership, Cousins Austin GP, Inc. (1%), and a limited partnership, Cousins
Austin, Inc. (49%). The remaining 50% is owned by a general partnership, Fifth
Street Properties - Austin, LLC (1%), and a limited partnership, Fifth Street
Properties - Austin Investor, LLC (49%), which are both owned by CommonWealth
Pacific LLC and CalPERS. CPI/FSP I, L.P. developed Austin Research Park -
Buildings III and IV, two approximately 174,000 and 184,000 rentable square foot
office buildings, respectively, in Austin, Texas, which became partially
operational for financial reporting purposes in June 2001 and September 2001,
respectively. Additionally, the venture owns an adjacent pad for future
development of an approximately 175,000 rentable square foot office building.
Crawford Long - CPI, LLC - In October 1999, the Company formed Crawford
Long - CPI, LLC with Emory University, each as 50% partners, for the purpose of
developing and owning the Emory Crawford Long Medical Office Tower, an
approximately 358,000 rentable square foot medical office building located in
midtown Atlanta, Georgia, which became partially operational for financial
reporting purposes in February 2002.
Ten Peachtree Place Associates ("TPPA") - TPPA is a general partnership
between the Company (50%) and a wholly-owned subsidiary of The Coca-Cola Company
("Coca-Cola") (50%). The venture owns Ten Peachtree Place, a 260,000 rentable
square foot building located in midtown Atlanta, Georgia. The building was 100%
leased to Coca-Cola through November 30, 2001. Additionally, the venture owns an
adjacent pad for future development of an approximately 400,000 rentable square
foot office building or a 350-unit apartment complex.
The TPPA partnership agreement generally provided that each partner is
entitled to receive 50% of cash flows from operating activities, net of note
principal amortization, through the term of the Coca-Cola lease. After the
Coca-Cola lease expired, in accordance with the partnership agreement, each
partner must contribute on a 50% basis capital contributions needed for tenant
improvements and leasing commissions related to the releasing of the building,
as well as to fund any operating deficits. The cash flows from operating
activities, net of note principal amortization, will be used first to repay
these capital contributions plus 8% interest to each partner on a 50% basis.
After these capital contributions plus 8% interest are repaid in full, the
Company and its partner are entitled to receive 15% and 85% of the cash flows
(including any sales proceeds), respectively, until the two partners have
received a combined distribution of $15.3 million. Thereafter, each partner is
entitled to receive 50% of cash flows.
Temco Associates - Temco Associates was formed in 1991 as a partnership
between CREC (50%) and a subsidiary of Temple-Inland Inc. (50%). Temco
Associates has an option through March 2006, with no carrying costs, to acquire
the fee simple interest in approximately 7,500 acres in Paulding County, Georgia
(northwest of Atlanta, Georgia). The partnership also has an option to acquire
interests in a timber rights only lease covering approximately 22,000 acres.
This option also expires in March 2006, with the underlying lease expiring in
2025. The options may be exercised in whole or in part over the option period,
and the option price of the fee simple land was $1,107 per acre at January 1,
2003, escalating at 6% on January 1 of each succeeding year during the term of
the option.
During 2002, 2001 and 2000, approximately 1,595, 487 and 734 acres,
respectively, of the option related to the fee simple interest was exercised. In
2002, approximately 607 acres were simultaneously sold for gross profits of
$1,005,000 and approximately 78 acres were held for sale under three-year
options to two third parties. Approximately three acres were sold in 2002 for
gross profits of $336,000, which were a component of the 13 acres purchased in
2000 that were being held for sale or future development. Also, in 2002,
approximately 281 acres were acquired for additional phases of the Bentwater
residential community and approximately 629 acres were acquired and are being
held for a future development in Paulding County. In 2001, approximately 359
acres were simultaneously sold for gross profits of $1,902,000 and approximately
128 acres were held for sale under a three-year option to a third party.
Approximately two acres were sold in 2001 for gross profits of $291,000, which
were a component of the 13 acres purchased in 2000 that were being held for sale
or future development. In 2000, approximately 461 acres were simultaneously sold
for gross profits of $1,546,000 and approximately 13 acres are being held for
sale or future development (of which approximately three and two acres were sold
in 2002 and 2001, respectively, as noted above). Also in 2000, approximately 260
acres were acquired for the development of the Bentwater residential community.
Approximately 1,669 lots will be developed within Bentwater on an approximate
total of 1,290 acres. Temco Associates sold 289, 233 and 219 lots within
Bentwater in 2002, 2001 and 2000, respectively.
CC-JM II Associates - This joint venture was formed in 1994 between the
Company and an affiliate of CarrAmerica Realty Corporation, each as 50% general
partners, to develop and own John Marshall-II, a 224,000 rentable square foot
office building in suburban Washington, D.C. The building is 100% leased until
January 2011 to Booz-Allen & Hamilton, an international consulting firm, as a
part of its corporate headquarters campus.
Brad Cous Golf Venture, Ltd. ("Brad Cous") - Effective January 31, 1998,
the Company formed Brad Cous with W.C. Bradley Co., each as 50% partners, for
the purpose of developing and owning The Shops at World Golf Village, an
approximately 80,000 square foot retail center located adjacent to the PGA Hall
of Fame in St. Augustine, Florida.
CP Venture LLC, CP Venture Two LLC and CP Venture Three LLC - On November
12, 1998 (the "Closing Date"), the Company entered into a venture arrangement
(the "Venture") with The Prudential Insurance Company of America ("Prudential").
On such date the Company contributed its interest in nine properties (the
"Properties") to the Venture. At the time of contribution, the Properties were
valued by the Company and Prudential based on arm's length negotiations at a
total gross value of $283,750,000 subject to mortgages in the principal amount
of $53,281,219. The following table details the values allocated to each of the
Properties and the mortgages to which certain Properties were subject ($ in
thousands):
Allocated
Value Mortgage Net Value
--------- -------- ---------
First Union Tower $ 53,000 $ -- $ 53,000
Grandview II 23,000 -- 23,000
100 North Point Center East and
200 North Point Center East 46,050 24,582 21,468
Presbyterian Medical Plaza 8,600 -- 8,600
North Point MarketCenter 56,750 28,699 28,051
Mansell Crossing II 12,350 -- 12,350
Greenbrier MarketCenter 51,200 -- 51,200
Los Altos MarketCenter 32,800 -- 32,800
-------- ------- --------
$283,750 $53,281 $230,469
======== ======= ========
Under the Venture arrangements, Prudential contributed cash to the Venture equal
to the agreed-upon net value of the properties ($230,468,781) at dates specified
in the agreements.
The structure of the Venture is as follows: CP Venture LLC, the parent
entity, owns a 99% interest in each of CP Venture Two LLC ("Property Activity
LLC") and CP Venture Three LLC ("Development Activity LLC"). The Company owns a
1% direct interest in Property Activity LLC and Prudential owns a 1% direct
interest in Development Activity LLC. The contributed properties are owned and
operated by Property Activity LLC. The Company has a 10.6061% interest in CP
Venture LLC's 99% interest in Property Activity LLC, which, combined with its 1%
direct interest, gives it a net interest of 11.5% in the economics of Property
Activity LLC. Prudential has the remaining net interest of 88.5% in the
economics of Property Activity LLC. Unless both parties agreed otherwise,
Property Activity LLC was not permitted to sell the contributed properties until
the end of lock-out periods which was November 2001 for retail properties and
November 2002 for office and medical office properties.
The cash contributed by Prudential was contributed to Development Activity
LLC. To the extent such funds are not yet needed for development activity,
Development Activity LLC can temporarily invest such funds; such potential
investments may include temporary loans to the Company. The Venture earns
interest on the outstanding balance at the same rate as the Company's credit
facility. Prudential is entitled to 10.6061% of CP Venture LLC's 99% share of
the economics of Development Activity LLC, which, combined with its 1% direct
interest, entitles it to an overall net interest of 11.5% in the economics of
Development Activity LLC. Prudential first receives a priority current return of
9.5% per annum on its share (11.5%) of the initial capital ($230.469 million)
("Initial Capital") of Development Activity LLC. Prudential also receives a
liquidation preference whereby it is first entitled to, subject to capital
account limitations, sufficient proceeds to allow it to achieve an overall 11.5%
internal rate of return on its share of the Initial Capital of Development
Activity LLC. After these preferences to Prudential, the Company has certain
preferences, with the residual interests in the development activity being
shared according to the interests of the parties. All Prudential priority
current returns have been distributed to Prudential during the year.
CP Venture LLC appointed the Company to serve as Development Manager and in
such capacity to act for it in connection with its ownership of Development
Activity LLC. CP Venture LLC also appointed Prudential to serve as Property
Manager and in such capacity to act for it in connection with its ownership of
Property Activity LLC. Prudential appointed the Company to serve as property
manager of the Properties for Property Activity LLC. The Company also serves as
Administrative Manager of CP Venture LLC. Property Activity LLC is expected to
continue to operate the contributed Properties. Development Activity LLC is
expected to develop commercial real estate projects over time, as selected by
the Development Manager. Development Activity LLC may also make acquisitions,
which are anticipated to be redevelopment or value-added opportunities.
Development Activity LLC developed Mira Mesa MarketCenter, a 480,000 square foot
retail center in suburban San Diego, California, which became partially
operational in April 2000. In December 2000, Development Activity LLC acquired
One Georgia Center, an approximately 363,000 rentable square foot office
building in midtown Atlanta, Georgia. Development Activity LLC also developed
The Avenue Peachtree City, an approximately 169,000 square foot retail center in
suburban Atlanta, Georgia, which became partially operational for financial
reporting purposes in April 2001. The parties anticipate that some of the
projects currently under consideration by the Company will be undertaken by
Development Activity LLC, although the Company has no obligation to make any
particular opportunity available to Development Activity LLC.
For financial reporting purposes, the Properties were deconsolidated and
contributed to Property Activity LLC. Both Property Activity LLC and CP Venture
LLC are being treated as unconsolidated joint ventures. Development Activity LLC
is treated as a consolidated entity in the Company's financial statements as the
Company has a controlling financial interest. The Company initially deferred the
net gain on the contributed Properties and is recognizing this net gain as Gain
on Sale of Investment Properties, Net of Applicable Income Tax Provision in the
accompanying Consolidated Statements of Income as capital distributions of cash
are made from Development Activity LLC to the Company or when the Properties
initially contributed to Property Activity LLC are liquidated by Property
Activity LLC. The liquidation of the Properties may be in the form of actual
sales of the Properties or in the form of the depreciation of the Properties
which have an average remaining life of 26 years. The total net deferred gain on
the contributed Properties on the Closing Date was approximately $96.8 million
over the cost of the Properties. Including depreciation recapture of $23.8
million, the total net deferred gain on the Closing Date was approximately
$120.6 million, which has been reduced by approximately $17.0 million through
December 31, 2002, and is reflected as Deferred Gain in the accompanying
Consolidated Balance Sheets.
Cousins Properties Services LP (formerly Cousins Stone LP) - Cousins Stone
LP was formed on June 1, 1999 when CREC II acquired Faison's 50% interest in
Faison-Stone. On July 3, 2000, CREC II purchased an additional 25% interest in
Cousins Stone LP from RD Stone Interests, Ltd., increasing CREC II's total
ownership to 75%. Effective March 1, 2001, CREC II purchased the remaining 25%
interest in Cousins Stone LP, bringing its total interest to 100%, and beginning
on that date Cousins Stone LP was consolidated with CREC II. Effective August 6,
2001, the name was changed to Cousins Properties Services LP ("CPS"). CPS is a
full-service real estate company headquartered in Dallas, Texas, that
specializes in third party property management and leasing of Class "A" office
properties.
Other - This category consists of several other joint ventures including:
CL Realty, LLC - In August 2002, CL Realty, LLC was formed between the
Company and Lumbermen's Investment Corporation, a subsidiary of Temple-Inland
Inc., each as 50% members, for the purpose of developing and investing primarily
in residential properties.
During 2002, CL Realty, LLC, through two subsidiaries, acquired a 37.5%
limited partnership interest in LM Land Holdings, LP ("Land Holdings"). Land
Holdings has acquired approximately 1,242 acres of undeveloped land in Fort Bend
County, Texas and intends to subdivide and develop the property for sale of
commercial tracts and a residential community, Long Meadow Farms. Once certain
Equity Funding Conditions, as defined, are met, CL Realty, LLC will have a total
capital commitment to Land Holdings of $8 million. At December 31, 2002,
$700,000 of that commitment has been contributed to Land Holdings.
