COUSINS PROPERTIES INC
10-Ks and 10-Qs
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Table of Contents
UNITED STATES SECURITIES AND
EXCHANGE COMMISSION
Washington, D.C.
20549
Form 10-K
|
þ
|
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 | |
| For the fiscal year ended December 31, 2009 | ||
|
or
|
||
|
o
|
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 | |
| For the transition period from to | ||
Commission file number
001-11312
COUSINS PROPERTIES
INCORPORATED
(Exact name of registrant as
specified in its charter)
|
Georgia
|
58-0869052 | |
|
(State or other jurisdiction
of incorporation or organization) |
(I.R.S. Employer
Identification No.) |
|
|
191 Peachtree Street NE, Suite 3600, Atlanta, Georgia
(Address of principal executive offices) |
30303-1740
(Zip Code) |
(404)
407-1000
(Registrant’s telephone
number, including area code)
Securities registered pursuant
to Section 12(b) of the Act:
|
Title of Each Class
|
Name of Exchange on Which Registered
|
|
|
Common Stock ($1 par value)
|
New York Stock Exchange | |
|
7.75% Series A Cumulative Redeemable
Preferred Stock ($1 par value) |
New York Stock Exchange | |
|
7.50% Series B Cumulative Redeemable
Preferred Stock ($1 par value) |
New York Stock Exchange |
Securities registered pursuant to Section 12(g) of the
Act: None
Indicate by check mark if the registrant is a well-known
seasoned issuer, as defined in Rule 405 of the Securities
Act. Yes
o
No
þ
Indicate by check mark if the registrant is not required to file
reports pursuant to Section 13 or Section 15(d) of the
Exchange
Act. Yes
o
No
þ
Indicate by check mark whether the registrant (1) has filed
all reports required to be filed by Section 13 or 15(d) of
the Securities Exchange Act of 1934 during the preceding
12 months (or for such shorter period that the registrant
was required to file such reports), and (2) has been
subject to such filing requirements for the past
90 days. Yes
þ
No
o
Indicate by check mark if disclosure of delinquent filers
pursuant to Item 405 of
Regulation S-K
is not contained herein, and will not be contained, to the best
of registrant’s knowledge, in definitive proxy or
information statements incorporated by reference in
Part III of this
Form 10-K
or any amendment to this
Form 10-K.
o
Indicate by check mark whether the registrant is a large
accelerated filer, an accelerated filer, a non-accelerated
filer, or a smaller reporting company. See the definitions of
“large accelerated filer,” “accelerated
filer” and “smaller reporting company” in
Rule 12b-2
of the Exchange Act. (Check one):
|
Large accelerated
filer
o
|
Accelerated filer þ |
Non-accelerated
filer
o
(Do not check if smaller reporting company) |
Smaller reporting company o |
Indicate by check mark whether the registrant is a shell company
(as defined in
Rule 12b-2
of the Exchange
Act). Yes
o
No
þ
As of June 30, 2009, the aggregate market value of the
common stock of Cousins Properties Incorporated held by
non-affiliates was $320,914,177 based on the closing sales price
as reported on the New York Stock Exchange. As of
February 23, 2010, 100,046,701 shares of common stock
were outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Registrant’s proxy statement for the annual
stockholders meeting to be held on May 4, 2010 are
incorporated by reference into Part III of this
Form 10-K.
TABLE OF CONTENTS
Table of Contents
FORWARD-LOOKING
STATEMENTS
Certain matters contained in this report are
“forward-looking statements” within the meaning of the
federal securities laws and are subject to uncertainties and
risks, as itemized in Item 1A included in this
Form 10-K.
These forward-looking statements include information about
possible or assumed future results of the Company’s
business and the Company’s financial condition, liquidity,
results of operations, plans and objectives. They also include,
among other things, statements regarding subjects that are
forward-looking by their nature, such as:
| • | the Company’s business and financial strategy; | |
| • | the Company’s ability to obtain future financing arrangements; | |
| • | the Company’s understanding of its competition and its ability to compete effectively; | |
| • | projected operating results; | |
| • | market and industry trends; | |
| • | estimates relating to future distributions; | |
| • | projected capital expenditures; and | |
| • | interest rates. |
The forward-looking statements are based upon management’s
beliefs, assumptions, and expectations of the Company’s
future performance, taking into account information currently
available. These beliefs, assumptions, and expectations may
change as a result of many possible events or factors, not all
of which are known. If a change occurs, the Company’s
business, financial condition, liquidity, and results of
operations may vary materially from those expressed in
forward-looking statements. Actual results may vary from
forward-looking statements, due to, but not limited to, the
following:
| • | availability and terms of capital and financing, both to fund operations and to refinance indebtedness as it matures; | |
| • | risks and uncertainties related to the current recession, the national and local economic conditions, the real estate industry in general and in specific markets, and the commercial, residential and condominium markets in particular; | |
| • | continued adverse market and economic conditions could require the recognition of additional impairments; | |
| • | leasing risks, including an inability to obtain new tenants or renew tenants on favorable terms, or at all, upon the expiration of existing leases and the ability to lease newly developed or currently unleased space; | |
| • | financial condition of existing tenants; | |
| • | rising interest rates and insurance rates; | |
| • | the availability of sufficient development or investment opportunities; | |
| • | competition from other developers or investors; | |
| • | the risks associated with development projects (such as construction delay, cost overruns and leasing/sales risk of new properties); | |
| • | potential liability for uninsured losses, condemnation or environmental liability; | |
| • | potential liability for a failure to meet regulatory requirements; | |
| • | the financial condition and liquidity of, or disputes with, joint venture partners; | |
| • | any failure to comply with debt covenants under credit agreements; | |
| • | any failure to continue to qualify for taxation as a real estate investment trust. |
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Table of Contents
The words “believes,” “expects,”
“anticipates,” “estimates,”
“plans,” “may,” “intend,”
“will,” or similar expressions are intended to
identify forward-looking statements. Although the Company
believes its plans, intentions and expectations reflected in any
forward-looking statements are reasonable, the Company can give
no assurance that such plans, intentions or expectations will be
achieved. 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, except as
required under U.S. federal securities laws.
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Table of Contents
| Item 1 . | Business |
Corporate
Profile
Cousins Properties Incorporated (the “Registrant” or
“Cousins”) is a Georgia corporation, which, since
1987, has elected to be taxed as a real estate investment trust
(“REIT”). Cousins Real Estate Corporation and its
subsidiaries (“CREC”) is a taxable entity wholly-owned
by the Registrant, which is consolidated with the Registrant.
CREC owns, develops, and manages its own real estate portfolio
and performs certain real estate related services for other
parties. The Registrant and CREC combined are hereafter referred
to as the “Company.” The Company has been a public
company since 1962, and its common stock trades on the New York
Stock Exchange under the symbol “CUZ.”
The Company’s strategy is to produce strong stockholder
returns by creating value through the acquisition, development
and redevelopment of high quality, well-located office,
multi-family, retail, and residential properties. The Company
has developed substantially all of the income producing real
estate assets it owns and operates. A key element in the
Company’s strategy is to actively manage its portfolio of
investment properties and, at the appropriate times, to engage
in timely and strategic dispositions either by sale or through
contributions to ventures in which the Company retains an
ownership interest. These transactions seek to maximize the
value of the assets the Company has created, generate capital
for additional development properties and return a portion of
the value created to stockholders.
Unless otherwise indicated, the notes referenced in the
discussion below are the “Notes to Consolidated Financial
Statements” included in this Annual Report on
Form 10-K
on pages F- 7 through F- 42.
For a description and list of the Company’s properties, see
the Item 2 tables in the report herein. The following is a
summary of the Company’s 2009 activities.
Business
Description and Significant Changes in 2009
Development
The Development Group is responsible for all development
activities of the Company. This group is charged with
identifying new development projects among all product types and
managing all phases of the development and construction process
through project stabilization or sale. This process includes not
only construction management, but also leasing and tenant
coordination for first generation office and retail space. It
also includes marketing, selling and move-in coordination for
multi-family projects. In addition, this group is responsible
for all residential lot and tract development from project
identification to lot and tract sales to end users. The
Development Group also performs fee-based development and
construction services for third parties.
Significant
activity within the Development Group in 2009 was as
follows:
| • | Substantially completed the development of Terminus 200, a 565,000 square-foot, Class A office building in the Buckhead district of Atlanta. | |
| • | Closed 42 units at 10 Terminus Place, a 137-unit condominium project in the Buckhead district of Atlanta. | |
| • | Sold all of the units and pads at The Brownstones at Habersham, a town home project in Atlanta, Georgia which the Company acquired from a bank in the second quarter of 2009. Recognized a gain on these sales of $1.6 million. | |
| • | Closed 24 units at 60 North Market, a condominium project in Asheville, North Carolina, which the Company acquired through settlement of a note receivable in July of 2009. | |
| • | Sold three outparcels at three retail centers for approximately $5.7 million, generating gains of approximately $1.9 million. |
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Leasing
and Asset Management
The Leasing and Asset Management Group is responsible for the
activities of all stabilized operating properties that the
Company owns. These activities include property management,
leasing and asset management of each property. As of
December 31, 2009, the Company owned directly or through
joint ventures 22 operating office properties equaling
6.9 million square feet, 14 operating retail centers
equaling 4.7 million square feet and three operating
industrial properties equaling 2.0 million square feet.
In addition, the Leasing and Asset Management Group is
responsible for the Company’s third party management and
leasing business. As of December 31, 2009, the Company
managed
and/or
leased properties totaling 14.3 million square feet.
Significant
activity within the Leasing and Asset Management Group in 2009
was as follows:
| • | Executed new leases covering approximately 354,000 square feet of office space, 351,000 square feet of retail space and 260,000 square feet of industrial space. |
Investment
and Corporate
The Investment and Corporate groups evaluate the capital
structure of the Company, investment opportunities and perform
general functions, including regulatory compliance and
reporting, treasury and finance. The Company’s financing
strategy is to provide capital to fund its investment activities
while maintaining a relatively conservative debt level.
Historically, the Company has accomplished this strategy by
raising capital through bank lines of credit, construction and
permanent loans secured by properties, sales of mature assets,
contribution of assets into joint ventures, and the issuance of
equity securities.
Significant
activity within the Investment and Corporate Group in 2009 was
as follows:
| • | As a result of a distribution from the venture to the partners, recognized approximately $167 million of deferred gain related to the June 2006 Avenue Fund transaction with Prudential. | |
| • | Completed an offering of 46 million shares of common stock. Net proceeds from the offering were approximately $318 million, which were used to reduce indebtedness. | |
| • | Repaid in full the $83.3 million mortgage note payable secured by the San Jose MarketCenter for approximately $70.3 million and recognized a gain on extinguishment of this debt of approximately $12.5 million. |
Environmental
Matters
The Company’s business operations are subject to various
federal, state and local environmental laws and regulations
governing land, water and wetlands resources. Among these are
certain laws and regulations under which an owner or operator of
real estate could become liable for the costs of removal or
remediation of certain hazardous or toxic substances present on
or in such property. Such laws often impose liability without
regard to whether the owner knew of, or was responsible for, the
presence of such hazardous or toxic substances. The presence of
such substances, or the failure to properly remediate such
substances, may subject the owner to substantial liability and
may adversely affect the owner’s ability to develop the
property or to borrow using such real estate as collateral. The
Company typically manages this potential liability through
performance of Phase I Environmental Site Assessments and, as
necessary, Phase II environmental sampling, on properties
it acquires or develops, although no assurance can be given that
environmental liabilities do not exist, that the reports
revealed all environmental liabilities or that no prior owner
created any material environmental condition not known to the
Company. The Company has also sought to avail itself of legal
and regulatory protections offered by federal and state
authorities to prospective purchasers of property. Where
applicable studies have resulted in the determination that
remediation was required by applicable law, the necessary
remediation is typically incorporated into the development
activity of the relevant property. Compliance with other
applicable environmental laws and regulations is similarly
incorporated into the redevelopment plans for the property. The
Company is not aware of any
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environmental liability that the Company’s management
believes would have a material adverse effect on the
Company’s business, assets or results of operations.
Certain environmental laws impose liability on a previous owner
of property to the extent that hazardous or toxic substances
were present during the prior ownership period. A transfer of
the property does not necessarily relieve an owner of such
liability. Thus, although the Company is not aware of any such
situation, the Company may be liable in respect to properties
previously sold.
The Company believes that it and its properties are in
compliance in all material respects with all applicable federal,
state and local laws, ordinances and regulations governing the
environment.
Competition
The Company offers a range of real estate products, most of
which are located in developed markets that include other real
estate products of the same type. The Company competes with
other real estate owners with similar properties located in its
markets, and distinguishes itself to tenants/buyers primarily on
the basis of location, rental rates/sales prices, services
provided, reputation and the design and condition of the
facilities. The Company also competes with other real estate
companies, financial institutions, pension funds, partnerships,
individual investors and others when attempting to acquire and
develop properties.
Executive
Offices; Employees
The Registrant’s executive offices are located at 191
Peachtree Street, Suite 3600, Atlanta, Georgia
30303-1740.
At December 31, 2009, the Company employed 387 people.
Available
Information
The Company makes available free of charge on the “Investor
Relations” page of its website,
www.cousinsproperties.com
, its filed and furnished
reports on
Forms 10-K,
10-Q
and
8-K,
and all
amendments thereto, as soon as reasonably practicable after the
reports are filed with or furnished to the Securities and
Exchange Commission (the “SEC”).
The Company’s Corporate Governance Guidelines, Director
Independence Standards, Code of Business Conduct and Ethics, and
the Charters of the Audit Committee and the Compensation,
Succession, Nominating and Governance Committee of the Board of
Directors are also available on the “Investor
Relations” page of the Company’s website. The
information contained on the Company’s website is not
incorporated herein by reference.
Copies of these documents (without exhibits, when applicable)
are also available free of charge upon request to the Company at
191 Peachtree Street, Suite 3600, Atlanta, Georgia
30303-1740,
Attention: Cameron Golden, Investor Relations. Mr. Golden
may also be reached by telephone at
(404) 407-1984
or by facsimile at
(404) 407-1002.
In addition, the SEC maintains an internet website that contains
reports, proxy and information statements, and other information
regarding issuers, including the Company, that file
electronically with the SEC at www.sec.gov.
| Item 1A . | Risk Factors |
Set forth below are the risks we believe investors should
consider carefully in evaluating an investment in the securities
of Cousins Properties Incorporated.
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Table of Contents
General
Risks of Owning and Operating Real Estate
Our
ownership of commercial real estate involves a number of risks,
including general economic and market risks, impairment risks,
leasing risk, co-tenancy risk, uninsured losses and condemnation
costs, environmental issues, joint venture structure risk,
liquidity risk and regional concentration of properties, the
effects of which could adversely affect our
business.
General economic and market risks
.
As a
result of a general economic decline or a recessionary climate,
our assets may not generate sufficient cash to pay our expenses,
service debt or maintain our properties, and, as a result, our
results of operations and cash flows may be adversely affected.
Several factors may adversely affect the economic performance
and value of our properties. These factors include, among other
things:
| • | changes in the national, regional and local economic climate; | |
| • | local conditions such as an oversupply of properties or a reduction in demand for properties; | |
| • | the attractiveness of our properties to tenants or buyers; | |
| • | competition from other available properties; | |
| • | changes in market rental rates and related concessions granted to tenants such as free rent, tenant allowances and tenant improvement allowances; and | |
| • | the need to periodically repair, renovate and re-lease space. |
The trends in both the real estate industry and the broader
U.S. economy continue to be unfavorable and continue to
adversely affect our business, financial condition and results
of operations. The continued reduction in spending, depressed
property values and job losses, together with disruptions in the
capital markets could, among other things, impede the ability of
our tenants and other parties to satisfy their contractual
obligations to us. As a result, defaults by our tenants and
other contracting parties may increase, which would adversely
affect our results of operations. Tightened underwriting
standards in the residential real estate markets impede
potential purchasers from obtaining the necessary financing to
purchase our properties. Furthermore, our ability to sell or
lease our properties at favorable rates, or at all, is adversely
affected by the increase in supply and deterioration in the
residential and commercial markets.
Our ability to collect rent from tenants affects our ability to
pay for adequate maintenance, insurance and other operating
costs (including real estate taxes), which could increase over
time. Also, the expenses of owning and operating a property are
not necessarily reduced when circumstances such as market
factors and competition cause a reduction in income from the
property. If a property is mortgaged and we are unable to meet
the mortgage payments, the lender could foreclose on the
mortgage and take title to the property. In addition, interest
rate levels, the availability of financing, changes in laws and
governmental regulations (including those governing usage,
zoning and taxes) may adversely affect our financial condition.
Impairment risks
.
We regularly review
our real estate assets for impairment indicators, and, based on
this review, we may record impairment charges that have an
adverse effect on our results of operations. Ongoing adverse
market and economic conditions and market volatility increase
the likelihood that we will be required to record additional
impairment charges. The magnitude and frequency with which these
charges occur could materially and adversely affect our
business, financial condition and results of operations.
Leasing risk
.
Our operating revenues
are dependent upon entering into leases with and collecting
rents from tenants. A prolonged economic decline may adversely
impact tenants and potential tenants in the various markets in
which our projects are located and, accordingly, could affect
their ability to pay rents and possibly to occupy their space.
In periods of economic decline, tenants are more likely to close
unprofitable locations
and/or
to
declare bankruptcy; and, pursuant to the various bankruptcy
laws, leases may be rejected and thereby terminated. When leases
expire or are terminated, replacement tenants may or may not be
available upon acceptable terms and conditions. In addition, our
cash flows and results of operations could be adversely impacted
if existing leases expire or are terminated and, at such time,
market rental rates are lower than the previous contractual
rental rates. Also, during these types of economic conditions,
our tenants may approach us for additional concessions in order
to remain open and operating. The granting of these concessions
may adversely affect our results of operations and
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Table of Contents
cash flows to the extent that they result in reduced rental
rates or additional capital improvements or allowances paid to
or on behalf of the tenants.
Co-tenancy risk
.
Our cash flow and
results of operations could be adversely impacted by co-tenancy
provisions in certain of our leases with retail tenants. A
co-tenancy provision may condition the tenant’s obligation
to open, the amount of rent payable or the tenant’s
obligation to continue occupancy based on the presence of
another tenant in the project or on minimum occupancy levels in
the project. In certain situations, a tenant could have the
right to terminate a lease early if a co-tenancy condition
remains unsatisfied. In periods of prolonged economic decline,
there is a higher than normal risk that co-tenancy provisions
will not be met as there is a higher risk of tenants closing
stores or terminating leases during these periods. As a result,
our results of operations and our ability to pay dividends would
be adversely affected if a significant number of our tenants had
their rent reduced or terminated their leases as a result of
co-tenancy provisions.
Uninsured losses and condemnation
costs
.
Accidents, earthquakes, terrorism
incidents and other losses at our properties could materially
adversely affect our operating results. Casualties may occur
that significantly damage an operating property, and insurance
proceeds may be materially less than the total loss incurred by
us. Although we maintain casualty insurance under policies we
believe to be adequate and appropriate, some types of losses,
such as lease and other contract claims, generally are not
insured. Certain types of insurance may not be available or may
be available on terms that could result in large uninsured
losses. We own property in California, Tennessee and other
locations where property is potentially subject to damage from
earthquakes, as well as other natural catastrophes. We also own
property that could be subject to loss due to terrorism
incidents. The earthquake insurance and terrorism insurance
markets, in particular, tend to be volatile and the availability
and pricing of insurance to cover losses from earthquakes and
terrorism incidents may be unfavorable from time to time. In
addition, earthquakes and terrorism incidents could result in a
significant loss that is uninsured due to the high level of
deductibles or damage in excess of levels of coverage. Property
ownership also involves potential liability to third parties for
such matters as personal injuries occurring on the property.
Such losses may not be fully insured. In addition to uninsured
losses, various government authorities may condemn all or parts
of operating properties. Such condemnations could adversely
affect the viability of such projects.
Environmental issues
.
Environmental
issues that arise at our properties could have an adverse effect
on our financial condition and results of operations. Federal,
state and local laws and regulations relating to the protection
of the environment may require a current or previous owner or
operator of real estate to investigate and clean up hazardous or
toxic substances or petroleum product releases at a property. If
determined to be liable, the owner or operator may have to pay a
governmental entity or third parties for property damage and for
investigation and
clean-up
costs incurred by such parties in connection with the
contamination, or perform such investigation and
clean-up
itself. Although certain legal protections may be available to
prospective purchasers of property, these laws typically impose
clean-up
responsibility and liability without regard to whether the owner
or operator knew of or caused the presence of the regulated
substances. Even if more than one person may have been
responsible for the release of regulated substances at the
property, each person covered by the environmental laws may be
held responsible for all of the
clean-up
costs incurred. In addition, third parties may sue the owner or
operator of a site for damages and costs resulting from
regulated substances emanating from that site. We are not
currently aware of any environmental liabilities at locations
that we believe could have a material adverse effect on our
business, assets, financial condition or results of operations.
Unidentified environmental liabilities could arise, however, and
could have an adverse effect on our financial condition and
results of operations.
Joint venture structure risks
.
Similar
to other real estate companies, we have interests in a number of
joint ventures (including partnerships and limited liability
companies) and may in the future conduct our business through
such structures. Our venture partners have rights to take some
actions over which we have no control, or the right to withhold
approval of actions that we propose, either of which could
adversely affect our interests in the related joint ventures and
in some cases our overall financial condition or results of
operations. These structures involve participation by other
parties whose interests and rights may not be the same as ours.
For example, a venture partner might have economic
and/or
other
business interests or goals which are unlike or incompatible
with our business interests or goals and those venture partners
may be in a position to take action contrary to our interests,
including maintaining our REIT status. In addition, such venture
partners may become bankrupt and such proceedings could have an
adverse impact on the operation of the partnership or joint
venture. Furthermore,
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the success of a project may be dependent upon the expertise,
business judgment, diligence and effectiveness of our venture
partners in matters that are outside our control. Thus, the
involvement of venture partners could adversely impact the
development, operation, ownership or disposition of the
underlying properties.
Liquidity risk
.
Real estate investments
are relatively illiquid and can be difficult to sell and convert
to cash quickly, especially if market conditions are not
favorable. This illiquidity is exacerbated by the current
limitations on credit availability for potential buyers. As a
result, our ability to sell one or more of our properties in
response to any changes in economic or other conditions is
limited. In the event we determine a need to sell a property, we
may not be able to do so in the desired time period, the sales
price of the property may not meet our expectations or
requirements, and we may be required to record an impairment
loss on the property as a result.
Regional concentration of
properties
.
Currently, a large percentage of
our properties are located in metropolitan Atlanta, Georgia. In
the future, there may continue to be significant concentrations
in metropolitan Atlanta, Georgia
and/or
other
markets. If conditions deteriorate in any market in which we
have significant holdings, our interests could be adversely
affected by, among other things, loss in value of properties,
decreased cash flows and inability to make or maintain
distributions to stockholders.
Compliance
or failure to comply with the Americans with Disabilities Act or
other safety regulations and requirements could result in
substantial costs.
The Americans with Disabilities Act generally requires that
certain public buildings be made accessible to disabled persons.
Noncompliance could result in the imposition of fines by the
federal government or the award of damages to private litigants.
If, under the Americans with Disabilities Act, we are required
to make substantial alterations and capital expenditures in one
or more of our properties, including the removal of access
barriers, it could adversely affect our financial condition and
results of operations, as well as the amount of cash available
for distribution to our stockholders.
Our properties are also subject to various federal, state and
local regulatory requirements, such as state and local fire and
life safety requirements. If we fail to comply with these
requirements, we could incur fines or private damage awards. We
do not know whether existing requirements will change or whether
compliance with future requirements will require significant
unanticipated expenditures that will affect our cash flow and
results of operations.
Financing
Risks
At
certain times, interest rates and other market conditions for
obtaining capital are unfavorable, and, as a result, we may be
unable to raise capital needed to build our developments or
invest in properties on a timely basis, or we may be forced to
borrow money at higher interest rates or under adverse terms,
which could adversely affect returns on our investment and
development projects, our cash flows and results of
operations.
We finance our investments and development projects through one
or more of the following: our bank credit facility, permanent
mortgages, proceeds from the sale of assets, construction loans,
and joint venture equity. In addition, we have raised capital
through the issuance of common stock or preferred stock to
supplement our capital needs. Each of these sources may be
constrained from time to time because of market conditions, and
interest rates may be unfavorable at any given point in time.
These sources of capital, and the risks associated with each,
include the following:
| • | Credit facilities . Terms and conditions available in the marketplace for credit facilities vary over time. We can provide no assurance that the amount we need from our credit facility will be available at any given time, or at all, or that the rates and fees charged by the lenders will be acceptable to us. We incur interest under our credit facility at a variable rate. Variable rate debt creates higher debt service requirements if market interest rates increase, which would adversely affect our cash flow and results of operations. Our credit facility contains customary restrictions, requirements and other limitations on our ability to incur indebtedness, including restrictions on total debt outstanding, restrictions on secured recourse debt outstanding, requirements to maintain minimum debt service and fixed charge coverage ratios and minimum ratios of |
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| unencumbered assets to unsecured debt. Our continued ability to borrow under our credit facility is subject to compliance with our financial and other covenants. |
| • | Mortgage financing . The availability of financing in the mortgage markets varies from time to time depending on various conditions, including the willingness of mortgage lenders to lend at any given point in time. Interest rates and loan-to-value ratios may also be volatile, and we may from time to time elect not to proceed with mortgage financing due to unfavorable terms offered by lenders. This could adversely affect our ability to finance investment or development activities. In addition, if a property is mortgaged to secure payment of indebtedness and we are unable to make the mortgage payments, the lender may foreclose, resulting in loss of income and asset value. | |
| • | Property sales . Real estate markets tend to experience market cycles. Because of such cycles, the potential terms and conditions of sales, including prices, may be unfavorable for extended periods of time. In addition, our status as a REIT limits our ability to sell properties and this may affect our ability to liquidate an investment. As a result, our ability to raise capital through property sales in order to fund our investment and development projects or other cash needs could be limited. In addition, mortgage financing on a property may prohibit prepayment and/or impose a prepayment penalty upon the sale of a mortgaged property, which may decrease the proceeds from a sale or refinancing or make the sale or refinancing impractical. | |
| • | Construction loans . Construction loans generally relate to specific assets under construction and fund costs above an initial equity amount deemed acceptable to the lender. Terms and conditions of construction facilities vary, but they generally carry a term of two to five years, charge interest at variable rates and require the lender to be satisfied with the nature and amount of construction costs prior to funding. While construction lending is generally competitive and offered by many financial institutions, there may be times when these facilities are not available or are only available upon unfavorable terms which could have an adverse effect on our ability to fund development projects or on our ability to achieve the returns we expect. The current economic downturn has significantly reduced the availability of construction loans. | |
| • | Joint ventures . Joint ventures, including partnerships or limited liability companies, tend to be complex arrangements, and there are only a limited number of parties willing to undertake such investment structures. There is no guarantee that we will be able to undertake these ventures at the times we need capital. | |
| • | Common stock . We have sold common stock from time to time to raise capital. The issuance of such stock is dilutive to current stockholders, and we can provide no assurance that there will not be further dilution to our stockholders from future issuances of stock. The market price of our common stock could decline as a result of issuances or sales of a large amount of our common stock in the market after such offerings or the perception that such issuances or sales could occur. Additionally, future issuances or sales of substantial amounts of our common stock may be at prices below the offering prices of past common stock offered which could adversely affect the price of our common stock. | |
| • | Preferred stock . The availability of preferred stock at favorable terms and conditions is dependent upon a number of factors including the general condition of the economy, the overall interest rate environment, the condition of the capital markets and the demand for this product by potential holders of the securities. We can provide no assurance that conditions will be favorable for future issuances of preferred stock (or other equity securities) when we need the capital, which could have an adverse effect on our ability to fund investments and development projects. |
Recent
disruption in the capital markets could adversely affect our
ability to raise capital or finance new development or
investment opportunities.
Beginning in the summer of 2008, the global capital markets
entered a period of disruptions, characterized by the
bankruptcy, failure or sale of various financial institutions,
due in part to losses from the deterioration in the real estate
markets. This disruption in capital markets and the
deterioration of the financial and real estate markets have made
it increasingly difficult for real estate and other companies to
access capital. The prolonged continuation or further
intensification of these disruptions and volatility could lead
to a further weakening of the U.S. and global economies
through the increased lack of consumer confidence and reduction
of business activity. As a result, this
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disruption also has the potential to materially and adversely
affect the value of our properties, the availability or the
terms of financing for acquisitions or development or to
refinance maturing indebtedness and the ability of tenants to
enter into new leasing transactions or satisfy their existing
obligations.
Concern about the stability of the markets generally, and the
strength of borrowers specifically, has led many lenders and
institutional investors to reduce and, in some cases, eliminate
funding to borrowers. Continued adverse conditions in capital
markets in future years could also adversely affect the
availability and terms of our future financing alternatives. In
addition, the financial institutions that serve as our current
or proposed future sources of financing might become capital
constrained and could tighten their lending standards or become
insolvent. These lenders may not be able to honor their funding
commitments to us, which would adversely affect our ability to
draw upon credit facilities and, over time, could negatively
impact our ability to fund development or investment
opportunities, repay indebtedness as it matures, fund capital
expenditures or pay distributions to our stockholders.
Similarly, our joint venture partners may become capital
constrained and more conservative in their investments, which
could negatively impact our ability to develop new properties.
As with other public companies, the availability of debt and
equity capital also depends, in part, upon the market price of
our stock and investor demand, which, in turn, depends upon
various market conditions that change from time to time. Our
failure to meet the market’s expectation with regard to our
current and future financial condition, liquidity, growth
potential, earnings and funds from operations would likely
materially and adversely affect the market price of shares of
our common stock. If we cannot access capital upon acceptable
terms, we may be required to liquidate one or more investments
in properties at times and at prices that are not favorable and
we may realize substantial losses on those investments. We may
not be able to raise the necessary capital to pay distributions
to our stockholders or make future investments necessary to
implement our business plan, and the failure to do so could have
a material adverse effect on our business, financial condition,
liquidity and results of operations.
The global financial disruptions have also led to increased
government intervention in the financial system. We cannot
predict what, if any, additional interim or permanent laws or
regulations may be imposed or their impact on the financial
system and our business. Significantly increased regulation of
the capital markets could have a material adverse effect on our
business, financial condition, liquidity and results of
operations.
We may
not be able to refinance maturing obligations on favorable terms
which could have an adverse effect on our liquidity and
financial position.
The decline in real estate values also impacts our ability to
refinance debt secured by our properties at the same level as
existing debt. In addition, many lenders are tightening
covenants as part of the refinancing process. As a result, in
the future, we may not be able to refinance debt secured by our
properties at the same levels or on the same terms, which could
adversely affect our business, financial condition and results
of operations. Further, at the time the loan matures, the
property may be worth less than the loan amount and, as a
result, the Company may determine not to refinance the loan and
permit foreclosure, resulting in a loss to the Company.
Covenants
contained in our credit facility and mortgages could restrict or
hinder our operational flexibility, which could adversely affect
our results of operations.
Our credit facility imposes financial and operating covenants on
us. These covenants may be modified from time to time, but
covenants of this type typically include restrictions and
limitations on our ability to incur debt and to obtain certain
forms of equity capital, as well as limitations on the amount of
our unsecured debt, limitations on payments to stockholders, and
limitations on the amount of development and joint venture
activity in which we may engage. These covenants may limit our
flexibility in making business decisions. In addition, our
credit facilities contain financial covenants that require that
our earnings, as defined, exceed our fixed charges by a
specified amount. If our earnings decline or if our fixed
charges increase, we are at greater risk of violating these
covenants. A prolonged economic downturn could cause our
earnings to decline thereby increasing our risk of violating
these covenants. If we fail to meet those covenants, our ability
to borrow may be impaired, which could potentially make it more
difficult to fund our capital and operating needs. In addition,
our failure to comply with such covenants could cause a default,
and we may then be required to repay our outstanding debt with
capital from other sources.
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Under those circumstances, other sources of capital may not be
available to us or may be available only on unattractive terms,
and may require the issuance of equity resulting in stockholder
dilution.
Additionally, some of our properties are subject to mortgages.
These mortgages contain customary negative covenants, including
limitations on our ability, without the lender’s prior
consent, to further mortgage that property, to modify existing
leases or to sell that property. Also, our construction
facilities contain requirements related to the progress of
construction and leasing that, if not met, could result in a
remargining or accelerated maturity of the loan. Compliance with
these covenants and requirements could harm our operational
flexibility and financial condition.
Our
degree of leverage could limit our ability to obtain additional
financing or affect the market price of our
securities.
Total debt as percentage of either total asset value or total
market capitalization is often used by analysts to gauge the
financial health of equity REITs such as us. If our degree of
leverage is viewed unfavorably by lenders or potential joint
venture partners, it could affect our ability to obtain
additional financing. Our degree of leverage could also make us
more vulnerable to a downturn in business or the economy
generally. In addition, changes in our debt to market
capitalization ratio, which is in part a function of our stock
price, or to other measures of asset value used by financial
analysts, may have an adverse effect on the market price of our
equity securities.
Real
Estate Development Risks
We
face risks associated with the development of real estate, such
as delay, cost overruns and the possibility that we are unable
to lease a portion of the space that we build, which could
adversely affect our results.
While market conditions are currently unfavorable for
development and our development activities are lower than
historical levels, we have historically undertaken more
commercial development activity relative to our size than most
other public real estate companies. Development activities
contain certain inherent risks. Although we seek to minimize
risks from commercial development through various management
controls and procedures, development risks cannot be eliminated.
Some of the key factors affecting development of commercial
property are as follows:
| • | The availability of sufficient development opportunities . Absence of sufficient development opportunities could result in our experiencing slower growth in earnings and cash flows. Development opportunities are dependent upon a wide variety of factors. From time to time, availability of these opportunities can be volatile as a result of, among other things, economic conditions and product supply/demand characteristics in a particular market. In a period of prolonged economic downturn, the number of development opportunities typically declines among all of our product types. | |
| • | Abandoned predevelopment costs . The development process inherently requires that a large number of opportunities be pursued with only a few being developed and constructed. We may incur significant costs for predevelopment activity for projects that are abandoned that directly affect our results of operations. We have procedures and controls in place that are intended to minimize this risk, but it is likely that there will be predevelopment costs charged to expense on an ongoing basis. | |
| • | Project costs . Construction and leasing of a project involves a variety of costs that cannot always be identified at the beginning of a project. Costs may arise that have not been anticipated or actual costs may exceed estimated costs. These additional costs can be significant and could adversely impact our return on a project and the expected results of operations upon completion of the project. Also, construction costs vary over time based upon many factors, including the demand for building materials. We attempt to mitigate the risk of unanticipated increases in construction costs on our development projects through guaranteed maximum price contracts and pre-ordering of certain materials, but we may be adversely affected by increased construction costs on our current and future projects. | |
| • | Leasing/Sales risk . The success of a commercial real estate development project is dependent upon, among other factors, entering into leases with acceptable terms within a predefined lease-up period or selling |
11
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| units or lots at acceptable prices within an estimated period. Although our policy is to achieve pre-leasing/pre-sales goals (which vary by market, product type and circumstances) before committing to a project, it is likely only some percentage of the space in a project will be leased or under contract to be sold at the time we commit to the project. If the space is not leased or sold on schedule and upon the expected terms and conditions, our returns, future earnings and results of operations from the project could be adversely impacted. In periods of economic decline, unleased space at new development projects is generally more difficult to lease on favorable terms than during periods of economic expansion. Whether or not tenants are willing to enter into leases on the terms and conditions we project and on the timetable we expect, and whether sales will occur at the prices we anticipate and in the time period we plan, will depend upon a number of factors, many of which are outside our control. These factors may include: |
| – | general business conditions in the economy or in the tenants’ or prospective tenants’ industries; | |
| – | supply and demand conditions for space in the marketplace; and | |
| – | level of competition in the marketplace. |
| • | Reputation risks . We have historically developed and managed our real estate portfolio and believe that we have built a positive reputation for quality and service with our lenders, joint venture partners and tenants as well as with our third-party management clients. If we were viewed as developing underperforming properties, suffered sustained losses on our investments, defaulted on any loans or experienced any foreclosure or deed in lieu of foreclosure of our properties, our reputation could be damaged. Damage to our reputation could make it more difficult to successfully develop or acquire properties in the future and to continue to grow and expand our relationships with our lenders, joint venture partners, tenants and third-party management clients, which could adversely affect our business, financial condition and results of operations. | |
| • | Governmental approvals . All necessary zoning, land-use, building, occupancy and other required governmental permits and authorization may not be obtained or may not be obtained on a timely basis resulting in possible delays, decreased profitability and increased management time and attention. |
We may
make more property acquisitions in the future, which exposes us
to additional risks associated with such property
acquisitions.
Historically, we have pursued a strategy of developing
substantially all of the properties that we own. However, in the
current market environment, development opportunities may be
limited or non-existent. As a result, we may invest more heavily
in property acquisitions, including the acquisition and
redevelopment of distressed properties. The risks associated
with property acquisitions is generally the same as those
described above for real estate development. However, certain
additional risks may be present for property acquisitions and
redevelopment projects, including:
| • | we may have difficulty finding properties that meet our standards and negotiating with new or existing tenants; | |
| • | the extent of competition in the market for attractive acquisitions may hinder our future level of property acquisitions or redevelopment projects; | |
| • | the actual costs and timing of repositioning or redeveloping acquired properties may be greater than our estimates, which would affect our yield and cash investment in the property; | |
| • | the occupancy levels, lease-up timing and rental rates may not meet our expectations, making the project unprofitable; | |
| • | the acquired or redeveloped property may be in a market that is unfamiliar to us and could present additional unforeseen business challenges: | |
| • | acquired properties may fail to perform as expected; | |
| • | we may be unable to obtain financing for acquisitions on favorable terms or at all; and |
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| • | we may be unable to quickly and efficiently integrate new acquisitions into our existing operations, and significant levels of management’s time and attention could be involved in these projects, diverting their time from our day-to-day operations. |
Any of these risks could have an adverse effect on our results
of operations and financial condition. In addition, we may
acquire properties subject to liabilities, including
environmental, and without any recourse, or with only limited
recourse, against the prior owners or other third parties with
respect to unknown liabilities. As a result, if a liability were
asserted against us based upon ownership of those properties, we
might have to pay substantial sums to settle or contest it,
which could adversely affect our business, results of operations
and cash flow.
Risks
Associated with Multi-Family Projects
Any
failure to timely sell the multi-family units could adversely
affect our results of operations.
We have developed for-sale multi-family residential projects in
urban markets. Multi-family unit sales can be highly cyclical
and can be affected by the availability of mortgage financing,
interest rates and local issues. In addition, a decline in the
housing market and a contracting economy generally make it more
difficult to sell completed units in a timely manner. Once a
project is undertaken, we can provide no assurance that we will
be able to sell the units in a timely manner which could result
in significantly increased carrying costs and erosion or
elimination of profit with respect to any project. It is also
difficult to predict when market conditions will allow sales of
these units to return to a more normal rate.
Risks
Associated with our Land Developments and
Investments
Any
failure to timely sell the residential lots developed could
adversely affect our results of operations.
We develop residential subdivisions, primarily in metropolitan
Atlanta, Georgia. We also participate in joint ventures that
develop or plan to develop subdivisions in metropolitan Atlanta,
as well as Texas and Florida, and could expand to other states.
We also from time to time supervise sales of unimproved
properties owned or controlled by us. Residential lot sales can
be highly cyclical and can be affected by the availability of
mortgage financing, interest rates and local issues, including
the availability of jobs, transportation and the quality of
public schools. Once a development is undertaken, no assurances
can be given that we will be able to sell the various developed
lots in a timely manner. Failure to sell such lots in a timely
manner could result in significantly increased carrying costs
and erosion or elimination of profit with respect to any
development. In a period of prolonged economic downturn, sales
of lots can decline significantly. We are exposed to these
increased carrying costs and reduction of profit throughout the
current economic downturn and will be until conditions improve.
In addition, actual construction and development costs with
respect to subdivisions can exceed estimates for various
reasons, including unknown site conditions. The timing of
subdivision lot sales and unimproved property sales are, by
their nature, difficult to predict with any precision.
Additionally, market conditions may change between the time we
decide to develop a property and the time that all or some of
the lots or tracts may be ready for sale. Similarly, we often
hold undeveloped land for long periods of time prior to
development or sale. Any changes in market conditions between
the time we acquire land and the time we develop
and/or
sell
land could cause the Company’s estimates of proceeds and
related profits from such sales to be lower or result in an
impairment charge. Periods of economic downturn can cause
estimated sales prices to decline, increasing the likelihood
that we will be required to record one or more impairment
charges. Estimates of sales and profits may differ substantially
from actual sales and profits and as a result, our results of
operations may differ substantially from these estimates.
Any
failure to timely sell or lease non-income producing land could
adversely affect our results of operations.
We maintain significant holdings of non-income producing land in
the form of land tracts and outparcels. Our strategies with
respect to these parcels of land include (1) developing the
land at a future date as a retail, office, or mixed-use income
producing property or developing it for single-family or
multi-family residential uses; (2) ground leasing the land
to third parties; and (3) selling the parcels to third
parties. Before we develop, lease or sell these land parcels, we
incur carrying costs, including interest and property tax
expense.
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If we are unable to sell this land or convert it into
income-producing property in a timely manner, our results of
operations and liquidity could be adversely affected.
Risks
Associated with our Third Party Management
Business
Our
third party management business may experience volatility based
on a number of factors, including termination of contracts,
which could adversely affect our results of
operations.
We engage in third party development, leasing, property
management, asset management and property services to unrelated
property owners. Contracts for such services are generally
short-term in nature and permit termination without extensive
notice. Fees from such activities can be volatile due to
unexpected terminations of such contracts. Extensive unexpected
terminations could materially adversely affect our results of
operations. Further, the timing of the generation of new
contracts for services is difficult to predict.
General
Business Risks
We may
not adequately or accurately assess new opportunities, which
could adversely impact our results of operations.
Our estimates and expectations with respect to new lines of
business and opportunities may differ substantially from actual
results, and any losses from these endeavors could materially
adversely affect our results of operations. We conduct business
in an entrepreneurial manner. We seek opportunities in various
sectors of real estate and in various geographical areas and
from time to time undertake new opportunities, including new
lines of business. Not all opportunities or lines of business
prove to be profitable. We expect from time to time that some of
our business lines may have to be terminated because they do not
meet our profit expectations. Termination of these business
lines may result in the write off of certain related assets
and/or
the
termination of personnel, which would adversely impact results
of operations.
We are
dependent upon key personnel, the loss of any of whom could
adversely impair our ability to execute our
business.
One of our objectives is to develop and maintain a strong
management group at all levels. At any given time we could lose
the services of key executives and other employees. None of our
key executives or other employees is subject to employment
contracts. Further, we do not carry key person insurance on any
of our executive officers or other key employees. The loss of
services of any of our key employees could have an adverse
effect upon our results of operations, financial condition and
our ability to execute our business strategy.
Our
restated and amended articles of incorporation contain
limitations on ownership of our stock, which may prevent a
change in control that might otherwise be in the best interests
of our stockholders.
Our restated and amended articles of incorporation impose
limitations on the ownership of our stock. In general, except
for certain individuals who owned stock at the time of adoption
of these limitations, no individual or entity may own more than
3.9% of the value of our outstanding stock. The ownership
limitation may have the effect of delaying, inhibiting or
preventing a transaction or a change in control that might
involve a premium price for our stock or otherwise be in the
best interest of our stockholders.
We
experience fluctuations and variability in our operating results
on a quarterly basis and in the market price of our common stock
and, as a result, our historical performance may not be a
meaningful indicator of future results.
Our operating results have fluctuated greatly in the past, due
to volatility in land tract and outparcel sales, property sales,
and residential lot sales, in addition to one-time events that
occur. We anticipate future fluctuations in our quarterly
results, which does not allow for predictability in the market
by analysts and investors. Therefore, our historical performance
may not be a meaningful indicator of our future results.
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The market prices of shares of our common stock have been and
may continue to be subject to wide fluctuation due to many
events and factors such as those described herein including:
| • | actual or anticipated variations in our operating results, funds from operations or liquidity; | |
| • | changes in our earnings or analyst estimates and any failure to meet such estimates; | |
| • | the general reputation of real estate as an attractive investment in comparison to other equity securities; | |
| • | the general stock and bond market conditions, including changes in interest rates or fixed income securities; | |
| • | changes in tax laws; | |
| • | changes to our dividend distribution policy; | |
| • | changes in market valuations of our properties; | |
| • | adverse market reaction to the amount of our outstanding debt at any time, the amount of our maturing debt and our ability to refinance such debt on favorable terms; | |
| • | any failure to comply with existing debt covenants; | |
| • | any foreclosure or deed in lieu of foreclosure of our properties; | |
| • | additions or departures of key executives and other employees; | |
| • | actions by institutional stockholders; | |
| • | the realization of any of the other risk factors included herein; and | |
| • | general market and economic conditions. |
Many of the factors listed above are beyond our control. Those
factors may cause market prices of shares of our common stock to
decline, regardless of our financial performance, condition and
prospects. The market price of shares of our common stock may
fall significantly in the future, and it may be difficult for
our stockholders to resell our common stock at prices they find
attractive, or at all.