Cousins-Hines Partnerships - Through the Cousins-Hines partnerships, the
Company effectively owns 9.8% of the One Ninety One Peachtree Tower in Atlanta,
Georgia, subject to a preference in favor of the majority partner. This 1.2
million rentable square foot office building, which opened in December 1990, was
developed by the Company in partnership with the Hines Interests Limited
Partnership and the Dutch Institutional Holding Company ("DIHC"). In October
1997, Cornerstone Properties, Inc. purchased DIHC's interest in the partnership.
In June 2000, Equity Office Properties Trust acquired Cornerstone Properties,
Inc. Because the Company's effective ownership of this building is less than
20%, the Company accounts for its investment using the cost method of
accounting, and therefore the above tables do not include the Company's share of
One Ninety One Peachtree Tower.
Additional Information - The Company recognized $8,037,000, $10,877,000 and
$7,955,000 of development, construction, leasing, and management fees from
unconsolidated joint ventures in 2002, 2001 and 2000, respectively. See Note 1,
Fee Income and Cost Capitalization, for a discussion of the accounting treatment
for fees from unconsolidated joint ventures.
6. STOCKHOLDERS' INVESTMENT
Stock Dividend:
On October 2, 2000, a 3-for-2 stock split effected in the form of a 50%
stock dividend was awarded to stockholders of record on September 15, 2000. In
conjunction with the stock dividend, 16,259,000 shares of common stock were
issued and $16,259,000 was transferred from Additional Paid-In-Capital to Common
Stock. All prior period shares outstanding, per share amounts, stock options,
SARs and restricted stock ("stock grants") have been restated for the effect of
the stock dividend.
1999 Incentive Stock Plan:
In May 1999, the stockholders of the Company approved the adoption of the
1999 Incentive Stock Plan (the "1999 Plan"), which covered the issuance of
1,343,288 shares of common stock, all of which shares had been available for use
under the 1995 Stock Incentive Plan, the Stock Plan for Outside Directors and
the Stock Appreciation Right Plan (collectively, the "Predecessor Plans"). Upon
adoption of the 1999 Plan, no additional shares of common stock can be issued
under the Predecessor Plans. In May 2002 and May 2001, the stockholders of the
Company approved amendments to the 1999 Plan to increase the number of shares of
common stock available under the 1999 Plan by 1,100,000 in each year. As of
December 31, 2002, 970,363 shares are authorized to be awarded pursuant to the
1999 Plan, which allows awards of stock options, stock grants or SARs.
Stock Options - At December 31, 2002, 5,374,945 stock options awarded to
key employees and outside directors pursuant to both the 1999 Plan and the
Predecessor Plans were outstanding. All stock options have a term of 10 years
from the date of grant. Key employee stock options granted prior to December 28,
2000 have a vesting period of five years under both the 1999 Plan and the
Predecessor Plans. Options granted on or after December 28, 2000 have a vesting
period of four years. Outside director stock options are fully vested on the
grant date under the 1999 Plan but had a vesting period of one year under the
Predecessor Plans.
SARs - The Company issued SARs to certain employees under one of the
Predecessor Plans and the CREC Stock Appreciation Plan (the "SAR plans"). Under
the CREC Stock Appreciation Plan, no SARs can be granted after January 1, 1999.
Included in the Consolidated Statements of Income under the heading
"stock appreciation right expense (credit)" are increases or decreases in
accrued compensation expense to reflect changes in the market value of the
common stock between periods and forfeitures of non-vested SARs of terminated
employees.
No SARs were outstanding at December 31, 2002. At December 31, 2001, the
total amount accrued for SARs outstanding was approximately $318,000.
The following is a summary of stock option activity under the 1999 Plan,
the Predecessor Plans and the SAR plans (in thousands, except per share
amounts):
Number of Weighted Average
Shares Exercise Price Per Share
--------------------------- --------------------------------
2002 2001 2000 2002 2001 2000
---- ---- ---- ---- ---- ----
1999 Plan and Predecessor Plans
- -------------------------------
Outstanding, beginning of year 5,206 4,969 4,469 $20.80 $20.10 $17.98
Granted 1,269 940 1,021 $24.08 $24.93 $27.41
Exercised (786) (157) (316) $15.51 $15.16 $13.33
Forfeited (314) (546) (205) $24.39 $23.14 $20.73
---------------------------
Outstanding, end of year 5,375 5,206 4,969 $22.14 $20.80 $20.10
===========================
Shares exercisable at end of year 2,908 2,935 2,336 $20.22 $18.00 $16.26
===========================
SARs
- ----
Outstanding, beginning of year 23 88 130 $10.83 $10.12 $10.03
Exercised (23) (65) (35) $10.83 $ 9.86 $10.05
Forfeited - - (7) N/A N/A $ 8.84
--------------------------
Outstanding, end of year - 23 88 N/A $10.83 $10.12
==========================
Shares exercisable at end of year - 23 88 N/A $10.83 $10.12
==========================
- --------------------------------------------------------------------------------
The following table provides a breakdown by exercise price range of the
number of shares, weighted average exercise price, and remaining contractual
lives for all stock options outstanding and exercisable at December 31, 2002 (in
thousands, except per share amounts and option life):
For Outstanding Options
--------------------------------------
Exercise Weighted Weighted Average
Price Average Contractual Life
Range Outstanding Exercisable Exercise Price (in years)
-------- ----------- ----------- -------------- ----------------
1999 Plan and Predecessor Plans
- -------------------------------
$10.50 to $12.99 435 435 $11.25 2.2
$13.00 to $17.50 342 342 $15.33 3.7
$17.51 to $23.45 1,763 1,407 $21.15 5.7
$23.46 to $28.08 2,835 724 $25.25 8.8
---------------------------------------------------------------
Total 5,375 2,908 $22.14 6.9
===============================================================
- --------------------------------------------------------------------------------
Stock Grants - As indicated above, the 1999 Plan provides for stock grants,
which may be subject to specified performance and vesting requirements.
In December 2000 and February 2001, the Company awarded 169,777 and 20,000
shares, respectively, of performance accelerated restricted stock ("PARS") to
certain key employees. The PARS will become fully vested upon the achievement of
certain defined performance requirements, which can be met as early as the end
of the calendar year which includes the third anniversary of the grant date. The
PARS will vest in any event if the employee is employed on November 14, 2006.
The shares were issued on the grant date and recorded in Common Stock and
Additional Paid-in-Capital, with the offset recorded in Unearned Compensation, a
separate component of Stockholders' Investment, in the accompanying Consolidated
Balance Sheets. Unearned Compensation is being amortized into compensation
expense beginning January 1, 2001 over six years, which is the current estimate
of the time it will take to meet the performance requirements. If this estimate
changes, the amortization of the Unearned Compensation will be adjusted
accordingly. If a key employee leaves the Company prior to the vesting of the
PARS, said employee's unvested rights in the PARS are forfeited and any
compensation expense amortized prior to such forfeiture is reversed in the year
of forfeiture. Compensation expense recorded related to the PARS was
approximately $591,000 and $1,019,000 in 2002 and 2001, respectively. As of
December 31, 2002, 155,238 shares of PARS were outstanding.
In 1999, a stock grant of 22,185 shares was made subject to specified
vesting requirements. Compensation expense related to this stock grant, accrued
over the three-year vesting period, was approximately $56,000, $80,000 and
$226,000 in 2002, 2001 and 2000, respectively. Shares vested under this grant
were 4,437, 5,916 and 7,395 in 2002, 2001 and 2000, respectively. As of December
31, 2002, no shares of this stock grant were outstanding.
In 1995, 150,000 shares were awarded subject to specified performance and
vesting requirements. The specified performance and vesting requirements were
met in 2000, and the 150,000 shares were issued.
Outside directors can elect to receive any portion of their director fees
in stock, based on 95% of the market price. Outside directors elected to receive
7,120, 4,356 and 4,432 shares of stock in lieu of cash for director fees in
2002, 2001 and 2000, respectively.
Stock Repurchase Plan:
In November 2001, the Board of Directors of the Company adopted a new stock
repurchase plan authorizing the repurchase of up to five million shares of
common stock prior to January 1, 2004. During 2002, the Company repurchased
1,776,482 shares of common stock for an aggregate purchase price of
approximately $41,891,000 under this plan. The November 2001 plan replaced and
superseded the previous stock repurchase plan adopted in February 2001 under
which the Company repurchased 527,400 shares of common stock for an aggregate
purchase price of approximately $12,475,000. There were no repurchases during
2000.
Ownership Limitations:
In order to maintain Cousins' qualification as a REIT, Cousins' Articles of
Incorporation include certain restrictions on the ownership of more than 3.9% of
the Company's common stock.
- --------------------------------------------------------------------------------
Distribution of REIT Taxable Income:
The following is a reconciliation between dividends declared and dividends
applied in 2002, 2001 and 2000 to meet REIT distribution requirements ($ in
thousands):
2002 2001 2000
------- ------- -------
Dividends declared $73,345 $68,595 $60,315
Additional dividends paid deduction due to 5% discount on
dividends reinvested -- 730 623
That portion of dividends declared in current year, and paid in current
year, which was applied to the prior year distribution requirements (5,656) (3,807) (5,786)
That portion of dividends declared in subsequent year, and paid in
subsequent year, which will apply to current year -- 5,656 3,807
Dividends in excess of current year REIT distribution requirements (15,806) -- --
-------------------------------
Dividends applied to meet current year REIT distribution requirements $51,883 $71,174 $58,959
===============================
- --------------------------------------------------------------------------------
Tax Status of Dividends:
Dividends in excess of the amount required to meet REIT distribution
requirements were paid during 2002 (see Note 7). Since electing to qualify as a
REIT in 1987, Cousins has had no accumulated undistributed taxable income.
In 2002, the Company designated 22% of the dividend paid December 20, 2002
as 20% capital gain dividends which qualify as 5-year gain. In 2001, the Company
designated 76% of the dividend paid May 30, 2001, 1% of the dividend paid August
24, 2001, and 11% of the dividend paid December 21, 2001 as 20% capital gain
dividends. In addition, 24% of the dividend paid May 30, 2001 was designated as
25% unrecaptured Section 1250 gain dividends. In 2000, the Company designated
91% of the dividend paid May 30, 2000 as 20% capital gain dividends and 5% as
25% unrecaptured Section 1250 gain dividends. All other dividends paid in 2002,
2001 and 2000 were taxable as ordinary income dividends.
In addition, in 2002, an amount calculated as 0.62% of total dividends was
an "adjustment attributed to depreciation of tangible property placed in service
after 1986" for alternative minimum tax purposes. This amount was passed through
to stockholders and must be used as an item of adjustment in determining each
stockholder's alternative minimum taxable income.
- --------------------------------------------------------------------------------
7. INCOME TAXES
In 2002, 2001 and 2000, because Cousins qualified as a REIT and distributed
all of its taxable income (see Note 6), it incurred no federal income tax
liability. The differences between taxable income as reported on Cousins' tax
return (estimated 2002 and actual 2001 and 2000) and Consolidated Net Income as
reported herein are as follows ($ in thousands):
2002 2001 2000
------- ------- -------
Consolidated net income $47,872 $70,815 $62,043
Consolidating adjustments (6,787) (13,694) (24,759)
CREC net (income) loss (3,470) (81) 771
CREC II net loss (income) 371 990 (738)
-----------------------------
Cousins net income for financial reporting purposes 37,986 58,030 37,317
Adjustments arising from:
Sales of investment properties (4,134) (5,729) (3,967)
Income from unconsolidated joint ventures (principally depreciation,
revenue recognition and operational timing differences) 5,669 4,843 13,120
Rental income recognition (2,959) (1,697) (302)
Interest income recognition (1,187) (1,342) (469)
Property taxes deferred 758 263 (1)
Interest expense 3,580 8,557 8,565
Compensation expense under the 1999 and Predecessor Plans (2,345) (1,475) (2,189)
Depreciation 11,669 9,510 8,560
Unearned compensation expense 530 987 --
Amortization 12 (2,308) (1,602)
Predevelopment expense 604 (1,114) (341)
Capitalized salaries 1,065 2,391 --
Other 635 258 268
-----------------------------
Cousins taxable income $51,883 $71,174 $58,959
=============================
The consolidated provision (benefit) for income taxes is composed of the
following ($ in thousands):
2002 2001 2000
------ ------ -------
CREC and CREC II and their wholly-owned subsidiaries: Currently
payable:
Federal $ 820 $ -- $ --
State 48 -- --
----------------------------
868 -- --
----------------------------
Adjustments arising from:
Income from unconsolidated joint ventures 378 399 (556)
Operating loss carryforward (164) (793) 333
Stock appreciation right expense 98 458 741
Residential lot sales, net of cost of sales (90) (169) (1,430)
Interest expense (411) (400) (456)
Non-qualified stock options 1,671 9 262
Sale of investment property (519) -- --
Other (44) (83) (32)
----------------------------
919 (579) (1,138)
----------------------------
CREC and CREC II provision (benefit) for income taxes 1,787 (579) (1,138)
Cousins provision for state income taxes 24 24 24
Provision applicable to discontinued operations (285) (136) (31)
----------------------------
Consolidated provision (benefit) applicable to income from
continuing operations $1,526 $(691) $(1,145)
=============================
The net income tax provision (benefit) differs from the amount computed by
applying the statutory federal income tax rate to CREC's and CREC II's income
(loss) before taxes as follows ($ in thousands):
2002 2001 2000
--------------- --------------- --------------
Amount Rate Amount Rate Amount Rate
------ ---- ------ ---- ------ ----
Federal income tax provision (benefit) $1,598 34% $(490) 34% $ (398) 34%
State income tax provision (benefit), net of
federal income tax effect 188 4 (57) 4 (81) 4
Other 1 -- (32) 2 (659) 59
------------------------------------------------------
CREC and CREC II provision (benefit) for income taxes 1,787 38% (579) 40% (1,138) 97%
=== === ===
Cousins provision for state income taxes 24 24 24
Provision applicable to discontinued operations (285) (136) (31)
------ ----- -------
Consolidated provision (benefit) applicable to income
from continuing operations $1,526 $(691) $(1,145)
====== ===== =======
The components of CREC and CREC II's net deferred tax liability are as
follows ($ in thousands):
CREC and CREC II
----------------
2002 2001
------- -------
Deferred tax assets $ 5,672 $ 5,445
Deferred tax liabilities (7,104) (6,823)
-------------------
Net deferred tax liability $(1,432) $(1,378)
===================
The tax effect of significant temporary differences representing CREC and
CREC II's deferred tax assets and liabilities are as follows ($ in thousands):
CREC and CREC II
----------------
2002 2001
------- --------
Operating loss carryforward $ 55 $ 734
Income from unconsolidated
joint ventures (4,008) (3,629)
Residential lot sales, net
of cost of sales 2,649 2,559
Interest capitalization (1,131) (1,149)
Other 1,003 107
------------------
Net deferred tax liability $(1,432) $(1,378)
==================
- --------------------------------------------------------------------------------
8. PROPERTY TRANSACTIONS
Office Division
In February 2002, 55 Second Street, an approximately 379,000 rentable
square foot office building in San Francisco, California, became partially
operational for financial reporting purposes. Also in February 2002, Emory
Crawford Long Medical Office Tower, an approximately 358,000 rentable square
foot medical office facility in Atlanta, Georgia, owned by Crawford Long - CPI,
LLC (see Note 5), became partially operational for financial reporting purposes.
Retail Division
In August 2002, the Company purchased 22.17 acres of land for approximately
$4,945,000 for the development of The Avenue West Cobb, an approximately 206,000
square foot specialty retail center in suburban Atlanta, Georgia. Construction
commenced on this center in September 2002.
In October 2002, the Company sold Salem Road Station, an approximately
67,000 square foot retail center in suburban Atlanta, Georgia for $7,379,000,
which was approximately $940,000 over the cost of the center. Including
depreciation recapture of approximately $380,000 and net of an income tax
provision of approximately $146,000, the net gain on this sale was approximately
$1,174,000. Also in October 2002, the Company sold two outparcels at Salem Road
Station for $548,000, which was approximately $195,000 over the cost of the
outparcels. The gain on this sale, net of an income tax provision of
approximately $74,000, was approximately $121,000.
In December 2002, the Company purchased 11.91 acres of land for
approximately $1,911,000 for the development of The Shops of Lake Tuscaloosa, an
approximately 70,000 square foot retail center in Tuscaloosa, Alabama.
Construction of this center commenced in February 2003.
Land Division
The Company is currently developing or has developed nine residential
communities, eight in suburban Atlanta, Georgia and one in Pine Mountain,
Georgia. These nine communities include land on which approximately 2,957 lots
are being or were developed, of which 166, 121 and 217 lots were sold in 2002,
2001 and 2000, respectively.
Of the nine communities, four containing 1,076 lots were completely sold as
of December 31, 2000. Two communities containing 704 lots were completely sold
as of December 31, 2002. The three residential communities remaining under
development at December 31, 2002 contain approximately 1,177 lots, 146 of which
have been sold.
In November 1998, Temco Associates began development of the Bentwater
residential community, which will consist of approximately 1,669 lots on
approximately 1,290 acres (see Note 5). Temco Associates sold 289, 233 and 219
lots in 2002, 2001 and 2000, respectively.
In December 2002, the Company sold approximately 5.5 acres of Wildwood land
for $2,500,000. The net gain on this sale was approximately $2,143,000.
9. CONSOLIDATED STATEMENTS OF CASH FLOWS -SUPPLEMENTAL INFORMATION
Interest paid (net of amounts capitalized) (see Note 4) and income taxes
paid (net of refunds) were as follows ($ in thousands):
2002 2001 2000
------- ------- --------
Interest paid $36,484 $28,271 $ 11,027
Income taxes paid, net
of $1,358, $866, and
$652 refunded in 2002,
2001 and 2000,
respectively $ 681 $ 344 $ 3,141
Significant non-cash financing and investing activities included the
following:
a. In 2002, 2001 and 2000, approximately $26,836,000, $43,682,000
and $361,617,000, respectively, were transferred from Projects Under
Construction to Operating Properties.
b. In 2002 and 2000, approximately $942,000 and $1,066,000,
respectively, were transferred from Land Held for Investment or Future
Development to Residential Lots Under Development. In 2001, approximately
$17,860,000 was transferred from Land Held for Investment or Future Development
to Projects Under Construction.
c. In conjunction with the consolidation of CPS in March 2001 (see Note 5),
approximately $3,174,000 was transferred from Investment in Unconsolidated Joint
Ventures to Other Assets.
d. In 2002, an adjustment of the PARS granted in 2000 (see Note 6) was made
and approximately $12,000 of Common Stock and approximately $330,000 of
Additional Paid-in-Capital were transferred to Unearned Compensation. In 2001,
an adjustment of the PARS granted in 2000 was made and approximately $2,000 of
Common Stock and approximately $89,000 of Additional Paid-In-Capital were
transferred to Unearned Compensation. In 2000, in conjunction with the award of
PARS, approximately $170,000 was recorded as Common Stock, approximately
$4,520,000 was recorded as Additional Paid-In-Capital, and approximately
$4,690,000 was recorded as Unearned Compensation. In conjunction with the
3-for-2 split effected in the form of a 50% stock dividend on October 2, 2000
(see Note 6), approximately $16,259,000 was transferred from Additional
Paid-In-Capital to Common Stock.
10. RENTAL PROPERTY REVENUES
The Company's leases typically contain escalation provisions and provisions
requiring tenants to pay a pro rata share of operating expenses. The leases
typically include renewal options and are classified and accounted for as
operating leases.
At December 31, 2002, future minimum rentals to be received by consolidated
entities under existing non-cancelable leases, excluding tenants' current pro
rata share of operating expenses, are as follows ($ in thousands):
Office and
Medical
Office Retail Total
---------- -------- --------
2003 $ 85,736 $ 30,558 $116,294
2004 82,629 30,503 113,132
2005 76,702 28,017 104,719
2006 74,822 24,419 99,241
2007 71,030 22,956 93,986
Subsequent to 2007 325,419 146,272 471,691
----------------------------------
$716,338 $282,725 $999,063
==================================
The future minimum rentals above for office and medical office include
approximately $78.4 million for the Cable & Wireless Internet Services, Inc.
("Cable") lease on 158,000 rentable square feet at 55 Second Street. Effective
January 31, 2003, the Company and Cable executed an agreement under which
Cable's lease was terminated, conditioned upon the payment to the Company of a
termination fee of $20 million. The Company received $10 million of the
termination fee in February 2003, with the remaining $10 million due April 1,
2003 from an irrevocable letter of credit held by the Company.
11. REPORTABLE SEGMENTS
The Company has three reportable segments: Office Division, Retail
Division, and Land Division. The Office Division and Retail Division develop,
lease and manage office buildings and retail centers, respectively. The Land
Division owns various tracts of strategically located land which are being held
for investment or future development. The Land Division also develops
single-family residential communities which are parceled into lots and sold to
various home builders.
The accounting policies of the segments are the same as those described in
Significant Accounting Policies (see Note 1). The management of the Company
evaluates performance of its reportable segments based on Funds From Operations
("FFO"). The Company calculates its FFO using the National Association of Real
Estate Investment Trusts ("NAREIT") definition of FFO with certain adjustments.
NAREIT defines FFO as net income (computed in accordance with accounting
principles generally accepted in the United States), excluding gains or losses
from sales of depreciable property, plus depreciation and amortization, and
after adjustments for unconsolidated partnerships and joint ventures.
Adjustments for unconsolidated partnerships and joint ventures are calculated to
reflect FFO on the same basis. The Company adjusts its FFO to (i) eliminate the
recognition of rental revenues on a straight-line basis and (ii) reflect stock
appreciation right expense on a cash basis.
The Company revised its method of allocating costs to its reportable
segments in the third quarter of 2001. Prior period reportable segments have not
been restated as it is impractical to do so.
The Company's reportable segments are broken down based on what type of
product the division provides. The divisions are managed separately because each
product they provide has separate and distinct development issues, leasing
and/or sales strategies and management issues. The notations (100%) and (JV)
used in the following tables indicate wholly-owned and unconsolidated joint
ventures, respectively, and all amounts are in thousands.