If our
future operating performance does not meet third-party
projections, our stock price could decline.
Several independent securities analysts publish quarterly and
annual projections of our financial performance. These
projections are developed independently by third-party
securities analysts based on their own analyses and we undertake
no obligation to monitor, and take no responsibility for, such
projections. Such estimates are inherently subject to
uncertainty and you should not rely upon them as being
indicative of the performance that we anticipate for any
applicable period. Our actual revenues and net income may differ
materially from what is projected by securities analysts. If our
actual results do not meet analysts’ guidance, our stock
price could decline significantly.
Federal
Income Tax Risks
Any
failure to continue to qualify as a real estate investment trust
for federal income tax purposes could have a material adverse
impact on us and our stockholders.
We intend to operate in a manner to qualify as a REIT for
federal income tax purposes. Qualification as a REIT involves
the application of highly technical and complex provisions of
the Internal Revenue Code (the “Code”), for which
there are only limited judicial or administrative
interpretations. Certain facts and circumstances not entirely
within our control may affect our ability to qualify as a REIT.
In addition, we can provide no assurance that legislation, new
regulations, administrative interpretations or court decisions
will not adversely affect our qualification as a REIT or the
federal income tax consequences of our REIT status.
If we were to fail to qualify as a REIT, we would not be allowed
a deduction for distributions to stockholders in computing our
taxable income. In this case, we would be subject to federal
income tax (including any applicable alternative minimum tax) on
our taxable income at regular corporate rates. Unless entitled
to relief under certain Code provisions, we also would be
disqualified from operating as a REIT for the four taxable years
following the
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year during which qualification was lost. As a result, the cash
available for distribution to our stockholders would be reduced
for each of the years involved. Although we currently intend to
operate in a manner designed to qualify as a REIT, it is
possible that future economic, market, legal, tax or other
considerations may cause us to revoke the REIT election.
In order to qualify as a REIT, under current law, we generally
are required each taxable year to distribute to our stockholders
at least 90% of our net taxable income (excluding any net
capital gain). To the extent that we do not distribute all of
our net capital gain or distribute at least 90%, but less than
100%, of our other taxable income, we are subject to tax on the
undistributed amounts at regular corporate rates. In addition,
we are subject to a 4% nondeductible excise tax to the extent
that distributions paid by us during the calendar year are less
than the sum of the following:
| • | 85% of our ordinary income; | |
| • | 95% of our net capital gain income for that year, and | |
| • | 100% of our undistributed taxable income (including any net capital gains) from prior years. |
We intend to make distributions to our stockholders to comply
with the 90% distribution requirement, to avoid corporate-level
tax on undistributed taxable income and to avoid the
nondeductible excise tax. Distributions could be made in cash,
stock or in a combination of cash and stock. Differences in
timing between taxable income and cash available for
distribution could require us to borrow funds to meet the 90%
distribution requirement, to avoid corporate-level tax on
undistributed taxable income and to avoid the nondeductible
excise tax. Satisfying the distribution requirements may also
make it more difficult to fund new investment or development
projects.
Certain
property transfers may be characterized as prohibited
transactions, resulting in a tax on any gain attributable to the
transaction.
From time to time, we may transfer or otherwise dispose of some
of our properties. Under the Code, any gain resulting from
transfers or dispositions, from other than our taxable REIT
subsidiary, deemed to be prohibited transactions would be
subject to a 100% tax on any gain associated with the
transaction. Prohibited transactions generally include sales of
assets that constitute inventory or other property held for sale
to customers in the ordinary course of business. Since we
acquire properties primarily for investment purposes, we do not
believe that our occasional transfers or disposals of property
are deemed to be prohibited transactions. However, whether
property is held for investment purposes is a question of fact
that depends on all the facts and circumstances surrounding the
particular transaction. The Internal Revenue Service may contend
that certain transfers or disposals of properties by us are
prohibited transactions. While we believe that the Internal
Revenue Service would not prevail in any such dispute, if the
Internal Revenue Service were to argue successfully that a
transfer or disposition of property constituted a prohibited
transaction, we would be required to pay a tax equal to 100% of
any gain allocable to us from the prohibited transaction. In
addition, income from a prohibited transaction might adversely
affect our ability to satisfy the income tests for qualification
as a REIT for federal income tax purposes.
Disclosure
Controls and Internal Control over Financial Reporting
Risks
Our
business could be adversely impacted if we have deficiencies in
our disclosure controls and procedures or internal control over
financial reporting.
The design and effectiveness of our disclosure controls and
procedures and internal control over financial reporting may not
prevent all errors, misstatements or misrepresentations. While
management will continue to review the effectiveness of our
disclosure controls and procedures and internal control over
financial reporting, there can be no guarantee that our internal
control over financial reporting will be effective in
accomplishing all control objectives at all times. Deficiencies,
including any material weakness, in our internal control over
financial reporting which may occur in the future could result
in misstatements of our results of operations, restatements of
our financial statements, a decline in our stock price, or
otherwise materially adversely affect our business, reputation,
results of operations, financial condition or liquidity.
| Item 1B . | Unresolved Staff Comments. |
Not applicable.
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| Item 2 . | Properties |
The following tables set forth certain information related to
significant operating properties in which the Company has an
ownership interest. Information presented in Note 5 to the
Consolidated Financial Statements provides additional
information related to the Company’s joint ventures. All
information presented is as of December 31, 2009. Dollars
are stated in thousands.
Table
of Major Operating Office, Retail and Industrial
Properties
|
Cost and
|
||||||||||||||||||||||||||||||||||||||||
|
Percentage
|
Average
|
Cost Less
|
Debt
|
|||||||||||||||||||||||||||||||||||||
|
Year
|
Leased
|
2009
|
Major
|
Depreciation
|
Maturity
|
|||||||||||||||||||||||||||||||||||
|
Development
|
Company’s
|
as of
|
Economic
|
Major Tenants (Lease
|
Tenants’
|
and
|
and
|
|||||||||||||||||||||||||||||||||
|
Completed
|
Venture
|
Ownership
|
Square Feet
|
December 31,
|
Occupancy
|
Expiration/Options
|
Rentable
|
Amortization
|
Debt
|
Interest
|
||||||||||||||||||||||||||||||
|
Description and Location
|
or Acquired | Partner(s) | Interest | and Acres | 2009 | (1) | Expiration) | Sq. Feet | (2) | Balance | Rate | |||||||||||||||||||||||||||||
|
Office
|
||||||||||||||||||||||||||||||||||||||||
|
191 Peachtree Tower(3)
|
||||||||||||||||||||||||||||||||||||||||
|
Atlanta, GA
|
2006 | N/A | 100 | % | 1,219,000 | 72 | % | 61 | % | Deloitte & Touche (2024/2034) | 311,893 | $ | 213,567 | $ | 0 | N/A | ||||||||||||||||||||||||
| 2 acres(3 | ) | Cousins Properties (2017/2022) | 65,006 | $ | 181,014 | |||||||||||||||||||||||||||||||||||
|
Hall, Booth, Smith & Slover
(2021/2031) |
54,000 | |||||||||||||||||||||||||||||||||||||||
|
Ogletree, Deakins, Nash, Smoak
& Stewart (2019/2029) |
52,510 | |||||||||||||||||||||||||||||||||||||||
| Cooper Carry (2022/2032) | 50,208 | |||||||||||||||||||||||||||||||||||||||
|
The American Cancer Society Center(4)
|
||||||||||||||||||||||||||||||||||||||||
|
Atlanta, GA
|
1999 | N/A | 100 | % | 993,000 | 83 | % | 92 | % |
American Cancer Society
(2022/2032) |
275,198 | $ | 94,779 | $ | 136,000(4 | ) | 9/1/17 | |||||||||||||||||||||||
| 4 acres(5 | ) | Co Space Services (2020/2025) | 120,298 | $ | 44,295 | 6.45 | % | |||||||||||||||||||||||||||||||||
| US South (2011/2021) | 96,939 | |||||||||||||||||||||||||||||||||||||||
| Georgia Lottery Corp. (2023) | 96,265 | |||||||||||||||||||||||||||||||||||||||
| Turner Broadcasting (2011/2021) | 90,455 | |||||||||||||||||||||||||||||||||||||||
|
Terminus 100
|
||||||||||||||||||||||||||||||||||||||||
|
Atlanta, GA
|
2007 | N/A | 100 | % | 656,000 | 94 | % | 95 | % | CB Richard Ellis (2019/2024) | 83,156 | $ | 169,981 | $ | 180,000 | 10/1/12 | ||||||||||||||||||||||||
| 4 acres | Citigroup (2018/2028) | 71,188 | $ | 150,086 | 6.13 | % | ||||||||||||||||||||||||||||||||||
|
Premiere Global Services
(2018/2028) |
65,084 | |||||||||||||||||||||||||||||||||||||||
| Wachovia Bank (2017/2027) | 47,368 | |||||||||||||||||||||||||||||||||||||||
| Cumulus Media (2017) | 47,000 | |||||||||||||||||||||||||||||||||||||||
| Bain & Company (2019/2029) | 46,412 | |||||||||||||||||||||||||||||||||||||||
|
The Points at Waterview
|
||||||||||||||||||||||||||||||||||||||||
|
Suburban Dallas, TX
|
2000 | N/A | 100 | % | 203,000 | 93 | % | 96 | % | Bombardier Aerospace Corp. | 97,740 | $ | 30,531 | $ | 17,024 | 1/1/16 | ||||||||||||||||||||||||
| 15 acres | (2013/2023) | $ | 17,682 | 5.66 | % | |||||||||||||||||||||||||||||||||||
| Liberty Mutual (2013/2023) | 37,382 | |||||||||||||||||||||||||||||||||||||||
|
Lakeshore Park Plaza
|
||||||||||||||||||||||||||||||||||||||||
|
Birmingham, AL
|
1998 | Daniel Realty | 100 | %(6) | 196,000 | 95 | % | 94 | % | Synovus Mortgage (2014/2019) | 28,932 | $ | 20,495 | $ | 17,903 | 8/1/12 | ||||||||||||||||||||||||
| Company | 12 acres | Daxco (2011) | 18,721 | $ | 13,092 | 5.89 | % | |||||||||||||||||||||||||||||||||
| Southern Care (2013/2018) | 13,768 | |||||||||||||||||||||||||||||||||||||||
17
Table of Contents
|
Cost and
|
||||||||||||||||||||||||||||||||||||||||
|
Percentage
|
Average
|
Cost Less
|
Debt
|
|||||||||||||||||||||||||||||||||||||
|
Year
|
Leased
|
2009
|
Major
|
Depreciation
|
Maturity
|
|||||||||||||||||||||||||||||||||||
|
Development
|
Company’s
|
as of
|
Economic
|
Major Tenants (Lease
|
Tenants’
|
and
|
and
|
|||||||||||||||||||||||||||||||||
|
Completed
|
Venture
|
Ownership
|
Square Feet
|
December 31,
|
Occupancy
|
Expiration/Options
|
Rentable
|
Amortization
|
Debt
|
Interest
|
||||||||||||||||||||||||||||||
|
Description and Location
|
or Acquired | Partner(s) | Interest | and Acres | 2009 | (1) | Expiration) | Sq. Feet | (2) | Balance | Rate | |||||||||||||||||||||||||||||
|
Office (Continued)
|
||||||||||||||||||||||||||||||||||||||||
|
600 University Park Place
|
||||||||||||||||||||||||||||||||||||||||
|
Birmingham, AL
|
2000 | Daniel Realty | 100 | %(6) | 123,000 | 97 | % | 100 | % | Southern Communications | 41,961 | $ | 18,618 | $ | 12,536 | 8/10/11 | ||||||||||||||||||||||||
| Company | 10 acres | Services(7) (2010/2016) | $ | 12,694 | 7.38 | % | ||||||||||||||||||||||||||||||||||
| O2 Ideas (2014/2024) | 25,465 | |||||||||||||||||||||||||||||||||||||||
|
Meridian Mark Plaza
|
||||||||||||||||||||||||||||||||||||||||
|
Atlanta, GA
|
1999 | N/A | 100 | % | 160,000 | 91 | % | 92 | % | Northside Hospital(7) | 54,585 | $ | 27,201 | $ | 22,279 | 9/1/10 | ||||||||||||||||||||||||
| 3 acres | (2018/2023)(8) | $ | 15,511 | 8.27 | % | |||||||||||||||||||||||||||||||||||
| Children’s Healthcare of | 31,676 | |||||||||||||||||||||||||||||||||||||||
|
Atlanta (2013/2018)(8)
Georgia Reproductive (2017/2027) |
13,622 | |||||||||||||||||||||||||||||||||||||||
|
100 North Point Center East
|
||||||||||||||||||||||||||||||||||||||||
|
Suburban Atlanta, GA
|
1995 | N/A | 100 | % | 128,000 | 89 | % | 94 | % | Schweitzer-Mauduit | 30,406 | $ | 12,618 | $ | 25,000(9 | ) | 6/1/12 | |||||||||||||||||||||||
| 7 acres | International (2012) | $ | 7,951 | 5.39 | % | |||||||||||||||||||||||||||||||||||
| Med Assets HSCA (2015/2020) | 21,914 | |||||||||||||||||||||||||||||||||||||||
| Golden Peanut Co. (2017) | 18,104 | |||||||||||||||||||||||||||||||||||||||
|
200 North Point Center East
|
||||||||||||||||||||||||||||||||||||||||
|
Suburban Atlanta, GA
|
1996 | N/A | 100 | % | 130,000 | 100 | % | 100 | % | Med Assets HSCA (2015/2020) | 89,424 | $ | 12,125 | (9 | ) | (9 | ) | |||||||||||||||||||||||
| 9 acres | Morgan Stanley (2011) | 15,709 | $ | 8,420 | ||||||||||||||||||||||||||||||||||||
|
333 North Point Center East
|
||||||||||||||||||||||||||||||||||||||||
|
Suburban Atlanta, GA
|
1998 | N/A | 100 | % | 130,000 | 95 | % | 100 | % | Merrill Lynch (2014/2024) | 35,949 | $ | 14,153 | $ | 27,287(10 | ) | 11/1/11 | |||||||||||||||||||||||
| 9 acres | Nokia (2013/2023) | 33,457 | $ | 7,387 | 7.00 | % | ||||||||||||||||||||||||||||||||||
|
Wells Fargo Bank NA
(2010/2011) |
22,438 | |||||||||||||||||||||||||||||||||||||||
|
555 North Point Center East
|
||||||||||||||||||||||||||||||||||||||||
|
Suburban Atlanta, GA
|
2000 | N/A | 100 | % | 152,000 | 96 | % | 97 | % | Kids II (2016/2026) | 64,093 | $ | 17,795 | (10 | ) | (10 | ) | |||||||||||||||||||||||
| 10 acres | Regus Business Centre | 22,422 | $ | 10,593 | ||||||||||||||||||||||||||||||||||||
| (2011/2016) | ||||||||||||||||||||||||||||||||||||||||
|
Galleria 75
|
||||||||||||||||||||||||||||||||||||||||
|
Suburban Atlanta, GA
|
2004 | N/A | 100 | % |
112,000
7 acres |
57 | % | 49 | % | The Evergreen Corporation (2011) | 7,647 | $ |
11,466
$9,705 |
$ | 0 | N/A | ||||||||||||||||||||||||
|
Cosmopolitan Center
|
||||||||||||||||||||||||||||||||||||||||
|
Atlanta, GA
|
2006 | N/A | 100 | % | 84,000 | 88 | % | 91 | % | City of Sandy Springs (2011) | 32,800 | $ | 11,180 | $ | 0 | N/A | ||||||||||||||||||||||||
| 8 acres | $ | 9,601 | ||||||||||||||||||||||||||||||||||||||
|
8995 Westside Parkway (formerly known as AtheroGenics)
|
||||||||||||||||||||||||||||||||||||||||
|
Suburban Atlanta, GA
|
1999 | N/A | 100 | % | 51,000 | 23 | % | 38 | % | Salutria (2010) | 11,790 | $ | 7,763 | $ | 0 | N/A | ||||||||||||||||||||||||
| 4 acres | $ | 2,381 | ||||||||||||||||||||||||||||||||||||||
18
Table of Contents
|
Cost and
|
||||||||||||||||||||||||||||||||||||||||
|
Percentage
|
Average
|
Cost Less
|
Debt
|
|||||||||||||||||||||||||||||||||||||
|
Year
|
Leased
|
2009
|
Major
|
Depreciation
|
Maturity
|
|||||||||||||||||||||||||||||||||||
|
Development
|
Company’s
|
as of
|
Economic
|
Major Tenants (Lease
|
Tenants’
|
and
|
and
|
|||||||||||||||||||||||||||||||||
|
Completed
|
Venture
|
Ownership
|
Square Feet
|
December 31,
|
Occupancy
|
Expiration/Options
|
Rentable
|
Amortization
|
Debt
|
Interest
|
||||||||||||||||||||||||||||||
|
Description and Location
|
or Acquired | Partner(s) | Interest | and Acres | 2009 | (1) | Expiration) | Sq. Feet | (2) | Balance | Rate | |||||||||||||||||||||||||||||
|
Office (Continued)
|
||||||||||||||||||||||||||||||||||||||||
|
Inhibitex
|
||||||||||||||||||||||||||||||||||||||||
|
Suburban Atlanta, GA
|
2005 | N/A | 100 | % | 51,000 | 100 | % | 100 | % | Inhibitex (2015/2025) | 50,933 | $ | 6,402 | $ | 0 | N/A | ||||||||||||||||||||||||
| 5 acres | $ | 4,837 | ||||||||||||||||||||||||||||||||||||||
|
221 Peachtree Center Avenue
|
||||||||||||||||||||||||||||||||||||||||
|
Parking Garage Atlanta, GA
|
2007 | N/A | 100 | % | N/A | N/A | N/A | N/A | N/A | $ | 17,665 | $ | 0 | N/A | ||||||||||||||||||||||||||
| 1 acre | $ | 16,733 | ||||||||||||||||||||||||||||||||||||||
|
One Georgia Center
|
||||||||||||||||||||||||||||||||||||||||
|
Atlanta, GA
|
2000 | Prudential(7) | 88.5 | % | 376,000 | 95 | % | 99 | % | Georgia Department of | 293,035 | $ | 59,850 | $ | 0 | N/A | ||||||||||||||||||||||||
| 3 acres | Transportation (2019) | $ | 46,768 | |||||||||||||||||||||||||||||||||||||
|
Palisades West Building 1
|
||||||||||||||||||||||||||||||||||||||||
|
Austin, TX
|
2008 | Dimensional Fund | 50 | % | 216,000 | 100 | % | 97 | % | Dimensional Fund Advisors | 215,848 | $ | 101,589 | $ | 0 | N/A | ||||||||||||||||||||||||
| Advisors & Forestar | 13 acres | (2023/2043) | $ | 97,145 | ||||||||||||||||||||||||||||||||||||
| Real Estate Group | ||||||||||||||||||||||||||||||||||||||||
|
Palisades West Building 2
|
||||||||||||||||||||||||||||||||||||||||
|
Austin, TX
|
2008 | Dimensional Fund | 50 | % | 157,000 | 31 | % | 24 | % | Forestar Real Estate Group | 32,236 | $ | 25,929 | $ | 0 | N/A | ||||||||||||||||||||||||
| Advisors & Forestar | 6 acres | (2018/2025) | $ | 25,421 | ||||||||||||||||||||||||||||||||||||
| Real Estate Group | ||||||||||||||||||||||||||||||||||||||||
|
Gateway Village
|
||||||||||||||||||||||||||||||||||||||||
|
Charlotte, NC
|
2001 | Bank of America(7) | 50 |
%
(24) |
1,065,000 | 100 | % | 100 | % | Bank of America(7) (2016/2036) | 1,064,990 | $ | 210,582 | $ | 110,101 | 12/1/16 | ||||||||||||||||||||||||
| 8 acres | $ | 156,065 | 6.41 | % | ||||||||||||||||||||||||||||||||||||
|
Emory University Hospital
|
||||||||||||||||||||||||||||||||||||||||
|
Midtown Medical Office Tower
|
||||||||||||||||||||||||||||||||||||||||
|
Atlanta, GA
|
2002 | Emory University | 50 | % | 358,000(11 | ) | 98 | % | 97 | % |
Emory University (2017/2047)
(11) |
153,889 | $ | 53,599 | $ | 49,710 | 6/1/13 | |||||||||||||||||||||||
| Resurgens (2014/2019) | 26,581 | $ | 33,821 | 5.90 | % | |||||||||||||||||||||||||||||||||||
| Atlanta Gastroenterology (2019) | 17,375 | |||||||||||||||||||||||||||||||||||||||
|
Ten Peachtree Place
|
||||||||||||||||||||||||||||||||||||||||
|
Atlanta, GA
|
1991 | Coca-Cola(7) | 50 |
%
(25) |
260,000 | 94 | % | 92 | % | AGL Services Co. (2013/2028) | 226,779 | $ | 40,511 | $ | 27,341 | 4/1/15 | ||||||||||||||||||||||||
| 5 acres | $ | 19,223 | 5.39 | % | ||||||||||||||||||||||||||||||||||||
|
Presbyterian Medical Plaza at University
|
||||||||||||||||||||||||||||||||||||||||
|
Charlotte, NC
|
1997 | Prudential(7) | 11.5 | % | 69,000 | 78 | % | 80 | % | Novant Health (2012/2017) | 49,916 | $ | 7,958 | $ | 0 | N/A | ||||||||||||||||||||||||
| 1 acre(12 | ) | $ | 4,343 | |||||||||||||||||||||||||||||||||||||
19
Table of Contents
Lease
Expirations — Office
As of December 31, 2009, the Company’s office
portfolio included 22 commercial office buildings, excluding the
property currently in
lease-up.
The weighted average remaining lease term at these office
buildings was approximately seven years as of December 31,
2009. Most of the major tenant leases in these buildings provide
for pass through of operating expenses and contractual rents
which escalate over time. The leases expire as follows:
|
2019 &
|
||||||||||||||||||||||||||||||||||||||||||||
| 2010 | 2011 | 2012 | 2013 | 2014 | 2015 | 2016 | 2017 | 2018 | Thereafter | Total | ||||||||||||||||||||||||||||||||||
|
Total (including Company’s% share of Joint Venture
Properties):
|
||||||||||||||||||||||||||||||||||||||||||||
|
Square Feet Expiring
|
181,190 | 466,219 | 213,348 | 514,632 | 280,820 | 339,659 | 719,907 | 451,364 | 218,379 | 1,590,406 | 4,975,924 | |||||||||||||||||||||||||||||||||
|
% of Leased Space
|
4 | % | 9 | % | 4 | % | 10 | % | 6 | % | 7 | % | 15 | % | 9 | % | 4 | % | 32 | % | 100 | % | ||||||||||||||||||||||
|
Annual Contractual Rent (000’s)(13)
|
$ | 2,528 | $ | 5,651 | $ | 3,126 | $ | 8,875 | $ | 4,954 | $ | 6,309 | $ | 13,202 | $ | 10,928 | $ | 5,914 | $ | 32,882 | $ | 94,369 | ||||||||||||||||||||||
|
Annual Contractual Rent/Sq. Ft.(13)
|
$ | 13.95 | $ | 12.12 | $ | 14.65 | $ | 17.25 | $ | 17.64 | $ | 18.57 | $ | 18.34 | $ | 24.21 | $ | 27.08 | $ | 20.68 | $ | 18.97 | ||||||||||||||||||||||
|
Wholly Owned:
|
||||||||||||||||||||||||||||||||||||||||||||
|
Square Feet Expiring
|
176,022 | 454,653 | 169,407 | 363,165 | 254,269 | 316,415 | 178,568 | 369,541 | 199,431 | 1,209,207 | 3,690,678 | (14) | ||||||||||||||||||||||||||||||||
|
% of Leased Space
|
5 | % | 12 | % | 5 | % | 10 | % | 7 | % | 8 | % | 5 | % | 10 | % | 5 | % | 33 | % | 100 | % | ||||||||||||||||||||||
|
Annual Contractual Rent (000’s)(13)
|
$ | 2,439 | $ | 5,476 | $ | 2,315 | $ | 6,032 | $ | 4,335 | $ | 5,991 | $ | 3,181 | $ | 8,859 | $ | 5,363 | $ | 26,232 | $ | 70,223 | ||||||||||||||||||||||
|
Annual Contractual Rent/Sq. Ft.(13)
|
$ | 13.85 | $ | 12.04 | $ | 13.66 | $ | 16.61 | $ | 17.05 | $ | 18.93 | $ | 17.81 | $ | 23.97 | $ | 26.89 | $ | 21.69 | $ | 19.03 | ||||||||||||||||||||||
|
Joint Venture:
|
||||||||||||||||||||||||||||||||||||||||||||
|
Square Feet Expiring
|
7,296 | 25,094 | 116,146 | 288,432 | 51,558 | 33,364 | 1,079,059 | 163,646 | 36,068 | 535,650 | 2,336,313 | (15) | ||||||||||||||||||||||||||||||||
|
% of Leased Space
|
0 | % | 1 | % | 5 | % | 12 | % | 2 | % | 2 | % | 46 | % | 7 | % | 2 | % | 23 | % | 100 | % | ||||||||||||||||||||||
|
Annual Contractual Rent (000’s)(13)
|
$ | 129 | $ | 392 | $ | 2,236 | $ | 5,537 | $ | 1,228 | $ | 512 | $ | 20,005 | $ | 4,138 | $ | 1,082 | $ | 10,826 | $ | 46,085 | ||||||||||||||||||||||
|
Annual Contractual Rent/Sq. Ft.(13)
|
$ | 17.64 | $ | 15.61 | $ | 19.25 | $ | 19.20 | $ | 23.82 | $ | 15.34 | $ | 18.54 | $ | 25.29 | $ | 30.00 | $ | 20.21 | $ | 19.73 | ||||||||||||||||||||||
20
Table of Contents
|
Cost and
|
||||||||||||||||||||||||||||||||||||||
|
Percentage
|
Average
|
Cost Less
|
Debt
|
|||||||||||||||||||||||||||||||||||
|
Year
|
Leased
|
2009
|
Major
|
Depreciation
|
Maturity
|
|||||||||||||||||||||||||||||||||
|
Development
|
Company’s
|
as of
|
Economic
|
Major Tenants (Lease
|
Tenants’
|
and
|
and
|
|||||||||||||||||||||||||||||||
|
Completed
|
Venture
|
Ownership
|
Square Feet
|
December 31,
|
Occupancy
|
Expiration/Options
|
Rentable
|
Amortization
|
Debt
|
Interest
|
||||||||||||||||||||||||||||
|
Description and Location
|
or Acquired | Partner(s) | Interest | and Acres | 2009 | (1) | Expiration) | Sq. Feet | (2) | Balance | Rate | |||||||||||||||||||||||||||
|
Retail Centers(16)
|
||||||||||||||||||||||||||||||||||||||
|
The Avenue Carriage Crossing Suburban Memphis, TN
|
2005 | Jim Wilson & | 100 | %(6) | 802,000 | 92 | % | 84 | % | Dillard’s(17) | N/A | $ | 92,568 | $ | 0 | N/A | ||||||||||||||||||||||
| Associates(7) | 132 acres | Macy’s (2021/2051)(18) | 130,000 | $ | 72,421 | |||||||||||||||||||||||||||||||||
| (511,000 square feet | Bed, Bath & Beyond (2020/2040) | 28,307 | ||||||||||||||||||||||||||||||||||||
| owned by Carriage | Barnes & Noble (2016/2026) | 25,322 | ||||||||||||||||||||||||||||||||||||
| Avenue, LLC) | ||||||||||||||||||||||||||||||||||||||
|
San Jose MarketCenter
San Jose, CA |
2006 | N/A | 100 | % | 357,000 | 99 | % | 96 | % | Target(17) | N/A | $ | 84,768 | $ | 0 | N/A | ||||||||||||||||||||||
| 25 acres | Marshalls (2016/2036) | 33,000 | $ | 77,333 | ||||||||||||||||||||||||||||||||||
| (213,000 square feet | PetSmart (2017/2032) | 27,430 | ||||||||||||||||||||||||||||||||||||
| owned by the Company) | Michaels (2016/2031) | 23,819 | ||||||||||||||||||||||||||||||||||||
| Office Depot (2016/2026) | 20,526 | |||||||||||||||||||||||||||||||||||||
|
The Avenue Webb Gin Suburban Atlanta, GA
|
2006 | N/A | 100 | % | 345,000 | 87 | % | 81 | % | Barnes & Noble (2016/2026) | 26,553 | $ | 79,354 | $ | 0 | N/A | ||||||||||||||||||||||
| 51 acres | Ethan Allen (2021/2031) | 18,511 | $ | 67,204 | ||||||||||||||||||||||||||||||||||
| GAP (2012/2022) | 17,461 | |||||||||||||||||||||||||||||||||||||
| DSW Shoes (2018/2023) | 16,000 | |||||||||||||||||||||||||||||||||||||
|
Tiffany Springs MarketCenter Kansas City, MO
|
2008 | Prudential(7) | 88.5 | % | 587,000 | 75 | % | 73 | % | JC Penney(17) | N/A | $ | 58,266 | $ | 0 | N/A | ||||||||||||||||||||||
| 68 acres | The Home Depot(17) | N/A | $ | 56,088 | ||||||||||||||||||||||||||||||||||
| (249,000 square feet and | Target(17) | N/A | ||||||||||||||||||||||||||||||||||||
| 25 acres owned by CP | Best Buy (2019/2039) | 45,676 | ||||||||||||||||||||||||||||||||||||
| Venture Six LLC and 12 | Sports Authority (2019/2039) | 41,770 | ||||||||||||||||||||||||||||||||||||
| acres owned by CPI) | PetSmart (2018/2033) | 25,464 | ||||||||||||||||||||||||||||||||||||
|
The Avenue Forsyth
Suburban Atlanta, GA |
2008 | Prudential(7) | 88.5 | % | 472,000 | 67 | % | 58 | % | AMC Theaters (2023/2039)(18) | 50,967 | $ | 121,973 | $ | 0 | N/A | ||||||||||||||||||||||
| 66 acres | Barnes & Noble (2018/2028) | 28,007 | $ | 114,017 | ||||||||||||||||||||||||||||||||||
| (54 acres owned by CP | DSW Shoes (2019/2024) | 15,053 | ||||||||||||||||||||||||||||||||||||
|
Venture Six LLC and
12 acres owned by CPI) |
||||||||||||||||||||||||||||||||||||||
|
The Avenue Murfreesboro Murfreesboro, TN
|
2007 | Faison Enterprises, | 50 | % | 751,000 | 79 | % | 77 | % | Belk (2027)(18) | 132,000 | $ | 133,582 | $ | 113,476 | 7/20/10 | ||||||||||||||||||||||
| Inc.(7) | 99 acres | Dick’s Sporting Goods (2018/2033) | 44,770 | $ | 124,577 | Libor +1.15 | % | |||||||||||||||||||||||||||||||
| Best Buy (2018/2038) | 30,000 | |||||||||||||||||||||||||||||||||||||
| Haverty’s Furniture (2018/2023) | 30,000 | |||||||||||||||||||||||||||||||||||||
| Barnes & Noble (2018/2028) | 26,937 | |||||||||||||||||||||||||||||||||||||
| Michaels (2018/2033) | 21,398 | |||||||||||||||||||||||||||||||||||||
|
The Avenue Viera
Viera, FL |
2005 | Prudential(7) | 11.5 | % | 460,000 | 94 | % | 93 | % | Rave Motion Pictures(17) | N/A | $ | 86,496 | $ | 0 | N/A | ||||||||||||||||||||||
| 56 acres | Belk (2024/2044)(18) | 65,927 | $ | 75,353 | ||||||||||||||||||||||||||||||||||
| (332,000 owned | Bed, Bath & Beyond (2015/2035) | 24,329 | ||||||||||||||||||||||||||||||||||||
| by CP Venture IV | Michaels (2016/2036) | 20,800 | ||||||||||||||||||||||||||||||||||||
| Holdings LLC) | ||||||||||||||||||||||||||||||||||||||
21
Table of Contents
|
Cost and
|
||||||||||||||||||||||||||||||||||||||
|
Percentage
|
Average
|
Cost Less
|
Debt
|
|||||||||||||||||||||||||||||||||||
|
Year
|
Leased
|
2009
|
Major
|
Depreciation
|
Maturity
|
|||||||||||||||||||||||||||||||||
|
Development
|
Company’s
|
as of
|
Economic
|
Major Tenants (Lease
|
Tenants’
|
and
|
and
|
|||||||||||||||||||||||||||||||
|
Completed
|
Venture
|
Ownership
|
Square Feet
|
December 31,
|
Occupancy
|
Expiration/Options
|
Rentable
|
Amortization
|
Debt
|
Interest
|
||||||||||||||||||||||||||||
|
Description and Location
|
or Acquired | Partner(s) | Interest | and Acres | 2009 | (1) | Expiration) | Sq. Feet | (2) | Balance | Rate | |||||||||||||||||||||||||||
|
Retail Centers(16) (Continued)
|
||||||||||||||||||||||||||||||||||||||
|
The Avenue East Cobb
Suburban Atlanta, GA |
1999 | Prudential (7) | 11.5 | % | 230,000 | 95 | % | 93 | % | Borders (2015/2030) | 24,882 | $ | 99,084 | $ | 35,451 | 8/1/10 | ||||||||||||||||||||||
| 30 acres | Bed, Bath & Beyond (2015/2025) | 21,007 | $ | 85,105 | 8.39 | % | ||||||||||||||||||||||||||||||||
| GAP (2010/2015) | 19,434 | |||||||||||||||||||||||||||||||||||||
| Pottery Barn (7) (2012) | 10,000 | |||||||||||||||||||||||||||||||||||||
| Talbots (2015) | 9,408 | |||||||||||||||||||||||||||||||||||||
|
The Avenue West Cobb
Suburban Atlanta, GA |
2003 | Prudential(7) | 11.5 | % | 257,000 | 83 | % | 94 | % | Barnes & Noble (2014/2024) | 24,025 | $ | 88,337 | $ | 0 | N/A | ||||||||||||||||||||||
| 22 acres | GAP (2012/2022) | 17,520 | $ | 74,817 | ||||||||||||||||||||||||||||||||||
| Pier One Imports (2013/2023) | 9,980 | |||||||||||||||||||||||||||||||||||||
|
The Avenue Peachtree City Suburban Atlanta, GA
|
2001 | Prudential(7) | 11.5 | % | 183,000 | 96 | % | 91 | % | Books-A-Million (2013) | 13,750 | $ | 57,885 | $ | 0 | N/A | ||||||||||||||||||||||
| 18 acres(19) | GAP (2012/2022) | 10,800 | $ | 47,873 | ||||||||||||||||||||||||||||||||||
| Talbots (2012/2022) | 8,610 | |||||||||||||||||||||||||||||||||||||
| Banana Republic (2012/2022) | 8,015 | |||||||||||||||||||||||||||||||||||||
|
Viera MarketCenter
Viera, FL |
2005 | Prudential(7) | 11.5 | % | 178,000 | 95 | % | 95 | % | Kohl’s Department Stores | 88,248 | $ | 30,713 | $ | 0 | N/A | ||||||||||||||||||||||
| 20 acres | (2026/2056)(18) | $ | 27,417 | |||||||||||||||||||||||||||||||||||
| Sports Authority (2017/2032) | 37,516 | |||||||||||||||||||||||||||||||||||||
| Office Depot (2016/2036) | 20,000 | |||||||||||||||||||||||||||||||||||||
|
North Point MarketCenter Suburban Atlanta, GA
|
1994 | Prudential(7) | 10.32 | % | 518,000 | 98 | % | 80 | % | Target(17) | N/A | $ | 57,228 | $ | 0 | N/A | ||||||||||||||||||||||
| 60 acres | Babies “R” Us (2012/2032) | 50,275 | $ | 37,578 | ||||||||||||||||||||||||||||||||||
| (401,000 | Dick’s Sporting Goods (2017/2037) | 48,884 | ||||||||||||||||||||||||||||||||||||
| square feet | Marshalls (2015/2025) | 40,000 | ||||||||||||||||||||||||||||||||||||
| and 49 acres | Bed, Bath & Beyond (2026/2041) | 40,000 | ||||||||||||||||||||||||||||||||||||
| owned by | Regal Cinemas (2014/2034) | 34,733 | ||||||||||||||||||||||||||||||||||||
| CP Venture LLC) | Stein Mart (2020/2040) | 33,420 | ||||||||||||||||||||||||||||||||||||
|
Greenbrier MarketCenter Chesapeake, VA
|
1996 | Prudential(7) | 10.32 | % | 493,000 | 100 | % | 99 | % | Target(17) | N/A | $ | 49,814 | $ | 0 | N/A | ||||||||||||||||||||||
| 44 acres | Harris Teeter (2016/2036) | 51,806 | $ | 32,809 | ||||||||||||||||||||||||||||||||||
| (376,000 square | Best Buy (2015/2030) | 45,106 | ||||||||||||||||||||||||||||||||||||
| feet and 36 acres | Bed, Bath & Beyond (2012/2027) | 40,484 | ||||||||||||||||||||||||||||||||||||
| owned by | Babies “R” Us (2011/2021) | 40,000 | ||||||||||||||||||||||||||||||||||||
| CP Venture | Stein Mart (2011/2026) | 36,000 | ||||||||||||||||||||||||||||||||||||
| LLC) | Barnes & Noble (2012/2022) | 29,974 | ||||||||||||||||||||||||||||||||||||
| PetSmart (2011/2031) | 26,040 | |||||||||||||||||||||||||||||||||||||
|
Los Altos MarketCenter
Long Beach, CA |
1996 | Prudential(7) | 10.32 | % | 182,000 | 75 | % | 80 | % | Sears(17) | N/A | $ | 32,367 | $ | 0 | N/A | ||||||||||||||||||||||
| (157,000 square | Borders (2017/2037) | 30,000 | $ | 21,492 | ||||||||||||||||||||||||||||||||||
| feet and 17 acres | Bristol Farms (7) (2012/2032) | 28,200 | ||||||||||||||||||||||||||||||||||||
| owned by CP | TJ Maxx (2020/2035) | 25,620 | ||||||||||||||||||||||||||||||||||||
| Venture LLC) | ||||||||||||||||||||||||||||||||||||||
22
Table of Contents
Lease
Expirations — Retail
As of December 31, 2009, the Company’s retail
portfolio included 14 retail properties. The weighted average
remaining lease term of these retail properties was
approximately eight years as of December 31, 2009. Most of
the major tenant leases at these retail properties provide for
pass through of operating expenses and contractual rents which
escalate over time. The leases expire as follows:
|
2019 &
|
||||||||||||||||||||||||||||||||||||||||||||
| 2010 | 2011 | 2012 | 2013 | 2014 | 2015 | 2016 | 2017 | 2018 | Thereafter | Total | ||||||||||||||||||||||||||||||||||
|
Total (including Company’s % share of Joint Venture
Properties):
|
||||||||||||||||||||||||||||||||||||||||||||
|
Square Feet Expiring (20)
|
78,671 | 83,363 | 80,765 | 55,076 | 47,906 | 99,678 | 339,023 | 183,964 | 330,123 | 638,100 | 1,936,669 | |||||||||||||||||||||||||||||||||
|
% of Leased Space
|
4 | % | 4 | % | 4 | % | 3 | % | 2 | % | 5 | % | 19 | % | 9 | % | 17 | % | 33 | % | 100 | % | ||||||||||||||||||||||
|
Annual Contractual Rent (000’s)(13)
|
$ | 908 | $ | 2,220 | $ | 1,791 | $ | 1,393 | $ | 1,146 | $ | 2,478 | $ | 8,796 | $ | 5,419 | $ | 7,641 | $ | 10,824 | $ | 42,616 | ||||||||||||||||||||||
|
Annual Contractual Rent/Sq. Ft.(13)
|
$ | 11.54 | $ | 26.63 | $ | 22.17 | $ | 25.29 | $ | 23.93 | $ | 24.86 | $ | 25.94 | $ | 29.46 | $ | 23.15 | $ | 16.96 | $ | 22.00 | ||||||||||||||||||||||
|
Wholly Owned:
|
||||||||||||||||||||||||||||||||||||||||||||
|
Square Feet Expiring(20)
|
34,343 | 59,176 | 46,259 | 15,422 | 10,529 | 48,478 | 312,049 | 137,757 | 64,357 | 249,686 | 978,056 | (21) | ||||||||||||||||||||||||||||||||
|
% of Leased Space
|
3 | % | 6 | % | 5 | % | 2 | % | 1 | % | 5 | % | 32 | % | 14 | % | 7 | % | 25 | % | 100 | % | ||||||||||||||||||||||
|
Annual Contractual Rent (000’s)(13)
|
$ | 492 | $ | 1,820 | $ | 1,080 | $ | 403 | $ | 278 | $ | 1,421 | $ | 8,204 | $ | 4,438 | $ | 1,721 | $ | 3,178 | $ | 23,035 | ||||||||||||||||||||||
|
Annual Contractual Rent/Sq. Ft.(13)
|
$ | 14.33 | $ | 30.75 | $ | 23.36 | $ | 26.10 | $ | 26.36 | $ | 29.31 | $ | 26.29 | $ | 32.21 | $ | 26.74 | $ | 12.73 | $ | 23.55 | ||||||||||||||||||||||
|
Joint Venture:
|
||||||||||||||||||||||||||||||||||||||||||||
|
Square Feet Expiring(20)
|
197,500 | 227,956 | 296,289 | 169,424 | 201,814 | 306,468 | 194,096 | 238,163 | 443,543 | 799,327 | 3,074,580 | (22) | ||||||||||||||||||||||||||||||||
|
% of Leased Space
|
6 | % | 7 | % | 10 | % | 6 | % | 7 | % | 10 | % | 6 | % | 8 | % | 14 | % | 26 | % | 100 | % | ||||||||||||||||||||||
|
Annual Contractual Rent (000’s)(13)
|
$ | 2,912 | $ | 3,691 | $ | 5,896 | $ | 4,327 | $ | 4,466 | $ | 6,207 | $ | 3,885 | $ | 5,068 | $ | 9,848 | $ | 12,781 | $ | 59,081 | ||||||||||||||||||||||
|
Annual Contractual Rent/Sq. Ft.(13)
|
$ | 14.75 | $ | 16.19 | $ | 19.90 | $ | 25.54 | $ | 22.13 | $ | 20.25 | $ | 20.02 | $ | 21.28 | $ | 22.20 | $ | 15.99 | $ | 19.22 | ||||||||||||||||||||||
23
Table of Contents
|
Cost and
|
||||||||||||||||||||||||||||||||||||||
|
Percentage
|
Average
|
Cost Less
|
Debt
|
|||||||||||||||||||||||||||||||||||
|
Year
|
Leased
|
2009
|
Major
|
Depreciation
|
Maturity
|
|||||||||||||||||||||||||||||||||
|
Development
|
Company’s
|
as of
|
Economic
|
Major Tenants (Lease
|
Tenants’
|
and
|
and
|
|||||||||||||||||||||||||||||||
|
Completed
|
Venture
|
Ownership
|
Square Feet
|
December 31,
|
Occupancy
|
Expiration/options
|
Rentable
|
Amortization
|
Debt
|
Interest
|
||||||||||||||||||||||||||||
|
Description and Location
|
or Acquired | Partner(s) | Interest | and Acres | 2009 | (1) | Expiration) | Sq. Feet | (2) | Balance | Rate | |||||||||||||||||||||||||||
|
Industrial
|
||||||||||||||||||||||||||||||||||||||
|
Lakeside Ranch Business Park Building 20 Dallas, TX
|
2007 | Seefried Industrial | 100 | %(6) | 749,000 | 48 | % | 48 | % | HD Supply Facilities | 355,621 | $ | 27,854 | $ | 0 | N/A | ||||||||||||||||||||||
| Properties | 37 acres | Maintenance (2012/2018) | $ | 25,062 | ||||||||||||||||||||||||||||||||||
|
King Mill Distribution Park Building 3 Suburban Atlanta, GA
|
2007 | Weeks Properties | 75 | % | 796,000 | 85 | % | 58 | % | Briggs & Stratton Corporation | 677,400 | $ | 25,657 | $ | 0 | N/A | ||||||||||||||||||||||
| Group | 41 acres | (2015/2020) | $ | 22,830 | ||||||||||||||||||||||||||||||||||
|
Jefferson Mill Business Park Building A Suburban Atlanta, GA
|
2008 | Weeks Properties | 75 | % | 459,000 | 0 | % | 0 | % | N/A | N/A | $ | 13,708 | $ | 0 | N/A | ||||||||||||||||||||||
| Group | 27 acres | $ | 12,980 | |||||||||||||||||||||||||||||||||||
Lease
Expiration — Industrial
As of December 31, 2009, the Company’s industrial
portfolio included three properties. The weighted average
remaining lease term of these properties was approximately four
years as of December 31, 2009. The leases provide for pass
through of operating expenses and contractual rents which
escalate over time. The leases expire as follows:
| 2012 | 2015 | Total | ||||||||||
|
Company’s% share of Joint Venture Properties:
|
||||||||||||
|
Square Feet Expiring
|
355,621 | 508,050 | 863,671 | |||||||||
|
% of Leased Space
|
41 | % | 59 | % | 100 | % | ||||||
|
Annual Contractual Rent (000’s)(13)
|
$ | 1,149 | $ | 1,471 | $ | 2,620 | ||||||
|
Annual Contractual Rent/Sq. Ft.(13)
|
$ | 3.23 | $ | 2.90 | $ | 3.03 | ||||||
|
Joint Venture:
|
||||||||||||
|
Square Feet Expiring
|
355,621 | 677,400 | 1,033,021 | (23) | ||||||||
|
% of Leased Space
|
34 | % | 66 | % | 100 | % | ||||||
|
Annual Contractual Rent (000’s)(13)
|
$ | 1,149 | $ | 1,962 | $ | 3,111 | ||||||
|
Annual Contractual Rent/Sq. Ft.(13)
|
$ | 3.23 | $ | 2.90 | $ | 3.01 | ||||||
24
Table of Contents
FOOTNOTES
| (1) | Average economic occupancy is calculated as the percentage of the property for which revenue was recognized during the year. If the property was purchased during the year, average economic occupancy is calculated from the date of purchase forward. If the project was under construction or has an expansion that was under construction during the year, average economic occupancy for the property or the expansion portion reflects the fact that the property had no occupancy for a portion of the year. | |
| (2) | Cost as shown in the accompanying table includes deferred leasing costs, other related tangible assets and net intangible real estate assets. | |
| (3) | Square footage and cost information includes 9,300 square feet for 201 Peachtree, which is connected to 191 Peachtree, and acreage information includes 0.8 acres under a ground lease which expires in 2087. | |
| (4) | The real estate and other assets of this property are restricted under a loan agreement such that the assets are not available to settle other debts of the Company. | |
| (5) | At The American Cancer Society Center, approximately 0.18 acres of land are under a ground lease expiring in 2068. | |
| (6) | These projects are owned through a joint venture with a third party who may get a share of the results of operations or sale of the property, even though the projects are shown as 100% owned. | |
| (7) | Actual tenant or venture partner is an affiliate of the entity shown. | |
| (8) | At Meridian Mark Plaza, 43,051 square feet of the Northside Hospital lease expires in 2013, with an option to extend to 2023, and 7,521 square feet of the Children’s Healthcare lease expires in 2019. | |
| (9) | 100 North Point Center East and 200 North Point Center East were financed together as one non-recourse mortgage note payable. | |
| (10) | 333 North Point Center East and 555 North Point Center East were financed together as one recourse mortgage note payable. | |
| (11) | Emory University Hospital Midtown Medical Office Tower was developed on top of a building within the Emory University Hospital Midtown campus. The venture received a fee simple interest in the air rights above this building in order to develop the medical office tower. In addition, 5,148 square feet of the Emory University lease expires in 2011. | |
| (12) | Presbyterian Medical Plaza at University is located on 1 acre, which is subject to a ground lease expiring in 2057. | |
| (13) | Annual Contractual Rent excludes the operating expense reimbursement portion of the rent payable and percentage rents, if applicable. If the lease does not provide for pass through of such operating expense reimbursements, an estimate of operating expenses is deducted from the rental rate shown. The contractual rental rate shown is the estimated rate in the year of expiration. | |
| (14) | Rentable square feet leased as of December 31, 2009 out of approximately 4,388,000 total rentable square feet. | |
| (15) | Rentable square feet leased as of December 31, 2009 out of approximately 2,501,000 total rentable square feet. | |
| (16) | Most of these retail centers also include outparcels which are ground leased to freestanding users. | |
| (17) | This anchor tenant owns its own store and land. | |
| (18) | This tenant built and owns its own store and pays the Company under a ground lease. | |
| (19) | Approximately 1.5 acres of the total acreage at The Avenue Peachtree City is under a ground lease expiring in 2024. | |
| (20) | Certain leases contain termination options, with or without penalty, if co-tenancy clauses or sales volume levels are not achieved. The expiration date per the lease is used for these leases in the above table, although early termination is possible. | |
| (21) | Gross leasable area leased as of December 31, 2009 out of approximately 1,069,000 total gross leasable area. | |
| (22) | Gross leasable area leased as of December 31, 2009 out of approximately 3,586,000 total gross leasable area. | |
| (23) | Rentable square feet leased as of December 31, 2009 out of approximately 2,004,000 total rentable square feet. | |
| (24) | The Company receives a preferred return of 11.46% on the entity that owns Gateway Village, and the Company’s share of return on its capital is anticipated to be limited to 17%. | |
| (25) | After August 2011, the Company’s return from the entity that owns Ten Peachtree Place is 15% on the first $15.3 million of cash flows and 50% to each partner thereafter. |
25
Table of Contents
Project
Under Development
The following provides information regarding the Company’s
office project under development at December 31, 2009.