- --------------------------------------------------------------------------------
Office Retail Land Unallcated
2002 Division Division Division and Other Total
- ---- -------- -------- -------- --------- -----
Rental property revenues (100%) $130,151 $36,283 $ -- $ 101 $ 166,535
Rental property revenues (JV) 78,155 2,619 -- -- 80,774
Development income, management
fees and leasing and other fees (100%) 16,266 1,570 399 -- 18,235
Other income (100%) -- -- 9,126 4,393 13,519
Other income (JV) -- -- 2,040 -- 2,040
-----------------------------------------------------------------
Total revenues 224,572 40,472 11,565 4,494 281,103
-----------------------------------------------------------------
Rental property operating expenses (100%) 41,073 8,851 -- 7 49,931
Rental property operating expenses (JV) 23,673 641 -- -- 24,314
Other expenses (100%) 19,360 6,644 10,234 43,375 79,613
Other expenses (JV) 3,201 65 90 9,937 13,293
Provision for income taxes from operations -- -- -- 1,665 1,665
-----------------------------------------------------------------
Total expenses 87,307 16,201 10,324 54,984 168,816
Gain on sale of undepreciated investment properties -- -- 2,143 -- 2,143
-----------------------------------------------------------------
Consolidated funds from operations 137,265 24,271 3,384 (50,490) 114,430
-----------------------------------------------------------------
Depreciation and amortization (100%) (40,418) (11,836) -- (6) (52,260)
Depreciation and amortization (JV) (17,559) (986) -- -- (18,545)
Effect of the recognition of rental
revenues on a straight-line basis (100%) 2,130 7 -- -- 2,137
Effect of the recognition of rental
revenues on a straight-line basis (JV) 8 -- -- -- 8
Adjustment to reflect stock appreciation
right expense on an accrual basis -- -- -- 318 318
Gain on sale of investment properties, net
of applicable income tax provision 1,884 3,401 -- -- 5,285
Extraordinary loss -- -- -- (3,501) (3,501)
-----------------------------------------------------------------
Net income $ 83,310 $ 14,857 $ 3,384 $(53,679) $ 47,872
=================================================================
Total assets $866,685 $263,308 $34,135 $ 83,949 $1,248,077
=================================================================
Investment in unconsolidated joint ventures $156,165 $ 16,324 $13,027 $ -- $ 185,516
=================================================================
Capital expenditures $ 56,269 $ 17,200 $14,519 $ -- $ 87,988
=================================================================
Reconciliation to Consolidated Revenues
- ---------------------------------------
2002 2001 2000
-------- -------- --------
Rental property revenues (100%) $166,535 $143,089 $111,875
Rental property revenues from
discontinued operations (100%) (626) (715) (161)
Effect of the recognition of rental
revenues on a straight-line basis (100%) 2,137 2,380 2,111
Development income, management fees
and leasing and other fees 18,235 19,489 10,700
Residential lot and outparcel sales 9,126 6,682 13,951
Interest and other 4,393 6,061 5,995
------------------------------------
Total consolidated revenues $199,800 $176,986 $144,471
====================================
Office Retail Land Unallcated
2001 Division Division Division and Other Total
- ---- -------- -------- -------- --------- -----
Rental property revenues (100%) $109,470 $ 33,324 $ - $ 295 $ 143,089
Rental property revenues (JV) 71,242 2,432 - 14 73,688
Development income, management
fees and leasing and other fees (100%) 18,229 960 300 - 19,489
Development income, management
fees and leasing and other fees (JV) 1,050 - - - 1,050
Other income (100%) - - 6,682 6,061 12,743
Other income (JV) - - 1,745 25 1,770
-----------------------------------------------------------------
Total revenues 199,991 36,716 8,727 6,395 251,829
-----------------------------------------------------------------
Rental property operating expenses (100%) 35,918 9,269 - 39 45,226
Rental property operating expenses (JV) 21,308 598 - 7 21,913
Other expenses (100%) 20,193 8,035 7,977 30,583 66,788
Other expenses (JV) 897 - 25 15,158 16,080
Benefit for income taxes from operations - - - (555) (555)
-----------------------------------------------------------------
Total expenses 78,316 17,902 8,002 45,232 149,452
Gain on sale of undepreciated investment properties - - 2,011 - 2,011
Consolidated funds from operations 121,675 18,814 2,736 (38,837) 104,388
-----------------------------------------------------------------
Depreciation and amortization (100%) (32,771) (10,294) - (6) (43,071)
Depreciation and amortization (JV) (15,461) (941) - - (16,402)
Effect of the recognition of rental
revenues on a straight-line basis (100%) 2,380 - - - 2,380
Effect of the recognition of rental
revenues on a straight-line basis (JV) 784 - - - 784
Adjustment to reflect stock appreciation
right expense on an accrual basis - - - 1,251 1,251
Gain on sale of investment properties, net
of applicable income tax provision 2,135 19,341 9 - 21,485
-----------------------------------------------------------------
Net income $ 78,742 $ 26,920 $ 2,745 $(37,592) $ 70,815
=================================================================
Total assets $846,413 $264,348 $23,319 $ 82,549 $1,216,629
=================================================================
Investment in unconsolidated joint ventures $158,207 $ 16,858 $10,332 $ - $ 185,397
=================================================================
Capital expenditures $101,593 $ 24,295 $14,458 $ - $ 140,346
=================================================================
Office Retail Land Unallcated
2000 Division Division Division and Other Total
- ---- -------- -------- -------- --------- -----
Rental property revenues (100%) $ 82,158 $ 29,627 $ -- $ 90 $ 111,875
Rental property revenues (JV) 66,677 2,316 -- -- 68,993
Development income, management
fees and leasing and other fees (100%) 10,059 400 241 -- 10,700
Development income, management
fees and leasing and other fees (JV) 5,247 -- -- -- 5,247
Other income (100%) 1,745 1,825 12,126 4,250 19,946
Other income (JV) -- 71 733 58 862
-----------------------------------------------------------------
Total revenues 165,886 34,239 13,100 4,398 217,623
-----------------------------------------------------------------
Rental property operating expenses (100%) 28,052 7,512 -- (8) 35,556
Rental property operating expenses (JV) 18,595 533 -- -- 19,128
Other expenses (100%) 12,351 7,712 11,278 17,057 48,398
Other expenses (JV) 8,189 136 55 12,035 20,415
Benefit for income taxes from operations -- -- -- (1,114) (1,114)
-----------------------------------------------------------------
Total expenses 67,187 15,893 11,333 27,970 122,383
Gain on sale of undepreciated investment properties -- -- 564 -- 564
Cumulative effect of change in accounting principle (566) -- -- -- (566)
-----------------------------------------------------------------
Consolidated funds from operations 98,133 18,346 2,331 (23,572) 95,238
-----------------------------------------------------------------
Depreciation and amortization (100%) (23,030) (7,606) -- (4) (30,640)
Depreciation and amortization (JV) (14,812) (813) -- -- (15,625)
Effect of the recognition of rental
revenues on a straight-line basis (100%) 2,111 -- -- -- 2,111
Effect of the recognition of rental
revenues on a straight-line basis (JV) (482) -- -- -- (482)
Adjustment to reflect stock appreciation
right expense on an accrual basis -- -- -- 68 68
Gain on sale of investment properties, net
of applicable income tax provision 1,892 9,481 -- -- 11,373
-----------------------------------------------------------------
Net income $63,812 $ 19,408 $ 2,331 $(23,508) $ 62,043
=================================================================
Total assets $767,237 $289,124 $12,296 $ 47,095 $1,115,752
=================================================================
Investment in unconsolidated joint ventures $150,271 $ 16,993 $ 8,207 $ -- $ 175,471
=================================================================
Capital expenditures $146,128 $ 59,803 $10,027 $ -- $ 215,958
=================================================================
INDEPENDENT AUDITORS' REPORT
- --------------------------------------------------------------------------------
To Cousins Properties Incorporated:
We have audited the accompanying consolidated balance sheets of Cousins
Properties Incorporated (a Georgia corporation) and consolidated entities (the
"Company") as of December 31, 2002 and 2001, and the related consolidated
statements of income, stockholders' investment and cash flows for each of the
three years in the period ended December 31, 2002. These financial statements
are the responsibility of the Company's management. Our responsibility is to
express an opinion on these consolidated financial statements based on our
audits. We did not audit the financial statements of CSC Associates, L.P., the
Company's investment in which is accounted for by use of the equity method. The
Company's equity of $84,133,000 and $86,793,000 in the CSC Associates, L.P. net
assets at December 31, 2002 and 2001, respectively, and of $11,466,000,
$10,711,000 and $10,613,000 in that partnership's net income for the three years
in the period ended December 31, 2002, are included in the accompanying
financial statements. The financial statements of CSC Associates, L.P. were
audited by other auditors whose report has been furnished to us, and our
opinion, insofar as it relates to the amounts included for such partnership, is
based solely on the report of such other auditors.
We conducted our audits in accordance with auditing standards generally
accepted in the United States of America. Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits and the report of
the other auditors provide a reasonable basis for our opinion.
In our opinion, based on our audits and the report of the other auditors,
the financial statements referred to above present fairly, in all material
respects, the financial position of Cousins Properties Incorporated and
consolidated entities as of December 31, 2002 and 2001 and the results of their
operations and their cash flows for each of the three years in the period ended
December 31, 2002 in conformity with accounting principles generally accepted in
the United States of America.
As discussed in Note 1 to the financial statements, in 2000, the Company
changed its method of accounting for derivative instruments and hedging
activities to conform to Statement of Financial Accounting Standards No. 133 and
recorded a cumulative effect of a change in accounting principle on October 1,
2000. In 2002, the Company changed its method of accounting for discontinued
operations to conform to Statement of Financial Accounting Standards No. 144.
DELOITTE & TOUCHE LLP
Atlanta, Georgia
February 14, 2003
FIVE-YEAR SUMMARY OF SELECTED FINANCIAL DATA
- -------------------------------------------------------------------------------
($ in thousands, except per share amounts)
2002 2001 2000 1999 1998
---------- ---------- ---------- -------- --------
Rental property revenues $ 168,046 $ 144,754 $ 113,825 $ 62,480 $ 67,726
Development, management, leasing and
other fees 18,235 19,489 10,700 13,899 9,578
Residential lot and outparcel sales 9,126 6,682 13,951 17,857 16,732
Interest and other 4,393 6,061 5,995 3,588 4,275
-----------------------------------------------------------------------
Total revenues 199,800 176,986 144,471 97,824 98,311
-----------------------------------------------------------------------
Income from unconsolidated joint ventures 26,670 22,897 19,452 19,637 18,423
-----------------------------------------------------------------------
Rental property operating expenses 49,015 43,826 33,379 19,087 17,702
Depreciation and amortization 54,248 44,453 32,742 16,859 15,173
Stock appreciation right expense (credit) 29 (276) 468 108 330
Residential lot and outparcel cost of sales 7,309 5,910 11,684 14,897 15,514
Interest expense 37,423 27,610 13,596 600 11,558
General, administrative and other expenses 33,202 31,953 22,578 18,153 15,250
-----------------------------------------------------------------------
Total expenses 181,226 153,476 114,447 69,704 75,527
Provision (benefit) for income taxes from
operations 1,526 (691) (1,145) 2,442 (148)
Gain on sale of investment properties,
net of applicable income tax provision 6,254 23,496 11,937 58,767 3,944
Discontinued operations 1,401 221 51 -- --
Extraordinary loss (3,501) -- -- -- --
Cumulative effect of change in accounting
principle -- -- (566) -- --
-----------------------------------------------------------------------
Net income $ 47,872 $ 70,815 $ 62,043 $104,082 $ 45,299
=======================================================================
Basic net income per share $ .97 $ 1.44 $ 1.28 $ 2.16 $ .96
=======================================================================
Diluted net income per share $ .96 $ 1.41 $ 1.25 $ 2.12 $ .94
=======================================================================
Cash dividends declared per share $ 1.48 $ 1.39 $ 1.24 $ 1.12 $ .99
=======================================================================
Total assets $1,248,077 $1,216,629 $1,115,752 $932,925 $752,858
Notes payable 669,792 585,275 485,085 312,257 198,858
Stockholders' investment 408,884 462,673 454,467 437,722 379,865
Shares outstanding at year-end 48,386 49,425 49,210 48,261 47,754
Cousins Properties Incorporated and Consolidated Entities
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
- --------------------------------------------------------------------------------
Results of Operations For The Three Years Ended December 31, 2002
General. Historically, the Company's financial results have been
significantly affected by sale transactions and the fees generated by, and
start-up operations of, major real estate developments, which transactions and
developments do not necessarily recur. Accordingly, the Company's historical
financial statements may not be indicative of future operating results. The
notes referenced in the discussion below are the "Notes to Consolidated
Financial Statements" included in this annual report.
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. These include, but are not limited to,
general and local economic conditions, local real estate conditions, the
activity of others developing competitive projects, the cyclical nature of the
real estate industry, the financial condition of existing tenants, interest
rates, the Company's ability to obtain favorable financing or zoning, the
environmental impact, the effects of terrorism and other risks detailed from
time to time in the Company's filings with the Securities and Exchange
Commission, including the Form 8-K filed on March 9, 2001. The words "believes,"
"expects," "estimates" and similar expressions are intended to identify
forward-looking statements. Although the Company believes that its plans,
intentions and expectations reflected in such forward-looking statements are
reasonable, it can give no assurance that such plans, intentions or expectations
will be achieved. Such forward-looking statements are based on current
expectations and speak only as of the date of such statements. The Company
undertakes no obligation to publicly update or revise any forward-looking
statement, whether as a result of future events, new information or otherwise.
Critical Accounting Policies. A critical accounting policy is one which is
both important to the portrayal of a company's financial condition and results
of operations and requires significant judgment or complex estimation processes.
As the Company is in the business of developing, owning and managing office
and retail real estate properties and developing single-family residential
communities which are parceled into lots and sold to various home builders, its
critical accounting policies relate to cost capitalization, impairment of
long-lived assets, residential lot sales profit recognition and valuation of
receivables.
The Company expenses predevelopment costs incurred on a potential project
until it becomes probable that the project will go forward. After a project
becomes probable, all subsequently incurred predevelopment costs, as well as
interest, real estate taxes and certain internal personnel and associated costs
directly related to the project under development are capitalized. If the
decision is made to abandon development of a project that had been deemed
probable, all previously capitalized costs are expensed. Therefore, a change in
the probability of a project could result in the expensing of significant costs
incurred for predevelopment activity for projects that are abandoned. Also, a
change in the estimated time and cost of construction could adversely impact the
return on a project and the amount of value created from the development of a
project.