Dollars are stated in thousands. This schedule includes projects
under development through the point the projects become fully
operational pursuant to accounting principles generally accepted
in the United States (generally defined as one year from the
certificate of occupancy date). Single-family residential
projects where additional development costs may be incurred are
included in the Residential Lots table below. The amount
included in the total cost column represents the estimated cost
upon completion of the project and achievement of fully
operational status. Significant estimation is required to derive
these costs and the final costs may differ from these estimates.
The projected dates for completion and fully operational status
are also estimates and are subject to change as the projects
proceed through the development process. The Company recorded an
impairment charge of $38.9 million in the third quarter of
2009 on its investment in the venture which owns Terminus 200, a
565,000 square foot office building. This amount included
all amounts invested to date, plus an accrual for the funding of
the Company’s guarantee of the venture’s construction
loan and certain other commitments. The Company’s share of
remaining costs in this table represents the amount the Company
would be required to fund under the loan guarantee and
commitments. Leasing could occur in the future where amounts
necessary to obtain the lease would require partner
contributions. However, there are no such amounts known at this
time.
|
Company’s
|
||||||||||||||||||||||
|
Share of
|
Company’s
|
|||||||||||||||||||||
|
Company’s
|
Cost
|
Share of
|
Actual or Projected
|
|||||||||||||||||||
|
Project/Cousins’
|
Approximate
|
Share of
|
Incurred at
|
Remaining
|
Dates for Completion
|
|||||||||||||||||
|
Ownership %
|
Leased % | Total Cost | Total Cost | 12/31/09 | Costs | and Fully Operational | ||||||||||||||||
|
OFFICE
|
||||||||||||||||||||||
|
Terminus 200 / 50%
|
9 | % | $ | 177,300 | $ | 88,650 | $ | 55,637 | $ | 17,993 | const. 3Q-09 | |||||||||||
|
(Atlanta, GA)
|
fully operational 3Q-10 | |||||||||||||||||||||
Residential
Lots
As of December 31, 2009, CREC, Temco Associates
(“Temco”) and CL Realty, L.L.C. (“CL
Realty”) owned the following parcels of land which are
being developed or planned to be developed into residential
communities (see Note 5 of Notes to Consolidated Financial
Statements). Information in the table represents total amounts
for the development as a whole, not the Company’s share.
Dollars are stated in thousands.
|
Estimated
|
Estimated
|
Developed
|
Lots Sold
|
Lots Sold
|
Total
|
Remaining
|
||||||||||||||||||||||||||||||
|
Year
|
Project Life
|
Total Lots to
|
Lots in
|
in Current
|
Year to
|
Lots
|
Lots to be
|
Basis
|
||||||||||||||||||||||||||||
|
Description
|
Commenced | (In Years) | be Developed(1) | Inventory | Quarter | Date | Sold | Sold | ($000)(2)(3) | |||||||||||||||||||||||||||
|
Cousins Real Estate Corporation (Consolidated)
|
||||||||||||||||||||||||||||||||||||
|
The Lakes at Cedar Grove
|
2001 | 14 | 906 | 73 | — | — | 702 | 204 | $ | 5,098 | ||||||||||||||||||||||||||
|
Fulton County
|
||||||||||||||||||||||||||||||||||||
|
Suburban Atlanta, GA
|
||||||||||||||||||||||||||||||||||||
|
Callaway Gardens (50% owned)(4)(5)
|
2006 | 10 | 559 | 119 | 5 | 8 | 20 | 539 | 15,847 | |||||||||||||||||||||||||||
|
Harris County
|
||||||||||||||||||||||||||||||||||||
|
Pine Mountain, GA
|
||||||||||||||||||||||||||||||||||||
|
Blalock Lakes(5)
|
2006 | 14 | 154 | 86 | 1 | 1 | 17 | 137 | 38,042 | |||||||||||||||||||||||||||
|
Coweta County
|
||||||||||||||||||||||||||||||||||||
|
Suburban Atlanta, GA
|
||||||||||||||||||||||||||||||||||||
|
Longleaf at Callaway(5)
|
2002 | 9 | 138 | 13 | — | 1 | 125 | 13 | 381 | |||||||||||||||||||||||||||
|
Harris County
|
||||||||||||||||||||||||||||||||||||
|
Pine Mountain, GA
|
||||||||||||||||||||||||||||||||||||
|
River’s Call
|
1999 | 12 | 107 | 13 | — | — | 94 | 13 | 572 | |||||||||||||||||||||||||||
|
East Cobb County
|
||||||||||||||||||||||||||||||||||||
|
Suburban Atlanta, GA
|
||||||||||||||||||||||||||||||||||||
|
Tillman Hall
|
2008 | 4 | 29 | 25 | — | 4 | 4 | 25 | 2,885 | |||||||||||||||||||||||||||
|
Gwinnett County
|
||||||||||||||||||||||||||||||||||||
|
Suburban Atlanta, GA
|
||||||||||||||||||||||||||||||||||||
|
Total consolidated
|
1,893 | 329 | 6 | 14 | 962 | 931 | 62,825 | |||||||||||||||||||||||||||||
26
Table of Contents
|
Estimated
|
Estimated
|
Developed
|
Lots Sold
|
Lots Sold
|
Total
|
Remaining
|
||||||||||||||||||||||||||||||
|
Year
|
Project Life
|
Total Lots to
|
Lots in
|
in Current
|
Year to
|
Lots
|
Lots to be
|
Basis
|
||||||||||||||||||||||||||||
|
Description
|
Commenced | (In Years) | be Developed(1) | Inventory | Quarter | Date | Sold | Sold | ($000)(2)(3) | |||||||||||||||||||||||||||
|
Temco (50% owned)
|
||||||||||||||||||||||||||||||||||||
|
Bentwater
|
1998 | 13 | 1,676 | 5 | — | — | 1,671 | 5 | $ | 18 | ||||||||||||||||||||||||||
|
Paulding County
|
||||||||||||||||||||||||||||||||||||
|
Suburban Atlanta, GA
|
||||||||||||||||||||||||||||||||||||
|
The Georgian (75% owned)
|
2003 | 21 | 1,385 | 259 | — | — | 288 | 1,097 | 23,483 | |||||||||||||||||||||||||||
|
Paulding County
|
||||||||||||||||||||||||||||||||||||
|
Suburban Atlanta, GA
|
||||||||||||||||||||||||||||||||||||
|
Seven Hills
|
2003 | 12 | 1,077 | 333 | — | — | 634 | 443 | 16,785 | |||||||||||||||||||||||||||
|
Paulding County
|
||||||||||||||||||||||||||||||||||||
|
Suburban Atlanta, GA
|
||||||||||||||||||||||||||||||||||||
|
Harris Place
|
2004 | 8 | 27 | 9 | — | — | 18 | 9 | 649 | |||||||||||||||||||||||||||
|
Paulding County
|
||||||||||||||||||||||||||||||||||||
|
Suburban Atlanta, GA
|
||||||||||||||||||||||||||||||||||||
|
Total Temco
|
4,165 | 606 | — | — | 2,611 | 1,554 | 40,935 | |||||||||||||||||||||||||||||
|
CL Realty (50% owned)
|
||||||||||||||||||||||||||||||||||||
|
Summer Creek Ranch
|
2003 | 21 | 2,568 | 187 | — | — | 796 | 1,772 | 22,981 | |||||||||||||||||||||||||||
|
Tarrant County
|
||||||||||||||||||||||||||||||||||||
|
Fort Worth, TX
|
||||||||||||||||||||||||||||||||||||
|
Long Meadow Farms (37.5% owned)
|
2003 | 12 | 2,106 | 151 | 1 | 4 | 607 | 1,499 | 17,305 | |||||||||||||||||||||||||||
|
Fort Bend County
|
||||||||||||||||||||||||||||||||||||
|
Houston, TX
|
||||||||||||||||||||||||||||||||||||
|
Bar C Ranch
|
2004 | 20 | 1,199 | 122 | 16 | 16 | 192 | 1,007 | 7,953 | |||||||||||||||||||||||||||
|
Tarrant County
|
||||||||||||||||||||||||||||||||||||
|
Fort Worth, TX
|
||||||||||||||||||||||||||||||||||||
|
Summer Lakes
|
2003 | 15 | 1,123 | 177 | — | — | 325 | 798 | 7,269 | |||||||||||||||||||||||||||
|
Fort Bend County
|
||||||||||||||||||||||||||||||||||||
|
Rosenberg, TX
|
||||||||||||||||||||||||||||||||||||
|
Southern Trails (80% owned)
|
2005 | 11 | 1,027 | 135 | 8 | 52 | 372 | 655 | 20,288 | |||||||||||||||||||||||||||
|
Brazoria County
|
||||||||||||||||||||||||||||||||||||
|
Pearland, TX
|
||||||||||||||||||||||||||||||||||||
|
Village Park
|
2003 | 12 | 560 | 17 | — | — | 339 | 221 | 7,053 | |||||||||||||||||||||||||||
|
Collin County
|
||||||||||||||||||||||||||||||||||||
|
McKinney, TX
|
||||||||||||||||||||||||||||||||||||
|
Waterford Park
|
2005 | 7 | 493 | — | — | — | — | 493 | 8,396 | |||||||||||||||||||||||||||
|
Fort Bend County
|
||||||||||||||||||||||||||||||||||||
|
Rosenberg, TX
|
||||||||||||||||||||||||||||||||||||
|
Manatee River Plantation
|
2003 | 10 | 457 | 109 | — | — | 348 | 109 | 2,604 | |||||||||||||||||||||||||||
|
Manatee County
|
||||||||||||||||||||||||||||||||||||
|
Tampa, FL
|
||||||||||||||||||||||||||||||||||||
|
Stonewall Estates (50% owned)
|
2005 | 9 | 381 | 32 | 8 | 52 | 220 | 161 | 6,808 | |||||||||||||||||||||||||||
|
Bexar County
|
||||||||||||||||||||||||||||||||||||
|
San Antonio, TX
|
||||||||||||||||||||||||||||||||||||
|
Stillwater Canyon
|
2003 | 11 | 335 | 6 | — | — | 225 | 110 | 2,324 | |||||||||||||||||||||||||||
|
Dallas County
|
||||||||||||||||||||||||||||||||||||
|
DeSoto, TX
|
||||||||||||||||||||||||||||||||||||
|
Creekside Oaks
|
2003 | 10 | 301 | 176 | — | — | 125 | 176 | 4,431 | |||||||||||||||||||||||||||
|
Manatee County
|
||||||||||||||||||||||||||||||||||||
|
Bradenton, FL
|
||||||||||||||||||||||||||||||||||||
|
Village Park North
|
2005 | 10 | 189 | 8 | — | 4 | 71 | 118 | 2,324 | |||||||||||||||||||||||||||
|
Collin County
|
||||||||||||||||||||||||||||||||||||
|
McKinney, TX
|
||||||||||||||||||||||||||||||||||||
|
Bridle Path Estates
|
2004 | 10 | 87 | — | — | — | — | 87 | 3,152 | |||||||||||||||||||||||||||
|
Hillsborough County
|
||||||||||||||||||||||||||||||||||||
|
Tampa, FL
|
||||||||||||||||||||||||||||||||||||
|
West Park
|
2005 | 8 | 84 | — | — | — | 21 | 63 | 5,298 | |||||||||||||||||||||||||||
|
Cobb County
|
||||||||||||||||||||||||||||||||||||
|
Suburban Atlanta, GA
|
||||||||||||||||||||||||||||||||||||
|
Total CL Realty
|
10,910 | 1,120 | 33 | 128 | 3,641 | 7,269 | 118,186 | |||||||||||||||||||||||||||||
|
Total
|
16,968 | 2,055 | 39 | 142 | 7,214 | 9,754 | $ | 221,946 | ||||||||||||||||||||||||||||
|
Company Share of Total
|
8,122 | 1,031 | 17 | 55 | 3,760 | 4,362 | $ | 122,388 | ||||||||||||||||||||||||||||
|
Company Weighted Average Ownership
|
48 | % | 50 | % | 44 | % | 39 | % | 52 | % | 45 | % | 55 | % | ||||||||||||||||||||||
27
Table of Contents
| (1) | This estimate represents the total projected development capacity for a development on owned land. The numbers shown include lots currently developed or to be developed over time, based on management’s current estimates, and lots sold to date from inception of development. | |
| (2) | Includes cost basis of land tracts as detailed on the Inventory of Land Held schedule. | |
| (3) | Cost Basis reflects the Company’s basis for consolidated properties and the venture’s basis for joint venture properties. In some cases, the Company’s share of a venture’s basis may be different than the Company’s investment due to capitalization of costs and impairments at the Company’s investment level. | |
| (4) | Callaway Gardens is owned in a joint venture which is consolidated with the Company. The partner is entitled to a share of the profits after the Company’s capital is recovered. | |
| (5) | All lots at Longleaf at Callaway and certain lots at Callaway Gardens and Blalock Lakes are sold to a homebuilding venture, of which the Company is a joint venture partner. As a result of this relationship, the Company defers some or all profits until houses are built and sold, rather than at the time lots are sold, as is the case with the Company’s other residential developments. As of December 31, 2009, 126 houses have been sold by this venture. |
Land
Held
As of December 31, 2009, the Company owned or controlled
the following land holdings either directly or indirectly
through venture arrangements. The Company evaluates its land
holdings on a regular basis and may develop, ground lease or
sell portions of the land holdings if opportunities arise.
Information in the table represents total amounts for the
developable land area as a whole, not the Company’s share,
and for cost basis, reflects the venture’s basis, if
applicable. In some cases, the Company’s share of a
venture’s basis may be different than the Company’s
investment due to capitalization of costs and impairments at the
Company’s investment level. See Note 5 of Notes to
Consolidated Financial Statements for further information
related to investments in unconsolidated joint ventures.
|
Company’s
|
Developable
|
Cost
|
||||||||||||
|
Ownership
|
Land Area
|
Year
|
Basis
|
|||||||||||
|
Description and Location
|
Zoned Use
|
Interest | (Acres) | Acquired | ($000) | |||||||||
|
CONSOLIDATED
|
||||||||||||||
|
Round Rock Land
|
||||||||||||||
|
Austin, TX
|
Retail and Commercial | 100% | 60 | 2005 | $ | 17,115 | ||||||||
|
King Mill Distribution Park
|
||||||||||||||
|
Suburban Atlanta, GA
|
Industrial | 100% | 130 | (1) | 2005 | 17,092 | ||||||||
|
Jefferson Mill Business Park
|
||||||||||||||
|
Suburban Atlanta, GA
|
Industrial and Commercial | 100% | 172 | (1) | 2006 | 13,770 | ||||||||
|
Terminus
|
||||||||||||||
|
Atlanta, GA
|
Mixed Use | 100% | 4 | 2005 | 12,709 | |||||||||
|
615 Peachtree Street
|
||||||||||||||
|
Atlanta, GA
|
Mixed Use | 100% | 2 | 1996 | 12,492 | |||||||||
|
Land Adjacent to The Avenue Forsyth
|
||||||||||||||
|
Suburban Atlanta, GA
|
Retail | 94%(2) | 15 | 2007 | 10,446 | |||||||||
|
Lakeside Ranch Business Park
|
||||||||||||||
|
Dallas, TX
|
Industrial and Commercial | 100%(3) | 48 | 2006 | 9,818 | |||||||||
|
Blalock Lakes
|
||||||||||||||
|
Suburban Atlanta, GA
|
Residential | 100% | 1,205 | 2008 | 9,650 | |||||||||
|
549 / 555 / 557 Peachtree Street
|
||||||||||||||
|
Atlanta, GA
|
Mixed Use | 100% | 1 | 2004 / 2009 | 8,794 | |||||||||
|
Handy Road Associates, LLC
|
||||||||||||||
|
Suburban Atlanta, GA
|
Large Lot Residential | 50% | 1,187 | 2004 | 5,342 | |||||||||
|
Research Park V
|
||||||||||||||
|
Austin, TX
|
Commercial | 100% | 6 | 1998 | 4,924 | |||||||||
|
Lancaster
|
||||||||||||||
|
Dallas, TX
|
Industrial | 100%(3) | 47 | 2007 | 4,844 | |||||||||
|
Glenmore Garden Villas(4)
|
||||||||||||||
|
Suburban Charlotte, NC
|
Multi-Family | 50% | 16 | 2007 | 3,774 | |||||||||
|
North Point
|
||||||||||||||
|
Suburban Atlanta, GA
|
Mixed Use | 100% | 28 | 1970-1985 | 2,553 | |||||||||
|
Land Adjacent to The Avenue Carriage Crossing
|
||||||||||||||
|
Suburban Memphis, TN
|
Retail | 100% | 2 | 2004 | 1,969 | |||||||||
28
Table of Contents
|
Company’s
|
Developable
|
Cost
|
||||||||||||
|
Ownership
|
Land Area
|
Year
|
Basis
|
|||||||||||
|
Description and Location
|
Zoned Use
|
Interest | (Acres) | Acquired | ($000) | |||||||||
|
Wildwood Office Park
|
||||||||||||||
|
Suburban Atlanta, GA
|
Mixed Use | 100% | 23 | 1971-1989 | 995 | |||||||||
|
Land Adjacent to The Avenue Webb Gin
|
||||||||||||||
|
Suburban Atlanta, GA
|
Retail | 100% | 2 | 2005 | 946 | |||||||||
|
TOTAL CONSOLIDATED LAND HELD
|
$ | 137,233 | ||||||||||||
|
JOINT VENTURES
|
||||||||||||||
|
TEMCO TRACTS:
|
||||||||||||||
|
Paulding County
|
||||||||||||||
|
Suburban Atlanta, GA
|
Residential and Mixed Use | 50% | 5,518 | 2005 | $ | 13,158 | ||||||||
|
Happy Valley
|
||||||||||||||
|
Suburban Atlanta, GA
|
Residential | 50% | 228 | 2003 | 1,654 | |||||||||
|
Seven Hills
|
||||||||||||||
|
Suburban Atlanta, GA
|
Residential and Mixed Use | 50% | 112 | 2002-2005 | — | (5) | ||||||||
|
CL REALTY TRACTS:
|
||||||||||||||
|
Padre Island
|
||||||||||||||
|
Corpus Christi, TX
|
Residential and Mixed Use | 50% | 15 | 2005 | 11,545 | |||||||||
|
Summer Creek Ranch
|
||||||||||||||
|
Forth Worth, TX
|
Residential and Mixed Use | 50% | 363 | 2002 | — | (5) | ||||||||
|
Long Meadow Farms
|
||||||||||||||
|
Houston, TX
|
Residential and Mixed Use | 19% | 138 | 2002 | — | (5) | ||||||||
|
Waterford Park
|
||||||||||||||
|
Rosenberg, TX
|
Commercial | 50% | 37 | 2005 | — | (5) | ||||||||
|
Village Park
|
||||||||||||||
|
McKinney, TX
|
Residential | 50% | 2 | 2003-2005 | — | (5) | ||||||||
|
OTHER JOINT VENTURES:
|
||||||||||||||
|
Land Adjacent to The Avenue Murfreesboro
|
||||||||||||||
|
Suburban Nashville, TN
|
Retail | 50% | 8 | 2006 | 5,028 | |||||||||
|
Wildwood Office Park
|
||||||||||||||
|
Suburban Atlanta, GA
|
Office and Commercial | 50% | 36 | 1971-1989 | 21,222 | |||||||||
|
Total Acres
|
9,405 | |||||||||||||
| (1) | A third party has the option to purchase certain tracts aggregating approximately 145 acres through June 30, 2011, under certain circumstances, and is obligated to purchase certain other tracts aggregating approximately 89 acres on or before March 31, 2010. | |
| (2) | Ownership percentage reflects blended ownership. A portion of the developable land area is owned 100% by the Company and a portion is owned 88.5% by a consolidated joint venture. | |
| (3) | This project is owned through a joint venture with a third party who has contributed equity, but the equity ownership and the allocation of the results of operations and/or gain on sale most likely will be disproportionate. | |
| (4) | This project contains two completed townhomes, four partially completed townhomes and 12 ready to build pads, as well as land available for an additional 53 townhome units. The Company consolidated the Glenmore Garden Villas entity in September 2009 and recorded the full balance of land at fair market value. This project sold in the first quarter of 2010. | |
| (5) | These residential communities have adjacent land that may be sold to third parties in large tracts for residential, multi-family or commercial development. The cost basis of these tracts and the lot inventory are included on the Inventory of Residential Lots schedule. |
Multi-Family
Residential Units
The following provides information regarding the Company’s
investments in Multi-Family Residential projects at
December 31, 2009. Dollars are stated in thousands.
29
Table of Contents
|
Total
|
||||||||||||||||||||||||
|
Units
|
Units Sold
|
Units Sold
|
Total
|
Remaining
|
Cost
|
|||||||||||||||||||
|
Developed /
|
in Current
|
Year to
|
Units
|
Units to be
|
Basis
|
|||||||||||||||||||
| Purchased | Quarter | Date | Sold | Sold | ($000) | |||||||||||||||||||
|
10 Terminus Place(1)
|
137 | 35 | 42 | 55 | 82 | $ | 25,803 | (2) | ||||||||||||||||
|
Atlanta, GA
|
||||||||||||||||||||||||
|
60 North Market(3)
|
28 | 23 | 24 | 24 | 4 | 2,701 | ||||||||||||||||||
|
Asheville, NC
|
||||||||||||||||||||||||
|
The Brownstones at Habersham(4)
|
14 | — | 14 | 14 | — | — | ||||||||||||||||||
|
Atlanta, GA
|
||||||||||||||||||||||||
|
TOTAL CONSOLIDATED MULTI-FAMILY UNITS
|
179 | 58 | 80 | 93 | 86 | $ | 28,504 | |||||||||||||||||
| (1) | The total units sold does not include four units that closed but do not qualify as a sale pursuant to accounting rules. | |
| (2) | Cost basis of 10 Terminus Place has been reduced by a $34.9 million impairment loss which was recorded in 2009. | |
| (3) | The Company had a mezzanine loan on 28 completed multi-family units and 9,224 square feet of for-sale retail space in downtown Asheville, North Carolina. The owner defaulted on the loan and the Company acquired the property in settlement of the loan in the third quarter of 2009. Units sold to-date are from that date forward, not from commencement of the project. During the fourth quarter of 2009, the commercial space was divided into four units and one unit was sold. | |
| (4) | The Company sold the five undeveloped lots at this townhome development during the fourth quarter of 2009. |
Other
Investments
Air Rights Near the CNN Center.
The Company
owns a leasehold interest in the air rights over the
approximately 365,000 square foot CNN Center parking
facility in Atlanta, Georgia, adjoining the headquarters of
Turner Broadcasting System, Inc. and Cable News Network. The air
rights are developable for additional parking or for certain
other uses. The Company’s net carrying value of this
interest is $0.
| Item 3 . | Legal Proceedings |
The Company is subject to various legal proceedings, claims and
administrative proceedings arising in the ordinary course of
business, some of which are expected to be covered by liability
insurance and all of which collectively are not expected to have
a material adverse effect on the liquidity, results of
operations, business or financial condition of the Company.
| Item 4 . | Submission of Matters to a Vote of Security Holders |
No matter was submitted for a vote of the security holders
during the fourth quarter of the Registrant’s fiscal year
ended December 31, 2009.
30
Table of Contents
| Item X . | Executive Officers of the Registrant |
The Executive Officers of the Registrant as of the date hereof
are as follows:
|
Name
|
Age |
Office Held
|
||||
|
Lawrence L. Gellerstedt, III
|
53 | President and Chief Executive Officer | ||||
|
R. Dary Stone
|
56 | Vice Chairman of the Company | ||||
|
James A. Fleming
|
51 | Executive Vice President and Chief Financial Officer | ||||
|
Craig B. Jones
|
58 | Executive Vice President and Chief Investment Officer | ||||
|
John S. McColl
|
47 | Executive Vice President - Development, Office Leasing and Asset Management | ||||
|
Steve V. Yenser
|
49 | Executive Vice President - Retail Leasing and Asset Management Officer | ||||
|
John D. Harris, Jr.
|
50 | Senior Vice President, Chief Accounting Officer and Assistant Secretary | ||||
|
Robert M. Jackson
|
42 | Senior Vice President, General Counsel and Corporate Secretary | ||||
Family
Relationships
There are no family relationships among the Executive Officers
or Directors.
Term
of Office
The term of office for all officers expires at the annual
stockholders’ meeting. The Board retains the power to
remove any officer at any time.
Business
Experience
Mr. Gellerstedt became President and Chief Executive
Officer of the Company in July 2009. In addition, he was
appointed as a Director of the Company in July 2009. In February
2009, Mr. Gellerstedt assumed the role of President and
Chief Operating Officer. Mr. Gellerstedt joined the Company
in July 2005 as Senior Vice President and President of the
Office/Multi-Family Division. The Company changed its
organizational structure in May 2008, and he became Executive
Vice President and Chief Development Officer. From 2003 to 2005,
Mr. Gellerstedt was Chairman and Chief Executive Officer of
The Gellerstedt Group.
Mr. Stone joined the Company in June 1999. Mr. Stone
was President and Chief Operating Officer of the Company from
February 2001 to January 2002 and was a Director of the Company
from 2001 to 2003. Effective January 2002, he relinquished the
positions of President and Chief Operating Officer and assumed
the position of President — Texas. In February 2003,
he became Vice Chairman of the Company.
Mr. Fleming joined the Company in July 2001 as Senior Vice
President, General Counsel and Secretary. He became Executive
Vice President and Chief Financial Officer in August 2004. He
was a partner in the Atlanta law firm of Fleming & Ray
from October 1994 until July 2001.
Mr. Jones joined the Company in October 1992 and became
Senior Vice President in November 1995 and President of the
Office Division in September 1998. He became Executive Vice
President and Chief Administrative Officer in August 2004 and
served in that capacity until December 2006, when he assumed the
role of Executive Vice President and Chief Investment Officer.
Mr. McColl joined the Company in April 1996 as Vice
President. He joined the Cousins/Richmond Division in February
1997 and was promoted in May 1997 to Senior Vice President of
the Company. The Cousins/Richmond Division merged with the
Office Division in 2000. He was promoted to Executive Vice
President — Development, Office Leasing and Asset
Management in February 2010.
Mr. Yenser joined the Company in 2002 as Senior Vice
President-Leasing, Retail Division. In December 2004, he was
promoted to Senior Vice President of the Company and Executive
Vice President and Chief Operating
31
Table of Contents
Officer of the Retail Division. Effective January 2009, he
assumed the position of Executive Vice President and Chief
Leasing and Asset Management Officer of the Company. Prior to
joining Cousins, Mr. Yenser was employed by Chicago-based
General Growth Properties from 1986 to 2002, most recently
serving as Senior Vice President of Asset Management, Eastern
Region.
Mr. Harris joined the Company in February 2005 as Senior
Vice President and Chief Accounting Officer and was subsequently
appointed Assistant Secretary. From 1994 to 2003,
Mr. Harris was employed by JDN Realty Corporation, most
recently serving as Senior Vice President, Chief Financial
Officer, Secretary, and Treasurer. Beginning in 2004 until
February 2005, Mr. Harris was the Vice President and
Corporate Controller for Wells Real Estate Funds, Inc.
Mr. Jackson joined the Company in December 2004 as Senior
Vice President, General Counsel and Corporate Secretary. From
February 1996 to December 2004, he was an associate and then a
partner with the Atlanta-based law firm of Troutman Sanders LLP.
| Item 5 . | Market for Registrant’s Common Stock and Related Stockholder Matters |
Market
Information
The high and low sales prices for the Company’s common
stock and dividends declared per common share (the June,
September and December 2009 dividends were paid in a combination
of stock and cash) were as follows:
| 2009 Quarters | 2008 Quarters | |||||||||||||||||||||||||||||||
| First | Second | Third | Fourth | First | Second | Third | Fourth | |||||||||||||||||||||||||
|
High
|
$ | 14.10 | $ | 10.79 | $ | 10.95 | $ | 8.58 | $ | 29.28 | $ | 29.00 | $ | 28.25 | $ | 25.47 | ||||||||||||||||
|
Low
|
5.85 | 6.11 | 7.30 | 6.83 | 19.58 | 22.76 | 19.62 | 8.05 | ||||||||||||||||||||||||
|
Dividends Declared
|
0.25 | 0.25 | 0.15 | 0.09 | 0.37 | 0.37 | 0.37 | 0.25 | ||||||||||||||||||||||||
|
Payment Date
|
2/23/09 | 6/5/09 | 9/16/09 | 12/11/09 | 2/22/08 | 5/30/08 | 8/25/08 | 12/22/08 | ||||||||||||||||||||||||
Holders
The Company’s common stock trades on the New York Stock
Exchange (ticker symbol CUZ). At February 23, 2010, there
were 1,014 common stockholders of record.
Purchases
of Equity Securities
For information on the Company’s equity compensation plans,
see Note 7 of the accompanying consolidated financial
statements, which is incorporated herein by reference. The
following table contains information about the Company’s
purchases of its equity securities during the fourth quarter of
2009:
| Common Stock | |||||||||||||||||
| Total Purchases(1) | Purchases Inside Plan | ||||||||||||||||
|
Total Number of
|
Maximum Number of
|
||||||||||||||||
|
Shares Purchased as
|
Shares that may yet
|
||||||||||||||||
|
Total Number of
|
Average Price Paid
|
Part of Publicly
|
be Purchased Under
|
||||||||||||||
| Shares Purchased | per Share | Announced Plan(2) | Plan(2) | ||||||||||||||
|
October 1 — 31
|
— | $ | — | — | 4,121,500 | ||||||||||||
|
November 1 — 30
|
— | — | — | 4,121,500 | |||||||||||||
|
December 1 — 31
|
3,350 | 7.35 | — | 4,121,500 | |||||||||||||
| 3,350 | $ | 7.35 | — | 4,121,500 | |||||||||||||
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Table of Contents
| Preferred Stock | |||||||||||||||||
| Total Purchases | Purchases Inside Plan | ||||||||||||||||
|
Total Number of
|
Maximum Number of
|
||||||||||||||||
|
Shares Purchased as
|
Shares that may yet
|
||||||||||||||||
|
Total Number of
|
Average Price Paid
|
Part of Publicly
|
be Purchased Under
|
||||||||||||||
| Shares Purchased | per Share | Announced Plan(3) | Plan(3) | ||||||||||||||
|
October 1 — 31
|
— | $ | — | — | 6,784,090 | ||||||||||||
|
November 1 — 30
|
— | — | — | 6,784,090 | |||||||||||||
|
December 1 — 31
|
— | — | — | 6,784,090 | |||||||||||||
| — | $ | — | — | 6,784,090 | |||||||||||||
| (1) | The purchases of equity securities that occur outside the plan relate to shares remitted by employees as payment for option exercises or income taxes due. Activity for the fourth quarter 2009 related to the remittances of shares for income taxes due for restricted stock vesting. | |
| (2) | On May 9, 2006, the Board of Directors of the Company authorized a stock repurchase plan of up to 5,000,000 shares of the Company’s common stock. On November 18, 2008, the expiration of this plan was extended to May 9, 2011. The Company has purchased 878,500 common shares under this plan, and no purchases occurred during the fourth quarter of 2009. | |
| (3) | On November 10, 2008, the stock repurchase plan was also expanded to include authorization to repurchase up to $20 million of Preferred Shares. This program was expanded on November 18, 2008, to include all 4,000,000 shares of both the Company’s Preferred A and B series stock. The Company has purchased 1,215,910 preferred shares under this plan, and no purchases occurred during the fourth quarter of 2009. |
Performance
Graph
The following graph compares the five-year cumulative total
return of the Company’s Common Stock with the Hemscott
Group Index, S&P Composite, NYSE Market Index and NAREIT
Equity Index. The Hemscott Group Index is published by
Morningstar, Inc. and is comprised of publicly-held REITs. The
graph assumes a $100 investment in each of the indices on
December 31, 2004 and the reinvestment of all dividends.
33
Table of Contents
COMPARISON
OF CUMULATIVE TOTAL RETURN OF ONE OR MORE
COMPANIES, PEER GROUPS, INDUSTRY INDICES AND/OR BROAD MARKETS
COMPANIES, PEER GROUPS, INDUSTRY INDICES AND/OR BROAD MARKETS
| Year Ended | ||||||||||||||||||||||||||||||
| 12/31/2004 | 12/31/2005 | 12/31/2006 | 12/31/2007 | 12/31/2008 | 12/31/2009 | |||||||||||||||||||||||||
|
Cousins Properties Incorporated Common Stock
|
100.00 | 98.45 | 140.23 | 92.56 | 61.70 | 39.51 | ||||||||||||||||||||||||
|
Hemscott Group Index
|
100.00 | 105.88 | 138.91 | 105.29 | 53.37 | 65.90 | ||||||||||||||||||||||||
|
S&P 500 Index
|
100.00 | 104.91 | 121.48 | 128.16 | 80.74 | 102.11 | ||||||||||||||||||||||||
|
NYSE Market Index
|
100.00 | 109.36 | 131.75 | 143.43 | 87.12 | 111.76 | ||||||||||||||||||||||||
|
NAREIT Equity Index
|
100.00 | 112.16 | 151.49 | 127.72 | 79.53 | 101.79 | ||||||||||||||||||||||||
34
Table of Contents
| Item 6 . | Selected Financial Data |
The following selected financial data sets forth consolidated
financial and operating information on a historical basis. This
data has been derived from the Company’s consolidated
financial statements and should be read in conjunction with the
consolidated financial statements and notes thereto.
| For the Years Ended December 31, | ||||||||||||||||||||
| 2009 | 2008 | 2007 | 2006 | 2005 | ||||||||||||||||
| ($ in thousands, except per share amounts) | ||||||||||||||||||||
|
Rental property revenues
|
$ | 149,789 | $ | 147,394 | $ | 112,645 | $ | 85,032 | $ | 72,402 | ||||||||||
|
Fee income
|
33,806 | 47,662 | 36,314 | 35,465 | 35,198 | |||||||||||||||
|
Residential lot, multi-family and outparcel sales
|
38,262 | 15,437 | 9,969 | 40,418 | 33,166 | |||||||||||||||
|
Interest and other
|
3,025 | 4,158 | 6,429 | 1,373 | 2,431 | |||||||||||||||
|
Total revenues
|
224,882 | 214,651 | 165,357 | 162,288 | 143,197 | |||||||||||||||
|
Rental property operating expenses
|
66,565 | 56,607 | 46,139 | 33,955 | 27,988 | |||||||||||||||
|
Depreciation and amortization
|
55,833 | 52,925 | 39,796 | 30,824 | 26,270 | |||||||||||||||
|
Residential lot, multi-family and outparcel cost of sales
|
30,652 | 11,106 | 7,685 | 32,154 | 25,809 | |||||||||||||||
|
Interest expense
|
41,393 | 33,151 | 8,816 | 11,119 | 9,094 | |||||||||||||||
|
Impairment loss
|
40,512 | 2,100 | — | — | — | |||||||||||||||
|
General, administrative and other expenses
|
65,854 | 64,502 | 60,632 | 61,401 | 57,141 | |||||||||||||||
|
Total expenses
|
300,809 | 220,391 | 163,068 | 169,453 | 146,302 | |||||||||||||||
|
Gain (loss) on extinguishment of debt and interest rate swaps,
net
|
9,732 | — | (446 | ) | (18,207 | ) | — | |||||||||||||
|
Benefit (provision) for income taxes from operations
|
(4,341 | ) | 8,770 | 4,423 | (4,193 | ) | (7,756 | ) | ||||||||||||
|
Income (loss) from unconsolidated joint ventures, including
impairment losses
|
(68,697 | ) | 9,721 | 6,096 | 173,083 | 40,955 | ||||||||||||||
|
Gain on sale of investment properties, net of applicable income
tax provision
|
168,637 | 10,799 | 5,535 | 3,012 | 15,733 | |||||||||||||||
|
Income from continuing operations
|
29,404 | 23,550 | 17,897 | 146,530 | 45,827 | |||||||||||||||
|
Discontinued operations
|
143 | 1,375 | 16,681 | 90,291 | 6,951 | |||||||||||||||
|
Net income
|
29,547 | 24,925 | 34,578 | 236,821 | 52,778 | |||||||||||||||
|
Net income attributable to controlling interests
|
(2,252 | ) | (2,378 | ) | (1,656 | ) | (4,130 | ) | (3,037 | ) | ||||||||||
|
Preferred dividends
|
(12,907 | ) | (14,957 | ) | (15,250 | ) | (15,250 | ) | (15,250 | ) | ||||||||||
|
Net income available to common stockholders
|
$ | 14,388 | $ | 7,590 | $ | 17,672 | $ | 217,441 | $ | 34,491 | ||||||||||
|
Net income from continuing operations attributable to
controlling interest per common share — basic
|
$ | 0.22 | $ | 0.12 | $ | 0.02 | $ | 2.51 | $ | 0.55 | ||||||||||
|
Net income per common share — basic
|
$ | 0.22 | $ | 0.15 | $ | 0.34 | $ | 4.27 | $ | 0.69 | ||||||||||
|
Net income from continuing operations attributable to
controlling interest per common share — diluted
|
$ | 0.22 | $ | 0.12 | $ | 0.02 | $ | 2.42 | $ | 0.53 | ||||||||||
|
Net income per common share — diluted
|
$ | 0.22 | $ | 0.15 | $ | 0.33 | $ | 4.13 | $ | 0.66 | ||||||||||
|
Dividends declared per common share
|
$ | 0.74 | $ | 1.36 | $ | 1.48 | $ | 4.88 | $ | 1.48 | ||||||||||
|
Total assets (at year-end)
|
$ | 1,491,552 | $ | 1,693,795 | $ | 1,509,611 | $ | 1,196,753 | $ | 1,188,274 | ||||||||||
|
Notes payable (at year-end)
|
$ | 590,208 | $ | 942,239 | $ | 676,189 | $ | 315,149 | $ | 467,516 | ||||||||||
|
Stockholders’ investment (at year-end)
|
$ | 787,411 | $ | 466,723 | $ | 554,821 | $ | 625,915 | $ | 634,634 | ||||||||||
|
Common shares outstanding (at year-end)
|
99,782 | 51,352 | 51,280 | 51,748 | 50,665 | |||||||||||||||
35
Table of Contents
As described in Note 13 of Notes to Consolidated Financial
Statements, in accordance with new accounting guidance which was
effective January 1, 2009, amounts formerly reflected as
minority interest in income of consolidated subsidiaries was
renamed noncontrolling interests. Income or loss attributable to
noncontrolling interests is required to be presented separately
below net income on the Company’s Consolidated Statements
of Income. Prior year amounts have been restated to conform to
this new presentation.
In 2009, the June, September and December common stock dividends
were paid in a combination of cash and stock. The above table
reflects the total dividend paid.
Prior to 2006, the Company recorded reimbursements of salary and
benefits of
on-site
employees pursuant to management agreements with third parties
and unconsolidated joint ventures as reductions of general and
administrative expenses. In 2006, the Company began recording
these reimbursements in Fee Income on the Consolidated
Statements of Income and reclassified prior period amounts to
conform to the 2006 presentation. As a result, Fee Income and
General and Administrative Expenses increased by
$15.1 million in 2005, when compared to amounts reported in
the 2005 Annual Report on
Form 10-K.
| Item 7 . | Management’s Discussion and Analysis of Financial Condition and Results of Operations |
The following discussion and analysis should be read in
conjunction with the Selected Financial Data and the
Consolidated Financial Statements and Notes thereto of this
Annual Report on
Form 10-K.
Overview
of 2009 Performance and Company and Industry Trends.
The overall economic downturn, characterized by declining real
estate values, high unemployment and lower consumer spending,
had an adverse effect on the Company’s operating
performance during 2009. In spite of the effects of the economy,
the Company took aggressive steps to improve its balance sheet,
gain operating efficiencies and to generate positive leasing and
condominium sales momentum. In addition, the Company took
advantage, to a limited extent, of capitalizing on opportunities
presented by economic conditions.
Operationally, 2009 was dominated by declining values in
residential real estate that resulted in a decline in lot sales,
downward pressure on sales prices on condominium units and
impairment charges on the Company’s residential land and
condominium holdings. During the year, residential lot sales
decreased from the relatively low level of 199 in 2008 to 142 in
2009. These low sales, combined with deteriorating projections
for future lot prices and extended holding periods, led to
impairment charges of $30.3 million that the Company
recorded in 2009 related to its investments in residential joint
ventures.
Similarly, the general economic conditions for the condominium
market and the oversupply of units in the Company’s markets
resulted in a virtual halt in sales activity during the first
half of 2009. At its recently completed 10 Terminus project in
the Buckhead district of Atlanta, the Company closed only two of
its 137 units in the first six months of 2009. In addition,
the Company suspended development of its Glenmore Gardens
townhome project in Charlotte, North Carolina and was forced to
foreclose on a condominium project on which it provided
mezzanine financing in Asheville, North Carolina. As a result of
these market conditions and revised projections for selling the
units or projects in total, the Company recorded impairment
charges on these projects that totaled $42.6 million.
While market fundamentals remained more stable for the
Company’s portfolio of stabilized office properties, they
had an adverse effect on Terminus 200, a newly developed,
Class A office building adjacent to its 10 Terminus
condominium project. The challenges of the overall economy
combined with an oversupply of newly developed competing product
in the area resulted in this project being only 9% leased
several months after substantial completion. While the project
has a strategic location for long term value, the current issues
with the market and the economy caused the Company to record a
$38.9 million impairment charge on its investment in the
venture that owns Terminus 200 in 2009.
The economy also impacted the Company’s overall development
activities. In 2009, the Company commenced no new development
projects. The Company is actively pursuing a limited number of
projects, but it made the decision in 2009 to abandon efforts
associated with several projects that it had been working on for
a number of years. As a result, the Company charged to expense
$7.7 million in previously capitalized pre-development
expenditures associated with these abandoned projects.
36
Table of Contents
In spite of the challenges of the economy, the Company made
progress leasing vacant space in its stabilized portfolio.
During 2009, the Company executed 351,000 square feet of
new retail leases to take the retail portfolio from 77% leased
at the beginning of the year to 84% leased at the end of the
year. Office percent leased did not deteriorate significantly
during 2009 in spite of three lease expirations totaling
approximately 250,000 square feet. At year end, the
Company’s portfolio of stabilized office properties was 87%
leased. The Company’s portfolio of stabilized industrial
properties increased by 11 percentage points during 2009 as
a result of the expansion of a tenant in the King Mill project.
Also, in the second half of 2009, the Company began generating
momentum in sales of its condominium projects. At 10 Terminus,
after an evaluation of and reduction in the pricing structure of
its units, the Company sold 40 units from July to December
2009, generating proceeds of $14.8 million and profits of
$3.2 million. At its Asheville project, the Company sold
24 units generating proceeds of $8.0 million and
profits of $460,000. Subsequent to year end, the Company sold
its Glenmore Garden Villas project to a local developer for
$4.0 million. This activity has considerably reduced the
risks associated with the Company’s condominium and
townhome assets. As of year end, the Company had 82 units
at 10 Terminus remaining to be sold and 4 unsold units at its
Asheville project.
The Company also took advantage, where possible, of
opportunistic transactions that presented themselves in the
market. In the second quarter of 2009, the Company reached an
agreement with its lender on San Jose MarketCenter to repay
in full an $83.3 million mortgage loan for
$70 million. This opportunity presented itself because of
the lender’s desire to have additional cash at the time and
was not a reflection of the value or performance of the
underlying collateral. Also in the second quarter, the Company
purchased a distressed property from a bank that had foreclosed
on the second phase of a high quality townhome development in
Atlanta consisting of 14 townhomes and five additional home
sites. In the second half of 2009, the Company completed the
sale of all townhomes and home sites and generated profits of
$1.6 million. While the scope and size of this project was
not significant, it is an indication of opportunities available
in this challenged market.
In 2009, the Company also took steps to improve its balance
sheet. As of the end of the first quarter 2009, the
Company’s debt to market capitalization ratio had risen to
73% and leverage under the Company’s credit facility
covenants was above 50%. In order to reduce the Company’s
leverage and to put the Company into a position where it was
better prepared to act on potential investment opportunities
presented by the September 2009 market environment, the Company
raised $318 million in a common equity offering. The
proceeds of the offering were used to pay down debt. As a
result, the Company’s debt to market capitalization ratio
has decreased to 47% as of year end and the Company’s
leverage under its credit facility has declined correspondingly.
The Company is currently negotiating an amendment to its credit
facility that management believes will provide further relief
under certain financial covenants.
During 2009, the Company also took steps to reduce expenses as a
result of lower levels of development in the current economy. In
the third quarter, the Company made the decision to reduce its
non-property headcount by 18% and to sell its corporate
airplane. The Company believes that these actions were necessary
to align costs with its smaller corporate platform but believes
that it continues to have talent necessary to maintain its
existing assets and to take advantage of opportunities presented
by this market.
Looking into 2010, management expects the Company to continue to
aggressively liquidate its condominium holdings and to sell some
of its non-strategic land holdings to further improve its
financial position. Management believes that the Company can
continue to lease its vacant office and retail space in spite of
the sluggish recovery. Management believes the leasing of vacant
space to be the most significant value creating activity for the
Company in 2010. While management expects the number of new
development opportunities to continue to be limited in 2010, the
Company may selectively commence one or more projects in 2010.
In analyzing new development opportunities, management will
focus on reaching certain pre-leasing criteria before commencing
new development and anticipates most new development will occur
in concert with a joint venture partner. Management expects to
invest in distressed real estate projects. Management expects
these acquisitions to take the form of underperforming office or
retail projects in need of capital to complete and in need of
leasing and asset management expertise to lease and operate
efficiently. In addition to projects where the Company takes
ownership positions, management believes that additional fee
development, leasing or management services assignments will
also
37
Table of Contents
emerge. However, there is no guarantee that any of these
opportunities will materialize or that the Company will be able
to take advantage of such opportunities.
Critical
Accounting Policies.
The Company’s financial statements are prepared in
accordance with accounting principles generally accepted in the
United States of America (“GAAP”), and the Notes to
Consolidated Financial Statements include a summary of the
significant accounting policies for the Company. 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. The Company is in the business of
developing, owning and managing office, retail and industrial
real estate properties, developing and selling multi-family
residential units, and developing single-family residential
communities which are parceled into lots and sold to various
home builders. The Company’s critical accounting policies
relate to its long-lived assets, including cost capitalization,
depreciation and amortization, and impairment of long-lived
assets (including investments in unconsolidated joint ventures);
revenue recognition, including residential lot sales, land tract
sales, multi-family residential unit sales and valuation of
receivables; income tax valuation allowances; and accounting for
investments in non-wholly owned entities.
Long-Lived
Assets
Cost Capitalization
.
The Company is
involved in all stages of real estate development. The Company
expenses predevelopment costs on a project until it becomes
probable (defined as more likely than not) that the project will
go forward. After management determines the project is 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 in accordance with accounting
rules. If the Company abandons development of a project that had
earlier been deemed probable, the Company charges all previously
capitalized costs to expense. If this occurs, the Company’s
predevelopment expenses could be significantly high in that
period because all capitalized predevelopment costs associated
with that project would be charged to expense in the period that
this change occurs. The Company had approximately
$7.7 million of capitalized predevelopment assets as of
December 31, 2009.
Additionally, determination of when construction of a project is
substantially complete and held available for occupancy requires
judgment. In accordance with accounting rules, the Company
capitalizes direct and related indirect project costs associated
with development projects during the construction period. Once a
project is deemed substantially complete and held for occupancy,
subsequent carrying costs, such as real estate taxes, interest,
internal personnel and associated costs, are expensed as
incurred. The Company considers projects
and/or
project phases substantially complete and held for occupancy at
the earlier of the date on which the phase reached occupancy of
95% or one year from the issuance of a certificate of occupancy.
The Company’s judgment of the date the project is
substantially complete has a direct impact on the Company’s
operating expenses and net income for the period.
Depreciation and Amortization
.
The
Company depreciates or amortizes real estate assets over their
estimated useful lives using the straight-line method of
depreciation. Management uses judgment when estimating the life
of the real estate assets and when allocating certain indirect
project costs to projects under development. Historical data,
comparable properties and replacement costs are some of the
factors considered in determining useful lives and cost
allocations. If management incorrectly estimates the useful
lives of the Company’s real estate assets or if cost
allocations are not appropriate, then depreciation and
amortization may not be reflected properly in the Company’s
results of operations.
The Company generally amortizes tenant costs over the lease
term. In certain situations, the tenant may not fulfill its
commitment under its lease, and the estimated amortization
period of those tenant assets could change. In recent years,
some of the Company’s retail tenants have experienced
bankruptcy or have modified the terms of their lease, which
resulted in accelerated amortization of tenant costs or a change
in the amortization period, thereby directly affecting the
current year’s net income.
Impairment of Long-Lived Assets — Real Estate
Assets
. The Company has real estate assets in
varying stages of development, ranging from raw land to
operating properties. On a quarterly basis, management reviews
its
38
Table of Contents
real estate assets for impairment indicators, that include but
are not limited to, a decline in a property’s leasing
percentage, a current period operating loss or negative cash
flows combined with a history of losses at the property, a
decline in lease rates or market sales prices, an adverse change
in tenants’ industries or other changes in the market. If
management determines that indicators of impairment are present,
management performs a further analysis to determine whether an
impairment loss is required. With the recent decline in the
housing market and the overall economic downturn, management
determined that indicators of impairment were present on several
of the Company’s real estate assets. Therefore, the Company
evaluated these assets for recoverability. These analyses
require significant judgment on the part of management. First, a
determination of the intent and ability to hold these assets
affects the type of analyses performed. If an asset is
considered to be “held-for-use,” as described in
accounting guidance, the recoverability of the asset is assessed
based on the future undiscounted cash flows to be generated by
the asset. If the sum of the undiscounted cash flows is less
than the carrying value of the asset, the asset is determined to
be impaired, and the impairment loss is measured as the amount
by which the carrying amount exceeds the project’s fair
value. If an asset is considered to be
“held-for-sale,” as described in accounting guidance,
the asset is carried at the lower of its carrying amount or its
fair value less costs to sell. The Company performs real estate
valuation assessments based on current and future market
conditions utilizing assumptions which could differ materially
from actual results. These assumptions are highly subjective and
susceptible to frequent change. Several examples of these
assumptions are enumerated in the next paragraph.
In analyzing the cash flows and fair value of assets with
indicators of impairment, management estimates future market
rental rates, cash outlays to generate leases, market
capitalization rates for residual values and makes various other
estimates. For residential developments, management estimates
sales prices, costs to complete development, carry costs and
other project level cash flows. Given the current state of the
economy and market for real estate, the timing of a market
turnaround and rental rates in future years are significant
estimates that require considerable judgment. Management reviews
similar products in the market in which its assets are held and
adjusts its hold period, sales volume, pricing and other factors
as it deems necessary. The cyclical nature of the real estate
industry, combined with the current credit market difficulties,
the high levels of existing inventories in the locations of the
Company’s assets, consumer confidence, retailer health,
employment levels and additional factors, all enter into
management’s judgment during this analysis. In addition,
the expected use of the Company’s assets could change over
the coming periods as management obtains more information on the
market turnaround or adjusts its strategy. In addition, the
discount rates utilized to estimate the fair value of assets can
vary greatly based on the risk associated with the asset, which
normally is affected by the type of project, the stage of its
life cycle and the location of the asset. The fair value of an
asset can materially change if the discount rate changes.
The Company recorded impairment charges on several of its real
estate projects and certain other assets in 2008 and 2009. See
Notes 5 and 6 of Notes to Consolidated Financial Statements
for further information. Management does not believe any of its
other assets are impaired as of December 31, 2009, but will
continue to monitor the state of the economy, the validity of
the estimates utilized in the Company’s impairment analyses
and the anticipated use and hold period of its assets.
Impairment of Long-Lived Assets — Investment in
Joint Ventures
.
Additionally, management
performs an impairment analysis of the recoverability of its
investments in joint ventures in accordance with accounting
rules. At each reporting period, management reviews its
investments in joint ventures for indicators of impairment. If
indicators of impairment are present for any of the
Company’s investments in joint ventures, management
calculates the fair value of the investment. If the fair value
of the investment is less than the carrying value of the
investment, management must determine whether the impairment is
temporary or other than temporary, as defined. If management
assesses the impairment to be temporary, the Company does not
record an impairment charge. If management concludes that the
impairment is other than temporary, the Company records an
impairment charge. The Company recorded impairment charges for
several of its investments in joint ventures in 2009. See
Note 5 of Notes to Consolidated Financial Statements for
more information.
Management uses considerable judgment in determining whether
there are indicators of impairment present and in the
assumptions used in calculating the fair value of the
investment. Management also uses judgment in making the
determination as to whether the impairment is temporary or other
than temporary. The Company utilizes guidance provided by the
SEC in making the determination of whether the impairment is
temporary. The guidance indicates that companies consider the
length of time that the impairment has existed, the financial
condition of the
39
Table of Contents
joint venture and the ability and intent of the holder to retain
the investment long enough for a recovery in market value.
Considerable judgment is required by management to make these
determinations. If management incorrectly concludes that an
impairment is temporary, the Company’s financial statements
may not include an impairment charge that would have had an
adverse impact on its results of operations. Likewise, if
management changes its previous conclusion and an impairment is
now determined to be other than temporary, the Company could be
required to record a significant impairment charge.
Revenue
Recognition
Residential Lot, Multi-family and Land Tract
Sales
. In its determination of the gross
profit recognized on residential lot, multi-family and land
tract sales, the Company utilizes several estimates. Gross
profit percentages are calculated based on estimated sales
prices and the estimated costs of the development. Markets for
certain products can change over time as the project is selling.
Therefore, historical sales prices may not be indicative of the
project’s prices over its lifetime and sales may not occur
at a consistent or predictable rate. Therefore sales price
estimates made by management require a high degree of
estimation. The housing market is currently in a severe decline,
the severity and duration of which cannot be predicted at this
point. Past estimates and assumptions did not predict the
magnitude of this decline, nor the current state of the credit
markets. In addition, management must estimate the costs to
complete the development of the residential or multi-family
projects or the cost of the land tract improvements. If the
Company’s estimated lot, unit or land tract sales prices,
timing of sales or costs of development, or any of the other
underlying assumptions were to be revised or be rendered
inaccurate, it could affect the overall profit recognized on
these sales.
Valuation of Receivables
.
Receivables,
including straight-line rent receivables, are reported net of an
allowance for doubtful accounts and may be uncollectible in the
future. The Company reviews its receivables regularly for
potential collection problems in computing the allowance to
record against its receivables. This review process requires
management to make certain judgments regarding collectibility,
notwithstanding the fact that ultimate collections 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 on net income. In addition,
the market for the Company’s retail tenants was volatile in
2008 and 2009. The Company anticipates there could be more store
closings, lease adjustments, bankruptcies and potentially other
changes in the lease terms for certain tenants. This future
information, which previously has been difficult to predict, can
change past judgments regarding collectibility and,
additionally, certain receivables currently deemed collectible
could become uncollectible.
Income
Taxes — Valuation Allowance
Judgment is required in estimating valuation allowances for
deferred tax assets. In accordance with accounting rules, a
valuation allowance is established against a deferred tax asset
if, based on the available evidence, it is not more likely than
not that such assets will be realized. The realization of a
deferred tax asset ultimately depends on the existence of
sufficient taxable income in either the carryback or
carryforward periods under tax law. The Company periodically
assesses the need for valuation allowances for deferred tax
assets based on the more-likely-than-not realization threshold
criterion. In the assessment, appropriate consideration is given
to all positive and negative evidence related to the realization
of the deferred tax assets. This assessment considers, among
other matters, the nature, frequency and severity of current and
cumulative losses, forecasts of future profitability, the
duration of statutory carryforward periods, its experience with
operating loss and tax credit carryforwards not expiring unused
and tax planning alternatives.
Accounting
for Non-Wholly Owned Entities
The Company holds ownership interests in a number of ventures
with varying structures. Management evaluates all of its
partnership interests and other variable interests to determine
if the entity is a variable interest entity (“VIE”),
as defined in accounting rules. If the venture is a VIE, and if
management determines that the Company is the primary
beneficiary, the Company consolidates the assets, liabilities
and results of operations of the VIE. The Company reassesses its
conclusions as to whether the entity is a VIE upon certain
occurrences which are deemed reconsideration events under the
rules.
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For entities that are not determined to be VIEs, management
evaluates whether or not the Company has control or significant
influence over the joint venture to determine the appropriate
consolidation and presentation. Generally, entities under the
Company’s control are consolidated, and entities over which
the Company can exert significant influence, but does not
control, are accounted for under the equity method of accounting.
If the Company’s judgment as to the existence of a VIE, the
primary beneficiary of the VIE, and the extent of influence and
control over a non-VIE is incorrect, the presentation on the
balance sheet and the way the results of operations were
reflected could be incorrect. In addition, the conclusion on the
accounting for an entity can change as reconsideration events
occur. As time passes from the formation of an entity, the
expected results of the entity can vary, which also could change
the allocation to the partners. In 2009, the real estate market
suffered declines in certain areas, and this resulted in
changing economics at several ventures. These changes were
analyzed, and resulted in three of its joint ventures, which
were previously not VIEs becoming VIEs: Glenmore Garden Villas
LLC (“Glenmore”), Handy Road Associates, LLC
(“Handy Road”) and Terminus 200, LLC. See Note 5
of Notes to Consolidated Financial Statements for additional
information on the accounting for these ventures. Different
accounting conclusions may be reached in the future depending on
the timing and extent of a market rebound, and certain ventures
not previously consolidated could become consolidated entities
and vice versa.
The Company recognizes on its Consolidated Balance Sheets the
partner’s share of non-wholly owned entities which the
Company consolidates. The noncontrolling partner’s share of
current operations is reflected in Net Income Attributable to
Noncontrolling Interest on the Consolidated Statements of
Income. The Company has several venture agreements that contain
provisions requiring the Company to purchase the noncontrolling
interest at fair value upon demand or at a future date. These
noncontrolling interests with redemption features, or redeemable
noncontrolling interests, are reflected at fair value in a
separate line item on the Company’s Consolidated Balance
Sheets. The Company records the difference between cost and fair
value of redeemable noncontrolling interests as an adjustment to
Stockholders’ Investment as changes in fair value occur.
Contributions to unconsolidated joint ventures are recorded as
Investments in Unconsolidated Joint Ventures. This account is
subsequently adjusted for the Company’s share of income or
loss from unconsolidated joint ventures, as well as
contributions and distributions between the entities. Any
difference between the carrying amount of these investments on
the Company’s balance sheet and the underlying equity in
net assets on the joint venture’s balance sheet is
amortized as an adjustment to Income from Unconsolidated Joint
Ventures over the life of the related asset.
Discussion
of New Accounting Pronouncements.
In the third quarter of 2009, the Financial Accounting Standard
Board’s Accounting Standards Codification (the
“Codification” or “ASC”) became effective
for the Company. The Codification is the single source of
authoritative accounting principles applied by nongovernmental
entities in the preparation of financial statements in
conformity with GAAP. The Codification does not change
current GAAP, but is intended to simplify user access to GAAP by
providing all the authoritative literature related to a
particular topic in one place. As of the effective date, all
existing accounting standard documents were superseded. All
subsequent public filings will reference the Codification as the
sole source of authoritative literature.
In 2009, the Company adopted the provisions of the codification
regarding the accounting and disclosures for subsequent events.
This new guidance had no impact on the Company’s
Consolidated Financial Statements.
The Company follows the guidelines in ASC 810 for determining
the appropriate consolidation treatment of non-wholly owned
entities. The Company will adopt new guidelines effective
January 1, 2010, which will modify how a company determines
when an entity that is insufficiently capitalized or is not
controlled through voting or similar rights should be
consolidated. The determination of whether a company is required
to consolidate an entity is based on, among other things, an
entity’s purpose and design and a company’s ability to
direct the activities of the entity that most significantly
impact the entity’s economic performance. An ongoing
reassessment of whether a company is the primary beneficiary of
a VIE, and additional disclosures about a company’s
involvement in VIEs, including any significant changes in risk
exposure due to that involvement, will be required. The Company
anticipates that these new guidelines will not have a material
impact on its financial condition, results of operations or cash
flows.
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On January 1, 2009, the Company adopted new accounting
guidance for calculating earnings per share. Under the new
guidance, the Company is required to reflect unvested
share-based payment awards that contain nonforfeitable rights to
dividends or dividend equivalents in the computation of earnings
per share for all periods presented. The Company’s
outstanding restricted stock has nonforfeitable rights to
dividends. Both basic and diluted earnings per share for the all
years presented were retroactively adjusted to conform to this
presentation.
The Company adopted updated accounting guidelines for fair value
evaluations effective January 1, 2008 as it relates to
financial instruments and, effective January 1, 2009, as it
relates to non-financial instruments. The Company evaluated
certain of its real estate assets and its investments in
unconsolidated joint ventures for impairment using fair value
processes and techniques as outlined in these accounting rules.
The fair value measurements used in these evaluations of
non-financial assets are considered to be Level 3
valuations within the fair value hierarchy in the rules, as
there are significant unobservable inputs. Examples of inputs
the Company utilizes in its fair value calculations are discount
rates, market capitalization rates, expected lease rental rates,
timing of new leases and sales prices.
Results
of Operations For The Three Years Ended December 31,
2009.
General.
The Company’s financial results
have historically been significantly affected by sale
transactions and the fees generated by, and
start-up
operations of, real estate developments. These types of
transactions and developments do not necessarily recur.
Accordingly, the Company’s historical financial statements
may not be indicative of future operating results.
Rental Property Revenues.
Summary. Overall,
rental property revenues increased approximately
$2.4 million (2%) between 2009 and 2008, and
$34.7 million (31%) between 2008 and 2007.
Comparison
of Year Ended December 31, 2009 to 2008.
Rental property revenues from the office portfolio decreased
$2.3 million (2%) between the 2009 and 2008 periods as a
result of the following:
| • | Decrease of $2.0 million at 191 Peachtree Tower, as average economic occupancy decreased from 80% in 2008 to 61% in 2009, mainly due to the December 2008 expiration of the Wachovia lease; | |
| • | Decrease of $1.7 million from The American Cancer Society Center (the “ACS Center”), due to a decrease in average economic occupancy from 99% in 2008 to 92% in 2009 related primarily to the expiration of the 139,000 square foot AT&T lease; | |
| • | Decrease of $840,000 at 8995 Westside Parkway due to a decrease in average economic occupancy from 100% in 2008 to 38% in 2009 as a result of the expiration of a significant portion of the AtheroGenics lease; and | |
| • | Increase of $2.0 million at One Georgia Center, due to an increase in average economic occupancy from 68% in 2008 to 99% in 2009 due to the commencement of the Georgia Department of Transportation lease in 2008. |
Rental property revenues from the retail portfolio increased
$4.5 million (13%) in 2009 compared to 2008 as a result of
the following:
| • | Increase of $2.5 million at The Avenue Forsyth, which opened in April 2008, related to increased average economic occupancy from 32% in 2008 to 58% in 2009; | |
| • | Increase of $3.3 million at Tiffany Springs MarketCenter, which opened in July 2008, related to increased average economic occupancy from 29% in 2008 to 73% in 2009; and | |
| • | Decrease of $1.8 million at The Avenue Carriage Crossing where average economic occupancy decreased from 91% in 2008 to 84% in 2009. |
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Comparison
of Year Ended December 31, 2008 to 2007.
Rental property revenues of the office portfolio increased
approximately $26.4 million (32%) between 2008 and 2007 as
a result of the following:
| • | Increase of $14.0 million due to the second quarter 2007 opening of Terminus 100; | |
| • | Increase of $4.5 million related to the ACS Center where 2008 average economic occupancy increased; | |
| • | Increase of $3.2 million related to 191 Peachtree Tower where 2008 average economic occupancy increased; | |
| • | Increase of $2.5 million related to One Georgia Center, where 2008 average economic occupancy increased; | |
| • | Increase of $820,000 related to the four North Point office properties, where the average economic occupancy increased in 2008; and | |
| • | Increase of $544,000 related to Lakeshore Park Plaza and 600 University Park Place where the 2008 average economic occupancy increased. |
Rental property revenues from the retail portfolio increased
approximately $8.0 million (29%) between 2008 and 2007 as a
result of the following:
| • | Increase of $1.3 million related to increased average economic occupancy in 2008 at San Jose MarketCenter; | |
| • | Increase of $4.1 million related to The Avenue Forsyth, which opened in April 2008; | |
| • | Increase of $1.6 million related to Tiffany Springs MarketCenter, which opened in July 2008; and | |
| • | Increase of $988,000 related to The Avenue Webb Gin where the 2008 average economic occupancy increased. |
Rental property revenues from the industrial portfolio increased
in 2008 by approximately $328,000 due to the first quarter 2007
opening of the building at Lakeside Ranch Business Park.
Rental Property Operating Expenses.
Rental
property operating expenses increased approximately
$10.0 million (18%) in 2009 compared to 2008 as a result of
the following:
| • | Increase of $1.3 million at The Avenue Forsyth related to increased occupancy and increases of bad debt; | |
| • | Increase of $1.2 million at Tiffany Springs MarketCenter related to a full year of operations and increased occupancy; | |
| • | Increase of $723,000 at San Jose MarketCenter due to an increase in non-recoverable administrative expenses and bad debt expense; | |
| • | Increase of $354,000 at One Georgia Center, due to increased average economic occupancy; | |
| • | Increase of $2.6 million at 191 Peachtree Tower, primarily due to increases in real estate taxes, non-recoverable tenant amenity expenses, marketing costs and bad debt expense; and | |
| • | Increase of $2.8 million at Terminus 100, due partially to increased occupancy in 2009, an increase in bad debt expense and adjustments to true up estimates of various operating expenses to actual in both 2008 and 2009. |
Rental property operating expenses increased approximately
$10.5 million (23%) from 2007 to 2008 as a result of the
following:
| • | Increase of $2.6 million related to the opening of Terminus 100; | |
| • | Increase of $1.9 million due to the openings of The Avenue Forsyth and Tiffany Springs MarketCenter; | |
| • | Increase of $2.9 million related to the increased occupancy at 191 Peachtree Tower, the ACS Center and One Georgia Center; |
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| • | Increase of $1.2 million related to the increased occupancy at San Jose MarketCenter and The Avenue Webb Gin; | |
| • | Increase of $636,000 from the 2007 acquisition of the 221 Peachtree Center Avenue Garage and increased occupancy at the four North Point office properties, 600 University Park Place and Lakeshore Park Plaza; and | |
| • | Increase of $820,000 from the Company’s industrial portfolio, which includes several recently developed and opened properties. |
Fee Income.
Fee income is comprised of
management fees, development fees and leasing fees for services
the Company provides for joint ventures in which it has an
ownership interest and for third party property owners. These
amounts vary by years, due to the number of contracts with
ventures and third party owners and the development and leasing
needs at the underlying properties. Amounts are expected to
continue to vary in future years based on volume and composition
of activities at the underlying properties and changes in the
number of properties managed.
Fee income decreased $13.9 million between the 2008 and
2009 periods. The majority of the decrease is due to a
development fee of $13.5 million recognized in the third
quarter of 2008. This fee was earned on a contract the Company
assumed in an acquisition of an entity several years ago.
Pursuant to the contract, the Company would share in certain
proceeds from the sale of a project that the prior entity
developed in Texas. This project was sold and the fee earned by
the Company in the third quarter of 2008. Management fees,
including expense reimbursements, and leasing fees fluctuate as
contracts are gained and lost and from the rollover of leases at
the properties. The sum of these two items did not change
significantly between 2009 and 2008.
Fee income increased $11.3 million between 2008 and 2007.
The increase in fee income between years is primarily the result
of the receipt of the $13.5 million development fee
discussed above. Partially offsetting the increase was a
decrease of $908,000 in development fees related to amounts the
Company paid and was reimbursed on behalf of the Ft. Gillem
contract. The Company recognized these fees in 2007 and none in
2008, as this contract was assumed by Weeks Robinson when the
Company exited the Industrial development business. Also
partially offsetting the increase was a decrease of
$1.6 million in leasing fees earned in 2007 compared to
2008 due to changes in the level of rollover and activity at the
underlying properties for which the Company performs leasing
services. Management fees, including expense reimbursements, did
not change significantly between 2008 and 2007.
Multi-Family Residential Sales and Cost of
Sales.
Multi-family residential sales increased
$22.4 million between 2009 and 2008. Cost of sales
increased approximately $18.3 million between 2009 and
2008. The change in sales and cost of sales is due to the
following:
| • | Closing of 14 units and five completed pads in 2009 at The Brownstones at Habersham project resulting in a $6.9 million increase in sales and a $5.3 million increase in cost of sales. The Company purchased and completely liquidated this project in 2009; | |
| • | Closing of 42 units at 10 Terminus Place in 2009 compared to 13 units in 2008 resulting in a $7.5 million increase in sales and a $5.4 million increase in cost of sales. See section below on Impairment Loss for additional discussion of 10 Terminus Place; and | |
| • | Closing of 24 units at 60 North Market, a multi-family project in Asheville, North Carolina that increased sales by $8.0 million and cost of sales by $7.6 million. The Company acquired this project in 2009 in satisfaction of a note receivable from the developer. See section below on Impairment Loss for additional discussion of 60 North Market. |
In 2008, the Company substantially completed construction and
closed the sales of 13 units at 10 Terminus Place, which
caused the increase in sales and cost of sales between 2008 and
2007.
Residential Lot and Outparcel Sales and Cost of
Sales.
Residential lot and outparcel sales
increased $428,000 (6%) between 2009 and 2008 and decreased
$3.0 million (30%) between 2008 and 2007. Residential lot
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and outparcel cost of sales increased $1.2 million (33%)
between 2009 and 2008 and $4.0 million (52%) between 2008
and 2007.
Residential Lot Sales and Cost of
Sales
— The Company’s residential lot
business consists of projects that are consolidated, for which
income is recorded in the residential lot and outparcel sales
and cost of sales line items, and projects that are owned
through joint ventures in which the Company is a 50%
partner — Temco and CL Realty — for which
income is recorded in income from unconsolidated joint ventures.
Residential lot sales decreased $397,000 for consolidated
projects between 2009 and 2008 and $4.9 million between
2008 and 2007. The numbers of lots sold were as follows:
| 2009 | 2008 | 2007 | ||||||||||
|
Consolidated projects
|
14 | 14 | 50 | |||||||||
|
Temco
|
— | 8 | 75 | |||||||||
|
CL Realty
|
128 | 177 | 361 | |||||||||
|
Total
|
142 | 199 | 486 | |||||||||
Residential lot cost of sales decreased $51,000 between 2009 and
2008 and decreased $4.5 million between 2008 and 2007. The
change in residential lot sales and cost of sales was partially
due to the number of 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.
Demand for residential lots has been low in recent years as a
result of general market conditions and limited demand in the
Company’s and its ventures’ principal markets of
Texas, Florida and metropolitan Atlanta. Builders, the primary
customers for such residential lots, have a general oversupply
of inventory in the Company’s markets and are working to
reduce inventory levels before they consider buying additional
lots. Many builders are also in financial distress because of
current market conditions. In addition, limited availability of
credit for home buyers and homebuilders make it difficult to
obtain financing for purchasers. Management is closely
monitoring market developments but is currently unable to
predict when markets will improve. Management expects these
market conditions to continue to negatively impact residential
lot sales and have an adverse impact on the Company’s
results of operations until such time as the residential lot
markets improve. The Company cannot currently quantify the
effect of the current slowdown on its results of operations in
2010 and beyond.
On a quarterly basis, the Company analyzes its consolidated land
and lot holdings in accordance with ASC 360 by reviewing these
assets for indicators of impairment. If there are indicators of
impairment, the Company analyzes the projected undiscounted cash
flows to be generated by assets as it considers substantially
all of these assets to be “held for use.” Given the
continuing uncertainty in the residential market, there can be
no guarantee that the Company will not record an impairment
charge on its consolidated projects in the future, although no
impairments on consolidated projects have been taken in 2009,
2008 or 2007. For discussion of impairments at the joint venture
and investment in joint venture level, see the Income from
Unconsolidated Joint Ventures section below.
Outparcel Sales and Cost of Sales
—
Outparcel sales increased $825,000 between 2009 and 2008 and
increased $1.9 million between 2008 and 2007. Outparcel
cost of sales increased $1.3 million between 2009 and 2008
and increased $475,000 between 2008 and 2007. There were three
outparcel sales in 2009, three in 2008 and two in 2007. The size
and profit on these sales vary.
Interest and Other Income.
Interest and other
income decreased $1.1 million (27%) between 2009 and 2008.
Interest income decreased $1.7 million primarily due to a
decrease in notes receivable outstanding. In addition, other
income decreased $695,000 due to the sale of miscellaneous
assets and income recognized from deposits forfeited on
cancelled condominium contracts in 2008. This decrease was
partially offset by an increase in termination fees recognized
from certain tenant’s early termination of their lease
agreements of $1.3 million between years.
Interest and other decreased $2.3 million (35%) between
2008 and 2007 due to a decrease in termination fees of
$4.8 million. This decrease was partially offset by an
increase in interest income of $1.5 million due to an
increase in notes receivable outstanding and an increase in
other income of approximately $1.0 million mainly due to
the sale of certain miscellaneous assets.
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General and Administrative (G&A)
Expenses.
G&A expense decreased
$7.0 million (17%) between 2009 and 2008 as a result of the
following:
| • | Decrease in salaries and benefits for employees of approximately $11.6 million. This decrease is based in part on a decrease in the number of employees at the Company between the periods and a decrease in bonus and profit sharing expense; | |
| • | Decrease of approximately $2.6 million between 2009 and 2008 in commission expense. The Company recognized a development fee of $13.5 million in the third quarter 2008 (see Fee Income section above). In conjunction with this, a $3.4 million employee leasing commission was recognized in the third quarter of 2008 as a cost of earning this development income; | |
| • | Decrease of approximately $1.3 million in 2009 compared to 2008 in contributions, as the Company funded $1.0 million to its charitable foundation in the third quarter of 2008; and | |
| • | Offsetting these amounts was a decrease of $8.4 million between 2009 and 2008 in capitalized salaries and related benefits for personnel involved in the development and leasing of certain projects, due to a decrease in the number of projects under construction in 2009. |
G & A expenses increased $345,000 (1%) between 2008
and 2007 as a result of the following:
| • | Decrease of $4.0 million for stock based compensation expense, due mainly to decreases in the fair value of the Company’s restricted stock unit awards, where expense is tied to stock price, which decreased between December 31, 2007 and 2008, and to the fact there was not a stock option grant in 2008; | |
| • | Decrease of $2.5 million in bonus expense in 2008 compared to 2007, due to lower per-employee bonuses and fewer employees; | |
| • | Decrease of $626,000 in rent expense and moving costs, as the Company relocated its headquarters to a Company owned building in April 2007; | |
| • | Decrease of $4.1 million in capitalized salaries to development projects, which increased G&A expenses, because the Company had fewer development projects underway in 2008 than it had in 2007; | |
| • | Increase in charitable contributions of $1.0 million in 2008 compared to 2007 as a result of the Company making a $1.0 million payment to fund its corporate foundation in 2008; and | |
| • | Increase of $3.4 million in employee commissions due to the development fee recognized in 2008, as described in the fee income section above. The arrangement, which was in place at the time the Company acquired the predecessor company that was entitled to the development fee, called for a commission to an employee of 25% of any revenues earned. |
Separation Expenses.
Separation expenses
increased $2.1 million between 2009 and 2008. The Company
had reductions in force in both years, and no significant
reductions in 2007. Approximately $2.0 million of the
increase is due to expense recognized for the lump sum cash
payment and for the modification of stock compensation awards
related to the retirement of the Company’s former chief
executive officer.
Reimbursed G & A Expenses.
The
Company is entitled to salary and benefit reimbursements for
certain employees, mainly at the property management level,
under third-party and joint venture management contracts.
Reimbursements of these salaries and benefits decreased $773,000
(5%) between 2009 and 2008 due to lower compensation paid to
third party employees in 2009 compared to 2008, and decreased
$888,000 (5%) between 2008 and 2007 due to a slight decrease on
average of third party and joint venture management contracts
between the years.
Depreciation and Amortization.
Depreciation
and amortization increased approximately $2.9 million (5%)
between 2009 and 2008 primarily as a result of the following:
| • | Increase of $2.8 million related to higher depreciation of tenant assets associated with increases in occupancy at Terminus 100 and One Georgia Center; |
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| • | Increase of $1.7 million from the openings of The Avenue Forsyth and Tiffany Springs MarketCenter in 2008; | |
| • | Decrease of $879,000 due to decreased occupancy at 191 Peachtree, The Avenue Carriage Crossing, and 8995 Westside Parkway; and | |
| • | Decrease of $348,000 due to the sale of the Company’s airplane in 2009. |
Depreciation and amortization increased $13.1 million (33%)
between 2008 and 2007 due to the following:
| • | Increase of $5.6 million related to the opening of Terminus 100; | |
| • | Increase of $4.2 million from the openings of The Avenue Forsyth and Tiffany Springs MarketCenter; | |
| • | Increase of $965,000 from the openings of several industrial properties — Lakeside Ranch Business Park, King Mill, and Jefferson Mill; | |
| • | Increase of $1.3 million from increased amortization of tenant improvements due to the increased occupancy at the ACS Center, One Georgia Center, San Jose MarketCenter, and The Avenue Webb Gin; and | |
| • | Increase of $701,000 at the Avenue Carriage Crossing due to the write off of assets related to vacated tenants. |
Interest Expense.
Interest expense increased
approximately $8.2 million (25%) in 2009 compared to 2008,
due to the following:
| • | Increase in average borrowings on the Company’s Credit Facility during 2009; | |
| • | Decrease in capitalized interest as a result of lower weighted average expenditures on development projects; and | |
| • | Decrease in interest on the San Jose MarketCenter mortgage which was repaid in April 2009. |
Interest expense increased $24.3 million between 2008 and
2007, due to the following:
| • | Increase of approximately $19.3 million related to mortgage notes payable executed during 2007 for Terminus 100, the ACS Center and San Jose MarketCenter; | |
| • | Decrease of approximately $3.8 million related to the Company’s Credit and other facilities due to lower average amounts drawn between 2008 and 2007; and | |
| • | Decrease in capitalized interest of $8.5 million between 2008 and 2007 associated with the completion of several properties in development or lease-up including Terminus 100, The Avenue Webb Gin, The Avenue Forsyth, Tiffany Springs MarketCenter, The Avenue Murfreesboro, and the 50 Biscayne and 10 Terminus Place multi-family projects, and the suspension of construction on certain residential projects that are wholly-owned or owned in joint ventures. |
Impairment Losses.
Impairment losses increased
$38.4 million between 2009 and 2008. The Company recognized
a $34.9 million impairment loss in 2009 versus a
$2.1 million impairment loss in 2008 on 10 Terminus Place,
a condominium project that the Company developed in 2008, which
had 82 unclosed units at the end of 2009. The Company considers
these units to be held-for-sale pursuant to accounting rules,
which requires companies to record such assets at the lower of
cost or fair value, less costs to sell. As a result of the
declining market for condominiums, the Company’s strategy
for the sell-out of this project was revised. Therefore,
expected cash flows from this project decreased, and the risk
associated with the timing of unit sales increased, which caused
the fair value under a discounted cash flow analysis to decrease
during 2009.
The Company also recognized an impairment loss of
$1.6 million in the second quarter of 2009 on a note
receivable related to a mezzanine loan made to the developer of
60 North Market. The developer defaulted on the loan in June
2009 and the Company acquired the project in July in
satisfaction of the note and concurrently paid the remaining
outstanding balance of the developer’s existing
construction loan. The Company recorded the difference between
the fair value of the project and the book value of the note
receivable, plus the amount paid to the construction lender, as
an impairment charge.
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The Company sold its airplane at a price below its cost basis in
2009, correspondingly recognizing an impairment of approximately
$4.0 million.
The Company recognized additional impairments related to its
investment in joint ventures, discussed below.
Most of the Company’s real estate assets are considered to
be held for use pursuant to the accounting rules. If
management’s plans change on any of these assets, the
Company may be required to record significant impairment charges
in future periods. Changes that could cause these impairment
losses include: 1) a decision by the Company to sell the
asset rather than hold for long term investment or development
purposes or 2) changes in management’s estimates of
future cash flows from the assets that cause the future
undiscounted cash flows to be less than the asset’s
carrying amount.
Other Expense.
Other expense increased
approximately $7.1 million between 2009 and 2008. The
Company capitalizes costs related to predevelopment projects
which are considered probable of being developed, and expenses
costs for projects that have not reached this stage. In some
cases a project is determined to no longer be probable of
development where costs had previously been capitalized. The
costs related to projects before they have reached the probable
stage and the costs of abandoned development projects are
recorded in this category. In 2009, predevelopment expense was
approximately $4.7 million higher than in 2008. In 2009,
the Company determined a multi-family project and a retail
project were no longer probable of being developed. In 2008, the
Company determined two retail projects were no longer probable
of development. Additionally, other expense increased by
$2.9 million between 2009 and 2008 due to an increase in
real estate taxes, insurance and homeowners’ association
funding by the Company for projects for which development has
been completed and the Company incurs the holdings costs.
Other expense increased $3.2 million between 2008 and 2007
due to the write-off of retail predevelopment projects that the
Company determined were no longer probable of being developed.
Gain (loss) on Extinguishment of Debt and Interest Rate
Swaps, net.
In April 2009, the Company satisfied
the San Jose MarketCenter note in full for approximately
$70.3 million, which represented a discount from the face
amount. The Company recorded a gain on extinguishment of debt,
net of unamortized loan closing costs and fees, of approximately
$12.5 million in the second quarter of 2009 related to this
repayment. Offsetting this gain was a fee of $2.7 million
paid by the Company for the termination of one $75 million
interest rate swap and the reduction of the notional amount of
another interest rate swap from $75 million to
$40 million. (See Notes 2 and 3 of Notes to
Consolidated Financial Statements for additional information
regarding the interest rate swaps.)
Benefit (Provision) for Income Taxes from
Operations.
Benefit for income taxes from
operations decreased from $8.8 million in 2008 to a
provision of $4.3 million in 2009. During the second
quarter of 2009, the Company established a valuation allowance
against the deferred tax assets of its taxable REIT subsidiary,
CREC, totaling $47.1 million. The Company’s conclusion
that a valuation allowance against its deferred tax assets
should be recorded was based on losses at CREC in recent years,
including consideration of losses incurred in 2009, and the
inability of the Company to predict, with any degree of
certainty, when CREC would generate income in the future in
amounts sufficient to utilize the deferred tax asset. This
uncertainty is the result of the continued decline in the
housing market which directly impacts CREC’s residential
land and multi-family businesses. Based on current projections
of income or loss at CREC, the Company does not anticipate
recognizing a provision for or a benefit from income taxes in
the near term. Not recognizing income tax benefit in the
Company’s financial statements will negatively affect the
Company’s net income and funds from operations, which in
turn affects calculations of compliance under the Company’s
debt covenants. In 2009, the Company also recognized an income
tax benefit of $3.1 million, primarily related to the
carryback of loss incurred in 2009 to open tax years in which
the Company previously paid income taxes.
Benefit for income taxes from operations increased
$4.3 million between 2008 and 2007. These benefits were due
to pre-tax losses incurred at CREC, mainly from increases in
interest expense at the taxable subsidiaries and reduced lot and
tract sales. For 2008, these losses were partially offset by
increases in joint venture income from CL Realty, Temco and
TRG Columbus Development Venture, Ltd. (“TRG”), the
venture that owns 50 Biscayne, compared to 2007, and to the
$13.5 million development fee discussed in the Fee Income
section.
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Table of Contents
Income from Unconsolidated Joint Ventures, including
Impairment Loss.