As required by accounting principles generally accepted in the United
States, the Company periodically evaluates its real estate assets to determine
if there has been any impairment in their carrying values and records impairment
losses if the undiscounted cash flows estimated to be generated by those assets
are less than the assets' carrying amounts or if there are other indicators of
impairment. The evaluation of real estate investments involves many subjective
assumptions dependent upon future economic events that affect the ultimate value
of the property. A change in assumptions concerning future economic events from
those assumed in prior evaluations could result in an adverse change in the
value of a property and cause the recordation of an impairment. At December 31,
2002, the Company did not own any real estate assets that were impaired.
In its determination of the gross profit percentages to be applied to its
residential lot sales in order to calculate the profits to be recognized on
these sales, the Company utilizes several estimates. Gross profit percentages
are calculated based on the estimated lot sales prices divided by the estimated
costs of the development. The Company must estimate the prices of the lots to be
sold, the costs to complete the development of the residential community and the
time period over which the lots, once completed, will ultimately be sold. If the
Company's estimated lot sales or costs of development, or the assumptions
underlying each, were to be revised or be rendered inaccurate, it would affect
the gross profit percentages and overall profit recognized on these sales.
Receivables are reported net of an allowance for doubtful accounts and may
be uncollectible in the future. The Company performs credit reviews and analyses
on its tenants and reviews its receivables regularly for potential collection
problems in computing the allowance recorded against its receivables. This
review process requires the Company to make certain judgments regarding
collectibility that are inherently difficult to predict. A change in the
judgments made could result in an adjustment to the allowance for doubtful
accounts with a corresponding effect to net income.
Rental Property Revenues and Operating Expenses. Rental property revenues
increased from $113,825,000 in 2000 to $144,754,000 in 2001 and $168,046,000 in
2002.
Rental property revenues from the Company's office division increased
approximately $20,431,000 in 2002. Three office buildings, 55 Second Street,
Cerritos Corporate Center - Phase II and 1900 Duke Street, became partially
operational in February 2002, June 2001 and October 2000, respectively. These
properties contributed approximately $16,315,000, $1,402,000 and $436,000,
respectively, to the 2002 increase. Additionally, rental property revenues from
101 Second Street increased approximately $1,365,000 in 2002, primarily due to
the recognition of termination fees paid to effect the early termination of
several tenants' leases. In August 2002, the Company entered into a termination
agreement with Arthur Andersen which terminated its 148,000 square foot lease at
101 Second Street. The result of the termination agreement with Arthur Andersen
did not have a material impact on rental property revenues in 2002. However,
there will be no economic benefit to the Company or its rental property revenues
from the Arthur Andersen lease in 2003 and beyond. In September 2002, the
Company re-leased approximately 88,000 square feet of the former Arthur Andersen
space. There is no guarantee that the remainder of the Arthur Andersen space
will be re-leased in the near future. In addition, the San Francisco market
continues to be a difficult leasing market. Due to these uncertainties, the
Company cannot currently estimate the result of its efforts to re-lease the 101
Second Street building and the resulting impact on rental property revenues in
2003 and beyond.
Also contributing to the increase in rental property revenues from the
Company's office division was an increase of approximately $554,000 from
Meridian Mark Plaza, as its average economic occupancy increased from 94% in
2001 to 99% in 2002, and an increase of approximately $443,000 from Inforum,
primarily due to lease termination fees received from two tenants. Additionally,
rental property revenues increased approximately $483,000 from the 3301 Windy
Ridge Parkway Building due to the renewal of the single tenant's lease at a
higher rental rate beginning May 2001. The increase in rental property revenues
was partially offset by a decrease of approximately $1,178,000 from The Points
at Waterview, as its average economic occupancy decreased from 73% in 2001 to
45% in 2002. The Points at Waterview was 82% leased as of December 31, 2002,
with rent commencing March 2003 for a new tenant in 98,000 square feet.
Rental property revenues from the Company's retail portfolio increased
approximately $2,966,000 in 2002. Rental property revenues increased
approximately $2,282,000 from The Avenue Peachtree City due both to the property
becoming partially operational for financial reporting purposes in April 2001
and to the recognition of a termination fee of approximately $719,000 in 2002.
Substantially all of the square feet terminated at The Avenue Peachtree City has
been re-leased. An increase in the average economic occupancy of The Avenue of
the Peninsula from 75% in 2001 to 80% in 2002 also contributed approximately
$1,295,000 to the increase in rental property revenues. Additionally, rental
property revenues from Mira Mesa MarketCenter increased approximately $306,000,
primarily due to an expansion of the center in March 2002. Rental property
revenues decreased approximately $990,000 in 2002 due to the February 2001 sale
of Colonial Plaza MarketCenter, which partially offset the increase in rental
property revenues.
Rental property revenues from the Company's office division increased
approximately $27,581,000 in 2001. The December 2000 acquisitions of One Georgia
Center and The Points at Waterview increased rental property revenues by
approximately $6,442,000 and $3,294,000, respectively, in 2001. Four office
buildings, 555 North Point Center East, 101 Second Street, 600 University Park
Place and 1900 Duke Street, which became partially operational for financial
reporting purposes in February 2000, April 2000, June 2000 and October 2000,
respectively, contributed approximately $996,000, $5,143,000, $1,636,000 and
$2,534,000, respectively, to the increase. Additionally, rental property
revenues from Inforum increased approximately $1,979,000, as its average
economic occupancy increased from 87% in 2000 to 97% in 2001. Rental property
revenues increased approximately $2,335,000 from Cerritos Corporate Center -
Phase II, which became partially operational for financial reporting purposes in
June 2001. Rental property revenues increased approximately $816,000 from AT&T
Wireless Services Headquarters. Rental property revenues increased approximately
$477,000 in 2001 from 333 John Carlyle, as its average economic occupancy
increased from 89% in 2000 to 93% in 2001, and approximately $472,000 in 2001
from 615 Peachtree Street, as its average economic occupancy increased from 82%
in 2000 to 95% in 2001. Furthermore, rental property revenues from
Northside/Alpharetta II increased approximately $507,000 in 2001, as its average
economic occupancy increased from 59% in 2000 to 70% in 2001.
Rental property revenues from the Company's retail division increased
approximately $3,697,000 in 2001. Rental property revenues increased
approximately $3,729,000 from Mira Mesa MarketCenter and approximately
$3,082,000 from The Avenue of the Peninsula, both of which became partially
operational for financial reporting purposes in May 2000. Rental property
revenues also increased approximately $1,829,000 in 2001 from The Avenue
Peachtree City, which became partially operational for financial reporting
purposes in April 2001. Rental property revenues increased approximately
$642,000 in 2001 from Presidential MarketCenter, as an additional phase of the
center became partially operational for financial reporting purposes in October
2000, and as the average economic occupancy of the original center increased
from 90% in 2000 to 95% in 2001. Rental property revenues increased
approximately $554,000 from Salem Road Station, which became partially
operational for financial reporting purposes in October 2000, and approximately
$545,000 from The Avenue East Cobb, which became partially operational for
financial reporting purposes in September 1999. The increase in rental property
revenues was partially offset by a decrease of approximately $5,914,000 in 2001
from the February 2001 sale of Colonial Plaza MarketCenter and by approximately
$595,000 from the March 2000 sale of Laguna Niguel Promenade.
Rental property operating expenses increased from $33,379,000 in 2000 to
$43,826,000 and $49,015,000 in 2001 and 2002, respectively. The increases in
both 2001 and 2002 were due primarily to the aforementioned office buildings and
retail centers being leased-up or becoming partially operational for financial
reporting purposes, as well as the aforementioned acquisitions of One Georgia
Center and The Points at Waterview in December 2000. The increases in rental
property operating expenses were partially offset by approximately $500,000 in
2002 from the aforementioned decrease in average economic occupancy at The
Points at Waterview and approximately $244,000 and $1,800,000 in 2002 and 2001,
respectively, from the aforementioned sale of Colonial Plaza MarketCenter.
Development Income. Development income increased from $4,251,000 in 2000 to
$6,179,000 in 2001 and then decreased to $4,625,000 in 2002. Development income
decreased approximately $1,166,000 in 2002 from CPI/FSP I, L.P., as construction
of Austin Research Park - Buildings III and IV was completed. Development income
also decreased approximately $727,000 in 2002 from Crawford Long - CPI, LLC, as
construction of the Emory Crawford Long Medical Office Tower was substantially
completed in February 2002. Additionally, development income decreased
approximately $215,000 in 2002 from 285 Venture, LLC, as construction of 1155
Perimeter Center West was completed in 2001. The decrease in development income
in 2002 was partially offset by an increase in third party development and
advisory services of approximately $687,000.
In 2001, development income increased approximately $1,047,000 from CPS.
Effective March 1, 2001, CREC II purchased the remaining 25% interest in CPS, at
which point the operations of CPS were consolidated, whereas the operations had
previously been accounted for using the equity method of accounting and
therefore recognized as joint venture income (see Note 5). Development income
increased approximately $1,225,000 from three third party developments and
approximately $371,000 from the Emory Crawford Long Hospital campus
redevelopment and joint venture medical office tower. Tenant construction
supervision fees of approximately $433,000 from a tenant at Inforum also
contributed to the increase in development income. The increase was partially
offset by a decrease in development income of approximately $738,000 from
Gateway, as construction of Gateway Village was completed, and a decrease of
approximately $691,000 from 285 Venture, LLC, as construction of 1155 Perimeter
Center West was completed in 2001.
Management Fees. Management fees increased from $4,841,000 in 2000 to
$7,966,000 and $9,313,000 in 2001 and 2002, respectively. Approximately $921,000
of the 2002 increase was due to the aforementioned consolidation of CPS. Of this
increase, approximately $868,000 was from a new third party contract which CPS
obtained in October 2001. Management fees also increased approximately $175,000
in 2002 from Crawford Long - CPI, LLC, due to the aforementioned Emory Crawford
Long Medical Office Tower becoming partially operational for financial reporting
purposes in February 2002.
The 2001 increase was mainly due to the aforementioned consolidation of
CPS, which contributed approximately $3,241,000 to the increase. Additionally,
management fees increased in 2001 due to lease-up of several properties at
certain joint ventures from which management fees are recognized. The increases
in 2001 were partially offset by the disposition of the medical office third
party management division in October 2000, which partially offset the increases
by approximately $552,000.
Leasing and Other Fees. Leasing and other fees increased from $1,608,000 in
2000 to $5,344,000 in 2001 and then decreased to $4,297,000 in 2002. The
decrease in 2002 is primarily due to a decrease of approximately $1,130,000 from
CPI/FSP I, L.P., as leasing fees were recognized for the lease-up of Austin
Research Park - Buildings III and IV in 2001. Leasing and other fees from CPS
decreased approximately $822,000 due to decreased land sales at Las Colinas. The
CPS decrease was partially offset by an increase in leasing and other fees of
approximately $533,000 from third party contracts and approximately $454,000
from Ten Peachtree Place Associates, due to the lease-up of the Ten Peachtree
Place building.
Leasing and other fees increased approximately $3,663,000 in 2001 from the
aforementioned consolidation of CPS. The increase in 2001 was partially offset
by a decrease in leasing and other fees of approximately $443,000 from the
aforementioned disposition of the medical office third party management division
in October 2000.
Residential Lot and Outparcel Sales and Cost of Sales. Residential lot and
outparcel sales decreased from $13,951,000 in 2000 to $6,682,000 in 2001 and
then increased to $9,126,000 in 2002. Residential lot sales decreased from
$12,126,000 in 2000 to $6,682,000 in 2001 and then increased to $8,579,000 in
2002 due to the sale of 217 residential lots in 2000, 121 in 2001 and 166 in
2002. Additionally, there were three outparcel sales in 2000 totaling $1,825,000
and one in 2002 for $547,000.
Residential lot and outparcel cost of sales decreased from $11,684,000 in
2000 to $5,910,000 in 2001 and then increased to $7,309,000 in 2002. Residential
lot cost of sales was $10,463,000, $5,910,000 and $6,956,000 in 2000, 2001 and
2002, respectively, due partially to the aforementioned changes in lots sold
during the periods and partially to fluctuations in gross profit percentages
used to calculate the cost of sales for residential lot sales in certain of the
residential developments. Cost of sales of outparcels totaled approximately
$1,221,000 and $353,000 in 2000 and 2002, respectively.