(All amounts reflect the
Company’s share of joint venture income.) Income from
unconsolidated joint ventures decreased $78.4 million
between 2009 and 2008 and increased $3.6 million between
2008 and 2007. A detailed discussion by venture follows:
| • | Decrease of $38.9 million in 2009 from Terminus 200, LLC (“T200”). T200 is owned in a 50-50 joint venture and, in August 2009, substantially completed the development of a 565,000 square foot office building in Atlanta, Georgia. As a result of a change in expectations of the timing and amount of cash flows expected to be generated from T200, the venture recorded an impairment loss in the third quarter 2009, the Company’s share of which was $20.9 million. The Company also guarantees the T200 construction loan up to $17.25 million. The Company determined that it was probable that it would be required to fund this guarantee in accordance with ASC 450-10 and accrued and impaired its obligation under this guarantee in the third quarter of 2009. The Company also has a commitment of approximately $750,000 to fund tenant improvement costs at the venture which was accrued and impaired in the third quarter of 2009. | |
| • | Decrease of $25.7 million between 2009 and 2008 at CL Realty. CL Realty develops residential lots in Texas, Georgia and Florida and holds tracts of undeveloped land to either develop residential communities in the future and/or sell as tracts. The market for residential lots and land tracts has declined in recent periods in these geographic regions. As a result, the Company recorded an other-than-temporary impairment charge of $20.3 million on its investment in CL Realty in 2009. In addition to the impairment charge on the Company’s investment, CL Realty recorded impairment losses which decreased the Company’s share of income from unconsolidated entities by $2.6 million in 2009. In addition, lot sales at CL Realty decreased from 177 lots in 2008 to 128 lots in 2009. Also contributing to the change in income from CL Realty was income recognized in 2008 from potential lot buyers forfeiting their deposits ($570,000), a gain from a land tract sale at one of the venture’s residential developments ($1.0 million) and revenue from two mineral rights lease bonus payments ($1.0 million) with no corresponding similar revenues in 2009. Income from CL Realty increased approximately $1.9 million between 2008 and 2007 due to an increase in tract sales, an increase in forfeitures from escrow deposits and income recognized related to oil and gas lease payments. Income from lot sales decreased between the years, partially offsetting the 2008 increase. See the discussion in the Residential Lot and Outparcel Sales and Cost of Sales section above regarding the residential development business. | |
| • | Decrease of $8.6 million between 2009 and 2008 at Temco. Temco develops residential lots in Georgia and holds tracts of undeveloped land to either develop residential communities in the future and/or sell as tracts. As described above, as a result of the decline in the markets for residential lots and land tracts, the Company recorded an other-than-temporary charge of $6.7 million on its investment in Temco in the second quarter of 2009. In addition to the second quarter 2009 impairment charge on the Company’s investment, Temco recorded an impairment charge on one of its assets in the third quarter of 2009 which decreased income from unconsolidated entities by $631,000 in that period. In addition to the impairments recorded, lot sales at Temco also decreased from 8 lots in 2008 to no lots in 2009. Income from Temco did not change significantly between 2008 and 2007, although income from lot sales decreased, while land tract sales rose. See the discussion in the Residential Lot and Outparcel Sales and Cost of Sales section above regarding the residential development business. | |
| • | In the second quarter of 2009, the Company also recorded an other-than-temporary impairment of approximately $1.1 million in its investment in Glenmore. Glenmore is a 50-50 joint venture which was formed in order to develop a townhome project in Charlotte, North Carolina. In the third quarter of 2009, the Company took an additional impairment on Glenmore of $4.9 million to reflect the difference between the debt balance and the fair value of the property, less costs to sell. The Company guarantees up to $6.75 million of the venture level construction debt. The Company consolidated Glenmore beginning in the third quarter 2009 because it determined that the Company would incur substantially all of Glenmore’s expected losses through its guarantee of the debt and uncertainties surrounding its partner’s ability to fund its portion of losses. The venture sold the project in the first quarter of 2010 at approximately its adjusted basis and repaid the debt in full. |
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| • | Decrease in income of approximately $1.8 million between 2009 and 2008 from TRG which developed and sold multi-family residential units in a project in Miami, Florida. The venture sold substantially all the remaining units in the project in 2008, thereby causing the decrease in income between the 2009 and 2008 periods. Income from TRG increased $2.1 million between 2008 and 2007. TRG recognized the majority of the revenue on condominium sales using the percentage of completion method. Most of the revenue related to the project was recognized in 2006, as a substantial portion of the construction activities took place in that year. In 2007, TRG recorded adjustments to decrease revenue for units that management estimated would not close, and income from TRG decreased as a result. In 2008, substantially all of the condominium units closed and TRG recognized additional income related to these closings. | |
| • | Increase in income of approximately $2.4 million between 2009 and 2008 from Palisades West LLC, which developed and owns two office buildings in Austin, Texas. Buildings 1 and 2 became partially operational in the fourth quarter of 2008. | |
| • | Income from CP Venture Two LLC decreased approximately $1.4 million between 2008 and 2007 primarily due to an increase in allowance for doubtful accounts and amortization of assets related to terminated retail tenants. |
Gain on Sale of Investment Properties.
Gain on
sale of investment properties was $168.6 million,
$10.8 million and $5.5 million in 2009, 2008 and 2007,
respectively.
The 2009 gain included the following:
| • | Sale of undeveloped land at the Company’s North Point Project ($745,000); | |
| • | The recognition of $167.2 million in deferred gain related to the 2006 venture formation with Prudential. When the Company and Prudential formed the venture, the Company contributed properties and Prudential contributed cash. The Company accounted for the transaction as a sale in accordance with accounting rules, but deferred the related gain because the consideration received was a partnership interest as opposed to cash. In the 2009 period, the Company and Prudential made a pro rata distribution of cash from the venture that caused the Company to recognize all of the gain that was deferred in 2006; and | |
| • | Gain on sale of certain land tracts and other miscellaneous corporate assets ($723,000). |
The 2008 gain included the following:
| • | Sale of undeveloped land from the Company’s North Point land holdings ($3.7 million); | |
| • | Sale of undeveloped land adjacent to The Avenue Forsyth project ($3.9 million); | |
| • | Sale of certain of the Company’s non-real estate assets ($960,000); | |
| • | Sale of undeveloped land from the Jefferson Mill project land holdings ($748,000); | |
| • | Condemnation of land at Cosmopolitan Center ($618,000); | |
| • | Sale of Company aircraft ($415,000); | |
| • | The recurring amortization of deferred gain from CPV Venture, LLC (“CPV”) (See Note 4 of Notes to Consolidated Financial Statements — $220,000); and | |
| • | Land tract sale at the Cedar Grove residential development ($161,000). |
The 2007 gain included the following:
| • | Sale of undeveloped land near the Company’s Avenue Carriage Crossing project ($4.4 million); | |
| • | Sale of undeveloped land in the Company’s Jefferson Mill project ($600,000); and | |
| • | Recognition of a portion of the deferred gain at CPV, related to the sale of Mansell Crossing, plus recurring amortization of deferred gain ($500,000). |
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Table of Contents
Discontinued Operations.
Accounting rules
require that certain properties that were sold or plan to be
sold be treated as discontinued operations and that the results
of their operations and any gains on sales from these properties
be shown as a separate component of income in the Consolidated
Statements of Income for all periods presented. The differences
between the years are due to the number and type of properties
included as discontinued operations in each year. There were no
properties in 2009, one in 2008 — 3100 Windy Hill
Road, and two in 2007 — 3301 Windy Ridge Parkway and
five parcels under ground leases at North Point.
Funds From Operations.
The table below shows
Funds From Operations Available to Common Stockholders
(“FFO”) and the related reconciliation to net income
available to common stockholders for the Company. The Company
calculated FFO in accordance with the National Association of
Real Estate Investment Trusts’ (“NAREIT”)
definition, which is net income available to common stockholders
(computed in accordance with GAAP), excluding extraordinary
items, cumulative effect of change in accounting principle and
gains or losses from sales of depreciable property, plus
depreciation and amortization of real estate assets, and after
adjustments for unconsolidated partnerships and joint ventures
to reflect FFO on the same basis.
FFO is used by industry analysts and investors as a supplemental
measure of an equity REIT’s operating performance.
Historical cost accounting for real estate assets implicitly
assumes that the value of real estate assets diminishes
predictably over time. Since real estate values instead have
historically risen or fallen with market conditions, many
industry investors and analysts have considered presentation of
operating results for real estate companies that use historical
cost accounting to be insufficient by themselves. Thus, NAREIT
created FFO as a supplemental measure of REIT operating
performance that excludes historical cost depreciation, among
other items, from GAAP net income. The use of FFO, combined with
the required primary GAAP presentations, has been fundamentally
beneficial, improving the understanding of operating results of
REITs among the investing public and making comparisons of REIT
operating results more meaningful. Company management evaluates
operating performance in part based on FFO. Additionally, the
Company uses FFO and FFO per share, along with other measures,
to assess performance in connection with evaluating and granting
incentive compensation to its officers and key employees. The
reconciliation of net income available to common stockholders to
FFO is as follows for the years ended December 31, 2009,
2008 and 2007 (in thousands, except per share information):
| Years Ended December 31, | ||||||||||||
| 2009 | 2008 | 2007 | ||||||||||
|
Net Income Available to Common Stockholders
|
$ | 14,388 | $ | 7,590 | $ | 17,672 | ||||||
|
Depreciation and amortization:
|
||||||||||||
|
Consolidated properties
|
55,833 | 52,925 | 39,796 | |||||||||
|
Discontinued properties
|
— | 486 | 846 | |||||||||
|
Share of unconsolidated joint ventures
|
8,800 | 6,495 | 4,576 | |||||||||
|
Depreciation of furniture, fixtures and equipment:
|
||||||||||||
|
Consolidated properties
|
(3,382 | ) | (3,724 | ) | (2,768 | ) | ||||||
|
Discontinued properties
|
— | (19 | ) | (25 | ) | |||||||
|
Share of unconsolidated joint ventures
|
(46 | ) | (79 | ) | (5 | ) | ||||||
|
Gain on sale of investment properties, net of applicable
|
||||||||||||
|
income tax provision:
|
||||||||||||
|
Consolidated
|
(168,637 | ) | (10,799 | ) | (5,535 | ) | ||||||
|
Discontinued properties
|
(147 | ) | (2,472 | ) | (18,095 | ) | ||||||
|
Share of unconsolidated joint ventures
|
(12 | ) | — | (1,186 | ) | |||||||
|
Gain on sale of undepreciated investment properties
|
1,243 | 10,611 | 13,161 | |||||||||
|
Funds From Operations Available to Common Stockholders
|
$ | (91,960 | ) | $ | 61,014 | $ | 48,437 | |||||
|
Funds From Operations per Common Share — Basic
|
$ | (1.40 | ) | $ | 1.19 | $ | .93 | |||||
|
Weighted Average Shares-Basic
|
65,495 | 51,331 | 51,857 | |||||||||
|
Funds From Operations per Common Share — Diluted
|
$ | (1.40 | ) | $ | 1.18 | $ | .91 | |||||
|
Weighted Average Shares-Diluted
|
65,495 | 51,728 | 53,059 | |||||||||
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Liquidity
and Capital Resources.
General.
The Company’s financing strategy is to fund its development
activities with proceeds from bank credit facilities,
construction loans, permanent loans secured by its properties,
sales of mature assets, contribution of assets to joint
ventures, and the issuance of preferred or common stock
and/or
convertible bonds. The tightening of the credit markets,
combined with the overall economic downturn in the last several
years, has made obtaining some forms of these sources of capital
more difficult. Management believes that certain adverse
capital-raising conditions may continue in 2010 and is not able
to predict when the market will become more favorable from a
capital raising standpoint. However, the Company completed a
common stock offering of 46 million shares in September
2009, and raised over $318 million in proceeds. The Company
has relatively low debt maturities in 2010. The conditions that
have led to the tightening credit markets have also led to a
decline in new development opportunities for the Company.
Therefore, while the sources of funds have become limited, the
Company’s capital needs have also decreased. In 2009, the
Company commenced no new development projects, and as a result,
funds used for development-related activities, including
contributions to joint ventures, decreased from
$235.9 million in 2008 to $66.4 million in 2009. The
Company anticipates that there will be limited development
activity in 2010.
Contractual
Obligations and Commitments.
At December 31, 2009, the Company was subject to the
following contractual obligations and commitments ($ in
thousands):
|
Less than
|
After
|
|||||||||||||||||||
| Total | 1 Year | 1-3 Years | 3-5 Years | 5 Years | ||||||||||||||||
|
Contractual Obligations:
|
||||||||||||||||||||
|
Company long-term debt:
|
||||||||||||||||||||
|
Unsecured facilities and construction loans
|
$ | 148,839 | $ | 8,839 | $ | 140,000 | $ | — | $ | — | ||||||||||
|
Mortgage notes payable
|
441,369 | 27,528 | 263,947 | 4,214 | 145,680 | |||||||||||||||
|
Interest commitments under debt(1)
|
133,399 | 35,057 | 55,201 | 19,083 | 24,058 | |||||||||||||||
|
Operating leases (ground leases)
|
15,068 | 97 | 201 | 211 | 14,559 | |||||||||||||||
|
Operating leases (offices and other)
|
1,699 | 476 | 646 | 413 | 164 | |||||||||||||||
|
Total Contractual Obligations
|
$ | 740,374 | $ | 71,997 | $ | 459,995 | $ | 23,921 | $ | 184,461 | ||||||||||
|
Commitments:
|
||||||||||||||||||||
|
Letters of credit
|
$ | 2,000 | $ | 2,000 | $ | — | $ | — | $ | — | ||||||||||
|
Performance bonds
|
3,797 | 3,266 | 531 | — | — | |||||||||||||||
|
Estimated development commitments(2)
|
17,993 | 17,993 | — | — | — | |||||||||||||||
|
Unfunded tenant improvements and other
|
12,912 | 12,912 | — | — | — | |||||||||||||||
|
Total Commitments
|
$ | 36,702 | $ | 36,171 | $ | 531 | $ | — | $ | — | ||||||||||
| (1) | Interest on variable rate obligations is based on rates effective as of December 31, 2009, including the effect of interest rate swaps. | |
| (2) | Development commitments include approximately $17.3 million for a loan guarantee of the Terminus 200 construction loan and $0.7 million for a tenant improvement funding commitment. |
Credit
Facility
As of December 31, 2009, the Company had $40.0 million
drawn on its $500 million Credit Facility. The amount
available under the Credit Facility is reduced by outstanding
letters of credit, which were $2.0 million at
December 31, 2009. The Company’s interest rate on the
Credit Facility is variable based on LIBOR plus a spread based
on certain of the Company’s ratios and other factors, and
interest is due periodically as defined by the Credit Facility.
As of December 31, 2009, the spread over LIBOR for the
Credit Facility was 0.85%.
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Table of Contents
The Credit Facility includes customary events of default,
including, but not limited to, the failure to pay any interest
or principal when due, the failure to perform under covenants of
the credit agreement, incorrect or misleading representations or
warranties, insolvency or bankruptcy, change of control, the
occurrence of certain ERISA events and certain judgment
defaults. The amounts outstanding under the Credit Facility may
be accelerated upon an event of default. The Credit Facility
contains restrictive covenants pertaining to the operations of
the Company, including limitations on the amount of debt that
may be incurred, the sale of assets, transactions with
affiliates, dividends and distributions. The Credit Facility
also includes certain financial covenants (as defined in the
agreement) that require, among other things, the maintenance of
an unencumbered interest coverage ratio of at least 1.75, a
fixed charge coverage ratio of at least 1.50, a leverage ratio
of no more than 60%, unsecured debt ratio restrictions, and a
minimum stockholders’ equity of $421.9 million plus
70% of net equity proceeds after the effective date. The Company
is currently in compliance with its financial covenants. If the
Company’s earnings decline or if the Company’s fixed
charges increase, the Company is at greater risk of violating
these covenants. A prolonged economic downturn could cause the
Company’s earnings to decline thereby increasing the
Company’s risk of violating these covenants.
Credit
Facility Amendment
In February 2010, the Company entered into a First Amendment
(the “Amendment”) of its Credit and Term Facilities
with Bank of America and the other participating banks. The
Amendment reduced the amount available under the Credit Facility
from $500 million to $250 million. The amount
available under the Term Facility remained at $100 million.
If and when the Term Facility is paid down, the availability
under the Credit Facility will increase correspondingly, to
allow a total available under the combined Facilities of
$350 million. The maturity dates for both Facilities remain
the same under the Amendment.
Amounts outstanding under the Facilities accrue interest at
LIBOR plus a spread. The Amendment changed the spread for the
Credit and Term Facilities, as detailed below:
|
Credit Facility
|
Term Facility
|
|||||||||||
|
Applicable Spread —
|
Applicable Spread —
|
Applicable Spread —
|
||||||||||
|
Leverage Ratio
|
As Amended | Before Amendment | Before Amendment | |||||||||
|
Ü
=35%
|
1.75 | % | 0.75 | % | 0.70 | % | ||||||
|
>35% but
Ü
=
45%
|
2.00 | % | 0.85 | % | 0.80 | % | ||||||
|
>45% but
Ü
=
50%
|
2.25 | % | 0.95 | % | 0.90 | % | ||||||
|
>50% but
Ü
=
55%
|
2.25 | % | 1.10 | % | 1.05 | % | ||||||
|
>55%
|
N/A | 1.25 | % | 1.20 | % | |||||||
Certain covenants changed under the Amendment, specifically, the
minimum Consolidated Fixed Charge Coverage Ratio, as defined,
decreased from 1.50 to 1.30. The Company incurred an
administrative fee of approximately $1.6 million related to
the Amendment.
Interest
Rate Swaps
From time to time, the Company enters into interest rate swaps
to effectively manage its interest rate risk on certain variable
debt instruments. Payments made or received under the interest
rate swap agreements are recorded in interest expense on the
Consolidated Statements of Income. The Company has not been
utilizing the “shortcut method” of accounting for
these instruments and follows the hypothetical derivative method
as outlined in accounting rules. Except for any portion of the
swaps considered to be ineffective, the Company recognizes the
change in value of the interest rate swaps in Other
Comprehensive Loss (“OCL”), which is included in the
equity section of the Consolidated Balance Sheets.
Ineffectiveness is analyzed on a quarterly basis and would be
recorded in interest expense in the Consolidated Statements of
Income. In 2009, 2008 and 2007, there was no ineffectiveness
under any of the Company’s interest rate swaps.
In 2007, the Company entered into an interest rate swap
agreement with a notional amount of $100 million in order
to manage its interest rate risk under the Term Facility. This
swap was designated as a cash flow hedge and effectively fixes
the underlying LIBOR rate of the Term Facility at 5.01% through
August 2012. The interest rate on
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Table of Contents
the Term Facility is equal to LIBOR plus a spread, as defined by
the term loan agreement. At December 31, 2009, the spread
over LIBOR was 1.05%.
In 2008, the Company entered into two interest rate swap
agreements with notional amounts of $75 million each in
order to manage interest rate risk associated with
floating-rate, LIBOR-based borrowings. These swaps were
designated as cash flow hedges and effectively fixed a portion
of the underlying LIBOR rate on Company borrowings —
one at 2.995% and the other at 2.69% — through October
2010. In October 2009, the Company terminated the second
$75 million swap and paid the counterparty to the agreement
$1.8 million, which was recognized as an expense in 2009.
In addition, the Company reduced the notional amount of the
first interest rate swap from $75 million to
$40 million, and paid the counterparty $959,000 as a
result. This fee was also recognized as an expense in 2009. The
fair values of the interest rate swap agreements were recorded
in accounts payable and accrued liabilities and OCL on the
Consolidated Balance Sheets, detailed as follows:
|
Floating Rate,
|
||||||||||||
|
LIBOR-Based
|
||||||||||||
| Term Facility | Borrowings | Total | ||||||||||
|
Balance, December 31, 2008
|
$ | 11,869 | $ | 4,732 | $ | 16,601 | ||||||
|
2009 activity
|
(3,207 | ) | (3,877 | ) | (7,084 | ) | ||||||
|
Balance, December 31, 2009
|
$ | 8,662 | $ | 855 | $ | 9,517 | ||||||
The real estate and other assets of the ACS Center are
restricted under the ACS Center loan agreement in that they are
not available to settle debts of the Company. However, provided
that the ACS Center loan has not incurred any uncured event of
default, as defined in the loan agreement, the cash flows from
the ACS Center, after payments of debt service, operating
expenses and reserves, are available for distribution to the
Company.
Future
Capital Requirements
Over the long term, management expects the economy and credit
markets to recover to the point that the Company will be able to
actively manage its portfolio of income-producing properties and
strategically sell assets or form joint ventures to capture
value for stockholders and to recycle capital for future
development activities. The Company expects to continue to
utilize indebtedness to fund future commitments and expects to
place long-term permanent mortgages on selected assets as well
as utilize construction facilities for any development assets.
The Company may enter into additional joint venture arrangements
to help fund future developments and may enter into additional
structured transactions with third parties. Management will
continue to evaluate all public equity sources, including the
issuance of common and preferred stock, and select the most
appropriate options as capital is required.
The Company filed a shelf registration statement in the first
quarter of 2009, which had a capacity of $500 million. The
Company issued 46 million shares under this registration
statement in a common stock offering in September 2009 and
raised proceeds of approximately $318 million. The Company
has also drawn on this registration statement during 2009 to pay
a portion of its common stock dividend with shares of stock.
Dividends could be paid in a combination of cash and stock in
the future. There is approximately $146.8 million available
under this registration statement as of December 31, 2009.
The Company may increase its capacity by filing a new shelf
registration statement in 2010.
The Company’s business model is dependent upon raising or
recycling capital to meet obligations. If one or more sources of
capital are not available when required, the Company may be
forced to reduce the number of projects it acquires or develops
and/or
raise
capital on potentially unfavorable terms, or may be unable to
raise capital, which could have an adverse effect on the
Company’s financial position or results of operations.
Additional
Financial Condition Information
The Company’s mortgage debt is primarily non-recourse
fixed-rate mortgage notes secured by various real estate assets.
Many of the Company’s non-recourse mortgages contain
covenants which, if not satisfied, could
54
Table of Contents
result in acceleration of the maturity of the debt. The Company
expects that it will either refinance the non-recourse mortgages
at maturity or repay the mortgages with proceeds from other
financings. As of December 31, 2009, the weighted average
interest rate on the Company’s consolidated debt was 6.05%,
and the Company’s consolidated debt to total market
capitalization ratio was 39.5%.
Cash Flows from Operating
Activities
.
Cash provided by operating
activities increased $2.6 million between 2009 and 2008 due
to the following:
| • | Decrease in expenditures on residential and multi-family development projects of $44.9 million, primarily due to the substantial completion of the Company’s 10 Terminus multi-family project and to the suspension of development on many of the Company’s residential lot developments; | |
| • | Increase in proceeds from the sale of multi-family units of $16.7 million due to increased sales at 10 Terminus Place, 60 North Market, and The Brownstones at Habersham projects; | |
| • | Decrease of $8.1 million related to income tax refunds received in 2008 compared to $1.1 million in refunds in 2009; | |
| • | Decrease in fee income of $13.9 million, due to a nonrecurring development fee of $13.5 million received in 2008 and an increase in interest expense of $8.2 million due to higher average debt borrowings during 2009, also partially offsetting cash provided by operating activities; and | |
| • | Also partially offsetting the decrease in net cash provided by operating activities were operating distributions from unconsolidated joint ventures of $16.5 million primarily due to the 2008 operating distributions from TRG from the closing of substantially all of its remaining condominium units, compared to no significant distributions received in 2009. |
Cash provided by operating activities increased
$26.9 million between 2008 and 2007 due to the following:
| • | Higher cash flows from operating properties offset by an increase in interest paid; | |
| • | Increase in operating distributions from unconsolidated joint ventures primarily as a result of distributions from TRG; | |
| • | Increase of $8.1 million in 2008 due to the receipt of income tax refunds; | |
| • | Increase in accounts payable and accrued liabilities of $5.0 million due to the timing of payment of certain bonuses earned in 2008 in early 2009, which was a change in timing relative to prior years; and | |
| • | Decrease of $2.2 million related to a reduction in prepaid rents received at the end of 2008 compared to 2007 and to a decrease in accounts payable due to timing of vendor payments. |
Cash Flows from Investing
Activities
.
Net cash used in investing
activities decreased $88.4 million between 2009 and 2008
due to the following:
| • | Decrease of $105.3 million in property acquisition and development expenditures resulting from a decline in development activity between the years; | |
| • | Decrease in investments in unconsolidated joint ventures of $19.4 million between the periods, mainly due to lower contributions to the Palisades West LLC joint venture, which constructed two office buildings that were substantially completed in the fourth quarter of 2008. Partially offsetting this decrease in cash used was a decrease in distributions received from unconsolidated joint ventures of $12.8 million. In 2008, TRG had significant capital distributions from the closing of substantially all of its remaining condominium units, compared to no significant distributions received in 2009; | |
| • | Decrease in cash used to purchase other assets of $9.9 million as the Company acquired an airplane and had higher predevelopment expenditures in 2008; and | |
| • | Decrease in proceeds from investment property sales. The Company had more activity in its land tract sales in 2008 compared to 2009. |
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Net cash used in investing activities decreased
$120.1 million between 2008 and 2007 due to the following:
| • | Decrease in property acquisition and development expenditures of $124.8 due to a reduced level of development and construction activities; | |
| • | Decrease of $11.3 million in other assets, mainly due to a decline in predevelopment activity; | |
| • | Decrease of $13.6 million in proceeds from investment property sales and venture formation in 2008 compared to 2007; and | |
| • | Partially offsetting the decrease was a $10.2 million increase in investment in joint ventures during 2008, primarily related to the funding of construction of the Palisades West joint venture. |
Cash Flows from Financing
Activities
.
Cash used in financing activities
was $71.3 million, or $229.6 million higher than 2008,
due to the following:
| • | Increase in repayments of the Company’s Credit Facility, net of borrowings, by $529.4 million due to a decrease in funds needed for development projects and to the repayment of a large portion of the amount outstanding on the Credit Facility using proceeds from the September 2009 common stock issuance; | |
| • | Increase in repayments of other notes payable by $65.1 million, primarily due to the 2009 repayment of the San Jose MarketCenter note for $70.3 million and The Brownstones at Habersham note for $3.2 million. In 2008, the Company repaid the previous Lakeshore mortgage note payable of $8.7 million; | |
| • | Decrease in proceeds from other notes payable of $18.4 million from the refinancing of the Lakeshore mortgage note payable with no loan proceeds received in 2009; | |
| • | Decrease in common dividends paid by approximately $47.1 million. The dividend per share decreased from $1.36 per share in 2008 to $0.74 per share in 2009. In addition, the Company paid a portion of the second, third and fourth quarter 2009 common dividends with stock; | |
| • | Common stock issued, net of expenses, increased $317.2 million between the periods due to the issuance of 46 million shares in the third quarter 2009, which generated approximately $318 million in proceeds; and | |
| • | Increase of $15.8 million due to purchases of preferred stock in 2008, with no preferred stock repurchases in 2009. |
Cash flows from financing activities decreased
$88.2 million from 2008 to 2007 due to the following:
| • | Proceeds from notes payable decreased $407.4 million primarily due to the 2007 closings of the $136.0 million mortgage loan collateralized by the ACS Center, the $180.0 million Terminus 100 mortgage note, and the $83.3 million San Jose mortgage loan. In 2008, the Company obtained new financing on its Lakeshore Park Plaza note for approximately $18.4 million. Repayments of other notes payable decreased by $13.7 million primarily due to the repayment of the previous Lakeshore Park Plaza mortgage note in 2008 for $8.7 million versus the repayment of $22.4 million in 2007 related to the refinancing of its non-recourse mortgage note payable secured by the 100 and 200 North Point Center office buildings; | |
| • | Decrease of $15.8 million due to purchases of preferred stock in 2008, with no preferred stock repurchases in 2007; | |
| • | Increase in net borrowings of $298.7 million on the Company’s Credit Facility to fund development projects and the Company’s cash reserves; and | |
| • | Decrease in common stock repurchases of $21.9 million. The Company repurchased common stock in 2007, with no purchases in 2008. |
Dividends
.
The Company paid common and preferred
dividends of $35.6 million, $85.1 million and
$92.0 million in 2009, 2008 and 2007, respectively, which,
except as discussed below, it funded with cash provided by
operating activities, proceeds from investment property sales
and/or
venture formation, distributions from unconsolidated entities
and proceeds from indebtedness. The June, September and December
2009 dividends were paid in a combination of cash and stock. For
the foreseeable future, the Company intends to fund its cash
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Table of Contents
quarterly distributions to common and preferred stockholders
with cash provided by operating activities, proceeds from
investment property sales, distributions from unconsolidated
joint ventures, and indebtedness, if necessary. In addition,
dividends could continue to be paid in a combination of cash and
stock in the future.
The Company reviews, on a quarterly basis, the amount of the
common dividend in light of current and projected future cash
flows from the sources noted above, as well as requirements to
maintain its REIT status. In addition, the Company has certain
covenants under its Credit Facility which could limit the amount
of dividends paid. In general, dividends of any amount can be
paid as long as leverage, as defined in the facility, is less
than 60% and the Company is not in default under its facility.
Certain conditions also apply in which the Company can still pay
dividends if leverage is above that amount. The Company
routinely monitors the status of its dividend payments in light
of the Credit Facility covenants.
Effects
of Inflation.
The Company attempts to minimize the effects of inflation on
income from operating properties by providing periodic
fixed-rent increases or increases based on the Consumer Price
Index
and/or
pass-through of certain operating expenses of properties to
tenants or, in certain circumstances, rents tied to
tenants’ sales.
Off
Balance Sheet Arrangements.
The Company has a number of off balance sheet joint ventures
with varying structures, as described in Note 5 in Notes to
Consolidated Financial Statements. At December 31, 2009,
the Company’s unconsolidated joint ventures had aggregate
outstanding indebtedness to third parties of approximately
$421.5 million. These loans are generally mortgage or
construction loans most of which are non-recourse to the
Company. In certain instances, the Company provides
“non-recourse carve-out guarantees” on these
non-recourse loans. The unconsolidated joint ventures also had
performance bonds which the Company guarantees totaling
approximately $1.4 million at December 31, 2009.
CF Murfreesboro Associates (“CF Murfreesboro”), one of
the ventures in which the Company has an interest, constructed
and owns a retail center. CF Murfreesboro has a
$131 million construction loan that matures on
July 20, 2010, with a one-year extension option if certain
conditions have been met, of which the venture has drawn
approximately $113.5 million. The retail center serves as
primary collateral against the loan. The Company anticipates
placing a mortgage note payable on this property upon maturity
of the construction loan. However, the current credit markets
are constrained and management cannot anticipate whether and on
what basis the property financing will be available. The Company
has a 20% repayment guarantee ($26.2 million) that reduces
to 12.5% ($16.4 million) if certain leasing and financial
performance criteria are met, which have not been met as of
December 31, 2009. The Company had a liability of $262,000
as of December 31, 2009 recorded related to this guarantee.
In addition, the CF Murfreesboro loan has a requirement that
certain leasing and occupancy percentages be met by
July 20, 2009. The Company believes that these requirements
were met, but the lenders have not yet notified us with their
agreement as to whether the requirement has been satisfied. The
lenders have therefore reserved any and all rights under the
loan agreement regarding future funding requirements and future
defaults under the loan. The Company continues to assert that
the leasing and occupancy percentages have been satisfied and
does not expect any material adverse effect on financial
condition or results of operations, and the lenders have funded
all draw requests we have made without issue.
Another venture in which the Company has an interest, T200,
developed and operates an office building, along with ancillary
retail and commercial space, in the Terminus project in Atlanta,
Georgia. In 2007, T200 entered into a Building Loan Agreement
with Wells Fargo Bank, N.A, as administrative agent for a group
of other banks. The loan, with a maximum borrowing amount of
$138 million, will mature in 2011 with interest at LIBOR
plus 1.65%, and funded the construction of T200. The repayment
of the loan, plus interest and expenses, as defined, is
guaranteed equally by the two partners in the venture, limited
to a principal amount of $17.25 million each, plus any
unpaid interest. The Company determined that it was probable
that the Company’s guarantee of $17.25 million under
the venture level construction loan would be invoked, and the
full cost of the guarantee would be incurred by the Company.
Therefore, the guarantee was accrued in the third quarter of
2009.
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A third venture in which the Company has an interest, Glenmore,
was also formed in 2007 to develop a townhome project in
Charlotte, North Carolina. Glenmore entered into two notes with
a maximum available of $13.5 million. Each of the two
partners in Glenmore guarantee 50% of the payment of principal
and interest on the loans described above, which totals a
maximum liability to each partner of $6.75 million. The
Company determined it was probable that a portion of its
guarantee would be invoked and accrued the estimate of the
difference between the outstanding debt balance and the
estimated fair value, less costs to sell in 2009. The venture
sold the assets in the first quarter of 2010 at approximately
its adjusted cost basis, and the debt was repaid in full.
Several of the remaining joint ventures in which the Company has
an interest are involved in the acquisition and development of
real estate. As capital is required to fund the acquisition and
development of this real estate, the Company intends to fund its
share of the costs not funded by operations or outside
financing. In addition, the Company may be required to fund
operations for a limited period of time. Based on the nature of
the activities conducted in these ventures, management cannot
estimate with any degree of accuracy amounts that the Company
may be required to fund in the short or long-term. However,
management does not believe that additional funding of these
ventures will have a material adverse effect on its financial
condition or results of operations.
| Item 7A . | Quantitative and Qualitative Disclosure about Market Risk |
The Company’s primary exposure to market risk results from
its debt, which bears interest at both fixed and variable rates.
The fixed rate debt obligations limit the risk of fluctuating
interest rates, and generally are mortgage loans secured by
certain of the Company’s real estate assets. The Company
does not have a significant level of consolidated fixed-rate
mortgage debt maturing in 2010, and therefore does not have high
exposure for the refinancing of its mortgage debt in the near
term. At December 31, 2009, the Company had
$438.2 million of fixed rate debt outstanding (including
floating-rate borrowings with fixed rates under interest rate
swaps discussed below) at a weighted average interest rate of
6.36%. The Company believes the average interest rate on its
fixed rate mortgage debt is less than current market rates. In
addition, the Company believes that the
loan-to-value
ratio that it has received in previous debt arrangements is
higher than what the Company would be able to obtain in
today’s marketplace; and, therefore, it would receive a
lower loan amount for a similar type property mortgage loan. In
addition, lenders have been resistant in the current market in
some situations to offer mortgage financing at all, and
therefore, the Company could have exposure in finding lenders
willing to enter into new mortgage financings.
The Company is exposed to the impact of interest rate changes on
its variable rate facilities and loans. The Company’s
Credit and Term Facilities bear interest at LIBOR plus an
applicable spread. LIBOR did not change significantly between
December 31, 2008 and December 31, 2009. However, the
Company has mitigated a portion of its exposure to interest rate
risk by entering into interest rate swaps. The Company has an
interest rate swap on its Term Facility with a notional amount
of $100 million to fix the Term Facility’s variable
base rate of LIBOR at 5.01% through August 2012, the maturity
date of the Term Facility. In 2008, the Company entered into two
$75 million interest rate swaps against its other
floating-rate, LIBOR-based borrowings at 2.995% and 2.69%
through October 2010. In 2009, the Company terminated the 2.69%
swap and all but $40 million of the 2.995% swap. The
Company believes it has counterparty risk under these swaps, but
such amount is limited. The Company also has two smaller
variable rate debt instruments, for total variable rate debt of
$152.0 million, which bears interest at a weighted average
interest rate of 5.22% as of December 31, 2009.
The Company believes that interest rates it would incur under
current market conditions would be higher if it were to enter
into similar financial instruments in today’s market. The
Company pays a spread above LIBOR on its Credit and Term
Facilities, which spread is calculated based on certain ratios
detailed in the Credit Facility agreement. The Company believes
that the spread that it would incur above a variable reference
rate would be higher if it entered into similar variable
facilities today than the spreads the Company is required to pay
under the current Credit and Term Facilities. The Company also
may not be provided the same capacity under a facility
arrangement in the current market and may face stricter covenant
restrictions. Based on the Company’s average variable rate
debt balances in 2009, excluding the portion that was fixed
under swap agreements, interest expense, before capitalization
to projects under development, would have increased by
approximately $1.5 million in 2009 if these interest rates
had been 1% higher.
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The following table summarizes the Company’s market risk
associated with notes payable as of December 31, 2009. It
includes the principal maturing, an estimate of the weighted
average interest rates on those expected principal maturity
dates and the fair values of the Company’s fixed and
variable rate notes payable. Fair value was calculated by
discounting future principal payments at estimated rates at
which similar loans would have been obtained at
December 31, 2009. The information presented below should
be read in conjunction with Note 3 of Notes to Consolidated
Financial Statements included in this Annual Report on
Form 10-K.
(The Company did not have a significant level of notes
receivable at December 31, 2009, and the table does not
include information related to notes receivable.)
| Twelve Months Ending December 31, | ||||||||||||||||||||||||||||||||
| 2010 | 2011 | 2012 | 2013 | 2014 | Thereafter | Total | Fair Value | |||||||||||||||||||||||||
| ($ in thousands) | ||||||||||||||||||||||||||||||||
|
Notes Payable:
|
||||||||||||||||||||||||||||||||
|
Fixed Rate(1)
|
$ | 24,353 | $ | 39,892 | $ | 224,055 | $ | 2,041 | $ | 2,173 | $ | 145,680 | $ | 438,194 | $ | 424,000 | ||||||||||||||||
|
Average Interest Rate
|
8.11 | % | 7.09 | % | 4.50 | % | 6.25 | % | 6.25 | % | 6.37 | % | 6.36 | % | — | |||||||||||||||||
|
Variable Rate
|
$ | 12,014 | $ | 40,000 | $ | 100,000 | $ | — | $ | — | $ | — | $ | 152,014 | $ | 162,221 | ||||||||||||||||
|
Average Interest Rate(2)
|
2.83 | % | 3.85 | % | 6.06 | % | — | — | — | 5.22 | % | — | ||||||||||||||||||||
| (1) | Includes Credit and Term Facilities at interest rates fixed under swap agreements for the term of those agreements. | |
| (2) | Interest rates on variable rate notes payable are equal to the variable rates in effect on December 31, 2009. |
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Table of Contents
| Item 8 . | Financial Statements and Supplementary Data |
The Consolidated Financial Statements, Notes to Consolidated
Financial Statements and Report of Independent Registered Public
Accounting Firm are incorporated herein on pages F-7 through
F-42.
Certain components of quarterly net income (loss) available to
common stockholders disclosed below differ from those as
reported on the Company’s respective quarterly reports on
Form 10-Q.
As discussed in Notes 2 and 9 of Notes to Consolidated
Financial Statements, gains and losses from the disposition of
certain real estate assets and the related historical operating
results were reclassified as Discontinued Operations for all
applicable periods presented. Also as discussed in Note 2,
effective January 1, 2009, the Company began including
outstanding restricted stock in its basic and diluted earnings
per share computations. As a result, the 2008 quarterly basic
and diluted earnings per share information have been adjusted to
conform to the current year presentation. In addition, the
Company was presenting dividends paid in stock on a retroactive
basis and changing prior period information as if the stock
dividend component had been outstanding in shares as of the
earliest period presented. The Company paid dividends partially
with stock in the last three quarters of 2009. Beginning in
December 2009, the Company reflected dividends paid in stock
prospectively as a stock issuance, and all periods where the
dividend was presented retroactively were adjusted to show
prospective issuance.
The following Selected Quarterly Financial Information
(Unaudited) for the years ended December 31, 2009 and 2008
should be read in conjunction with the Consolidated Financial
Statements and notes thereto included herein ($ in thousands,
except per share amounts):
| Quarters | ||||||||||||||||
| First | Second | Third | Fourth | |||||||||||||
| (Unaudited) | ||||||||||||||||
|
2009:
|
||||||||||||||||
|
Revenues
|
$ | 49,087 | $ | 51,065 | $ | 59,195 | $ | 65,535 | ||||||||
|
Income (loss) from unconsolidated joint ventures, including
impairments
|
1,820 | (29,361 | ) | (42,854 | ) | 1,698 | ||||||||||
|
Gain (loss) on sale of investment properties
|
167,434 | 801 | 406 | (4 | ) | |||||||||||
|
Income (loss) from continuing operations
|
164,217 | (77,534 | ) | (53,339 | ) | (3,940 | ) | |||||||||
|
Discontinued operations
|
(7 | ) | 146 | 10 | (6 | ) | ||||||||||
|
Net income (loss)
|
164,210 | (77,388 | ) | (53,329 | ) | (3,946 | ) | |||||||||
|
Net income (loss) attributable to controlling interest
|
163,798 | (78,086 | ) | (53,860 | ) | (4,557 | ) | |||||||||
|
Net income (loss) available to common stockholders
|
160,571 | (81,313 | ) | (57,088 | ) | (7,782 | ) | |||||||||
|
Basic income (loss) from continuing operations per common
share
|
3.20 | (1.50 | ) | (0.90 | ) | (0.04 | ) | |||||||||
|
Basic net income (loss) per common share
|
3.13 | (1.58 | ) | (0.96 | ) | (0.08 | ) | |||||||||
|
Diluted income (loss) from continuing operations per common
share
|
3.20 | (1.50 | ) | (0.90 | ) | (0.04 | ) | |||||||||
|
Diluted net income (loss) per common share
|
3.13 | (1.58 | ) | (0.96 | ) | (0.08 | ) | |||||||||
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| Quarters | ||||||||||||||||
| First | Second | Third | Fourth | |||||||||||||
| (Unaudited) | ||||||||||||||||
|
2008:
|
||||||||||||||||
|
Revenues
|
$ | 44,970 | $ | 46,697 | $ | 70,269 | $ | 52,715 | ||||||||
|
Income from unconsolidated joint ventures
|
2,817 | 2,239 | 3,497 | 1,168 | ||||||||||||
|
Gain on sale of investment properties
|
3,792 | 5,212 | 1,387 | 408 | ||||||||||||
|
Income (loss) from continuing operations
|
6,060 | 7,064 | 11,220 | (3,172 | ) | |||||||||||
|
Discontinued operations
|
(408 | ) | (341 | ) | (430 | ) | 2,554 | |||||||||
|
Net income (loss)
|
5,652 | 6,723 | 10,790 | (618 | ) | |||||||||||
|
Net income (loss) attributable to controlling interest
|
4,981 | 6,472 | 10,024 | (1,308 | ) | |||||||||||
|
Net income (loss) available to common stockholders
|
1,839 | 2,911 | 6,978 | (4,138 | ) | |||||||||||
|
Basic income (loss) from continuing operations attributable to
controlling interest per common share
|
0.04 | 0.07 | 0.14 | (0.13 | ) | |||||||||||
|
Basic net income (loss) per common share
|
0.04 | 0.05 | 0.14 | (0.08 | ) | |||||||||||
|
Diluted income (loss) from continuing operations attributable to
controlling interest per common share
|
0.04 | 0.07 | 0.14 | (0.13 | ) | |||||||||||
|
Diluted net income (loss) per common share
|
0.04 | 0.05 | 0.13 | (0.08 | ) | |||||||||||
Note:
The above per share quarterly
information may not sum to full year per share information due
to rounding.
Other financial statements and financial statement schedules
required under
Regulation S-X
are filed pursuant to Item 15 of Part IV of this
report.
| Item 9 . | Changes in and Disagreements with Accountants on Accounting and Financial Disclosure |
Not applicable.
| Item 9A . | Controls and Procedures |
We maintain disclosure controls and procedures that are designed
to ensure that information required to be disclosed in our
Exchange Act reports is recorded, processed, summarized and
reported within the time periods specified in the SEC’s
rules and forms, and that such information is accumulated and
communicated to management, including the Chief Executive
Officer and Chief Financial Officer, as appropriate, to allow
timely decisions regarding required disclosure. Management
necessarily applied its judgment in assessing the costs and
benefits of such controls and procedures, which, by their
nature, can provide only reasonable assurance regarding
management’s control objectives. We also have investments
in certain unconsolidated entities. As we do not always control
or manage these entities, our disclosure controls and procedures
with respect to such entities are necessarily more limited than
those we maintain with respect to our consolidated subsidiaries.
As of the end of the period covered by this annual report, we
carried out an evaluation, under the supervision and with the
participation of management, including the Chief Executive
Officer along with the Chief Financial Officer, of the
effectiveness, design and operation of our disclosure controls
and procedures (as defined in Exchange Act
Rules 13a-15(e)
and
15d-15(e)).
Based upon the foregoing, the Chief Executive Officer along with
the Chief Financial Officer concluded that our disclosure
controls and procedures were effective. In addition, based on
such evaluation we have identified no changes in our internal
control over financial reporting that occurred during the most
recent fiscal quarter that have materially affected, or are
reasonably likely to materially affect, our internal control
over financial reporting.
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Table of Contents
Report
of Management on Internal Control Over Financial
Reporting
Management of the Company is responsible for establishing and
maintaining adequate internal control over financial reporting,
as such term is defined in Exchange Act
Rule 13a-15(f).