Interest and Other Income. Interest and other income increased from
$5,995,000 in 2000 to $6,061,000 in 2001 and then decreased to $4,393,000 in
2002. These changes are primarily due to the $18.6 million note receivable from
Gateway, which was repaid in full in November 2001. The interest rate on this
note was floating based on LIBOR, which decreased during 2001, resulting in a
decrease in interest income of approximately $341,000 in 2001.
Income From Unconsolidated Joint Ventures. (All amounts reflect the
Company's share of joint venture income.) Income from unconsolidated joint
ventures increased from $19,452,000 in 2000 to $22,897,000 and $26,670,000 in
2001 and 2002, respectively.
Income from Wildwood Associates increased from $3,844,000 in 2000 to
$5,223,000 and $6,360,000 in 2001 and 2002, respectively. The 2002 increase was
primarily due to an increase in income before depreciation, amortization and
interest expense of approximately $803,000 from the 3200 Windy Hill Road
Building, as its average economic occupancy increased from 99% in 2001 to 100%
in 2002 and its tenant mix changed. The increase in 2001 was mainly due to an
increase in income before depreciation, amortization and interest expense of
approximately $877,000 also from the 3200 Windy Hill Road Building due to the
renewal of a significant tenant's lease at a higher rental rate. An increase in
income before depreciation, amortization and interest expense of approximately
$198,000 from the 2300 Windy Ridge Parkway Building due to an increase in its
average economic occupancy from 99% in 2000 to 100% in 2001 also contributed to
the 2001 increase. Additionally, interest expense decreased approximately
$214,000 in 2001, due to lower debt levels in 2001.
The loss from Cousins LORET decreased from $384,000 in 2000 to $54,000 in
2001 and then increased to $729,000 in 2002. The increase in loss in 2002 was
primarily due to a reduction in the average economic occupancy of Two Live Oak
Center from 98% in 2001 to 89% in 2002 and to an increase of approximately
$582,000 in depreciation and amortization expense at Two Live Oak Center. The
decrease in the loss in 2001 was mainly due to an increase in average economic
occupancy at The Pinnacle from 92% in 2000 to 98% in 2001.
Income from Temco Associates increased from $678,000 in 2000 to $1,720,000
in 2001 and $1,949,000 in 2002. During 2002, 2001 and 2000, approximately 607,
359 and 461 acres, respectively, of the option related to the fee simple
interest were exercised and simultaneously sold. CREC's share of the gain on
these and other tract sales was approximately $668,000, $1,075,000 and $678,000
in 2002, 2001 and 2000, respectively. Additionally, CREC began recognizing
profits on residential lot sales at Bentwater in 2001, which contributed
approximately $1,281,000 and $645,000 to the increase in 2002 and 2001,
respectively.
Income from Gateway increased from $620,000 in 2001 to $1,184,000 in 2002.
The Company recognizes an 11.46% current preferred return on its equity in
Gateway, which increased from $3,200,000 to $10,556,000 in November 2001.
Income from Crawford Long - CPI, LLC was $927,000 in 2002, as Emory
Crawford Long Medical Office Tower became partially operational for financial
reporting purposes in February 2002.
Income from Ten Peachtree Place Associates decreased from $169,000 in 2001
to a loss of $854,000 in 2002, as the average economic occupancy of Ten
Peachtree Place decreased from 93% in 2001 to 14% in 2002. This property was
100% leased as of December 31, 2002, with rent commencing March 2003 for the
primary tenant in 227,000 square feet.
Income from CSC Associates, L.P. increased from $10,711,000 in 2001 to
$11,466,000 in 2002 primarily due to an increase in rental revenues from a
tenant whose increase in rental rate did not require straight-lining under SFAS
No. 13.
Income from CPI/FSP I, L.P. was approximately $352,000 in 2001 and
$2,119,000 in 2002. Austin Research Park - Buildings III and IV became partially
operational for financial reporting purposes in June 2001 and September 2001,
respectively.
Income from CP Venture LLC increased from $611,000 in 2000 to $923,000 in
2001. This increase was due to decreases in depreciation and amortization
expense.
Income from 285 Venture, LLC increased from $831,000 in 2000 to $2,596,000
in 2001 as 1155 Perimeter Center West became partially operational for financial
reporting purposes in January 2000.
Income from CPS decreased from $1,649,000 in 2000 to $153,000 in 2001.
Effective March 1, 2001, CREC II purchased the remaining 25% interest in Cousins
Stone LP, bringing its total interest to 100%, and beginning on that date
Cousins Stone LP was consolidated with CREC II.
General and Administrative Expenses. General and administrative expenses
increased from $18,452,000 in 2000 to $27,010,000 and $27,670,000 in 2001 and
2002, respectively. The increase in 2002 was primarily due to increased salaries
and related benefits as a result of the aforementioned consolidation of CPS and
new personnel in several business units. Partially offsetting the increase in
2002 was a decrease resulting from the capitalization of additional general and
administrative expenses to offset the partial elimination of certain development
and leasing fees from joint ventures. The increase in 2001 was also primarily
due to the aforementioned consolidation of CPS, as well as a decrease of general
and administrative expenses capitalized to projects under development due to a
lower level of projects under development in 2001.
Depreciation and Amortization. Depreciation and amortization increased from
$32,742,000 in 2000 to $44,453,000 and $54,248,000 in 2001 and 2002,
respectively. The increases in both 2001 and 2002 were mainly due to the
aforementioned office buildings and retail centers becoming operational for
financial reporting purposes. The 2002 increase was also due to write-offs of
unamortized tenant improvements and leasing commissions related to certain
tenants who effected early terminations of their lease obligations.
Additionally, the acquisitions of One Georgia Center and The Points at Waterview
in December 2000 contributed to the 2001 increase, which was partially offset by
the sale of Colonial Plaza MarketCenter in February 2001.
Stock Appreciation Right Expense (Credit). Stock appreciation right expense
decreased $744,000 from an expense of $468,000 in 2000 to a benefit of $276,000
in 2001 and then increased $305,000 in 2002 to an expense of $29,000. This
non-cash item is primarily related to the number of stock appreciation rights
outstanding and the Company's stock price. Stock appreciation rights outstanding
totaled approximately 23,000 and 88,000 at December 31, 2001 and 2000,
respectively; none were outstanding at December 31, 2002. The Company's stock
price was $24.36 and $27.9375 per share at December 31, 2001 and 2000,
respectively.
Interest Expense. Interest expense increased from $13,596,000 in 2000 to
$27,610,000 and $37,423,000 in 2001 and 2002, respectively. Interest expense
before capitalization increased from $28,881,000 in 2000 to $37,322,000 and
$43,357,000 in 2001 and 2002, respectively. Interest expense before
capitalization increased in both 2002 and 2001 due to higher average debt
levels. The note secured by the Company's interest in CSC Associates, L.P. was
refinanced in February 2002, which increased the borrowings under the loan from
$80 million to $150 million (see Note 4). The Company completed four
non-recourse mortgages in 2001: Presidential MarketCenter in May 2001, 600
University Park Place in July 2001, 333 John Carlyle/1900 Duke Street and
333/555 North Point Center East in November 2001, and three non-recourse
mortgages in 2000: 101 Second Street in April 2000, The Avenue East Cobb in July
2000 and Meridian Mark Plaza in August 2000. The amount of interest
capitalization (a reduction of interest expense), which changes parallel to the
level of projects under development, decreased from $15,285,000 in 2000 to
$9,712,000 in 2001 and $5,934,000 in 2002 due to a lower level of projects under
development in 2001 and 2002. Partially offsetting the increase in interest
expense was a reduction in interest on the credit facility due to a decrease in
the average floating rate.
Property Taxes on Undeveloped Land. Property taxes on undeveloped land
increased from $40,000 in 2000 to $619,000 in 2001 and $675,000 in 2002.
Property taxes on undeveloped land were lower in 2000 due to the reversal of
estimated amounts accrued for anticipated reassessments of the Company's North
Point and Wildwood land holdings. The final reassessments, after appeal, were
lower than the anticipated reassessment, and the accrual was reduced.
Other Expenses. Other expenses increased from $4,086,000 in 2000 to
$4,324,000 and $4,857,000 in 2001 and 2002, respectively. The increase in 2002
was partially due to an increase of approximately $793,000 in predevelopment
expense. Additionally, minority interest expense increased approximately
$795,000 from 55 Second Street, which became partially operational for financial
reporting purposes in February 2002. Partially offsetting these increases in
other expenses was the reversal of approximately $1,156,000 of previously
recognized minority interest expense at 101 Second Street due to the
aforementioned early termination of certain tenants' leases. The increase in
2001 was due to minority interest expense of approximately $1,156,000 from 101
Second Street, which became partially operational for financial reporting
purposes in April 2000.
Provision (Benefit) for Income Taxes From Operations. The benefit for
income taxes from operations decreased from $1,145,000 in 2000 to $691,000 in
2001 to a provision of $1,526,000 in 2002. The increase in the tax provision in
2002 was primarily due to an increase in income before income taxes and gain on
sale of investment properties from CREC and its subsidiaries. The increase at
CREC and its subsidiaries was primarily due to the October 2002 sale of Salem
Road Station and two of its outparcels, as well as increases in income from
residential lot sales, net of cost of sales, and a decrease in general and
administrative expenses. The increase at CREC and its subsidiaries was partially
offset by a decrease in development income and an increase in interest expense.
The increase in the provision for income taxes in 2002 was also due to a
decrease in the loss before income taxes and gain on sale of investment
properties from CREC II and its subsidiaries. This decrease was mainly due to
increased income from CPS.
The decrease in the benefit in 2001 was primarily due to a decrease in the
loss before income taxes and gain on sale of investment properties of
approximately $1,953,000 from CREC and its subsidiaries in 2001. This decrease
was primarily due to an increase in income from Temco Associates, an increase in
income from Salem Road Station, a decrease in interest expense and a decrease in
stock appreciation right expense. The decrease in the loss before income taxes
and gain on sale of investment properties was partially offset by a decrease in
residential lot sales, net of cost of sales, and an increase in general and
administrative expenses in 2001.
The decrease in benefit for income taxes from operations in 2001 was
partially offset by a decrease in income before income taxes and gain on sale of
investment properties to a loss from CREC II and its subsidiaries in 2001. The
decrease is primarily due to an increase in interest expense and a decrease in
income from CPS. Additionally, true-ups in the accruals required for income
taxes related to the 1999 tax returns were made for CREC and its subsidiaries
and CREC II and its subsidiaries, which increased the 2000 benefit by
approximately $548,000 and $208,000, respectively.
Gain on Sale of Investment Properties. Gain on sale of investment
properties, net of applicable income tax provision, was $11,937,000, $23,496,000
and $6,254,000 in 2000, 2001 and 2002, respectively. The 2002 gain included the
following: the December 2002 sale of 5.5 acres of Wildwood land ($2.1 million)
and the amortization of net deferred gain from the Prudential transaction ($4.1
million) (see Note 5).
The 2001 gain included the following: the February 2001 sale of Colonial
Plaza MarketCenter ($17.1 million), the February 2001 disposition of leasehold
interests at Summit Green ($0.2 million), the December 2001 sale of 7 acres of
Wildwood land ($2.0 million) and the amortization of net deferred gain from the
Prudential transaction ($4.2 million) (see Note 5).
The 2000 gain included the following: the March 2000 sale of Laguna Niguel
Promenade ($7.2 million), the April 2000 sale of 2 acres of North Point land
($0.6 million) and the amortization of net deferred gain from the Prudential
transaction ($4.1 million) (see Note 5).
Discontinued Operations. The operations and sale of Salem Road Station were
reclassified to discontinued operations in accordance with SFAS No. 144 (see
Note 1, Recent Accounting Pronouncements).
Extraordinary Loss. The Company recognized an extraordinary loss of
approximately $3,501,000 in 2002 due to the refinancing of the CSC Associates,
L.P. non-recourse mortgage note payable (see Note 4).
Cumulative Effect of Change in Accounting Principle. The Company's early
adoption of SFAS No. 133, "Accounting for Derivatives," on October 1, 2000
resulted in a reduction in net income of approximately $566,000, which was
recorded as a cumulative effect of change in accounting principle in the
accompanying Consolidated Statements of Income. The Company owns 248,441
warrants to purchase common stock of Cypress Communications, Inc. which were
previously recorded as an asset with an estimated value of approximately
$566,000. SFAS No. 133 only affects the Company as it relates to its ownership
of warrants to purchase common stock in other companies, which under SFAS No.
133 are considered derivatives and must be marked-to-market each period.