Internal control over financial reporting is a process designed
to provide reasonable assurance regarding the reliability of
financial reporting and the preparation of financial statements
for external reporting purposes in accordance with accounting
principles generally accepted in the United States. Internal
control over financial reporting includes those policies and
procedures that (1) pertain to the maintenance of records
that, in reasonable detail, accurately and fairly reflect the
transactions and dispositions of our assets; (2) provide
reasonable assurance that transactions are recorded as necessary
to permit preparation of financial statements in accordance with
accounting principles generally accepted in the United States
and that our receipts and expenditures are being made only in
accordance with authorizations of our management and directors;
and (3) provide reasonable assurance regarding prevention
or timely detection of unauthorized acquisition, use or
disposition of our assets that could have a material effect on
the financial statements.
Management, under the supervision of and with the participation
of the Chief Executive Officer and the Chief Financial Officer,
assessed the effectiveness of our internal control over
financial reporting as of December 31, 2009. The framework
on which the assessment was based is described in “Internal
Control — Integrated Framework” issued by the
Committee of Sponsoring Organizations of the Treadway
Commission. Based on this assessment, we concluded that we
maintained effective internal control over financial reporting
as of December 31, 2009.
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Table of Contents
REPORT OF
INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board
of Directors and Stockholders of
Cousins Properties Incorporated:
Cousins Properties Incorporated:
We have audited the internal control over financial reporting of
Cousins Properties Incorporated and subsidiaries (the
“Company”) as of December 31, 2009, based on
criteria established in
Internal Control —
Integrated Framework
issued by the Committee of Sponsoring
Organizations of the Treadway Commission. The Company’s
management is responsible for maintaining effective internal
control over financial reporting and for its assessment of the
effectiveness of internal control over financial reporting,
included in the accompanying Report of Management on Internal
Control over Financial Reporting. Our responsibility is to
express an opinion on the Company’s internal control over
financial reporting based on our audit.
We conducted our audit in accordance with the standards of the
Public Company Accounting Oversight Board (United States). Those
standards require that we plan and perform the audit to obtain
reasonable assurance about whether effective internal control
over financial reporting was maintained in all material
respects. Our audit included obtaining an understanding of
internal control over financial reporting, assessing the risk
that a material weakness exists, testing and evaluating the
design and operating effectiveness of internal control based on
the assessed risk, and performing such other procedures as we
considered necessary in the circumstances. We believe that our
audit provides a reasonable basis for our opinion.
A company’s internal control over financial reporting is a
process designed by, or under the supervision of, the
company’s principal executive and principal financial
officers, or persons performing similar functions, and effected
by the company’s board of directors, management, and other
personnel to provide reasonable assurance regarding the
reliability of financial reporting and the preparation of
financial statements for external purposes in accordance with
generally accepted accounting principles. A company’s
internal control over financial reporting includes those
policies and procedures that (1) pertain to the maintenance
of records that, in reasonable detail, accurately and fairly
reflect the transactions and dispositions of the assets of the
company; (2) provide reasonable assurance that transactions
are recorded as necessary to permit preparation of financial
statements in accordance with generally accepted accounting
principles, and that receipts and expenditures of the company
are being made only in accordance with authorizations of
management and directors of the company; and (3) provide
reasonable assurance regarding prevention or timely detection of
unauthorized acquisition, use, or disposition of the
company’s assets that could have a material effect on the
financial statements.
Because of the inherent limitations of internal control over
financial reporting, including the possibility of collusion or
improper management override of controls, material misstatements
due to error or fraud may not be prevented or detected on a
timely basis. Also, projections of any evaluation of the
effectiveness of the internal control over financial reporting
to future periods are subject to the risk that the controls may
become inadequate because of changes in conditions, or that the
degree of compliance with the policies or procedures may
deteriorate.
In our opinion, the Company maintained, in all material
respects, effective internal control over financial reporting as
of December 31, 2009, based on the criteria established in
Internal Control — Integrated Framework
issued
by the Committee of Sponsoring Organizations of the Treadway
Commission.
We have also audited, in accordance with the standards of the
Public Company Accounting Oversight Board (United States), the
consolidated financial statements and financial statement
schedule as of and for the year ended December 31, 2009 of
the Company and our report dated February 26, 2010
expressed an unqualified opinion on those consolidated financial
statements and financial statement schedule and includes an
explanatory paragraph related to the adoption of new accounting
provisions with respect to noncontrolling interests.
/s/ DELOITTE & TOUCHE LLP
Atlanta, Georgia
February 26, 2010
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| Item 9B . | Other Information |
None.
| Item 10 . | Directors, Executive Officers and Corporate Governance |
The information required by Items 401 and 405 of
Regulation S-K
is presented in Item X in Part I above and is included
under the captions “Election of Directors” and
“Section 16(a) Beneficial Ownership Reporting
Compliance” in the Proxy Statement relating to the 2010
Annual Meeting of the Registrant’s Stockholders, and is
incorporated herein by reference. The Company has a Code of
Business Conduct and Ethics (the “Code”) applicable to
its Board of Directors and all of its employees. The Code is
publicly available on the “Investor Relations” page of
its website site at
www.cousinsproperties.com
.
Section 1 of the Code applies to the Company’s senior
executive and financial officers and is a “code of
ethics” as defined by applicable SEC rules and regulations.
If the Company makes any amendments to the Code other than
technical, administrative or other non-substantive amendments,
or grants any waivers, including implicit waivers, from a
provision of the Code to the Company’s senior executive or
financial officers, the Company will disclose on its website the
nature of the amendment or waiver, its effective date and to
whom it applies. There were no amendments or waivers during 2009.
| Item 11 . | Executive Compensation |
The information under the captions “Executive
Compensation” (other than the Committee Report on
Compensation) and “Director Compensation” in the Proxy
Statement relating to the 2010 Annual Meeting of the
Registrant’s Stockholders is incorporated herein by
reference.
| Item 12 . | Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters |
The information under the captions “Beneficial Ownership of
Common Stock” and “Equity Compensation Plan
Information” in the Proxy Statement relating to the 2010
Annual Meeting of the Registrant’s Stockholders is
incorporated herein by reference.
| Item 13 . | Certain Relationships and Related Transactions, and Director Independence |
The information under the caption “Certain
Transactions” and “Director Independence” in the
Proxy Statement relating to the 2010 Annual Meeting of the
Registrant’s Stockholders is incorporated herein by
reference.
| Item 14 . | Principal Accountant Fees and Services |
The information under the caption “Summary of Fees to
Independent Registered Public Accounting Firm” in the Proxy
Statement relating to the 2010 Annual Meeting of the
Registrant’s Stockholders has fee information for fiscal
years 2009 and 2008 and is incorporated herein by reference.
64
Table of Contents
| Item 15 . | Exhibits and Financial Statement Schedules |
(a) 1.
Financial Statements
A. The following Consolidated Financial Statements of the
Registrant, together with the applicable Report of Independent
Registered Public Accounting Firm, are filed as a part of this
report:
| Page Number | ||||
| F-2 | ||||
| F-3 | ||||
| F-4 | ||||
| F-5 | ||||
| F-6 | ||||
| F-7 | ||||
B. The following Consolidated Financial Statements of CL
Realty, L.L.C., together with the applicable Report of
Independent Registered Public Accounting Firm, are filed as a
part of this report:
| Page Number | ||||
| G-2 | ||||
| G-3 | ||||
| G-4 | ||||
| G-5 | ||||
| G-6 | ||||
| G-7 | ||||
2.
Financial Statement Schedule
The following financial statement schedule for the Registrant is
filed as a part of this report:
|
Page Number
|
||||
|
A. Schedule III — Real Estate and Accumulated
Depreciation — December 31, 2009
|
S-1 through S-5 | |||
NOTE:
Other schedules are omitted because of
the absence of conditions under which they are required or
because the required information is given in the financial
statements or notes thereto.
(b) Exhibits
|
3.1
|
Restated and Amended Articles of Incorporation of the Registrant, as amended August 9, 1999, filed as Exhibit 3.1 to the Registrant’s Form 10-Q for the quarter ended June 30, 2002, and incorporated herein by reference. | |
|
3.1.1
|
Articles of Amendment to Restated and Amended Articles of Incorporation of the Registrant, as amended July 22, 2003, filed as Exhibit 4.1 to the Registrant’s Current Report on Form 8-K filed on July 23, 2003, and incorporated herein by reference. | |
|
3.1.2
|
Articles of Amendment to Restated and Amended Articles of Incorporation of the Registrant, as amended December 15, 2004, filed as Exhibit 3(a)(i) to the Registrant’s Form 10-K for the year ended December 31, 2004, and incorporated herein by reference. | |
|
3.2
|
Bylaws of the Registrant, as amended and restated June 6, 2009, filed as Exhibit 3.1 to the Registrant’s Current Report on Form 8-K filed on June 8, 2009, and incorporated herein by reference. |
65
Table of Contents
|
4(a)
|
Dividend Reinvestment Plan as restated as of March 27, 1995, filed in the Registrant’s Form S-3 dated March 27, 1995, and incorporated herein by reference. | |
|
10(a)(i)*
|
Cousins Properties Incorporated 1989 Stock Option Plan, renamed the 1995 Stock Incentive Plan and approved by the Stockholders on May 6, 1996, filed as Exhibit 4.1 to the Registrant’s Form S-8 dated December 1, 2004, and incorporated herein by reference. | |
|
10(a)(ii)*
|
Cousins Properties Incorporated 1999 Incentive Stock Plan, as amended and restated, approved by the Stockholders on May 6, 2008, filed as Annex B to the Registrant’s Proxy Statement dated April 13, 2008, and incorporated herein by reference. | |
|
10(a)(iii)*
|
Cousins Properties Incorporated 2005 Restricted Stock Unit Plan, filed as Exhibit 10.1 to the Registrant’s Current Report on Form 8-K dated December 9, 2005, and incorporated herein by reference. | |
|
10(a)(iv)*
|
Amendment No. 1 to Cousins Properties Incorporated 2005 Restricted Stock Unit Plan, filed as Exhibit 10(a)(iii) to the Registrant’s Form 10-Q for the quarter ended March 31, 2006, and incorporated herein by reference. | |
|
10(a)(v)*
|
Form of Restricted Stock Unit Certificate (with Performance Criteria), filed as Exhibit 10(a)(iv) to the Registrant’s Form 10-Q for the quarter ended March 31, 2006, and incorporated herein by reference. | |
|
10(a)(vi)*
|
Cousins Properties Incorporated 1999 Incentive Stock Plan — Form of Key Employee Non-Incentive Stock Option and Stock Appreciation Right Certificate, amended effective December 6, 2007, filed as Exhibit 10(a)(vi) to the Registrant’s Form 10-K for the year ended December 31, 2007 and incorporated herein by reference. | |
|
10(a)(vii)*
|
Cousins Properties Incorporated 1999 Incentive Stock Plan — Form of Key Employee Incentive Stock Option and Stock Appreciation Right Certificate, amended effective December 6, 2007, filed as Exhibit 10(a)(vii) to the Registrant’s Form 10-K for the year ended December 31, 2007 and incorporated herein by reference. | |
|
10(a)(viii)*
|
Cousins Properties Incorporated 2005 Restricted Stock Unit Plan — Form of Restricted Stock Unit Certificate, filed as Exhibit 10.3 to the Registrant’s Current Report on Form 8-K dated December 11, 2006, and incorporated herein by reference. | |
|
10(a)(ix)*
|
Amendment No. 2 to the Cousins Properties Incorporated 2005 Restricted Stock Unit Plan, filed as Exhibit 10.1 to the Registrant’s Current Report on Form 8-K filed on August 18, 2006, and incorporated herein by reference. | |
|
10(a)(x)*
|
Cousins Properties Incorporated 2005 Restricted Stock Unit Plan — Form of Restricted Stock Unit Certificate for Directors, filed as Exhibit 10.2 to the Registrant’s Current Report on Form 8-K filed on August 18, 2006, and incorporated herein by reference. | |
|
10(a)(xi)*
|
Form of Change in Control Severance Agreement, filed as Exhibit 10.1 to the Registrant’s Current Report on Form 8-K filed on August 31, 2007, and incorporated herein by reference. | |
|
10(a)(xii)*
|
Amendment No. 1 to the Cousins Properties Incorporated 1999 Incentive Stock Plan, filed as Exhibit 10(a)(ii) to the Registrant’s Form 10-Q for the quarter ended March 31, 2008, and incorporated herein by reference. | |
|
10(a)(xiii)*
|
Amendment No. 4 to the Cousins Properties Incorporated 2005 Restricted Stock Unit Plan dated September 8, 2008, filed as Exhibit 10(a)(xiii) to the Registrant’s Form 10-K for the year ended December 31, 2008 and incorporated herein by reference. | |
|
10(a)(xiv)*
|
Amendment No. 5 to the Cousins Properties Incorporated 2005 Restricted Stock Unit Plan dated February 16, 2009, filed as Exhibit 10(a)(xiv) to the Registrant’s Form 10-K for the year ended December 31, 2008 and incorporated herein by reference. | |
|
10(a)(xv)*
|
Form of Amendment Number One to Change in Control Severance Agreement filed as Exhibit 10.2 to the Registrant’s Current Report on Form 8-K dated May 12, 2009, and incorporated herein by reference. | |
|
10(a)(xvi)*
|
Amendment Number 6 to the Cousins Properties Incorporated 2005 Restricted Stock Unit Plan filed as Exhibit 10.3 to the Registrant’s Current Report on Form 8-K dated May 12, 2009, and incorporated herein by reference. |
66
Table of Contents
|
10(a)(xvii)*
|
Form of Cousins Properties Incorporated Cash Long Term Incentive Award Certificate filed as Exhibit 10.3 to the Registrant’s Current Report on Form 8-K dated May 12, 2009, and incorporated herein by reference. | |
|
10(a)(xviii)*
|
Cousins Properties Incorporated 2009 Incentive Stock Plan, as approved by the Stockholders on May 12, 2009, filed as Annex B to the Registrant’s Proxy Statement dated April 3, 2009, and incorporated herein by reference. | |
|
10(a)(xix)*
|
Cousins Properties Incorporated Director Non-Incentive Stock Option and Stock Appreciation Right Certificate under the Cousins Properties Incorporated 2009 Incentive Stock Plan, filed as Exhibit 10.2 to the Registrant’s Form 10-Q for the quarter ended June 30, 2009, and incorporated herein by reference. | |
|
10(a)(xx)*†
|
Cousins Properties Incorporated 2005 Restricted Stock Unit Plan — Form of Restricted Stock Unit Certificate for 2010-2012 Performance Period. | |
|
10(a)(xxi)*†
|
Cousins Properties Incorporated 2009 Incentive Stock Plan — Form of Key Employee Non-Incentive Stock Option Certificate. | |
|
10(a)(xxii)*†
|
Cousins Properties Incorporated 2009 Incentive Stock Plan — Form of Stock Grant Certificate. | |
|
10(b)*
|
Consulting Agreement with Joel Murphy, dated as of December 5, 2008, including the Amendment Number One to the Form of Restricted Stock Unit Certificate (with Performance Criteria), filed as Exhibit 10(b) to the Registrant’s Form 10-K for the year ended December 31, 2008, and incorporated herein by reference. | |
|
10(c)*
|
Retirement Agreement and General Release by and among Thomas D. Bell, Jr. and Cousins Properties Incorporated dated June 7, 2009, filed as Exhibit 10.1 to the Registrant’s Form 10-Q for the quarter ended June 30, 2009, and incorporated herein by reference. | |
|
10(d)
|
Amended and Restated Credit Agreement, dated as of August 29, 2007, among Cousins Properties Incorporated as the Principal Borrower (and the Borrower Parties, as defined, and the Guarantors, as defined); Bank of America, N.A., as Administrative Agent, Swing Line Lender and L/C Issuer; Banc of America Securities LLC as Sole Lead Arranger and Sole Book Manager; Eurohypo AG, as Syndication Agent; PNC Bank, N. A., Wachovia Bank, N. A., and Wells Fargo Bank, as Documentation Agents; Norddeutsche Landesbank Girozentrale, as Managing Agent; Aareal Bank AG, Charter One Bank, N.A., and Regions Bank, as Co-Agents; and the Other Lenders Party Hereto, filed as Exhibit 10.1 to the Registrant’s Current Report on Form 8-K filed on August 30, 2007, and incorporated herein by reference. | |
|
10(e)
|
Loan Agreement dated as of August 31, 2007, between Cousins Properties Incorporated, a Georgia corporation, as Borrower and JP Morgan Chase Bank, N.A., a banking association chartered under the laws of the United States of America, as Lender, filed as Exhibit 10.1 to the Registrant’s Current Report on Form 8-K filed on September 7, 2007, and incorporated herein by reference. | |
|
10(f)
|
Loan Agreement dated as of October 16, 2007, between 3280 Peachtree I LLC, a Georgia limited liability corporation, as Borrower and The Northwestern Mutual Life Insurance Company, as Lender, filed as Exhibit 10.1 to the Registrant’s Current Report on Form 8-K filed October 17, 2007, and incorporated herein by reference. | |
|
10(g)
|
Contribution and Formation Agreement between Cousins Properties Incorporated, CP Venture Three LLC and The Prudential Insurance Company of America, including Exhibit U thereto, filed as Exhibit 10.1 to the Registrant’s Form 8-K filed on May 4, 2006, and incorporated herein by reference. | |
|
10(h)
|
Form of Indemnification Agreement, filed as Exhibit 10.1 to the Registrant’s Form 8-K dated June 18, 2007, and incorporated herein by reference. |
67
Table of Contents
|
10(i)
|
Underwriting Agreement dated September 15, 2009 by and among Cousins Properties Incorporated, Merrill Lynch, Pierce, Fenner & Smith Incorporated, Morgan Stanley & Co. Incorporated and J.P. Morgan Securities Inc., as representatives of the several underwriters, filed as Exhibit 1.1 to the Registrant’s Current Report on Form 8-K filed on September 17, 2009, and incorporated herein by reference. | |
|
10(j)
|
First Amendment dated as of February 19, 2010 to the Amended and Restated Credit Agreement dated August 29, 2007, among Cousins Properties Incorporated as the Principal Borrower (and the Co-Borrowers, as defined, and the Guarantors, as defined); Bank of America, N.A., as Administrative Agent, Swing Line Lender and L/C Issuer; Banc of America Securities LLC, as Sole Lead Arranger and Sole Book Manager; Eurohypo AG, New York Branch, as Syndication Agent; PNC Bank, N. A., Wachovia Bank, N. A., and Wells Fargo Bank, N. A., as Documentation Agents; Norddeutsche Landesbank Girozentrale, as Managing Agent; and Aareal Bank AG, Charter One BANK, N.A. and Regions Bank, as Co-Agents, filed as Exhibit 10.1 to the Registrant’s Current Report on form 8-K filed on February 25, 2010, and incorporated herein by reference. | |
|
11
|
Computation of Per Share Earnings. Data required by SFAS No. 128, “Earnings Per Share,” is provided in Note 2 of Notes to Consolidated Financial Statements included in this Annual Report on Form 10-K and incorporated herein by reference. | |
|
12†
|
Statement Regarding Computation of Earnings to Combined Fixed Charges and Preferred Dividends. | |
|
21†
|
Subsidiaries of the Registrant. | |
|
23†
|
Consent of Independent Registered Public Accounting Firm. | |
|
31.1†
|
Certification of the Chief Executive Officer Pursuant to Rule 13a-14(a), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. | |
|
31.2†
|
Certification of the Chief Financial Officer Pursuant to Rule 13a-14(a), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. | |
|
32.1†
|
Certification of the Chief Executive Officer Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. | |
|
32.2†
|
Certification of the Chief Financial Officer Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. |
| * | Indicates a management contract or compensatory plan or arrangement. | |
| † | Filed herewith. |
68
Table of Contents
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the
Securities Exchange Act of 1934, the Registrant has duly caused
this report to be signed on its behalf by the undersigned,
thereunto duly authorized.
Cousins Properties Incorporated
(Registrant)
(Registrant)
| BY: |
/s/ James
A. Fleming
|
James A. Fleming
Executive Vice President and Chief Financial
Officer (Duly Authorized Officer and Principal
Financial Officer)
Dated: February 26, 2010
Pursuant to the requirements of the Securities Exchange Act of
1934, this report has been signed below by the following persons
on behalf of the Registrant and in the capacities and on the
date indicated.
|
Signature
|
Capacity
|
Date
|
||||
|
/s/ Lawrence
L. Gellerstedt, III
|
Chief Executive Officer and President (Principal Executive
Officer)
|
February 26, 2010 | ||||
|
/s/ James
A. Fleming
|
Executive Vice President and
Chief Financial Officer (Principal Financial Officer) |
February 26, 2010 | ||||
|
/s/ John
D. Harris, Jr.
|
Senior Vice President, Chief Accounting Officer and Assistant
Secretary
(Principal Accounting Officer) |
February 26, 2010 | ||||
|
/s/ Erskine
B. Bowles
|
Director | February 26, 2010 | ||||
|
/s/ Tom
G. Charlesworth
|
Director | February 26, 2010 | ||||
|
/s/ James
D. Edwards
|
Director | February 26, 2010 | ||||
|
/s/ Lillian
C. Giornelli
|
Director | February 26, 2010 | ||||
|
/s/ S.
Taylor Glover
|
Chairman of the Board of Directors | February 26, 2010 | ||||
|
/s/ James
H. Hance, Jr.
|
Director | February 26, 2010 | ||||
69
Table of Contents
|
Signature
|
Capacity
|
Date
|
||||
|
/s/ William
B. Harrison, Jr.
|
Director | February 26, 2010 | ||||
|
/s/ Boone
A. Knox
|
Director | February 26, 2010 | ||||
|
/s/ William
Porter Payne
|
Director | February 26, 2010 | ||||
70
Table of Contents
INDEX
TO CONSOLIDATED FINANCIAL STATEMENTS
|
Cousins Properties Incorporated
|
Page | |||
| F-2 | ||||
| F-3 | ||||
| F-4 | ||||
| F-5 | ||||
| F-6 | ||||
| F-7 | ||||
F-1
Table of Contents
REPORT
OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board
of Directors and Stockholders of
Cousins Properties Incorporated:
Cousins Properties Incorporated:
We have audited the accompanying consolidated balance sheets of
Cousins Properties Incorporated and subsidiaries (the
“Company”) as of December 31, 2009 and 2008, and
the related consolidated statements of income, equity, and cash
flows for each of the three years in the period ended
December 31, 2009. Our audits also included the financial
statement schedule listed in the Index at Item 15. These
financial statements and financial statement schedule are the
responsibility of the Company’s management. Our
responsibility is to express an opinion on these financial
statements and financial statement schedule based on our audits.
We conducted our audits in accordance with the standards of the
Public Company Accounting Oversight Board (United States). 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 provide a
reasonable basis for our opinion.
In our opinion, such consolidated financial statements present
fairly, in all material respects, the financial position of
Cousins Properties Incorporated and subsidiaries as of
December 31, 2009 and 2008, and the results of their
operations and their cash flows for each of the three years in
the period ended December 31, 2009, in conformity with
accounting principles generally accepted in the United States of
America. Also, in our opinion, such financial statement
schedule, when considered in relation to the basic consolidated
financial statements taken as a whole, presents fairly, in all
material respects, the information set forth therein.
As described in Note 2 to the consolidated financial
statements, the Company adopted new accounting provisions with
respect to noncontrolling interests and retrospectively adjusted
all periods presented in the consolidated financial statements.
We have also audited, in accordance with the standards of the
Public Company Accounting Oversight Board (United States), the
Company’s internal control over financial reporting as of
December 31, 2009, based on the criteria established in
Internal Control — Integrated Framework
issued
by the Committee of Sponsoring Organizations of the Treadway
Commission and our report dated February 26, 2010 expressed
an unqualified opinion on the Company’s internal control
over financial reporting.
/s/ DELOITTE & TOUCHE LLP
Atlanta, Georgia
February 26, 2010
F-2
Table of Contents
CONSOLIDATED BALANCE SHEETS
(In thousands, except share and per share amounts)
| December 31, | ||||||||
| 2009 | 2008 | |||||||
|
ASSETS
|
||||||||
|
PROPERTIES:
|
||||||||
|
Operating properties, net of accumulated depreciation of
$233,091 and $182,050 in 2009 and 2008, respectively
|
$ | 1,006,760 | $ | 853,450 | ||||
|
Projects under development
|
— | 172,582 | ||||||
|
Land held for investment or future development
|
137,233 | 115,862 | ||||||
|
Residential lots
|
62,825 | 59,197 | ||||||
|
Multi-family units held for sale
|
28,504 | 70,658 | ||||||
|
Total properties
|
1,235,322 | 1,271,749 | ||||||
|
CASH AND CASH EQUIVALENTS
|
9,464 | 82,963 | ||||||
|
RESTRICTED CASH
|
3,585 | 3,636 | ||||||
|
NOTES AND OTHER RECEIVABLES,
net of allowance for
doubtful accounts of $5,734 and $2,764 in 2009 and 2008,
respectively
|
49,678 | 51,267 | ||||||
|
INVESTMENT IN UNCONSOLIDATED JOINT VENTURES
|
146,150 | 200,850 | ||||||
|
OTHER ASSETS
|
47,353 | 83,330 | ||||||
|
TOTAL ASSETS
|
$ | 1,491,552 | $ | 1,693,795 | ||||
| LIABILITIES AND EQUITY | ||||||||
|
NOTES PAYABLE
|
$ | 590,208 | $ | 942,239 | ||||
|
ACCOUNTS PAYABLE AND ACCRUED LIABILITIES
|
56,577 | 65,026 | ||||||
|
DEFERRED GAIN
|
4,452 | 171,838 | ||||||
|
DEPOSITS AND DEFERRED INCOME
|
7,465 | 6,485 | ||||||
|
TOTAL LIABILITIES
|
658,702 | 1,185,588 | ||||||
|
COMMITMENTS AND CONTINGENT LIABILITIES
|
||||||||
|
REDEEMABLE NONCONTROLLING INTERESTS
|
12,591 | 3,945 | ||||||
|
STOCKHOLDERS’ INVESTMENT:
|
||||||||
|
Preferred stock, 20,000,000 shares authorized, $1 par
value:
|
||||||||
|
7.75% Series A cumulative redeemable preferred stock, $25
liquidation preference; 2,993,090 shares issued and
outstanding in 2009 and 2008
|
74,827 | 74,827 | ||||||
|
7.50% Series B cumulative redeemable preferred stock, $25
liquidation preference; 3,791,000 shares issued and
outstanding in 2009 and 2008
|
94,775 | 94,775 | ||||||
|
Common stock, $1 par value, 150,000,000 shares
authorized, 103,352,382 and 54,922,173 shares issued in
2009 and 2008, respectively
|
103,352 | 54,922 | ||||||
|
Additional paid-in capital
|
662,216 | 368,829 | ||||||
|
Treasury stock at cost, 3,570,082 shares in 2009 and 2008
|
(86,840 | ) | (86,840 | ) | ||||
|
Accumulated other comprehensive loss on derivative instruments
|
(9,517 | ) | (16,601 | ) | ||||
|
Distributions in excess of net income
|
(51,402 | ) | (23,189 | ) | ||||
|
TOTAL STOCKHOLDERS’ INVESTMENT
|
787,411 | 466,723 | ||||||
|
Nonredeemable noncontrolling interests
|
32,848 | 37,539 | ||||||
|
TOTAL EQUITY
|
820,259 | 504,262 | ||||||
|
TOTAL LIABILITIES AND EQUITY
|
$ | 1,491,552 | $ | 1,693,795 | ||||
See notes to consolidated financial statements.
F-3
Table of Contents
CONSOLIDATED STATEMENTS OF INCOME
(In thousands, except per share amounts)
| Years Ended December 31, | ||||||||||||
| 2009 | 2008 | 2007 | ||||||||||
|
REVENUES:
|
||||||||||||
|
Rental property revenues
|
$ | 149,789 | $ | 147,394 | $ | 112,645 | ||||||
|
Fee income
|
33,806 | 47,662 | 36,314 | |||||||||
|
Multi-family residential unit sales
|
30,841 | 8,444 | 20 | |||||||||
|
Residential lot and outparcel sales
|
7,421 | 6,993 | 9,949 | |||||||||
|
Interest and other
|
3,025 | 4,158 | 6,429 | |||||||||
| 224,882 | 214,651 | 165,357 | ||||||||||
|
COSTS AND EXPENSES:
|
||||||||||||
|
Rental property operating expenses
|
66,565 | 56,607 | 46,139 | |||||||||
|
Multi-family residential unit cost of sales
|
25,629 | 7,330 | (124 | ) | ||||||||
|
Residential lot and outparcel cost of sales
|
5,023 | 3,776 | 7,809 | |||||||||
|
General and administrative expenses
|
33,948 | 40,988 | 40,643 | |||||||||
|
Separation expenses
|
3,257 | 1,186 | — | |||||||||
|
Reimbursed general and administrative expenses
|
15,506 | 16,279 | 17,167 | |||||||||
|
Depreciation and amortization
|
55,833 | 52,925 | 39,796 | |||||||||
|
Interest expense
|
41,393 | 33,151 | 8,816 | |||||||||
|
Impairment losses
|
40,512 | 2,100 | — | |||||||||
|
Other
|
13,143 | 6,049 | 2,822 | |||||||||
| 300,809 | 220,391 | 163,068 | ||||||||||
|
GAIN (LOSS) ON EXTINGUISHMENT OF DEBT AND INTEREST RATE
SWAPS, NET
|
9,732 | — | (446 | ) | ||||||||
|
INCOME (LOSS) FROM CONTINUING OPERATIONS BEFORE TAXES,
UNCONSOLIDATED JOINT VENTURES AND SALE OF INVESTMENT
PROPERTIES
|
(66,195 | ) | (5,740 | ) | 1,843 | |||||||
|
(PROVISION) BENEFIT FOR INCOME TAXES FROM OPERATIONS
|
(4,341 | ) | 8,770 | 4,423 | ||||||||
|
INCOME (LOSS) FROM UNCONSOLIDATED JOINT VENTURES:
|
||||||||||||
|
Equity in net income (loss) from unconsolidated joint ventures
|
(17,639 | ) | 9,721 | 6,096 | ||||||||
|
Impairment losses on investments in unconsolidated joint ventures
|
(51,058 | ) | — | — | ||||||||
| (68,697 | ) | 9,721 | 6,096 | |||||||||
|
INCOME (LOSS) FROM CONTINUING OPERATIONS BEFORE GAIN ON SALE
OF INVESTMENT PROPERTIES
|
(139,233 | ) | 12,751 | 12,362 | ||||||||
|
GAIN ON SALE OF INVESTMENT PROPERTIES
|
168,637 | 10,799 | 5,535 | |||||||||
|
INCOME FROM CONTINUING OPERATIONS
|
29,404 | 23,550 | 17,897 | |||||||||
|
DISCONTINUED OPERATIONS:
|
||||||||||||
|
Loss from discontinued operations
|
(4 | ) | (1,097 | ) | (1,414 | ) | ||||||
|
Gain on sale of investment properties
|
147 | 2,472 | 18,095 | |||||||||
| 143 | 1,375 | 16,681 | ||||||||||
|
NET INCOME
|
29,547 | 24,925 | 34,578 | |||||||||
|
NET INCOME ATTRIBUTABLE TO NONCONTROLLING INTERESTS
|
(2,252 | ) | (2,378 | ) | (1,656 | ) | ||||||
|
NET INCOME ATTRIBUTABLE TO CONTROLLING INTEREST
|
27,295 | 22,547 | 32,922 | |||||||||
|
DIVIDENDS TO PREFERRED STOCKHOLDERS
|
(12,907 | ) | (14,957 | ) | (15,250 | ) | ||||||
|
NET INCOME AVAILABLE TO COMMON STOCKHOLDERS
|
$ | 14,388 | $ | 7,590 | $ | 17,672 | ||||||
|
PER COMMON SHARE INFORMATION — BASIC:
|
||||||||||||
|
Income from continuing operations attributable to controlling
interest
|
$ | 0.22 | $ | 0.12 | $ | 0.02 | ||||||
|
Income from discontinued operations
|
— | 0.03 | 0.32 | |||||||||
|
Basic net income available to common stockholders
|
$ | 0.22 | $ | 0.15 | $ | 0.34 | ||||||
|
PER COMMON SHARE INFORMATION — DILUTED:
|
||||||||||||
|
Income from continuing operations attributable to controlling
interest
|
$ | 0.22 | $ | 0.12 | $ | 0.02 | ||||||
|
Income from discontinued operations
|
— | 0.03 | 0.31 | |||||||||
|
Diluted net income available to common stockholders
|
$ | 0.22 | $ | 0.15 | $ | 0.33 | ||||||
|
DIVIDENDS DECLARED PER COMMON SHARE
|
$ | 0.74 | $ | 1.36 | $ | 1.48 | ||||||
See notes to consolidated financial statements.
F-4
Table of Contents
COUSINS
PROPERTIES INCORPORATED
CONSOLIDATED STATEMENTS OF EQUITY
Years Ended December 31, 2009, 2008, and 2007
(In thousands)
CONSOLIDATED STATEMENTS OF EQUITY
Years Ended December 31, 2009, 2008, and 2007
(In thousands)
|
Cumulative
|
||||||||||||||||||||||||||||||||||||
|
Undistributed
|
||||||||||||||||||||||||||||||||||||
|
Accumulated
|
Net Income
|
|||||||||||||||||||||||||||||||||||
|
Additional
|
Other
|
(Distributions in
|
Nonredeemable
|
|||||||||||||||||||||||||||||||||
|
Preferred
|
Common
|
Paid-In
|
Treasury
|
Comprehensive
|
Excess of
|
Total Stockholders’
|
Noncontrolling
|
|||||||||||||||||||||||||||||
| Stock | Stock | Capital | Stock | Loss | Net Income) | Investment | Interests | Total | ||||||||||||||||||||||||||||
|
Balance December 31,
2006
|
$ | 200,000 | $ | 54,439 | $ | 336,974 | $ | (64,894 | ) | $ | — | $ | 99,396 | $ | 625,915 | $ | 36,775 | $ | 662,690 | |||||||||||||||||
|
Net income
|
— | — | — | — | — | 32,922 | 32,922 | 1,658 | 34,580 | |||||||||||||||||||||||||||
|
Other comprehensive loss
|
— | — | — | — | (4,302 | ) | — | (4,302 | ) | — | (4,302 | ) | ||||||||||||||||||||||||
|
Total comprehensive income (loss)
|
— | — | — | — | (4,302 | ) | 32,922 | 28,620 | 1,658 | 30,278 | ||||||||||||||||||||||||||
|
Repurchase of preferred stock
|
— | — | — | — | — | — | — | — | — | |||||||||||||||||||||||||||
|
Common stock issued pursuant to:
|
||||||||||||||||||||||||||||||||||||
|
Exercise of options and grants under director stock plan
|
— | 373 | 5,683 | — | — | — | 6,056 | — | 6,056 | |||||||||||||||||||||||||||
|
Restricted stock grants, net of amounts withheld for income taxes
|
— | 43 | (551 | ) | — | — | — | (508 | ) | — | (508 | ) | ||||||||||||||||||||||||
|
Amortization of stock options and
|
||||||||||||||||||||||||||||||||||||
|
restricted stock, net of forfeitures
|
— | (4 | ) | 5,619 | — | — | — | 5,615 | — | 5,615 | ||||||||||||||||||||||||||
|
Income tax benefit from stock based compensation
|
— | — | 783 | — | — | — | 783 | — | 783 | |||||||||||||||||||||||||||
|
Contributions from noncontrolling interests
|
— | — | — | — | — | — | — | 2,363 | 2,363 | |||||||||||||||||||||||||||
|
Distributions to noncontrolling interests
|
— | — | — | — | — | — | — | (2,377 | ) | (2,377 | ) | |||||||||||||||||||||||||
|
Decrease for change in fair value of redeemable noncontrolling
interests
|
— | — | — | — | — | 2,318 | 2,318 | — | 2,318 | |||||||||||||||||||||||||||
|
Purchase of treasury stock
|
— | — | — | (21,946 | ) | — | — | (21,946 | ) | (21,946 | ) | |||||||||||||||||||||||||
|
Preferred dividends paid
|
— | — | — | — | — | (15,250 | ) | (15,250 | ) | — | (15,250 | ) | ||||||||||||||||||||||||
|
Common dividends paid
|
— | — | — | — | — | (76,782 | ) | (76,782 | ) | — | (76,782 | ) | ||||||||||||||||||||||||
|
Balance December 31, 2007
|
200,000 | 54,851 | 348,508 | (86,840 | ) | (4,302 | ) | 42,604 | 554,821 | 38,419 | 593,240 | |||||||||||||||||||||||||
|
Net income
|
— | — | — | — | — | 22,547 | 22,547 | 2,731 | 25,278 | |||||||||||||||||||||||||||
|
Other comprehensive loss
|
— | — | — | — | (12,299 | ) | — | (12,299 | ) | — | (12,299 | ) | ||||||||||||||||||||||||
|
Total comprehensive income (loss)
|
— | — | — | — | (12,299 | ) | 22,547 | 10,248 | 2,731 | 12,979 | ||||||||||||||||||||||||||
|
Repurchase of preferred stock
|
(30,398 | ) | — | 14,557 | — | — | — | (15,841 | ) | — | (15,841 | ) | ||||||||||||||||||||||||
|
Common stock issued pursuant to:
|
||||||||||||||||||||||||||||||||||||
|
Exercise of options and grants under director stock plan
|
— | 105 | 1,771 | — | — | — | 1,876 | — | 1,876 | |||||||||||||||||||||||||||
|
Restricted stock grants, net of amounts withheld for income taxes
|
— | (16 | ) | (257 | ) | — | — | — | (273 | ) | — | (273 | ) | |||||||||||||||||||||||
|
Amortization of stock options and restricted stock, net of
forfeitures
|
— | (18 | ) | 4,296 | — | — | — | 4,278 | — | 4,278 | ||||||||||||||||||||||||||
|
Income tax deficiency from stock based compensation
|
— | — | (46 | ) | — | — | — | (46 | ) | — | (46 | ) | ||||||||||||||||||||||||
|
Contributions from noncontrolling interests
|
— | — | — | |||||||||||||||||||||||||||||||||
|
Distributions to noncontrolling interests
|
— | — | — | — | — | — | — | (3,767 | ) | (3,767 | ) | |||||||||||||||||||||||||
|
Decrease for change in fair value of redeemable noncontrolling
interests
|
— | — | — | — | — | (3,282 | ) | (3,282 | ) | 156 | (3,126 | ) | ||||||||||||||||||||||||
|
Preferred dividends paid
|
— | — | — | — | — | (15,250 | ) | (15,250 | ) | — | (15,250 | ) | ||||||||||||||||||||||||
|
Common dividends paid
|
— | — | — | — | — | (69,808 | ) | (69,808 | ) | — | (69,808 | ) | ||||||||||||||||||||||||
|
Balance December 31, 2008
|
169,602 | 54,922 | 368,829 | (86,840 | ) | (16,601 | ) | (23,189 | ) | 466,723 | 37,539 | 504,262 | ||||||||||||||||||||||||
|
Net income
|
— | — | — | — | — | 27,295 | 27,295 | 2,426 | 29,721 | |||||||||||||||||||||||||||
|
Other comprehensive income
|
— | — | — | — | 7,084 | — | 7,084 | — | 7,084 | |||||||||||||||||||||||||||
|
Total comprehensive income
|
— | — | — | — | 7,084 | 27,295 | 34,379 | 2,426 | 36,805 | |||||||||||||||||||||||||||
|
Common stock issued pursuant to:
|
||||||||||||||||||||||||||||||||||||
|
Common stock offering, net of issuance costs
|
— | 46,000 | 272,406 | — | — | — | 318,406 | — | 318,406 | |||||||||||||||||||||||||||
|
Grants under director stock plan
|
— | 29 | 236 | — | — | — | 265 | — | 265 | |||||||||||||||||||||||||||
|
Common stock issued pursuant to stock dividend
|
— | 2,420 | 17,291 | — | — | (19,711 | ) | — | — | — | ||||||||||||||||||||||||||
|
Amortization of stock options and restricted stock, net of
forfeitures
|
— | (19 | ) | 3,497 | — | — | — | 3,478 | — | 3,478 | ||||||||||||||||||||||||||
|
Income tax deficiency from stock based compensation
|
— | — | (43 | ) | — | — | — | (43 | ) | — | (43 | ) | ||||||||||||||||||||||||
|
Distributions to noncontrolling interests
|
— | — | — | — | — | — | — | (7,117 | ) | (7,117 | ) | |||||||||||||||||||||||||
|
Decrease for change in fair value of redeemable noncontrolling
interests
|
— | — | — | — | — | (180 | ) | (180 | ) | — | (180 | ) | ||||||||||||||||||||||||
|
Cash preferred dividends paid
|
— | — | — | — | — | (12,907 | ) | (12,907 | ) | — | (12,907 | ) | ||||||||||||||||||||||||
|
Cash common dividends paid
|
— | — | — | — | — | (22,710 | ) | (22,710 | ) | — | (22,710 | ) | ||||||||||||||||||||||||
|
Balance December 31, 2009
|
$ | 169,602 | $ | 103,352 | $ | 662,216 | $ | (86,840 | ) | $ | (9,517 | ) | $ | (51,402 | ) | $ | 787,411 | $ | 32,848 | $ | 820,259 | |||||||||||||||
See notes to consolidated financial statements.
F-5
Table of Contents
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
| Years Ended December 31, | ||||||||||||
| 2009 | 2008 | 2007 | ||||||||||
|
CASH FLOWS FROM OPERATING ACTIVITIES:
|
||||||||||||
|
Net income
|
$ | 29,547 | $ | 24,925 | $ | 34,578 | ||||||
|
Adjustments to reconcile net income to net cash flows provided
by operating activities:
|
||||||||||||
|
Gain on sale of investment properties, including discontinued
operations
|
(168,784 | ) | (13,271 | ) | (23,630 | ) | ||||||
|
Loss (gain) on extinguishment of debt
|
(12,498 | ) | — | 446 | ||||||||
|
Impairment losses
|
40,512 | 2,100 | — | |||||||||
|
Impairment losses on investments in unconsolidated joint ventures
|
51,058 | — | — | |||||||||
|
Losses on abandoned predevelopment projects
|
7,723 | 1,053 | — | |||||||||
|
Depreciation and amortization
|
55,833 | 53,412 | 40,642 | |||||||||
|
Amortization of deferred financing costs
|
1,473 | 1,587 | 1,127 | |||||||||
|
Stock-based compensation
|
3,743 | 4,726 | 5,615 | |||||||||
|
Change in deferred income taxes
|
8,897 | (9,185 | ) | (637 | ) | |||||||
|
Effect of recognizing rental revenues on a straight-line or
market basis
|
(4,970 | ) | (3,852 | ) | (2,640 | ) | ||||||
|
Loss (income) from unconsolidated joint ventures
|
17,639 | (9,721 | ) | (6,096 | ) | |||||||
|
Operating distributions from unconsolidated joint ventures
|
7,237 | 23,751 | 7,716 | |||||||||
|
Residential lot, outparcel and multi-family cost of sales, net
of closing costs paid
|
27,415 | 10,681 | 7,326 | |||||||||
|
Residential lot, outparcel and multi-family acquisition and
development expenditures
|
(7,283 | ) | (52,151 | ) | (54,941 | ) | ||||||
|
Income tax deficiency (benefit) from stock based compensation
expense
|
43 | 46 | (783 | ) | ||||||||
|
Changes in other operating assets and liabilities:
|
||||||||||||
|
Change in other receivables and other assets
|
(3,537 | ) | 6,177 | (2,942 | ) | |||||||
|
Change in accounts payable and accrued liabilities
|
(10,884 | ) | 290 | 7,923 | ||||||||
|
Net cash provided by operating activities
|
43,164 | 40,568 | 13,704 | |||||||||
|
CASH FLOWS FROM INVESTING ACTIVITIES:
|
||||||||||||
|
Proceeds from investment property sales
|
11,727 | 44,913 | 37,947 | |||||||||
|
Proceeds from venture formation
|
— | — | 20,550 | |||||||||
|
Property acquisition and development expenditures
|
(53,874 | ) | (159,131 | ) | (283,966 | ) | ||||||
|
Investment in unconsolidated joint ventures
|
(5,234 | ) | (24,603 | ) | (14,413 | ) | ||||||
|
Distributions from unconsolidated joint ventures
|
4,830 | 17,630 | 14,871 | |||||||||
|
Investment in notes receivable, net
|
(34 | ) | 174 | (4,159 | ) | |||||||
|
Change in other assets, net
|
(2,812 | ) | (12,664 | ) | (23,946 | ) | ||||||
|
Change in restricted cash
|
51 | (49 | ) | (763 | ) | |||||||
|
Net cash used in investing activities
|
(45,346 | ) | (133,730 | ) | (253,879 | ) | ||||||
|
CASH FLOWS FROM FINANCING ACTIVITIES:
|
||||||||||||
|
Proceeds from credit facility
|
165,000 | 501,725 | 1,580,625 | |||||||||
|
Repayment of credit facility
|
(436,000 | ) | (243,325 | ) | (1,620,925 | ) | ||||||
|
Payment of loan issuance costs
|
— | (320 | ) | (4,710 | ) | |||||||
|
Proceeds from other notes payable
|
— | 18,401 | 425,779 | |||||||||
|
Repayment of other notes payable
|
(75,819 | ) | (10,751 | ) | (24,439 | ) | ||||||
|
Common stock issued, net of expenses
|
318,406 | 1,156 | 5,548 | |||||||||
|
Repurchase of preferred stock
|
— | (15,841 | ) | — | ||||||||
|
Repurchase of common stock
|
— | — | (21,946 | ) | ||||||||
|
Income tax benefit (deficiency) from stock based compensation
expense
|
(43 | ) | (46 | ) | 783 | |||||||
|
Cash common dividends paid
|
(22,710 | ) | (69,808 | ) | (76,782 | ) | ||||||
|
Cash preferred dividends paid
|
(12,907 | ) | (15,250 | ) | (15,250 | ) | ||||||
|
Contributions from noncontrolling interests
|
32 | 11 | 416 | |||||||||
|
Distributions to noncontrolling interests
|
(7,276 | ) | (7,652 | ) | (2,637 | ) | ||||||
|
Net cash provided by (used in) financing activities
|
(71,317 | ) | 158,300 | 246,462 | ||||||||
|
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS
|
(73,499 | ) | 65,138 | 6,287 | ||||||||
|
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD
|
82,963 | 17,825 | 11,538 | |||||||||
|
CASH AND CASH EQUIVALENTS AT END OF PERIOD
|
$ | 9,464 | $ | 82,963 | $ | 17,825 | ||||||
See notes to consolidated financial statements.
F-6
Table of Contents
COUSINS
PROPERTIES INCORPORATED AND SUBSIDIARIES
| 1. | DESCRIPTION OF BUSINESS AND BASIS OF PRESENTATION |
Description of Business:
Cousins Properties
Incorporated (“Cousins”), a Georgia corporation, is a
self-administered
and self-managed real estate investment trust
(“REIT”). Cousins Real Estate Corporation
(“CREC”) is a taxable entity wholly-owned by and
consolidated with Cousins. CREC owns, develops, and manages its
own real estate portfolio and performs certain real estate
related services for other parties.
Cousins, CREC and their subsidiaries (collectively, the
“Company”) develop, manage and own office,
multi-family,
retail, industrial and residential real estate projects. As of
December 31, 2009, the Company’s portfolio of real
estate assets consisted of interests in 7.5 million square
feet of office space, 4.7 million square feet of retail
space, 2.0 million square feet of industrial space, 86
for-sale units in two completed multi-family projects, interests
in 24 residential communities under development or held for
future development, approximately 9,400 acres of
strategically located land tracts held for investment or future
development, and significant land holdings for development of
single-family residential communities. The Company also provides
leasing
and/or
management services for approximately 14.3 million square
feet of office and retail space owned by third parties.
Basis of Presentation:
The Consolidated
Financial Statements include the accounts of Cousins, its
consolidated partnerships and wholly-owned subsidiaries and CREC
and its consolidated subsidiaries. Intercompany transactions and
balances have been eliminated in consolidation. The Company
presents its financial statements in accordance with accounting
principles generally accepted in the United States
(“GAAP”). In the third quarter of 2009, the Financial
Accounting Standard Board’s Accounting Standards
Codification (the “Codification” or “ASC”)
became effective for the Company. The Codification is the single
source of authoritative accounting principles applied by
nongovernmental entities in the preparation of financial
statements in conformity with GAAP. The Codification does not
change current GAAP, but is intended to simplify user access to
GAAP by providing all the authoritative literature related to a
particular topic in one place. As of the effective date, all
existing accounting standard documents were superseded.
Accordingly, this report references the Codification as the sole
source of authoritative literature.
The Company evaluates all partnership interests or other
variable interests to determine if the interest qualifies as a
variable interest entity (“VIE”), as defined in ASC
810. If the interest represents a VIE and the Company is
determined to be the primary beneficiary, the Company
consolidates the assets, liabilities and results of operations
of the VIE.
The Company has a joint venture with Callaway Gardens Resort,
Inc. (“Callaway”) for the development of residential
lots within The Callaway Gardens Resort outside of Atlanta,
Georgia. The joint venture is considered to be a VIE, and the
Company was determined to be the primary beneficiary. The
project is anticipated to be funded fully through Company
contributions, and Callaway has no obligation to fund any costs.
Although the Company is contributing all of the equity to the
venture, Callaway has the right to receive returns from the
project, but absorbs no losses. The Company is the sole decision
maker for the venture and the development manager. As of
December 31, 2009, the VIE had total assets of
$1.7 million, which are consolidated in the Consolidated
Balance Sheet at December 31, 2009, and no substantial
liabilities.
The Company has an investment in Glenmore Garden Villas LLC
(“Glenmore”), a townhome project in Charlotte, North
Carolina. In the third quarter of 2009, the Company determined
that it would absorb the majority of the expected losses of
Glenmore and concluded that Glenmore was a VIE and that the
Company was the primary beneficiary. At that time, the Company
began consolidating Glenmore. As of December 31, 2009,
Glenmore had total assets of $3.8 million and liabilities
of $8.7 million.
The Company has an investment in Handy Road Associates, LLC
(“Handy Road”), a
50-50
joint
venture which owns 1,187 acres of land in suburban Atlanta,
Georgia intended for future development
and/or
sale.
In the second quarter of 2009, the partner in this venture
indicated it will not make further capital contributions, and
the Company determined the partner would not receive any of the
economic benefits of the entity. As a result, the Company
determined the venture was a VIE, and the Company was the
primary beneficiary. The Company began
F-7
Table of Contents
COUSINS
PROPERTIES INCORPORATED AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
consolidating Handy Road in the second quarter of 2009. As of
December 31, 2009, Handy Road had total assets of
$5.4 million and total liabilities of $3.4 million.
Effective January 1, 2009, under new guidance within ASC
810, certain amounts formerly reflected as minority interests
were renamed noncontrolling interests and reflected in Equity,
if appropriate, in the Company’s Consolidated Balance
Sheets. See Note 13 for additional information.
For unconsolidated entities that the Company does not control,
but exercises significant influence, the Company uses the equity
method of accounting. Descriptions of each of the Company’s
investments accounted for under the equity method are included
in Note 5.
| 2. | SIGNIFICANT ACCOUNTING POLICIES |
Long-Lived
Assets
Cost Capitalization:
Costs related to
planning, developing, leasing and constructing a property are
capitalized and classified as Properties in the Consolidated
Balance Sheets. These costs include costs of development
personnel who work directly on projects under construction based
on actual time spent on each project. In addition, the Company
capitalizes interest to qualifying assets under development
based on average accumulated expenditures outstanding during the
period. In capitalizing interest to qualifying assets, the
Company first uses the interest incurred on specific project
debt, if any, and next uses the Company’s weighted average
interest rate for non-project specific debt. The Company also
capitalizes interest to investments accounted for under the
equity method when the investee has property under development
with a carrying value in excess of the investee’s
borrowings. To the extent debt exists at the venture during the
construction period, the venture capitalizes interest on that
venture specific debt.
The Company capitalizes interest, real estate taxes and certain
operating expenses on the unoccupied portion of recently
completed properties from the date a project receives its
certificate of occupancy to the earlier of the date on which the
project achieves 95% economic occupancy or one year thereafter.
The Company capitalizes leasing costs which include commissions
paid to outside brokers, legal costs incurred to negotiate and
document a lease agreement and internal costs based on actual
time spent by leasing personnel on successful leases for initial
direct leasing activities. The Company allocates these costs to
individual tenant leases and amortizes them over the related
lease term.
Impairment:
The Company’s long-lived
assets are mainly its real estate assets, which include
operating properties, undeveloped land, residential lots and
multi-family units. In accordance with ASC 360, management
reviews each of its long-lived assets for the existence of any
indicators of impairment. If indicators of impairment are
present for long-lived assets which are held for use, the
Company calculates the probability-weighted expected
undiscounted future cash flows to be derived from such assets.
If the undiscounted cash flows are less than the carrying amount
of the real estate project, a fair value analysis is prepared,
and the long-lived asset is reduced to its fair value. If a
long-lived asset is considered held for sale, the Company
recognizes impairment losses if the fair value, net of selling
costs, is less than its carrying value. The Company recognized
impairment losses in 2009 and 2008 on certain of its real estate
investments — see Note 6 for more information.
The accounting for long-lived assets is the same within the
Company’s unconsolidated joint ventures. In 2009 and 2008,
certain unconsolidated joint ventures recorded impairment
charges. See Note 5 for more information. These impairment
charges were recognized in Income from Unconsolidated Joint
Ventures in the Consolidated Statements of Income. No
significant impairments were recorded by the Company’s
unconsolidated joint ventures in 2007.
The Company evaluates its investments in unconsolidated joint
ventures for impairment in accordance with ASC 323. The Company
reviews each investment in unconsolidated joint ventures for any
indicators of impairment. If an indicator is present, the
Company estimates the fair value of the investment. If the
carrying value of the
F-8
Table of Contents
COUSINS
PROPERTIES INCORPORATED AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
investment in unconsolidated joint venture is greater than the
estimated fair value, management makes an assessment of whether
the impairment is “temporary” or
“other-than-temporary.”
In making this assessment, management considers the following:
(1) the length of time and the extent to which fair value
has been less than cost, (2) the financial condition and
near-term prospects of the entity, and (3) the
Company’s intent and ability to retain its interest long
enough for a recovery in market value. During 2009, the Company
recorded impairment losses on its investments in four of its
unconsolidated joint ventures. See Note 6 for more
information. The Company recorded no impairment losses on any of
its investments in joint ventures in 2008 or 2007.
The Company evaluates impairment of its goodwill in accordance
with ASC 350. The Company does not amortize goodwill, but tests
goodwill annually, as of November 30 (or at any point during the
year if indicators of impairment exists), for impairment using a
discounted cash flow analysis. The Company recorded no goodwill
impairments during 2009, 2008, or 2007. See Note 11 for
more information related to goodwill.
Acquisition of Operating Properties:
The
Company allocates the purchase price of operating properties
acquired to land, building, tenant improvements and identifiable
intangible assets and liabilities based upon relative fair
values at the date of acquisition in accordance with applicable
accounting guidelines. The Company assesses fair value based on
estimated cash flow projections that utilize appropriate
discount
and/or
capitalization rates, as well as available market information.
Estimates of future cash flows are based on a number of factors
including the historical operating results, known and
anticipated trends, and market and economic conditions. The
values assigned to the tangible assets of an acquired property
are based on the market values for land and tenant improvements
and an analysis of the fair value of the building as if it were
vacant. Intangible assets can consist of above or below market
tenant and ground leases, customer relationships or the value of
in-place leases. The values of the above and below market tenant
and ground leases are recorded within Other Assets or Accounts
Payable and Accrued Liabilities, in the Consolidated Balance
Sheets. Above or below market tenant leases are amortized into
rental revenues over the individual remaining lease terms, and
above or below market ground leases are amortized into ground
rent expense over the remaining term of the associated lease.
The value associated with in-place leases is recorded in Other
Assets and amortized to depreciation and amortization expense
over the expected term (see Note 11 for further detail on
Intangible Assets). On operating properties it has acquired
to-date, the Company has not recorded any value to customer
relationships. Tangible assets acquired are depreciated using
the methodology detailed below in the Depreciation and
Amortization section. For property acquisitions after
January 1, 2009, the Company will follow new accounting
guidelines, which could materially affect the allocation of
components of assets and will require the expensing of certain
closing costs; however, the effect on the Company cannot be
currently quantified. There were no significant property
acquisitions in 2009.
Depreciation and Amortization:
Real estate
assets are stated at the lower of fair value or depreciated
cost. Buildings are depreciated over their estimated useful
lives, which range from
15-40 years.
The life utilized depends upon a number of factors including
whether the building was developed or acquired and the condition
of the building upon acquisition. Furniture, fixtures and
equipment are depreciated over their estimated useful lives of
three to five years. Tenant improvements, leasing costs and
leasehold improvements are amortized over the term of the
applicable leases or the estimated useful life of the assets,
whichever is shorter. The Company accelerates the depreciation
of tenant assets when it estimates that the lease term will be
adjusted. This may occur if a tenant files for bankruptcy,
vacates its premises or defaults in another manner on its lease.
Deferred expenses are amortized over the period of estimated
benefit. The Company uses the straight-line method for all
depreciation and amortization.
Discontinued Operations:
In addition to the
impairment analyses guidance discussed above, gains and losses
from the disposition of certain real estate assets and the
related historical results of operations of these disposed of or
held-for-sale
assets are included in a separate section, discontinued
operations, in the statements of income for all periods
presented. The Company considers operating properties sold or
held for sale to be discontinued operations if the Company has
no significant continuing involvement. The Company also ceases
F-9
Table of Contents
COUSINS
PROPERTIES INCORPORATED AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
depreciation of a property when it is categorized as held for
sale. See Note 9 for a detail of property transactions that
met these requirements.
Revenue
Recognition
Rental Property Revenues:
The Company
recognizes income from 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 on a straight-line basis. The Company
recognizes revenues from tenants for operating expenses that the
Company incurs which may be billed back to the tenants pursuant
to their lease agreements. These operating expenses include
items such as real estate taxes, insurance and other property
operating costs. During 2009, 2008 and 2007, the Company
recognized $28.6 million, $29.6 million and
$20.6 million, respectively, in revenues for recoveries
from tenants.
The Company makes valuation adjustments to all tenant-related
revenue based upon its estimate of the likelihood of
collectibility of amounts due from the tenant. The Company
analyzes the tenant’s credit and business risk, history of
payment and other factors in order to aid in its assessment. The
Company generally reserves revenues on specific tenants where
rental payments or reimbursements are delinquent 90 days or
more. Reserves may also be recorded for amounts outstanding less
than 90 days if management deems the collectibility is
highly questionable.
Fee Income:
The Company recognizes development
and leasing fees when earned. The Company recognizes development
and leasing fees received from unconsolidated joint ventures and
related salaries and other direct costs incurred by the Company
as income and expense based on the percentage of the joint
venture which the Company does not own. Correspondingly, the
Company adjusts the Investment in Unconsolidated Joint Venture
asset when fees are paid to the Company by a joint venture in
which the Company has an ownership interest. The Company
amortizes these adjustments over a relevant period in income
from unconsolidated joint ventures.
Under management agreements with both third party property
owners and joint venture properties in which the Company has an
ownership interest, the Company receives management fees, as
well as expense reimbursements comprised primarily of
on-site
personnel’s salaries and benefits. The Company expenses
salaries and other direct costs related to these management
agreements. The Company also obtains reimbursements for certain
expenditures incurred under development agreements with both
third party and joint venture entities. The Company records
management and development fees and the related reimbursements
in Fee Income on the Consolidated Statements of Income in the
same period as the corresponding expenses are incurred.
Reimbursements from third party and unconsolidated joint venture
management and development contracts were $15.5 million,
$16.3 million and $17.2 million for the years ended
December 31, 2009, 2008 and 2007, respectively.
Multi-Family Residential Unit Sales:
The
Company recognizes sales and related cost of sales of
multi-family
residential units by estimating profit percentages for the
entire project and applying these percentages to each individual
unit sale in a consistent manner. If the anticipated profit
estimate changes during the course of a project, the Company
adjusts cost of sales prospectively to reflect the new metrics.
The Company recognizes forfeited deposits in income as earned.
In certain situations, the Company has financed unit sales and
recognizes profits on these sales under the deposit method of
accounting. The multi-family held for sale asset on the
Consolidated Balance Sheet as of December 31, 2009 contains
approximately $2.0 million of assets that are under certain
types of sales contracts that have not met the requirements of
sales recognition under accounting rules. In addition, the asset
also includes $1.8 million of units under short-term rental
leases, which are therefore not currently available for sale.
Residential Lot Sales:
The Company recognizes
sales and related cost of sales of developed lots to
homebuilders, the majority of which historically have been
accounted for on the full accrual method. If a substantial
continuing obligation exists related to the sale, the Company
uses the percentage of completion method. If other criteria for
the full accrual method are not met, the Company utilizes the
appropriate revenue recognition
F-10
Table of Contents
COUSINS
PROPERTIES INCORPORATED AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
policy as detailed in the rules. Management estimates profit
percentages for the entire project and applies these percentages
to each individual lot sale in a consistent manner. If the
anticipated profit estimate changes during the course of a
project, the Company adjusts cost of sales prospectively to
reflect the new metrics.
Gain on Sale of Investment Properties:
The
Company recognizes a gain on sale of investment when the sale of
a property is consummated, the buyer’s initial and
continuing investment is adequate to demonstrate commitment to
pay, any receivable obtained is not subject to future
subordination, the usual risks and rewards of ownership are
transferred and the seller has no substantial continuing
involvement with the property. If the Company has a commitment
to the buyer and that commitment is a specific dollar amount,
this commitment is accrued and the gain on sale that the Company
recognizes is reduced. If the Company has a construction
commitment to the buyer, management makes an estimate of this
commitment, defers a portion of the profit from the sale and
recognizes the deferred profit as or when the commitment is
fulfilled.
Income
Taxes
Cousins has elected to be taxed as a REIT under the Internal
Revenue Code of 1986, as amended (the “Code”). To
qualify as a REIT, Cousins must distribute annually at least 90%
of its adjusted taxable income, as defined in the Code, to its
stockholders and satisfy certain other organizational and
operating requirements. It is management’s current
intention to adhere to these requirements and maintain
Cousins’ REIT status. As a REIT, Cousins generally will not
be subject to federal income tax at the corporate level on the
taxable income it distributes to its stockholders. If Cousins
fails to qualify as a REIT in any taxable year, it will be
subject to federal income taxes at regular corporate rates
(including any applicable alternative minimum tax) and may not
be able to qualify as a REIT for four subsequent taxable years.
Cousins may be subject to certain state and local taxes on its
income and property, and to federal income taxes on its
undistributed taxable income.
CREC, a C-Corporation for federal income tax purposes, uses the
liability method of accounting for income taxes. Tax return
positions are recognized in the financial statements when they
are “more-likely-than-not” to be sustained upon
examination by the taxing authority. Deferred income tax assets
and liabilities result from temporary differences. Temporary
differences are differences between the tax bases of assets and
liabilities and their reported amounts in the financial
statements that will result in taxable or deductible amounts in
future periods. A valuation allowance may be placed on deferred
income tax assets. See Note 8 for more information
regarding the tax position of the Company.
Stock-Based
Compensation
The Company has several types of stock-based compensation plans
which are described in Note 7. The Company follows the rules for
stock-based compensation as outlined in the ASC. Companies are
required to recognize the grant date fair value of share-based
awards over the requisite service period of the awards as
compensation expense. The Company uses the Black-Scholes model
to value its stock option grants and estimates forfeitures in
calculating the expense related to stock-based compensation. In
addition, the Company reflects the impact of tax deductions for
stock based compensation as both a financing and an operating
cash activity, which was an income tax deficiency of $43,000 and
$46,000 in 2009 and 2008, respectively, and an income tax
benefit of $783,000 in 2007.
The Company recognizes compensation expense arising from
share-based payment arrangements (stock options, restricted
stock and restricted stock units) granted to employees and
directors in general and administrative expense in the
Consolidated Statements of Income over the related awards’
vesting period, which may be accelerated under the
Company’s retirement feature. The Company capitalizes a
portion of share-based payment
F-11
Table of Contents
COUSINS
PROPERTIES INCORPORATED AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
expense to projects under development. Information for the
Company’s share-based payment arrangements for the years
ended December 31, 2009, 2008 and 2007 is as follows ($ in
thousands, except per share amounts):
| 2009 | 2008 | 2007 | ||||||||||
|
Expensed
|
$ | 5,705 | $ | 4,168 | $ | 7,903 | ||||||
|
Amounts capitalized
|
(451 | ) | (851 | ) | (2,150 | ) | ||||||
|
Income tax effect, before valuation allowance
|
(725 | ) | (419 | ) | (441 | ) | ||||||
|
Effect on income from continuing operations and net income
|
$ | 4,529 | $ | 2,898 | $ | 5,312 | ||||||
|
Effect on basic and diluted earnings per share
|
$ | 0.07 | $ | 0.06 | $ | 0.10 | ||||||
Earnings
per Share (“EPS”)
Basic EPS represents net income available to common stockholders
divided by the weighted average number of common shares
outstanding during the period. Diluted EPS represents 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 reflects the
potential dilution that would occur if stock options or other
contracts to issue common stock were exercised and resulted in
additional common stock outstanding. The income amounts used in
the Company’s EPS calculations are reduced for the effect
of preferred dividends and are the same for both basic and
diluted EPS.
On January 1, 2009, the Company adopted new guidance for
calculating earnings per share. Under the new guidance, the
Company is required to reflect unvested share-based payment
awards that contain nonforfeitable rights to dividends or
dividend equivalents in the computation of earnings per share
for all periods presented. The Company’s outstanding
restricted stock has nonforfeitable rights to dividends. Both
basic and diluted earnings per share for 2008 and 2007 were
retroactively adjusted to conform to this presentation as
follows (in thousands):
| 2008 | 2007 | |||||||||||||||
| Basic | Diluted | Basic | Diluted | |||||||||||||
|
Weighted average shares, as originally reported
|
51,202 | 51,621 | 51,705 | 52,932 | ||||||||||||
|
Less dilutive effect of restricted shares
|
— | (22 | ) | — | (25 | ) | ||||||||||
|
Weighted average unvested restricted shares
|
129 | 129 | 152 | 152 | ||||||||||||
|
Weighted average shares, as adjusted
|
51,331 | 51,728 | 51,857 | 53,059 | ||||||||||||
Weighted average shares-basic and diluted are as follows (in
thousands):
| 2009 | 2008 | 2007 | ||||||||||
|
Weighted-average shares-basic
|
65,495 | 51,331 | 51,857 | |||||||||
|
Dilutive potential common shares:
|
||||||||||||
|
Stock options
|
— | 397 | 1,202 | |||||||||
|
Weighted-average shares-diluted
|
65,495 | 51,728 | 53,059 | |||||||||
|
Anti-dilutive options at period end not included
|
6,944 | 3,987 | 972 | |||||||||
Derivative
Instruments
From time to time, the Company enters into interest rate swaps
to effectively manage its interest rate risk on certain variable
debt instruments. The Company accounts for its derivative
instruments in accordance with ASC 815. Entities that use
derivative instruments are required to provide qualitative
disclosures about their objectives and strategies for using such
instruments, as well as any details of credit-risk-related
contingent features
F-12
Table of Contents
COUSINS
PROPERTIES INCORPORATED AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
contained within derivatives. Entities are also required to
disclose certain information about the amounts and location of
derivatives located within the financial statements, how the
provisions of derivative accounting rules have been applied, and
the impact that hedges have on an entity’s financial
position, financial performance, and cash flows.
The Company does not utilize the “shortcut method” of
accounting for these instruments and follows the hypothetical
derivative method. Except for any portion of the swaps
considered to be ineffective, the Company recognizes the change
in value of the interest rate swaps in accumulated other
comprehensive loss (“OCL”), which is included in the
equity section of the Consolidated Balance Sheets. The Company
records payments made or received under the interest rate swap
agreements in interest expense on the Consolidated Statements of
Income. The Company formally documents all relationships between
hedging instruments and hedged items. The Company assesses, both
at inception of the hedge and on an ongoing basis, whether the
derivatives are highly effective in offsetting changes in the
cash flows of the hedged items. In assessing the hedge, the
Company uses standard market conventions and techniques such as
discounted cash flow analysis, option pricing models and
termination costs at each balance sheet date. All methods of
assessing fair value result in a general approximation of value,
and such value may never actually be realized. The Company
analyzes ineffectiveness on a quarterly basis and records the
effect of any ineffectiveness in interest expense in the
Consolidated Statements of Income. Payments related to interest
rate swap termination agreements are expensed as incurred. See
Note 3 for more details related to the Company’s
interest rate swaps.
Cash and
Cash Equivalents and Restricted Cash
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 United States Treasury Bills with maturities of 30 days
or less. Restricted cash primarily represents amounts restricted
under debt agreements for future capital expenditures or for
specific future operating costs, and deposits on multi-family
unit contracts.
New
Accounting Pronouncements
Effective June 30, 2009, the Company adopted the provisions
of the codification regarding the accounting and disclosures for
subsequent events. This new guidance had no impact on the
Company’s Consolidated Financial Statements.
The Company follows the guidelines in ASC 810 for determining
the appropriate consolidation treatment of non-wholly owned
entities. The Company will adopt new guidelines effective
January 1, 2010, which modify how a company determines when
an entity that is insufficiently capitalized or is not
controlled through voting or similar rights should be
consolidated. The determination of whether a company is required
to consolidate an entity is based on, among other things, an
entity’s purpose and design and a company’s ability to
direct the activities of the entity that most significantly
impact the entity’s economic performance. An ongoing
reassessment of whether a company is the primary beneficiary of
a VIE, and additional disclosures about a company’s
involvement in VIEs, including any significant changes in risk
exposure due to that involvement, will be required. The Company
does not anticipate an adverse effect from these changes on
financial condition, results of operations or cash flows.
Other
In periods prior to 2008, the Company included within general
and administrative expenses amounts which are reimbursed to the
Company by third parties or unconsolidated joint ventures under
management contracts. Beginning in 2008, the Company segregated
these reimbursed costs into a separate line item on the
Consolidated Statements of Income, and prior period amounts have
been revised to conform to the new presentation. The offset for
the amounts received as reimbursement of these expenses is
included in Fee Income within revenues in the accompanying
Consolidated Statements of Income.
F-13
Table of Contents
COUSINS
PROPERTIES INCORPORATED AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
In the periods prior to the second quarter of 2009, the Company
included separation payments to terminated employees within the
general and administrative expense line item. Beginning in the
second quarter of 2009, these amounts were segregated on the
Consolidated Statements of Income and prior period amounts have
been revised to conform to this new presentation.
In 2008, the Company corrected certain amounts in the
Consolidated Statement of Cash Flows for 2007 to properly
reflect the treatment of a deposit paid towards the purchase of
an asset and amounts paid for lease incentives. This correction
resulted in an increase in net cash provided by operating
activities of $5.3 million from $8.4 million, as
previously reported, to $13.7 million, as currently
reported, and a corresponding increase of $5.3 million in
net cash used in investing activities from $248.6 million,
as previously reported, to $253.9 million, as currently
reported. These corresponding corrections were recorded in the
other receivables and other assets, net, line item within cash
flows from operating activities, and to other assets, net,
within cash flows from investing activities. The Company does
not believe that this change is material to the Company’s
consolidated financial statements for the year ended
December 31, 2007.
Use of
Estimates
The preparation of financial statements in conformity with
accounting principles generally accepted in the United States
(“GAAP”) requires management to make estimates and
assumptions that affect the amounts reported in the accompanying
financial statements and notes. Actual results could differ from
those estimates.
F-14
Table of Contents
COUSINS
PROPERTIES INCORPORATED AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
| 3. | NOTES PAYABLE, COMMITMENTS AND CONTINGENCIES |
The following table summarizes the terms of notes payable
outstanding at December 31, 2009 and 2008 ($ in thousands):
|
Term/
|
||||||||||||||||||
|
Amortization
|
Outstanding at December 31, | |||||||||||||||||
|
Description
|
Interest Rate | Period (Years) | Maturity | 2009 | 2008 | |||||||||||||
|
Credit Facility (a maximum of $500,000), unsecured
|
LIBOR + 0.75% to
1.25% (see note) |
4/N/A | 8/29/11 | $ | 40,000 | $ | 311,000 | |||||||||||
|
Term Facility (a maximum of $100,000), unsecured
|
Swapped rate of 5.01%
+ 0.70% to 1.20% |
5/N/A | 8/29/12 | 100,000 | 100,000 | |||||||||||||
|
Terminus 100 mortgage note (interest only)
|
6.13% | 5/N/A | 10/1/12 | 180,000 | 180,000 | |||||||||||||
|
The American Cancer Society Center mortgage note (interest only
until October 1, 2011)
|
6.4515% | 5/30 | 9/1/17 | 136,000 | 136,000 | |||||||||||||
|
San Jose MarketCenter mortgage note (interest only)
|
5.60% | 3/N/A | 12/1/10 | — | 83,300 | |||||||||||||
|
333/555 North Point Center East mortgage note
|
7.00% | 10/25 | 11/1/11 | 27,287 | 28,102 | |||||||||||||
|
Meridian Mark Plaza mortgage note
|
8.27% | 10/28 | 9/1/10 | 22,279 | 22,757 | |||||||||||||
|
100/200 North Point Center East mortgage note (interest only
until July 1, 2010)
|
5.39% | 5/30 | 6/1/12 | 25,000 | 25,000 | |||||||||||||
|
The Points at Waterview mortgage note
|
5.66% | 10/25 | 1/1/16 | 17,024 | 17,433 | |||||||||||||
|
600 University Park Place mortgage note
|
7.38% | 10/30 | 8/10/11 | 12,536 | 12,762 | |||||||||||||
|
Lakeshore Park Plaza mortgage note
|
5.89% | 4/25 | 8/1/12 | 17,903 | 18,241 | |||||||||||||
|
Glenmore Garden Villas, LLC (see note)
|
LIBOR + 2.25% | 3/N/A | 10/3/10 | 8,674 | — | |||||||||||||
|
Handy Road Associates, LLC (see note)
|
Prime + 0.5% | 5/N/A | 3/31/10 | 3,340 | — | |||||||||||||
|
King Mill Project I member loan
|
9.00% | 3/N/A | 8/29/11 | — | 2,711 | |||||||||||||
|
King Mill Project I second member loan
|
9.00% | 3/N/A | 6/26/09 | — | 2,047 | |||||||||||||
|
Jefferson Mill Project member loan
|
9.00% | 3/N/A | 9/13/09 | — | 2,652 | |||||||||||||
|
Other miscellaneous notes
|
Various | Various | Various | 165 | 234 | |||||||||||||
| $ | 590,208 | $ | 942,239 | |||||||||||||||
F-15
Table of Contents
COUSINS
PROPERTIES INCORPORATED AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
2009
Activity
During the first quarter of 2009, the King Mill and Jefferson
Mill member loans, including accrued interest, were converted to
equity in C/W King Mill I, LLC and C/W Jefferson Mill I
LLC, both of which are consolidated entities of the Company.
In April 2009, the Company satisfied the San Jose
MarketCenter note in full for approximately $70.3 million,
which was a discount from the face amount. The Company recorded
a gain on extinguishment of debt, net of unamortized loan
closing costs and fees, of approximately $12.5 million in
the second quarter of 2009 related to this repayment.
In June 2009, the Company consolidated its investment in Handy
Road, which was previously accounted for under the equity
method. See Note 5 herein for further information. Upon
consolidation, the Company recorded a note payable for Handy
Road at its fair value of $3.2 million. This interest only
note is non-recourse to the Company, is guaranteed by the
third-party partner in the venture and matures on March 31,
2010. The Company is currently negotiating a one-year extension
of this loan.
In September 2009, the Company consolidated its investment in
Glenmore, which was previously accounted for under the equity
method. See Note 5 herein for further information. Upon
consolidation, the Company recorded a note payable of Glenmore
at its fair value of $8.7 million. The note is due in full
October 3, 2010.
Credit
and Term Facilities
The Company’s Credit Facility provides for
$500 million in revolving credit and a $100 million
Term Facility. The Company borrowed $100 million on its
Term Facility upon its inception in 2007. The maturity date of
the Credit Facility is August 29, 2011, with an additional
one-year extension at the Company’s election. The Credit
Facility may also be expanded an additional $100 million
under certain circumstances. The Term Facility matures
August 29, 2012. Under the Credit and Term Facilities, the
Company may borrow, at its option, funds at an interest rate
calculated as (1) the greater of Bank of America’s
prime rate or 0.50% over the Federal Funds Rate or (2) the
current LIBOR rate plus an applicable spread (which vary between
the facilities). The Company intends to elect the LIBOR option
throughout the duration of the Credit and Term Facilities. At
December 31, 2009, the spread over LIBOR was 0.85% for the
Credit Facility and 1.05% for the Term Facility.
The Credit Facility includes customary events of default,
including, but not limited to, the failure to pay any interest
or principal when due, the failure to perform under covenants of
the credit agreement, incorrect or misleading representations or
warranties, insolvency or bankruptcy, change of control, the
occurrence of certain ERISA events and certain judgment
defaults. The amounts outstanding under the Credit Facility may
be accelerated upon an event of default. The Credit Facility
contains restrictive covenants pertaining to the operations of
the Company, including limitations on the amount of debt that
may be incurred, the sale of assets, transactions with
affiliates, dividends, and distributions. The Credit Facility
also includes certain financial covenants (as defined in the
agreement) that require, among other things, the maintenance of
an unencumbered interest coverage ratio of at least 1.75, a
fixed charge coverage ratio of at least 1.50, a leverage ratio
of no more than 60%, unsecured debt ratio restrictions, and a
minimum stockholders’ equity of $421.9 million plus
70% of net equity proceeds after the effective date. In
addition, the Company has certain covenants under its Credit
Facility which could limit the amount of dividends paid. In
general, dividends of any amount can be paid as long as
leverage, as defined in the Facility, is less than 60%, and the
Company is not in default under its facility. Certain conditions
also apply in which the Company can still pay dividends if
leverage is above that amount. The Company routinely monitors
the status of its dividend payments in light of the Credit
Facility covenants. The Company is currently in compliance with
its financial covenants. If the Company’s earnings decline
or if the Company’s fixed charges increase, the Company is
at greater risk of violating these covenants. A prolonged
economic downturn could cause the Company’s earnings to
decline thereby increasing the Company’s risk of violating
these covenants.
F-16
Table of Contents
COUSINS
PROPERTIES INCORPORATED AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
The Company had $40.0 million drawn on its Credit Facility
as of December 31, 2009 and, net of $2.0 million
reserved for outstanding letters of credit, the Company had
$458.0 million available for future borrowings under this
facility. In 2007, the Company amended the Credit Facility, and
charged $446,000 to loss on extinguishment of debt for a portion
of the unamortized loan closing costs related to the amendment.
Credit
Facility Amendment
In February 2010, the Company entered into a First Amendment
(the “Amendment”) of its Credit and Term Facilities
with Bank of America and the other participating banks. The
Amendment reduced the amount available under the Credit Facility
from $500 million to $250 million. The amount
available under the Term Facility remained at $100 million.
If and when the Term Facility is paid down, the availability
under the Credit Facility will increase correspondingly, to
allow a total available under the combined Facilities of
$350 million. The maturity dates for both Facilities remain
the same under the Amendment.
Amounts outstanding under the Facilities accrue interest at
LIBOR plus a spread. The Amendment changed the spread for the
Credit and Term Facilities, as detailed below:
|
Credit Facility
|
Term Facility
|
|||||||||||
|
Applicable Spread —
|
Applicable Spread —
|
Applicable Spread —
|
||||||||||
|
Leverage Ratio
|
As Amended | Before Amendment | Before Amendment | |||||||||
|
Ü
=35%
|
1.75 | % | 0.75 | % | 0.70 | % | ||||||
|
>35% but
Ü
=
45%
|
2.00 | % | 0.85 | % | 0.80 | % | ||||||
|
>45% but
Ü
=
50%
|
2.25 | % | 0.95 | % | 0.90 | % | ||||||
|
>50% but
Ü
=
55%
|
2.25 | % | 1.10 | % | 1.05 | % | ||||||
|
>55%
|
N/A | 1.25 | % | 1.20 | % | |||||||
Certain covenants changed under the Amendment, specifically, the
minimum Consolidated Fixed Charge Coverage Ratio, as defined,
decreased from 1.50 to 1.30. The Company incurred an
administrative fee of approximately $1.6 million related to
the Amendment.
Interest
Rate Swap Agreements
In 2007, the Company entered into an interest rate swap
agreement with a notional amount of $100 million in order
to manage its interest rate risk under the Term Facility. The
Company designated this swap as a cash flow hedge, and this swap
effectively fixes the underlying LIBOR rate of the Term Facility
at 5.01% through August 2012.
In 2008, the Company entered into two interest rate swap
agreements with notional amounts of $75 million each in
order to manage interest rate risk associated with
floating-rate, LIBOR-based borrowings. The Company designated
these swaps as cash flow hedges, and these swaps effectively
fixed a portion of the underlying LIBOR rate on
$150 million of Company borrowings at an average rate of
2.84%. In October 2009, the Company terminated one of its
$75 million swaps and paid the counterparty to the
agreement $1.8 million, which was recognized as an expense
in 2009. In addition, the Company reduced the notional amount of
the second interest rate swap from $75 million to
$40 million, and paid the counterparty $959,000 as a
result. This fee was also recognized as an expense in 2009. The
remaining $40 million interest rate swap fixes the
underlying interest rate at 2.995%, and is currently being
applied to the LIBOR-based borrowings under the Credit Facility
through October 2010. In 2009, 2008 and 2007, there was no
ineffectiveness under any of the Company’s interest rate
swaps. The fair value calculation for the swaps is deemed to be
a Level 2 calculation under the guidelines as set forth in
ASC 820. The Company obtains a third party valuation utilizing
estimated future LIBOR rates to calculate fair value.
F-17
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COUSINS
PROPERTIES INCORPORATED AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
The fair values of the interest rate swap agreements were
recorded in Accounts Payable and Accumulated Other Comprehensive
Loss on the Consolidated Balance Sheets, detailed as follows (in
thousands):
|
Floating Rate,
|
||||||||||||
|
LIBOR-based
|
||||||||||||
| Term Facility | Borrowings | Total | ||||||||||
|
Balance, December 31, 2007
|
$ | 4,302 | $ | — | $ | 4,302 | ||||||
|
2008 activity
|
7,567 | 4,732 | 12,299 | |||||||||
|
Balance, December 31, 2008
|
11,869 | 4,732 | 16,601 | |||||||||
|
2009 activity
|
(3,207 | ) | (3,877 | ) | (7,084 | ) | ||||||
|
Balance, December 31, 2009
|
$ | 8,662 | $ | 855 | $ | 9,517 | ||||||
Debt
Maturities
The aggregate maturities of the indebtedness of the Company at
December 31, 2009 are as follows (in thousands):
|
2010
|
$ | 36,367 | ||
|
2011
|
79,892 | |||
|
2012
|
324,055 | |||
|
2013
|
2,041 | |||
|
2014
|
2,173 | |||
|
Thereafter
|
145,680 | |||
| $ | 590,208 | |||
Other
Debt Information
The real estate and other assets of The American Cancer Society
Center (the “ACS Center”) are restricted under the ACS
Center loan agreement in that they are not available to settle
debts of the Company. However, provided that the ACS Center loan
has not incurred any uncured event of default, as defined in the
loan agreement, the cash flows from the ACS Center, after
payments of debt service, operating expenses and reserves, are
available for distribution to the Company.
The Company had outstanding performance bonds totaling
approximately $3.8 million. The majority of the
Company’s debt is fixed-rate long-term mortgage notes
payable, most of which is non-recourse to the Company. The 333
and 555 North Point Center East note payable, $5.0 million
of the Terminus 100 mortgage note payable, $6.75 million of
the Glenmore Garden Villas note payable and the Credit and Term
Facilities are recourse to the Company, which in total equaled
approximately $179.0 million at December 31, 2009.
Assets with carrying values of $275.5 million were pledged
as security on the $411.2 million non-recourse debt of the
Company. As of December 31, 2009, the weighted average
maturity of the Company’s consolidated debt was
3.7 years. As of December 31, 2009, outstanding
commitments for the construction and design of real estate
projects, including an estimate for unfunded tenant improvements
at operating properties and other funding commitments, totaled
approximately $30.9 million.
At December 31, 2009 and 2008, the estimated fair value of
the Company’s notes payable was approximately
$586.2 million and $904.1 million, respectively,
calculated by discounting future cash flows at estimated rates
at which similar loans would have been obtained at
December 31, 2009 and 2008. This fair value calculation is
considered to be a Level 2 calculation under the guidelines
as set forth in ASC 820, as the Company utilizes market rates
for similar type loans from third party brokers.
F-18
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COUSINS
PROPERTIES INCORPORATED AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
For the years ended December 31, 2009, 2008 and 2007,
interest was recorded as follows ($ in thousands):
| 2009 | 2008 | 2007 | ||||||||||
|
Interest expensed
|
$ | 41,393 | $ | 33,151 | $ | 8,816 | ||||||
|
Interest capitalized
|
3,736 | 14,894 | 23,344 | |||||||||
|
Total interest incurred
|
$ | 45,129 | $ | 48,045 | $ | 32,160 | ||||||
Lease
Commitments
The Company has future lease commitments under ground leases and
operating leases aggregating approximately $16.8 million
over weighted average remaining terms of 73.4 and
2.4 years, respectively. The Company recorded lease expense
of approximately $765,000, $777,000, and $876,000 in 2009, 2008
and 2007, respectively. Amounts due under these lease
commitments are as follows ($ in thousands):
|
2010
|
$ | 573 | ||
|
2011
|
450 | |||
|
2012
|
397 | |||
|
2013
|
320 | |||
|
2014
|
304 | |||
|
Thereafter
|
14,723 | |||
| $ | 16,767 | |||
| 4. | DEFERRED GAIN |
The deferred gain of $4.5 million and $171.8 million
at December 31, 2009 and 2008, respectively, arose from two
transactions with affiliates of The Prudential Insurance Company
of America (“Prudential”) discussed as follows:
CP
Venture LLC (“CPV”)
In 1998, the Company and Prudential entered into an agreement
whereby the Company contributed interests in certain operating
properties it owned to a venture and Prudential contributed an
equal amount of cash. The venture was structured such that the
operating properties were owned by CP Venture Two LLC (“CPV
Two”) and the cash was held by CP Venture Three LLC
(“CPV Three”). Upon formation, the Company owned an
effective interest in CPV Two of 11.5%, and an effective
interest in CPV Three of 88.5%, with Prudential owning the
remaining effective interests of each entity. The Company’s
effective interest in CPV Two was reduced to 10.4% in 2006. The
Company accounts for its interest in CPV Two under the equity
method (see Note 5), and the Company consolidates CPV Three.
The Company determined that the transaction qualified for
accounting purposes as a sale of the properties to the venture
pursuant to ASC 360, although the gain was deferred because the
legal consideration the Company received from this transaction
was a controlling interest in CPV Three as opposed to cash. As
cash distributions have been made from the sale of properties
owned by CPV Two and CPV Three, the Company has recognized the
majority of the original deferred gain pursuant to ASC 360. As
of December 31, 2009 and 2008, deferred gain of
$4.5 million and $4.8 million, respectively, remained
and the Company will recognize the deferred gain as the
underlying properties in CPV Two are depreciated or sold.
CP
Venture IV Holdings LLC (“CPV IV”)
In 2006, the Company and Prudential entered into another set of
agreements whereby the Company contributed interests in certain
operating properties it owned to a venture, CPV IV, and
Prudential contributed an equal amount of cash. The venture was
structured such that the operating properties were owned by CP
Venture Five LLC (“CPV Five”), and the cash was held
by CP Venture Six LLC (“CPV Six”), both of which are
wholly-owned by CPV IV. Upon formation, the Company owned an
effective interest in CPV Five of 11.5%, and an
F-19
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COUSINS
PROPERTIES INCORPORATED AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
effective interest in CPV Six of 88.5%, with Prudential owning
the remaining effective interests of each entity. The Company
accounts for its interest in CPV Five under the equity method
(see Note 5), and the Company consolidates CPV Six, with
Prudential’s share of the results recorded as nonredeemable
noncontrolling interest, which equaled approximately
$32.3 million and $36.9 million at December 31,
2009 and 2008, respectively.
The five properties that the Company contributed to CPV IV (the
“CPV IV Properties”) were valued initially at
$340.0 million, and Prudential contributed cash of
$300.0 million and assumed the mortgage debt valued at
$40.0 million on one of the contributed properties. In
2007, Prudential contributed an additional $20.6 million to
CPV IV as certain conditions were satisfied with respect to the
expansions of two of the contributed properties. In 2008, the
Company conveyed its interests in two retail centers which were
under development to CPV Six. Prudential receives a priority
current return of 6.5% per annum on an amount equal to 11.5% of
its capital contributions to the venture, in addition to a
liquidation preference. After these preferences, the Company is
entitled to certain priority distributions related to the
properties developed or acquired by CPV Six after which, the
Company and Prudential share residual distributions, if any,
with respect to cash flows from CPV Six, 88.5% to the Company
and 11.5% to Prudential.