- -------------------------------------------------------------------------------
Liquidity and Capital Resources
Financial Condition. The Company's adjusted debt (including its pro rata
share of unconsolidated joint venture debt) was $844.9 million, or 41% of total
market capitalization at December 31, 2002. Adjusted debt is defined as the
Company's debt ($669.8 million) and the Company's pro rata share of
unconsolidated joint venture debt ($175.1 million) as disclosed in Note 4,
excluding the Charlotte Gateway Village, LLC debt ($90.7 million) as it is fully
exculpated and fully amortizing debt which is supported by a long-term lease to
Bank of America Corporation.
As of December 31, 2002, the Company was subject to the following
contractual obligations and commitments ($ in thousands):
- --------------------------------------------------------------------------------
Less Than 1-3 4-5 After
Total 1 Year Years Years 5 Years
-------- --------- -------- -------- --------
Contractual Obligations:
Long-term debt (Note 4):
Unsecured credit facility $159,157 $ - $159,157 $ - $ -
Mortgage debt 510,635 8,274 46,745 56,973 398,643
Share of mortgage debt of
unconsolidated joint ventures 265,854 10,318 60,103 50,291 145,142
Operating leases (ground leases) 45,866 689 1,399 1,430 42,348
Operating leases (offices) 1,213 1,162 45 6 -
---------------------------------------------------------------------
Total Contractual Obligations $982,725 $ 20,443 $267,449 $108,700 $586,133
=====================================================================
Commitments:
Letters of credit $ 4,657 $ 4,657 $ - $ - $ -
Performance bonds 555 111 444 - -
Estimated development
commitments (1) 131,501 131,501 - - -
---------------------------------------------------------------------
Total Commitments $136,713 $136,269 $ 444 $ - $ -
=====================================================================
(1) Includes the Company's share of unconsolidated joint venture commitments.
- --------------------------------------------------------------------------------
At December 31, 2002, the Company had $159.2 million drawn on its $275
million credit facility. This unsecured credit facility contains customary
conditions precedent to borrowing, including compliance with financial covenants
such as minimum interest coverage and maximum debt to market capitalization. The
interest rate on this facility is equal to LIBOR plus a spread based on the
ratio of total debt to total assets. As of December 31, 2002, the spread over
LIBOR was 1.15%. This facility also contains customary events of default that
could give rise to acceleration and include such items as failure to pay
interest or principal and breaches of financial covenants such as maintenance of
minimum capitalization and minimum interest coverage.
The Company's mortgage debt, and its share of mortgage debt of
unconsolidated joint ventures, is primarily non-recourse fixed-rate debt secured
by various real estate or joint venture investments. As of December 31, 2002,
the weighted average interest rate on this debt was 7.5%. In addition, many of
the Company's non-recourse mortgages contain covenants which, if not satisfied,
could result in acceleration of the maturity of the debt.
The Company has future lease commitments under land leases aggregating
approximately $45.9 million over an average remaining term of 57 years.
Additionally, the Company has future lease commitments for office space
aggregating approximately $1.2 million over an average remaining term of 1.5
years.
As of December 31, 2002, the Company had outstanding letters of credit and
performance bonds aggregating approximately $5.2 million. These instruments
primarily related to guarantees of maintenance and/or performance pertaining to
the Company's development projects.
The Company has development and acquisition projects in various planning
stages. The Company currently intends to finance these projects and projects
currently under construction discussed in Note 8, by using its existing credit
facility (increasing the credit facility as required), long-term non-recourse
financing on the Company's unleveraged projects, joint ventures, project sales
and other financings as market conditions warrant. As of December 31, 2002,
outstanding commitments for the construction and design of real estate projects,
including the Company's share of unconsolidated joint venture commitments,
totaled approximately $131.5 million, most of which will be funded in 2003.
As a member of various of the unconsolidated joint ventures described in
Note 5, the Company may be required to make additional capital contributions
from time to time to fund development costs, tenant improvement costs or
operating deficits.
In September 1996, the Company filed a shelf registration statement with
the Securities and Exchange Commission ("SEC") for the offering from time to
time of up to $200 million of common stock, warrants to purchase common stock
and debt securities, of which approximately $132 million remained available at
December 31, 2002.
The Company from time to time evaluates opportunities and strategic
alternatives, including but not limited to joint ventures, mergers and
acquisitions and new private or publicly-owned entities created to hold existing
assets and acquire new assets. These alternatives may also include sales of
single or multiple assets when the Company perceives opportunities to capture
value and redeploy proceeds or distribute proceeds to stockholders. The
Company's consideration of these alternatives is part of its ongoing strategic
planning process. There can be no assurance that any such alternative, if
undertaken and consummated, would not materially adversely affect the Company or
the market price of the Company's Common Stock.
Cash Flows. Net cash provided by operating activities of continuing
operations decreased from $90.4 million in 2000 to $90.2 million in 2001 and
then increased to $102.7 million in 2002. Depreciation and amortization
increased approximately $9.9 million due to the aforementioned office buildings
and retail center becoming partially operational for financial reporting
purposes and the write-offs of unamortized tenant improvements and leasing
commissions related to certain tenants who effected early terminations of their
lease obligations. Changes in other operating assets and liabilities increased
approximately $4.0 million and residential lot and outparcel cost of sales
increased approximately $1.3 million, also contributing to the increase in net
cash provided by operating activities. Income from continuing operations before
gain on sale of investment properties decreased approximately $3.4 million,
which partially offset the increase in net cash provided by operating
activities.
In 2001, income from continuing operations before gain on sale of
investment properties decreased approximately $3.5 million. Further contributing
to the decrease in net cash provided by operating activities was a decrease in
residential lot and outparcel cost of sales of approximately $6.1 million.
Changes in other operating assets and liabilities decreased approximately $3.0
million. Stock appreciation right expense (credit) decreased approximately $0.7
million in 2001, which also contributed to the decrease in net cash provided by
operating activities. Depreciation and amortization increased approximately
$12.9 million and amortization of unearned compensation increased approximately
$1.0 million, both of which partially offset the decrease in net cash provided
by operating activities.
Net cash used in investing activities decreased from $217.8 million in 2000
to $117.3 million in 2001 and $83.0 million in 2002. The decrease in net cash
used in investing activities in 2002 was primarily due to a decrease of
approximately $52.4 million in property acquisition and development
expenditures, as a result of the Company having a lower level of projects under
development in 2002. Investment in unconsolidated joint ventures decreased
approximately $34.5 million, which also contributed to the decrease in net cash
used in investing activities. This decrease was primarily due to a decrease in
contributions of approximately $15.4 million to CPI/FSP I, L.P., as construction
of Austin Research Park - Buildings III and IV was completed in 2001, a decrease
in contributions of approximately $13.0 million to Crawford Long - CPI, LLC in
2002, as construction of the Emory Crawford Long Medical Office Tower was
substantially completed in February 2002, and a decrease in contributions of
approximately $1.1 million to 285 Venture, LLC, as construction of 1155
Perimeter Center West was completed in 2001. Contributions to Gateway also
decreased approximately $7.8 million. The decrease in investment in
unconsolidated joint ventures was partially offset by an increase in
contributions of approximately $4.0 million to Ten Peachtree Place Associates in
2002. The decrease in net cash paid in acquisition of business of approximately
$2.1 million, which resulted from the acquisition of the remaining 25% interest
in CPS in the first quarter of 2001, and a decrease in change in other assets,
net, of approximately $6.8 million, both further contributed to the decrease in
net cash used in investing activities. Net cash provided by sales activities
decreased approximately $45.9 million due primarily to the sale of Colonial
Plaza MarketCenter in February 2001, which partially offset the decrease in net
cash used in investing activities. Collection of notes receivable decreased
approximately $2.9 million, which also partially offset the decrease in net cash
used in investing activities. Further offsetting the decrease in net cash used
in investment activities in 2002 was a decrease in distributions in excess of
income from unconsolidated joint ventures of approximately $12.7 million,
consisting of a decrease in total distributions of approximately $8.9 million
and an increase in income of approximately $3.8 million. The decrease in total
distributions was primarily due to a decrease of approximately $17.6 million
from Gateway, as a result of refinancing Gateway's construction loan in 2001,
partially offset by increases in total distributions of approximately $7.0
million from Wildwood Associates and $1.9 million from CPI/FSP I, L.P.
In 2001, net cash provided by sales activities increased approximately
$30.1 million, which contributed to the decrease in net cash used in investing
activities, due primarily to the sale of Colonial Plaza MarketCenter in February
2001. The decrease in net cash used in investing activities was also partially
due to a decrease of approximately $75.6 million in property acquisition and
development expenditures, as a result of the Company having a lower level of
projects under development. Also contributing to the decrease in net cash used
in investing activities in 2001 was an increase in distributions in excess of
income from unconsolidated joint ventures of approximately $9.0 million,
reflecting an increase of approximately $12.4 million in total distributions net
of an increase of approximately $3.4 million in income. The increase in total
distributions was primarily due to increases of approximately $18.3 million from
Gateway, resulting from refinancing its construction loan, $1.9 million from CSC
Associates, L.P. and $0.8 million from CPI/FSP I, L.P. Partially offsetting
these increases in total distributions were decreases in distributions of
approximately $4.5 million from Wildwood Associates, $3.1 million from CPS and
$1.8 million from Temco Associates. Partially offsetting the decrease in net
cash used in investing activities was an increase of approximately $7.2 million
in investment in unconsolidated joint ventures in 2001. Investment in Crawford
Long - CPI, LLC increased approximately $13.7 million as a result of development
of the Emory Crawford Long joint venture medical office tower and investment in
CPI/FSP I, L.P. increased approximately $5.0 million as a result of development
of Austin Research Park - Buildings III and IV. Investment in Gateway also
increased approximately $7.8 million. Partially offsetting the increase in
investment in unconsolidated joint ventures was a decrease in 285 Venture, LLC
of approximately $12.8 million, as construction of 1155 Perimeter Center West
was completed. Also partially offsetting the increase was a decrease in the
investment in CPS of approximately $4.5 million, as the Company purchased the
remaining 25% interest in March 2001 (see Note 5). Change in other assets, net,
increased approximately $4.8 million, which partially offset the aforementioned
decrease in net cash used in investing activities. Net cash paid in acquisition
of a business, which resulted from the acquisition of the remaining 25% interest
in CPS, further offset the decrease in net cash used in investing activities by
approximately $2.1 million.
Net cash provided by financing activities decreased from $127.5 million in
2000 to $35.5 million in 2001, and then decreased to net cash used in financing
activities of $21.2 million in 2002. The decrease in net cash provided by
financing activities in 2002 was primarily attributable to an increase of
approximately $67.8 million in repayment of other notes payable and an increase
in extraordinary loss of approximately $3.5 million, both due to the refinancing
of Bank of America Plaza (see Note 4). Also contributing to the decrease in net
cash provided by financing activities to net cash used in financing activities
was an increase of $29.4 million of common stock repurchases. An increase in the
dividends paid per share to $1.48 in 2002 from $1.39 in 2001 also contributed to
the decrease in net cash provided by financing activities as dividends paid
increased approximately $4.8 million. Additionally, common stock sold, net of
expenses, decreased by approximately $3.4 million. The increase in proceeds from
other notes payable of approximately $26.3 million due to the aforementioned
refinancing of Bank of America Plaza and an increase of approximately $25.8
million in net amounts drawn on the credit facility partially offset the
decrease in net cash provided by financing activities.
The decrease in net cash provided by financing activities in 2001 was
primarily attributable to an increase in net amounts drawn on the credit
facility of $64.1 million and a decrease of $28.0 million in proceeds from other
notes payable. The Company completed five financings for a total of $126.5
million in 2001 as compared to three financings for a total of $154.5 million in
2000. An increase in the dividends paid per share to $1.39 in 2001 from $1.24 in
2000 and an increase in the number of shares outstanding also contributed to the
decrease in net cash provided by financing activities, as dividends paid
increased approximately $8.3 million. The Company repurchased 527,400 shares of
its outstanding common stock in September 2001, which contributed approximately
$12.5 million to the decrease in net cash provided by financing activities.
Common stock sold, net of expenses, increased by approximately $1.4 million and
repayment of other notes payable decreased by approximately $19.5 million, due
to the repayment in 2000 of the note payable to First Union National Bank, both
of which partially offset the decrease in net cash provided by financing
activities.
Effects of Inflation. The Company attempts to minimize the effects of
inflation on income from operating properties by using rents tied to tenants'
sales, periodic fixed-rent increases or increases based on cost-of-living
adjustments, and/or pass-through of operating cost increases to tenants.
Other Matters. The events of September 11, 2001 adversely affected the
pricing and availability of property insurance. In particular, premiums
increased and terrorism insurance coverage became harder to obtain. The
availability of coverage has improved and, at this time, the Company and its
unconsolidated joint ventures are fully insured on all of their assets. While
the Company's cost of property insurance coverage has increased, management
believes the costs are still reasonable and should not have a material impact on
the Company's financial condition or results of operations.
Quantitative and Qualitative Disclosure about Market Risk
The variable rate debt is primarily from the Company's credit facility,
which is drawn on as needed (see Note 4), and from a mortgage note at an
unconsolidated joint venture, Ten Peachtree Place Associates. Since these rates
are floating, the Company is exposed to the impact of interest rate changes.
None of the Company's notes receivable have variable interest rates. The Company
does not enter into contracts for trading purposes and does not use leveraged
instruments. The following table summarizes the Company's market risk associated
with notes payable and notes receivable as of December 31, 2002. The information
presented below should be read in conjunction with Notes 3 and 4. The table
presents principal cash flows and related weighted average interest rates by
expected year of maturity. Variable rate represents the floating interest rate
calculated at December 31, 2002.
- --------------------------------------------------------------------------------
Expected Year of Maturity
-----------------------------------------------------------------------------------
Fair
2003 2004 2005 2006 2007 Thereafter Total Value
-----------------------------------------------------------------------------------
($ in thousands)
Notes Payable (including
share of unconsolidated
joint ventures):
Fixed Rate $17,492 $ 18,716 $84,875 $18,629 $86,308 $542,767 $768,787 $821,866
Average Interest Rate 7.29% 7.24% 7.58% 6.94% 8.00% 7.34% 7.42% --
Variable Rate $ 1,100 $161,297 $ 1,117 $ 1,148 $ 1,179 $ 1,018 $166,859 $166,859
Average Interest Rate 2.13% 2.83% 2.13% 2.13% 2.13% 2.13% 2.81% --
Notes Receivable:
Fixed Rate $26,309 $ -- $ -- $ 12 $ -- $ -- $ 26,321 $ 27,154
Average Interest Rate 10.00% -- -- 8.50% -- -- 10.00% --
Cousins Properties Incorporated and Consolidated Entities
MARKET AND DIVIDEND INFORMATION
- --------------------------------------------------------------------------------
The high and low sales prices for the Company's common stock and cash
dividends declared per share were as follows:
2002 Quarters 2001 Quarters
---------------------------------------- ----------------------------------------
First Second Third Fourth First Second Third Fourth
----- ------ ----- ------ ----- ------ ----- ------
High $27.18 $27.32 $25.02 $24.89 $28.75 $27.65 $27.07 $25.38
Low 23.70 24.20 20.05 20.23 23.50 24.85 23.30 23.70
Dividends Declared .37 .37 .37 .37 .34 .34 .34 .37
Payment Date 2/22/02 5/30/02 8/26/02 12/20/02 2/22/01 5/30/01 8/24/01 12/22/01
The Company's stock trades on the New York Stock Exchange (ticker symbol
CUZ). At February 27, 2003, there were 1,137 stockholders of record.
- --------------------------------------------------------------------------------
ABOUT YOUR DIVIDENDS
Timing of Dividends - Cousins normally pays regular dividends four times
each year in February, May, August and December.
Differences Between Net Income and Cash Dividends Declared - Cousins'
current intention is to distribute at least 100% of its taxable income and thus
incur no corporate income taxes. However, Consolidated Net Income for financial
reporting purposes and Cash Dividends Declared will generally not be equal for
the following reasons:
a. There will continue to be considerable differences between Consolidated
Net Income as reported to stockholders (which includes the income of
consolidated non-REIT entities that pay corporate income taxes) and Cousins'
taxable income. The differences are enumerated in Note 7 of "Notes to
Consolidated Financial Statements."
b. For purposes of meeting REIT distribution requirements, dividends may be
applied to the calendar year before or after the one in which they are declared.
The differences between dividends declared in the current year and dividends
applied to meet current year REIT distribution requirements are enumerated in
Note 6 of "Notes to Consolidated Financial Statements."
Capital Gains Dividends - In some years, as it did in 2002, 2001 and 2000,
Cousins will have taxable capital gains, and Cousins currently intends to
distribute 100% of such gains to stockholders. The Form 1099-DIV sent by Cousins
to stockholders of record each January shows total dividends paid (including the
capital gains dividends) as well as that which should be reported as a capital
gain (see Note 6 of "Notes to Consolidated Financial Statements").
Tax Preference Items and "Differently Treated Items" - Internal Revenue
Code Section 59(d) requires that certain corporate tax preference items and
"differently treated items" be passed through to a REIT's stockholders and
treated as tax preference items and items of adjustment in determining the
stockholder's alternative minimum taxable income. The amount of this adjustment
is included in Note 6 of "Notes to Consolidated Financial Statements."
Tax preference items and adjustments are includable in a stockholder's
income only for purposes of computing the alternative minimum tax. These
adjustments will not affect a stockholder's tax filing unless that stockholder's
alternative minimum tax is higher than that stockholder's regular tax.
Stockholders should consult their tax advisors to determine if the adjustment
reported by Cousins affects their tax filing. Many stockholders will find that
the adjustment reported by Cousins will have no effect on their tax filing
unless they have other large sources of alternative minimum tax adjustments or
tax preference items.
Cousins Properties Incorporated and Consolidated Entities
SELECTED QUARTERLY FINANCIAL INFORMATION (UNAUDITED)
- --------------------------------------------------------------------------------
Selected quarterly information for the two years ended December 31, 2002 ($ in
thousands, except per share amounts):
Quarters
---------------------------------------
First Second Third Fourth
------- ------ ------- -------
2002:
Revenues $49,077 $48,814 $52,357 $49,552
Income from unconsolidated joint ventures 7,030 6,601 6,880 6,159
Gain on sale of investment properties, net of applicable income
tax provision 1,029 1,042 1,028 3,155
Income from continuing operations 12,716 12,656 11,929 12,671
Discontinued operations 59 56 81 1,205
Extraordinary loss (3,501) -- -- --
Net income 9,274 12,712 12,010 13,876
Basic income from continuing operations per share .26 .25 .24 .26
Basic net income per share .19 .26 .24 .29
Diluted income from continuing operations per share .25 .25 .24 .26
Diluted net income per share .18 .25 .24 .28
2001:
Revenues $43,172 $44,089 $45,180 $44,545
Income from unconsolidated joint ventures 5,505 5,640 5,804 5,948
Gain on sale of investment properties, net of applicable income
tax provision 18,345 1,077 1,031 3,043
Income from continuing operations 31,308 12,500 13,324 13,462
Discontinued operations 59 58 63 41
Net income 31,367 12,558 13,387 13,503
Basic income from continuing operations per share .64 .25 .27 .27
Basic net income per share .64 .25 .27 .28
Diluted income from continuing operations per share .62 .25 .26 .27
Diluted net income per share .62 .25 .27 .27
INDEPENDENT AUDITORS
Deloitte & Touche LLP
COUNSEL
King & Spalding LLP
Troutman Sanders LLP
TRANSFER AGENT AND REGISTRAR
Wachovia Bank, N.A.
Shareholder Services Group - 1153
1525 West W.T. Harris Blvd., Building 3C3
Charlotte, North Carolina 28262-1153
Telephone Number: 1-800-829-8432
FAX Number: 1-704-590-7618
FORM 10-K AVAILABLE
The Company's annual report on Form 10-K and interim reports on Form 10-Q are
filed with the Securities and Exchange Commission. Copies without exhibits are
available free of charge upon written request to the Company at 2500 Windy Ridge
Parkway, Suite 1600, Atlanta, Georgia 30339-5683, Attention: Mark A. Russell,
Vice President - Chief Financial Analyst and Director of Investor Relations.
These items are also posted on the Company's website at
www.CousinsProperties.com.
INVESTOR RELATIONS CONTACT
Mark A. Russell, Vice President - Chief Financial Analyst and
Director of Investor Relations
Telephone Number: (770) 857-2449
FAX Number: (770) 857-2360
Email Address: markrussell@cousinsproperties.com
Cousins Properties Incorporated and Consolidated Entities
DIRECTORS
T. G. Cousins
Chairman of the Board
Thomas D. Bell, Jr.
Vice Chairman of the Board, President
and Chief Executive Officer
Richard W. Courts, II
Chairman
Atlantic Investment Company
Lillian C. Giornelli
Chairman and Chief Executive Officer
The Cousins Foundation, Inc.
Terence C. Golden
Chairman
Bailey Capital Corporation
Boone A. Knox
Chairman
Regions Bank of Central Georgia
John J. Mack
Chairman and Chief Executive
Officer
Credit Suisse First Boston
Hugh L. McColl, Jr.
Retired Chairman and Chief
Executive Officer
Bank of America Corporation
William Porter Payne
Partner
Gleacher & Co.
R. Dary Stone
Vice Chairman of the Company
Henry C. Goodrich
Director Emeritus
CORPORATE
T. G. Cousins
Chairman of the Board
Thomas D. Bell, Jr.
Vice Chairman of the Board, President
and Chief Executive Officer
Daniel M. DuPree
Vice Chairman of the Company
R. Dary Stone
Vice Chairman of the Company
Tom G. Charlesworth
Executive Vice President, Chief
Financial Officer and Chief
Investment Officer
Dan G. Arnold
Senior Vice President and Chief Information Officer
Lisa M. Borders
Senior Vice President
James A. Fleming
Senior Vice President, General Counsel and Secretary
Lawrence B. Gardner
Senior Vice President - Human Resources
C. Jack Minter
Senior Vice President - Director of Investments
Michael A. Quinlan
Senior Vice President, Chief Accounting Officer, Controller and
Assistant Secretary
Patricia A. Grimes
Vice President - Financial and SEC Reporting and Accounting Policy
Karen S. Hughes
Vice President - Treasury and Finance
Kristin R. Myers
Vice President - Taxation and Benefit Plan Compliance
Mark A. Russell
Vice President - Chief Financial
Analyst and Director of Investor Relations
OFFICE DIVISION
Craig B. Jones
President
John S. McColl
Senior Vice President
Michael B. Ablon
Senior Vice President - Dallas
W. Henry Atkins
Senior Vice President - Charlotte
Charles E. Cotten
Senior Vice President - Dallas
Mark P. Dickenson
Senior Vice President -Director of Leasing, Client Services, Dallas
Walter L. Fish
Senior Vice President - Director of Leasing, Atlanta
James F. George
Senior Vice President - Senior Development Executive
Tim Hendricks
Senior Vice President - Austin
Jack A. LaHue
Senior Vice President - Asset
Management
Roger B. Leithead, Jr.
Senior Vice President - Office, Atlanta
Dara J. Nicholson
Senior Vice President - Property Management, Office
C. David Atkins
Vice President - Asset Management, Charlotte
James D. Dean
Vice President - Senior Development
Executive, Office
Lee Eastwood
Vice President - Leasing, Office
Molly Faircloth
Vice President - Administration, Office
John N. Goff
Vice President - Development Executive, Charlotte
Charles D. McCormick
Vice President - Development Executive, Austin
Ronald C. Sturgis
Vice President - Director of Operations, Office
Lloyd P. Thompson, Jr.
Vice President - Senior Development
Executive
John R. Ward
Vice President - Asset Management, Atlanta
RETAIL DIVISION
Joel T. Murphy
President
William I. Bassett
Senior Vice President - Development
Alexander A. Chambers
Senior Vice President
Robert A. Manarino
Senior Vice President - Director of
Western Region Operations
Thomas D. Lenny
Senior Vice President - Western Region
David C. Nelson
Senior Vice President - Director of Asset Management
Steve V. Yenser
Senior Vice President - Leasing
Steve A. Cooper
Vice President - Property Management
Kevin B. Polston
Vice President - Leasing
Amy S. Siegal
Vice President - Leasing
LAND DIVISION*
(Cousins Neighborhoods)
Bruce E. Smith
President
Michael J. Quinley
Senior Vice President - Development
Erling D. Speer
Senior Vice President - Development
Craig A. Lacey
Vice President - Development
Deloris Schmidt
Vice President - Operations
*Officers of Cousins Real Estate Corporation only