The Company determined that the transaction qualified for
accounting purposes as a sale of the properties to the venture
pursuant to ASC 360. However, because the legal consideration
the Company received from this transaction was a controlling
interest in CPV Six as opposed to cash, the Company determined
that the gain on the transaction should be deferred. The gain
was included in Deferred Gain on the Company’s Consolidated
Balance Sheets and was calculated as 88.5% of the difference
between the book value of the Properties and the fair value as
detailed above. The balance in Deferred Gain related to this
venture was $167.2 million at December 31, 2008. In
February 2009, CPV Six distributed cash to its partners which
exceeded the 10% threshold for gain recognition. At that time,
the Company recognized the $167.2 million as gain on sale
of investment properties.
| 5. | INVESTMENT IN UNCONSOLIDATED JOINT VENTURES |
The following information summarizes financial data and
principal activities of unconsolidated joint ventures. The
information included in the following table entitled Summary of
Financial Position is as of December 31, 2009 and 2008. The
information included in the Summary of Operations table is for
the years ended December 31, 2009, 2008 and 2007 ($ in
thousands).
|
Company’s
|
||||||||||||||||||||||||||||||||
| Total Assets | Total Debt | Total Equity | Investment | |||||||||||||||||||||||||||||
| 2009 | 2008 | 2009 | 2008 | 2009 | 2008 | 2009 | 2008 | |||||||||||||||||||||||||
|
SUMMARY OF FINANCIAL POSITION:
|
||||||||||||||||||||||||||||||||
|
CP Venture IV LLC entities
|
$ | 324,402 | $ | 340,452 | $ | 35,451 | $ | 36,834 | $ | 277,063 | $ | 289,938 | $ | 15,933 | $ | 16,797 | ||||||||||||||||
|
Charlotte Gateway Village, LLC
|
160,266 | 166,006 | 110,101 | 122,362 | 48,214 | 42,423 | 10,401 | 10,434 | ||||||||||||||||||||||||
|
CF Murfreesboro Associates
|
139,782 | 134,284 | 113,476 | 109,926 | 23,231 | 21,756 | 13,817 | 13,126 | ||||||||||||||||||||||||
|
Palisades West LLC
|
125,537 | 131,505 | — | — | 74,237 | 74,440 | 39,104 | 38,757 | ||||||||||||||||||||||||
|
CL Realty, L.L.C.
|
114,598 | 126,728 | 3,568 | 4,901 | 109,184 | 118,044 | 49,825 | 72,855 | ||||||||||||||||||||||||
|
CPV and CPV Two
|
101,209 | 101,820 | — | — | 99,133 | 100,519 | 3,270 | 3,420 | ||||||||||||||||||||||||
|
Terminus 200 LLC
|
27,537 | 88,927 | 76,762 | 44,328 | (47,921 | ) | 34,102 | — | 20,154 | |||||||||||||||||||||||
|
Temco Associates, LLC
|
60,752 | 61,832 | 3,061 | 3,198 | 57,484 | 58,262 | 22,716 | 29,799 | ||||||||||||||||||||||||
|
Crawford Long — CPI, LLC
|
35,277 | 37,225 | 49,710 | 50,661 | (15,280 | ) | (14,364 | ) | (6,396 | ) | (5,936 | ) | ||||||||||||||||||||
|
Ten Peachtree Place Associates
|
22,971 | 24,138 | 27,341 | 27,871 | (4,846 | ) | (4,161 | ) | (3,887 | ) | (3,563 | ) | ||||||||||||||||||||
|
Wildwood Associates
|
21,263 | 21,431 | — | — | 21,205 | 21,339 | (1,647 | ) | (1,581 | ) | ||||||||||||||||||||||
|
TRG Columbus Dev Venture, Ltd.
|
6,802 | 11,087 | — | — | 2,464 | 4,714 | 383 | 1,179 | ||||||||||||||||||||||||
|
Pine Mountain Builders, LLC
|
6,807 | 7,973 | 1,834 | 2,781 | 3,119 | 2,682 | 2,631 | 1,920 | ||||||||||||||||||||||||
|
Glenmore Garden Villas LLC
|
— | 9,985 | — | 7,990 | — | 1,167 | — | 1,134 | ||||||||||||||||||||||||
|
Handy Road Associates, LLC
|
— | 5,381 | — | 3,294 | — | 1,989 | — | 2,142 | ||||||||||||||||||||||||
|
CPI/FSP I, L.P.
|
— | 6 | — | — | — | — | — | — | ||||||||||||||||||||||||
|
Other
|
— | 658 | — | — | — | 659 | — | 213 | ||||||||||||||||||||||||
| $ | 1,147,203 | $ | 1,269,438 | $ | 421,304 | $ | 414,146 | $ | 647,287 | $ | 753,509 | $ | 146,150 | $ | 200,850 | |||||||||||||||||
F-20
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COUSINS
PROPERTIES INCORPORATED AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
|
Company’s Share of
|
||||||||||||||||||||||||||||||||||||
| Total Revenues | Net Income (Loss) | Net Income (Loss) | ||||||||||||||||||||||||||||||||||
| 2009 | 2008 | 2007 | 2009 | 2008 | 2007 | 2009 | 2008 | 2007 | ||||||||||||||||||||||||||||
|
SUMMARY OF OPERATIONS:
|
||||||||||||||||||||||||||||||||||||
|
CP Venture IV LLC entities
|
$ | 32,698 | $ | 36,188 | $ | 34,774 | $ | 4,555 | $ | 4,808 | $ | 6,158 | $ | 1,142 | $ | 1,051 | $ | 1,248 | ||||||||||||||||||
|
Charlotte Gateway Village, LLC
|
31,276 | 31,292 | 31,212 | 6,997 | 6,286 | 5,708 | 1,176 | 1,176 | 1,176 | |||||||||||||||||||||||||||
|
CF Murfreesboro Associates
|
12,205 | 9,970 | 1,780 | 1,474 | 389 | (332 | ) | 539 | 36 | (202 | ) | |||||||||||||||||||||||||
|
Palisades West LLC
|
12,677 | 1,227 | 276 | 5,303 | 539 | 253 | 2,588 | 257 | 127 | |||||||||||||||||||||||||||
|
CL Realty, L.L.C.
|
2,698 | 8,315 | 7,393 | (8,500 | ) | 6,780 | 3,374 | (2,552 | ) | 2,882 | 998 | |||||||||||||||||||||||||
|
CPV and CPV Two
|
18,038 | 19,882 | 20,259 | 8,552 | 9,156 | 23,252 | 882 | 955 | 2,401 | |||||||||||||||||||||||||||
|
Terminus 200 LLC
|
654 | 414 | — | (82,441 | ) | (12 | ) | (386 | ) | (20,954 | ) | (6 | ) | (193 | ) | |||||||||||||||||||||
|
Temco Associates, LLC
|
1,420 | 6,426 | 8,305 | (2,728 | ) | 940 | 256 | (1,357 | ) | 543 | 161 | |||||||||||||||||||||||||
|
Crawford Long — CPI, LLC
|
11,324 | 11,309 | 10,752 | 1,784 | 1,626 | 1,477 | 890 | 807 | 693 | |||||||||||||||||||||||||||
|
Ten Peachtree Place Associates
|
7,436 | 7,269 | 7,004 | 718 | 518 | 317 | 375 | 274 | 174 | |||||||||||||||||||||||||||
|
Wildwood Associates
|
— | 1 | 8 | (133 | ) | (213 | ) | (178 | ) | (67 | ) | (107 | ) | (89 | ) | |||||||||||||||||||||
|
TRG Columbus Dev. Venture, Ltd.
|
506 | 57,645 | 8,756 | 30 | 7,435 | 275 | 115 | 1,892 | (184 | ) | ||||||||||||||||||||||||||
|
Glenmore Garden Villas LLC
|
— | — | — | (311 | ) | (33 | ) | — | (175 | ) | (16 | ) | — | |||||||||||||||||||||||
|
Pine Mountain Builders, LLC
|
2,143 | 4,250 | 2,827 | (254 | ) | 336 | 206 | (142 | ) | 153 | 41 | |||||||||||||||||||||||||
|
Handy Road Associates, LLC
|
— | — | 4 | — | (237 | ) | (350 | ) | (60 | ) | (120 | ) | (175 | ) | ||||||||||||||||||||||
|
CPI/FSP I, L.P.
|
— | 4,448 | — | — | 1,017 | (54 | ) | — | (33 | ) | (21 | ) | ||||||||||||||||||||||||
|
Other
|
— | 20 | (11 | ) | (5 | ) | (160 | ) | (144 | ) | (39 | ) | (23 | ) | (59 | ) | ||||||||||||||||||||
| $ | 133,075 | $ | 198,656 | $ | 133,339 | $ | (64,959 | ) | $ | 39,175 | $ | 39,832 | $ | (17,639 | ) | $ | 9,721 | $ | 6,096 | |||||||||||||||||
See Note 6 herein for a discussion of impairments taken by
the Company on certain of its investments in joint ventures. The
Company’s share of income above includes results of
operations and any impairments that may have been recognized at
the venture level, and excludes impairments taken on the
Company’s investment in these entities.
CPV IV
— See Note 4 for further
description. Upon formation of CPV IV in June 2006, the Company
recorded its investment in CPV IV at an amount equal to 11.5% of
its original cost basis in the CPV IV Properties. The Company
recognized equity income from the operations of CPV Five
beginning on the formation date based on its percentage interest
in CPV Five. The CPV IV Properties are five retail properties
totaling approximately 1.2 million rentable square feet;
three in suburban Atlanta, Georgia and two in Viera, Florida.
CPV Five has a mortgage note payable secured by one property
with a carrying value of $35.5 million, a maturity of
August 1, 2010 and an interest rate of 8.39%. The assets of
CPV IV in the above table include a cash balance of
approximately $3.1 million at December 31, 2009.
Charlotte Gateway Village, LLC
(“Gateway”)
— Gateway is a joint venture
between the Company and Bank of America Corporation
(“BOA”) and owns and operates Gateway Village, a
1.1 million rentable square foot office building complex in
downtown Charlotte, North Carolina. The project is 100% leased
to BOA through 2016. 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 BOA
until it receives an amount equal to the aggregate amount
distributed to the Company and then 50% to each member. The
Company’s total project return on Gateway is estimated to
be ultimately limited to an internal rate of return of 17% on
its invested capital. Gateway has a mortgage note payable with
an original principal of $190 million, a maturity of
December 1, 2016 and an interest rate of 6.41%. The assets
of the venture in the above table include a cash balance of
approximately $2.3 million at December 31, 2009.
CF Murfreesboro Associates (“CF
Murfreesboro”)
— In 2006, the Company formed
CF Murfreesboro, a
50-50
joint
venture between the Company and an affiliate of Faison
Associates, to develop The Avenue Murfreesboro, a
751,000 square foot retail center in suburban Nashville,
Tennessee, which opened in the fourth quarter of 2007. The
development of the center was financed mainly by a construction
loan, with a maximum amount available of $131 million, an
interest rate of LIBOR plus 1.15% and a maturity date of July,
20, 2010, with a one-
F-21
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COUSINS
PROPERTIES INCORPORATED AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
year extension option if certain conditions have been met. The
retail center serves as collateral on the loan. Approximately
$113.5 million has been drawn on the construction loan as
of December 31, 2009. In addition the Company has a
repayment guarantee equal to 20% of the maximum available that
reduces to 12.5% if certain leasing and financial performance
criteria are met, which have not been met to-date. The Company
recorded a liability of approximately $262,000 representing the
estimated fair value of the guarantee at the date of inception.
The CF Murfreesboro loan has a requirement that certain leasing
and occupancy percentages be met by July 20, 2009. While
the Company believes that these requirements were met, the
lenders have not yet confirmed that the requirement has been
satisfied, and the lenders have therefore reserved any and all
rights under the loan agreement regarding future funding
requirements and future defaults under the loan. The lenders
have funded all draw requests submitted subsequent to
July 20, 2009, and the Company is in discussion with the
lenders to extend the loan and does not expect a material
adverse affect on financial condition or results of operations
related to this loan. The assets of the venture in the above
table include cash and restricted cash balances of approximately
$12.6 million at December 31, 2009.
Palisades West LLC (“Palisades”)
— In
2006, the Company formed Palisades in which it holds a 50%
interest, with Dimensional Fund Advisors (“DFA”)
as a 25% partner and Forestar (USA) Real Estate Group
(“Forestar”) as the other 25% partner. Upon formation,
the Company contributed land and the other partners collectively
contributed an equal amount in cash. Palisades constructed and
operates two office buildings totaling 373,000 square feet
in Austin, Texas. One of the buildings contains
216,000 square feet, is 100% leased to DFA and opened in
the fourth quarter of 2008. The other building contains
157,000 square feet, is 21% leased to Forestar and 3%
leased to Cousins and became partially operational in the fourth
quarter of 2008. The assets of the venture in the above table
include a cash balance of approximately $2.4 million at
December 31, 2009.
CL Realty, L.L.C. (“CL Realty”)
— CL
Realty is a
50-50
joint
venture between the Company and Forestar Realty Inc. and is in
the business of developing and investing primarily in
single-family residential lot projects. As of December 31,
2009, CL Realty was in various stages of development, either
directly or through investments in joint ventures, on 14
residential projects, 10 of which are in Texas, one in Georgia
and three in Florida. CL Realty sold 128, 177 and 361 lots in
2009, 2008 and 2007, respectively, and approximately 7,300 lots
remain to be developed
and/or
sold
at December 31, 2009. The venture also sold 4, 61 and
10 acres of land in 2009, 2008 and 2007, respectively, and
has interests in approximately 550 remaining acres of land,
which it intends to develop or sell as undeveloped tracts. The
assets of the venture in the above table include a cash balance
of approximately $900,000 at December 31, 2009. CL Realty
has construction loans at various projects, totaling
approximately $3.6 million, with maturities in 2010 and
2011.
CL Realty recorded impairment charges in 2009 and 2008, the
Company’s share of which was $2.6 million and
$325,000, respectively. See Note 6 for additional
discussion regarding impairments.
CPV and CPV Two
— See Note 4 for further
description. The Company’s effective ownership in CPV Two
is 10.4%, and Prudential’s is 89.6%. As of
December 31, 2009, CPV Two owned one office building
totaling 69,000 rentable square feet and three retail
properties totaling approximately 934,000 rentable square
feet. In 2007, CPV Two sold a retail center to an unrelated
third party for approximately $20.9 million and recorded a
gain on this sale of approximately $11.8 million. The
Company recorded its share of the gains through Income from
Unconsolidated Joint Ventures. The assets of the venture in the
above table include a cash balance of approximately
$3.4 million at December 31, 2009.
Terminus 200 LLC (“T200”)
— In 2007,
the Company formed T200, a
50-50
joint
venture with an affiliate of Prudential. While each partner has
a 50% interest in T200, cash flows may be allocated according to
varying percentages based on certain performance criteria of the
project, with the Company having a potentially higher
percentage. T200 was formed for the purpose of developing and
owning an office building, along with ancillary retail and
commercial space, in the Terminus project in Atlanta, Georgia.
Upon formation, T200 entered into a $138 million
construction loan to fund construction, at an interest rate of
LIBOR plus 1.65% and a maturity in 2011, on which
$76.8 million had been drawn as of December 31, 2009.
If certain criteria are met, the loan may be
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COUSINS
PROPERTIES INCORPORATED AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
extended for two, one-year renewal terms. The repayment of the
loan is guaranteed equally by the two partners, limited to a
principal amount of $17.25 million each. In addition, the
Company is required to fund construction costs to T200 for
amounts over certain limits, which it has determined is not
probable, and the fair value of this guarantee is estimated to
be nominal.
During 2009, the venture analyzed the amount and timing of cash
flows from T200 and concluded the undiscounted cash flows from
the project were less than the project’s carrying amount.
As a result, T200 recorded an adjustment to reduce the carrying
amount of the project to fair value as an impairment loss. The
venture reduced the basis of its property to fair value, the
Company’s share of which was $20.9 million, the
balance of its investment in T200. Concurrently, the Company
concluded that the total equity at risk was not sufficient to
permit T200 to finance its activities without additional
subordinated financial support. Therefore, the Company
determined that T200 was a VIE, but the Company is not the
primary beneficiary, and its interest in T200 continues to be
accounted for under the equity method. The Company has a
guarantee related to the construction loan at the venture, which
was also accrued and impaired - see Note 6 for more
information. The Company does not anticipate any additional
funding to T200 under the current structure beyond that recorded
and impaired in 2009.
Temco Associates, LLC (“Temco”)
—
Temco is a
50-50
joint
venture between the Company and Forestar Realty Inc. As of
December 31, 2009, Temco was in various stages of
development, either directly or through investments in joint
ventures, on four single-family residential communities in
Georgia with approximately 1,550 total projected lots remaining
to be developed
and/or
sold.
During 2009, Temco did not sell any lots, and during 2008 and
2007, Temco sold 8 and 75 lots, respectively. Temco sold 42, 487
and 130 acres of land during 2009, 2008 and 2007,
respectively, and has interests in approximately 5,850 remaining
acres of land, which it intends to develop or sell as
undeveloped tracts. Temco has debt of $3.1 million secured
by the golf course at one of its residential developments. This
debt matures in May 2012 and carries an interest rate of LIBOR
plus 6.5%. In 2009, Temco recorded an impairment charge on one
of its residential properties, the Company’s share of which
was $631,000. See Note 6 for additional discussion
regarding impairments.
Crawford Long — CPI, LLC (“Crawford
Long”
) — Crawford Long is a
50-50
joint
venture between the Company and Emory University and owns the
Emory University Hospital Midtown Medical Office Tower, a
358,000 rentable square foot medical office building
located in Midtown Atlanta, Georgia. Crawford Long has a
mortgage note payable with an original principal of
$55 million, a maturity of June 1, 2013 and an
interest rate of 5.9%. Loan proceeds were in excess of the
building basis, and when the proceeds were distributed to the
partners, the Company had negative equity. The assets of the
venture in the above table include a cash balance of
approximately $1.0 million at December 31, 2009.
Ten Peachtree Place Associates
(“TPPA”)
— TPPA is a
50-50
joint
venture between the Company and a wholly-owned subsidiary of The
Coca-Cola
Company, and owns Ten Peachtree Place, a 260,000 rentable
square foot office building located in midtown Atlanta, Georgia.
TPPA has a mortgage note payable for an original principal of
$30 million with a maturity of April 1, 2015 and an
interest rate of 5.39%. Loan proceeds were in excess of the
building basis, and when the proceeds were distributed to the
partners, the Company had negative equity. The assets of the
venture in the above table include cash and restricted cash
balances of approximately $3.2 million at December 31,
2009.
TPPA pays cash flows from operating activities, net of note
principal amortization, to repay additional capital
contributions made by the partners plus 8% interest on these
contributions until August 1, 2011. After August 1,
2011, the next $15.3 million of cash flows (including any
sales proceeds) will be distributed 15% to the Company and 85%
to its partner. Thereafter, each partner is entitled to receive
50% of cash flows.
Wildwood Associates (“Wildwood”)
—
Wildwood is a
50-50
joint
venture between the Company and IBM which owns approximately
36 acres of undeveloped land in Wildwood Office Park in
suburban Atlanta, Georgia. At December 31, 2009, the
Company’s investment in Wildwood was a credit balance of
$1.6 million. This credit balance resulted from the fact
that cumulative distributions from Wildwood over time have
exceeded the Company
F-23
Table of Contents
COUSINS
PROPERTIES INCORPORATED AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
level basis in its contributions. This credit balance will
reduce as the venture’s remaining land is sold. The Company
does not have any obligation to fund Wildwood’s
working capital needs.
TRG Columbus Development Venture, Ltd.
(“TRG”)
— TRG is 40% owned by 50
Biscayne Ventures, LLC (“Biscayne”), and 60% owned by
The Related Group of Florida (“Related”). Biscayne is
the limited partner in the venture and recognizes 40% of the
income, after a preferred return to each partner on their equity
investment and return of capital. Biscayne is 88.25% owned by
the Company, and is therefore consolidated by the Company, with
the results of operations for the remaining 11.75% interest
recorded in noncontrolling interest. TRG constructed a
529-unit
condominium project in Miami, Florida, which was financed mainly
by a construction loan that was repaid in full in January 2008.
All of the condominium unit sales have closed, although TRG
financed the sale of five of these units, for which full profit
recognition has not occurred. The majority of the proceeds from
the sales have been distributed to the partners. The assets of
the venture in the above table include cash and restricted cash
balances of approximately $4.1 million at December 31,
2009.
Pine Mountain Builders, LLC (“Pine Mountain
Builders”)
— Pine Mountain Builders is a
50-50
joint
venture between the Company and Fortress Construction Company
that constructs homes at three of the Company’s residential
communities. During 2009, 2008 and 2007, Pine Mountain Builders
sold 4, 7 and 6 homes, respectively. Pine Mountain Builders has
loans related to speculative houses constructed with balances
totaling approximately $1.8 million at December 31,
2009 and maturity dates at various dates in 2010 and 2011. All
of the loans bear interest at Prime.
Glenmore
— Glenmore, a
50-50
joint
venture, was formed in 2007 between CREC and First Landmark,
U.S.A., LLC, in order to develop a townhome project in
Charlotte, North Carolina. Upon formation, Glenmore entered into
two notes with a maximum amount available of $13.5 million
at an interest rate of LIBOR + 2.25% and a maturity date of
October 3, 2010. Each of the partners in Glenmore guarantee
50% of the payment of principal and interest on the notes
described above, which totals a maximum liability to each
partner of $6.75 million. In 2009, the Company recorded
certain impairment charges related to its investment in Glenmore
that are more fully discussed in Note 6. The Company’s
initial investment in Glenmore was $1.1 million, and it was
impaired by $6.0 million to equal an obligation of
$4.9 million. In the third quarter of 2009, the Company
determined that it was the primary beneficiary of Glenmore as a
result of a determination that the Company was expected to
absorb the majority of the expected losses of the venture.
Therefore, the Company began consolidating Glenmore in the third
quarter of 2009 and recorded $3.8 million in land held for
investment or future development and $8.7 million in notes
payable on its Consolidated Balance Sheet. Glenmore sold its
assets in the first quarter of 2010 for approximately the
adjusted cost basis, and the debt was repaid in full.
Handy Road
— Handy Road is a
50-50
joint
venture between the Company and Handy Road Managers, LLC
(“HRM”), and owns 1,187 acres of land in suburban
Atlanta, Georgia for future development
and/or
sale.
Handy Road has a $3.3 million interest only note payable
that is guaranteed by the partners of HRM, has a maturity of
March 2010, and an interest rate of Prime plus 0.5%. The Company
is currently negotiating a one-year loan extension. In 2009, HRM
indicated they will not make further capital contributions, and
the Company determined that HRM would not receive any of the
economic benefit of the entity. As a result, the Company
determined Handy Road was a VIE, of which the Company was the
primary beneficiary, and, therefore, the Company began
consolidating Handy Road in 2009. The investment in joint
venture balance was approximately $2.0 million before
consolidation. Land Held for Investment or Future Development of
$5.3 million and Notes Payable of $3.3 million are
included on the December 31, 2009 Consolidated Balance
Sheet for Handy Road.
CPI/FSP I, L.P. (“CPI/FSP”)
—
CPI/FSP was a
50-50
limited partnership between the Company and a venture owned by
CommonWealth Pacific LLC and CalPERS, which owned an
approximately 6 acre pad of land in Austin, Texas. In 2008,
the Company purchased this land from CPI/FSP and expects to
develop
and/or
sell
this land in the future. The venture recognized income from this
sale, although the Company did not recognize its share in income
from joint ventures, due to the related party nature of the
transaction.
F-24
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COUSINS
PROPERTIES INCORPORATED AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
Additional Information
— During the development
or construction of an asset, the Company and its partners may be
committed to provide funds pursuant to a development plan.
However, in general, the Company does not have any obligation to
fund the working capital needs of its unconsolidated joint
ventures. The partners may elect in their discretion to fund
cash needs if the venture required additional funds to effect
re-leasing or had other specific needs. Additionally, at
December 31, 2009, the Company generally does not guarantee
the outstanding debt of any of its unconsolidated joint
ventures, except for customary “non-recourse
carve-out” guarantees of certain mortgage notes:
$26.2 million of the CF Murfreesboro construction loan,
$17.3 million of the T200 construction loan, and
$6.75 million of the Glenmore construction loan.
The Company recognized $8.9 million, $10.0 million,
and $9.1 million of development, leasing, and management
fees, including salary and expense reimbursements, from
unconsolidated joint ventures in 2009, 2008 and 2007,
respectively. See Note 2, Fee Income, for a discussion of
the accounting treatment for fees from unconsolidated joint
ventures.
| 6. | IMPAIRMENT OF CERTAIN ASSETS |
Impairment
Loss
During 2009, the Company recorded the following impairment
losses (in thousands) in costs and expenses:
|
10 Terminus Place
|
$ | 34,900 | ||
|
Company airplane
|
4,012 | |||
|
Note receivable
|
1,600 | |||
| $ | 40,512 | |||
10 Terminus Place, a condominium project in Atlanta,
Georgia that the Company developed, was substantially complete
in late 2008. The Company considers this project to be
held-for-sale
pursuant to ASC 360, which requires companies to record
long-lived assets
held-for-sale
at the lower of cost or fair value, less costs to sell. As a
result of the declining market for condominiums and the pace and
pricing of actual sales at 10 Terminus Place, the Company is
continually updating its expectations regarding the timing and
amount of projected future cash flows. These analyses resulted
in the Company recording an impairment loss of $2.1 million
in 2008 and an impairment loss of $34.9 million in 2009,
related to decreases in the estimated fair value of this
project. There are 82 units remaining to be sold at 10
Terminus Place and the carrying amount is $25.8 million at
December 31, 2009, included in the Multi-Family Units
Held-for-Sale
caption in the Company’s Consolidated Balance Sheet.
In 2009, the Company decided to sell its airplane at an amount
lower than its cost basis, which resulted in an impairment loss
of $4.0 million. The airplane was subsequently sold at
approximately its revised cost.
The impairment loss on the note receivable relates to a
mezzanine loan made to a developer of a condominium project in
Asheville, North Carolina. The developer defaulted on the loan,
and the Company acquired the project in July 2009 in
satisfaction of the note and concurrently paid the remaining
outstanding balance of the third party construction loan. The
Company recorded the difference between the fair value of the
project and the book value of the note receivable, plus the
amount paid to the construction lender, as an impairment charge
in 2009. The Company sold most of the units at this project
after it acquired the project, and there are four units
remaining as of December 31, 2009.
F-25
Table of Contents
COUSINS
PROPERTIES INCORPORATED AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
Impairment
loss on investment in unconsolidated joint
ventures
The Company recorded the following impairment losses on its
investments in unconsolidated joint ventures in 2009:
|
CL Realty
|
$ | 20,300 | ||
|
Temco
|
6,700 | |||
|
T200
|
17,993 | |||
|
Glenmore
|
6,065 | |||
| $ | 51,058 | |||
The Company analyzed its investments in CL Realty and Temco for
impairment in accordance with ASC 323 and 360 and determined
that the fair value of CL Realty and Temco was less than each
investment’s carrying amount. As a result of the state of
the market for residential lots, adjustments to the sell-out
period for certain projects and the duration of the market
decline, the Company determined that the impairments at CL
Realty and Temco were
other-than-temporary
and recorded the impairment charges in the second quarter 2009.
As discussed in Note 5, T200 recognized an impairment loss
in 2009, the Company’s share of which was
$20.9 million. The Company guarantees the T200 construction
loan up to a maximum of $17.25 million. The Company
determined that it was probable that it would be required to
fund this guarantee in accordance with ASC
450-10
and
accrued its obligation in 2009. The Company also has certain
commitments to fund tenant improvement construction at T200,
which amounts were accrued in 2009. Both of these amounts have
been determined to not be recoverable by the Company, and the
Company recognized an impairment charge as a result.
In 2009, the Company determined that its investment in Glenmore
was
other-than-temporarily
impaired and recognized an impairment loss on its investment in
the venture of $1.1 million. Upon consolidation of Glenmore
in 2009 as discussed in Note 5, the Company recorded an
additional impairment charge of $4.9 million on its
investment in Glenmore, which represents the difference between
the fair value of the assets and the fair value of the debt.
Based on the financial condition of the Company’s partner
in Glenmore, the Company did not reduce the impairment charge by
any amount associated with the partner funding its share of the
deficiency.
Fair
Value Considerations for Property
The Company evaluated certain of its real estate assets and its
investments in unconsolidated joint ventures for impairment
using fair value processes and techniques as outlined in
accounting rules. The fair value measurements used in these
evaluations of non-financial assets are considered to be
Level 3 valuations within the fair value hierarchy in the
rules, as there are significant unobservable inputs. Examples of
inputs the Company utilizes in its fair value calculations are
discount rates, market capitalization rates, expected lease
rental rates, timing of new leases, and sales prices. All of the
impairment charges outlined above were based on Level 3
fair value inputs.
| 7. | EQUITY |
2009
Incentive Stock
Plan
:
The Company maintains the 2009 Incentive Stock Plan (the
“2009 Plan”), which allows the Company to issue awards
of stock options, stock grants or stock appreciation rights. As
of December 31, 2009, 1,209,909 shares were authorized
to be awarded pursuant to the 2009 Plan. The Company also
maintains the 1999 Incentive Stock Plan, the 1995 Stock
Incentive Plan, the Stock Plan for Outside Directors and the
Stock Appreciation Rights Plan (collectively, the
“Predecessor Plans”) under which stock awards have
been issued.
Stock Options
— At December 31, 2009, the
Company had 6,943,858 stock options outstanding to key employees
and outside directors pursuant to the 2009 Plan and the
Predecessor Plans. The Company typically uses authorized,
unissued shares to provide shares for option exercises. The
stock options have a term of 10 years from
F-26
Table of Contents
COUSINS
PROPERTIES INCORPORATED AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
the date of grant, and a vesting period of four years, except
director stock options, which immediately vest. In 2006, the
stock option certificates for grants on or after
December 11, 2006 were amended to include a stock
appreciation right. A stock appreciation right permits an
employee to waive his or her right to exercise the stock option
and to instead receive the value of the option, net of the
exercise price and tax withholding, in stock, without requiring
the payment of the exercise.
The outstanding employee stock option awards include a
retirement feature. Employees who meet the requirements of the
retirement feature vest immediately in their stock options upon
retirement. In addition, the Company accelerates the expense for
employees who will become eligible under this feature before the
end of their original vesting period, even if the employee has
not retired. An employee who meets the requirements of the
retirement feature will have the remaining original term to
exercise their stock options after retirement. The certificates
currently allow for an exercise period of one year after
termination for employees who are not retirement-eligible.
The Company calculates the fair value of each option grant on
the grant date using the Black-Scholes option-pricing model
which requires the Company to provide certain inputs, as follows:
| • | The risk-free interest rate utilized is the interest rate on U.S. Government Bonds and Notes having the same life as the estimated life of the Company’s option awards. | |
| • | Expected life of the options granted is estimated based on historical data reflecting actual hold periods plus an estimated hold period for unexercised options outstanding. | |
| • | Expected volatility is based on the historical volatility of the Company’s stock over a period relevant to the related stock option grant. | |
| • | The assumed dividend yield is based on the Company’s expectation of an annual dividend rate for regular dividends over the estimated life of the option. |
For 2009, 2008 and 2007, the Company computed the value of all
stock options granted using the Black-Scholes option pricing
model with the following assumptions and results:
| 2009 | 2008 | 2007 | ||||||||||
|
Assumptions
|
||||||||||||
|
Risk-free interest rate
|
1.94 | % | 2.62 | % | 3.60 | % | ||||||
|
Assumed dividend yield
|
6.00 | % | 5.04 | % | 5.00 | % | ||||||
|
Assumed lives of option awards (in years)
|
6.00 | 5.76 | 5.80 | |||||||||
|
Assumed volatility
|
0.470 | 0.268 | 0.245 | |||||||||
|
Results
|
||||||||||||
|
Weighted average fair value of options granted
|
$ | 2.18 | $ | 3.74 | $ | 3.74 | ||||||
The Company recognizes compensation expense using the
straight-line method over the vesting period of the options,
with the offset recognized in additional paid-in capital. During
2009, 2008 and 2007, approximately $2.0 million,
$2.6 million and $3.1 million, respectively, was
recognized as compensation expense related to the options for
employees and directors, before capitalization to projects under
development or income tax benefit. In the second quarter of
2009, the Company’s former Chairman of the Board and Chief
Executive Officer, retired. As a part of his retirement
agreement, all of his outstanding stock options became fully
vested upon retirement, and his stock options were modified to
allow for the original exercise periods to remain intact. In
connection with this agreement, the Company recognized an
additional $872,000 in compensation expense. In 2008, the
Company amended the stock option certificates of another former
executive and recognized expense of $292,000 related to the
modification.
F-27
Table of Contents
COUSINS
PROPERTIES INCORPORATED AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
The Company anticipates recognizing $2.1 million in future
compensation expense related to stock options, which will be
recognized over a weighted average period of two years. There
were no options exercised in 2009, and, as of December 31,
2009, there is no intrinsic value in the options outstanding or
exercisable, based on the exercise prices of the options
compared to the market value of the Company’s stock. The
weighted-average contractual life for the options outstanding
and exercisable was 5.0 years and 4.5 years,
respectively, at December 31, 2009.
The following is a summary of stock option activity under the
2009 Plan and the Predecessor Plans for the year ended
December 31, 2009 (in thousands, except per share amounts):
|
Weighted Average
|
||||||||
|
Number of
|
Exercise Price per
|
|||||||
| Options | Option | |||||||
|
2009 Plan and Predecessor Plans
|
||||||||
|
Outstanding, beginning of year
|
6,418 | $ | 23.74 | |||||
|
Granted
|
884 | 8.42 | ||||||
|
Forfeited/Expired
|
(359 | ) | 21.81 | |||||
|
Outstanding, end of year
|
6,943 | $ | 21.89 | |||||
|
Options exercisable at end of year
|
6,052 | $ | 22.74 | |||||
Stock Grants
— As indicated above, the 2009
Plan provides for stock grants, which may be subject to
specified performance and vesting requirements. At
December 31, 2009, the Company had 16,554 shares of
restricted stock outstanding to certain key employees and
directors. The Company recorded the restricted stock in Common
Stock and Additional Paid-in Capital on the grant date, with the
offset also recorded in stockholders’ investment. As the
restricted stock vests over its four-year life, the Company
records compensation expense. Compensation expense related to
the restricted stock, before any capitalization to projects
under development or income tax benefit, was approximately
$433,000, $1.9 million and $2.5 million in 2009, 2008
and 2007, respectively. As part of the retirement of the
Company’s former chief executive officer, all unvested
shares of restricted stock vested at retirement. As a result,
the Company recognized an additional $298,000 in compensation
expense in 2009. As of December 31, 2009, the Company had
recorded $350,000 of unrecognized compensation cost included in
additional paid-in capital related to restricted stock, which
will be recognized over a weighted average period of two years.
The total fair value of the restricted stock which vested during
2009 was $238,000. The following table summarizes restricted
stock activity during 2009:
|
Weighted-
|
||||||||
|
Number of
|
Average
|
|||||||
|
Shares
|
Grant Date
|
|||||||
| (In thousands) | Fair Value | |||||||
|
Non-vested restricted stock at December 31, 2008
|
56 | $ | 24.35 | |||||
|
Vested
|
(29 | ) | 24.83 | |||||
|
Forfeited
|
(10 | ) | 24.29 | |||||
|
Non-vested restricted stock at December 31, 2009
|
17 | $ | 23.53 | |||||
Restricted
Stock Unit Plan:
In 2005, the Company adopted the 2005 Restricted Stock Unit Plan
(the “RSU Plan”), under which 400,011 RSUs were
outstanding as of December 31, 2009. An RSU is a right to
receive a payment in cash equal to the fair market value, as
defined, of one share of the Company’s stock on the vesting
date. The Company records compensation expense for RSUs over the
vesting period and adjusts the expense and related liability
based upon the market value, as defined, of the Company’s
common stock at each reporting period. Directors and employees
with
F-28
Table of Contents
COUSINS
PROPERTIES INCORPORATED AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
RSUs receive cash dividend payments during the vesting period
equal to the common dividends per share paid by the Company for
each RSU held, which is also recorded in compensation expense.
The RSU Plan also has a retirement feature where employees who
meet the requirements of the retirement feature vest fully in
their RSUs outstanding upon retirement. In addition, the Company
accelerates the vesting period for employees who will become
eligible under this feature before the end of their original
vesting period, even if the employee has not retired. During
2009, 2008 and 2007, approximately $1.1 million, $866,000
and $1.8 million (including dividend payments),
respectively, was recognized as compensation expense related to
the RSUs for employees and directors, before capitalization to
projects under development or income tax benefit. The retirement
agreement with the Company’s former chief executive officer
also allowed for all unvested RSUs to become vested upon
retirement. Accordingly, the Company recognized an additional
$413,000 in compensation expense in 2009 related to this
agreement.
In 2006, the Company also amended the RSU Plan to allow for
grants of Performance Based RSUs, 172,489 of which are
outstanding at December 31, 2009. The Performance Based
RSUs were granted to two executives of the Company in 2006 and
will vest five years from the date of grant, if certain
performance, service and market conditions are met. The
Performance Based RSUs do not receive dividends. In 2008, one of
the executives who had been granted these RSUs retired. In
connection with this retirement, the Performance Based RSU
certificate was modified to change the service condition for
this executive and to allow him to earn 57% of the award, which
reflects the period from the date of grant to his retirement, if
the other conditions are met on the vesting date. The Company
expenses the fair value of these RSUs over the vesting period
utilizing the Monte Carlo valuation method. In connection with
these Performance Based RSUs, the Company recorded compensation
expense of $42,000 in 2009, a credit to expense representing a
reversal of previously recognized compensation expense of
approximately $1.5 million in 2008, and expense of
approximately $467,000 in 2007. All of these amounts are before
capitalization to projects under development or income tax
benefit.
As of December 31, 2009, the Company estimates future
expense for RSUs to be approximately $1.5 million (using
stock prices as of December 31, 2009), which will be
recognized over a weighted-average period of 2.6 years. The
total cash paid for RSU vesting and dividend payments in 2009
was $1.5 million.
The following table summarizes RSU activity for 2009 (in
thousands):
|
Outstanding at December 31, 2008
|
314 | |||
|
Granted
|
267 | |||
|
Vested
|
(156 | ) | ||
|
Forfeited
|
(25 | ) | ||
|
Outstanding at December 31, 2009
|
400 | |||
Other
Long-Term Compensation Information:
The Company granted a new long-term incentive compensation award
during 2009, which will be settled in cash if the Company’s
stock price achieves a specified level of growth at the testing
dates, and the service requirement is met. This award is valued
using the Monte Carlo method. The Company recognized $500,000 in
compensation expense related to this plan in 2009, before
capitalization to projects under development or income tax
benefit. The award will be tested at specified dates in 2012,
2013 and 2014. If the stock value growth condition has not been
met as of the latest possible testing date in 2014 or, except as
described for a change in control, if the employee terminates
employment before this vesting condition is met on a testing
date, the award is automatically forfeited.
F-29
Table of Contents
COUSINS
PROPERTIES INCORPORATED AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
Other
Stockholder Investment Information
Preferred
Stock:
At December 31, 2009, the Company had 2,993,090 shares
outstanding of its 7.75% Series A Cumulative Redeemable
Preferred Stock (liquidation preference of $25 per share), and
3,791,000 shares outstanding of its 7.50% Series B
Cumulative Redeemable Preferred Stock (liquidation preference of
$25 per share). The Series A preferred stock may be
redeemed on or after July 24, 2008, and the Series B
preferred stock may be redeemed on or after December 17,
2009, both at the Company’s option at $25 per share plus
all accrued and unpaid dividends through the date of redemption.
None of the Series A or Series B preferred stock has
been redeemed as of December 31, 2009, although some has
been repurchased as described below. Dividends on both the
Series A and Series B preferred stock are payable
quarterly in arrears on February 15, May 15, August 15
and November 15.
Stock
Repurchase Plan:
In 2006, the Board of Directors of the Company authorized a
stock repurchase plan, which was to expire on May 9, 2009,
and allows the Company to purchase up to five million shares of
its common stock. In November 2008, the term of this plan was
extended until May 9, 2011. No common stock was repurchased
in 2009 or 2008. The Company purchased 878,500 shares in
2007 for an aggregate price of approximately $21.9 million.
Prior to 2006, the Company purchased 2,691,582 shares of
its common stock for an aggregate price of approximately
$64.9 million under previous plans.
In November 2008, the repurchase plan was also expanded to
include the repurchase of all Series A and B preferred
shares outstanding. In accordance with this plan, in 2008, the
Company repurchased 1,006,910 of its Series A preferred
stock and 209,000 shares of its Series B preferred
stock for an aggregate price of $15.8 million.
Director
Fees:
Outside directors may elect to receive any portion of their
director fees in stock, based on 95% of the average market price
on the date of service. Outside directors elected to receive
29,007, 11,266, and 10,724 shares of stock in lieu of cash
for director fees in 2009, 2008 and 2007, respectively.
Ownership
Limitations:
In order to minimize the risk that the Company will not meet one
of the requirements for qualification as a REIT, Cousins’
Articles of Incorporation include certain restrictions on the
ownership of more than 3.9% of the Company’s total common
and preferred stock.
Distribution
of REIT Taxable Income:
The following reconciles dividends paid and dividends applied in
2009, 2008 and 2007 to meet REIT distribution requirements ($ in
thousands):
| 2009 | 2008 | 2007 | ||||||||||
|
Common and preferred dividends paid
|
$ | 55,328 | $ | 85,058 | $ | 92,032 | ||||||
|
Dividends treated as taxable compensation
|
(28 | ) | (182 | ) | (227 | ) | ||||||
|
Portion of dividends declared in current year, and paid in
current year, which was applied to the prior year distribution
requirements
|
— | — | (19 | ) | ||||||||
|
Dividends applied to meet current year REIT distribution
requirements
|
$ | 55,300 | $ | 84,876 | $ | 91,786 | ||||||
F-30
Table of Contents
COUSINS
PROPERTIES INCORPORATED AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
| 8. | INCOME TAXES |
CREC is a taxable entity and its consolidated provision for
income taxes is composed of the following for the years ended
December 31, 2009, 2008 and 2007 ($ in thousands):
| 2009 | 2008 | 2007 | ||||||||||
|
Current tax provision (benefit):
|
||||||||||||
|
Federal
|
$ | (4,605 | ) | $ | 332 | $ | (3,243 | ) | ||||
|
State
|
49 | 83 | (564 | ) | ||||||||
| (4,556 | ) | 415 | (3,807 | ) | ||||||||
|
Deferred tax provision (benefit):
|
||||||||||||
|
Federal
|
7,984 | (8,244 | ) | (571 | ) | |||||||
|
State
|
913 | (941 | ) | (65 | ) | |||||||
| 8,897 | (9,185 | ) | (636 | ) | ||||||||
|
Total income tax provision (benefit)
|
4,341 | (8,770 | ) | (4,443 | ) | |||||||
| — | — | — | ||||||||||
|
Benefit applicable to discontinued operations and sale of
investment property
|
— | — | 20 | |||||||||
|
Provision (benefit) for income taxes from operations
|
$ | 4,341 | $ | (8,770 | ) | $ | (4,423 | ) | ||||
The net income tax provision differs from the amount computed by
applying the statutory federal income tax rate to CREC’s
income before taxes for the years ended December 31, 2009,
2008 and 2007 as follows ($ in thousands):
| 2009 | 2008 | 2007 | ||||||||||||||||||||||
| Amount | Rate | Amount | Rate | Amount | Rate | |||||||||||||||||||
|
Federal income tax provision (benefit)
|
$ | (39,175 | ) | 35 | % | $ | (7,821 | ) | 34 | % | $ | (4,371 | ) | 34 | % | |||||||||
|
State income tax provision, net of federal income tax effect
|
(3,625 | ) | 3 | % | (431 | ) | 2 | % | (72 | ) | 2 | % | ||||||||||||
|
Valuation allowance
|
47,141 | (42 | )% | — | — | — | — | |||||||||||||||||
|
Other
|
— | — | (518 | ) | 2 | % | — | — | ||||||||||||||||
|
CREC provision (benefit) for income taxes
|
4,341 | (4 | )% | (8,770 | ) | 38 | % | (4,443 | ) | 36 | % | |||||||||||||
|
Provision (benefit) applicable to discontinued operations and
sale of investment property
|
— | — | 20 | |||||||||||||||||||||
|
Consolidated provision (benefit) applicable to income from
continuing operations attributable to controlling interest
|
$ | 4,341 | $ | (8,770 | ) | $ | (4,423 | ) | ||||||||||||||||
F-31
Table of Contents
COUSINS
PROPERTIES INCORPORATED AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
The tax effect of significant temporary differences representing
CREC’s deferred tax assets and liabilities as of
December 31, 2009 and 2008 is as follows ($ in thousands):
| 2009 | 2008 | |||||||
|
Depreciation and amortization
|
$ | 293 | $ | 757 | ||||
|
Income from unconsolidated joint ventures
|
6,774 | — | ||||||
|
Residential lots basis differential
|
50 | — | ||||||
|
Charitable contributions
|
774 | 808 | ||||||
|
Condominium basis differential
|
12,019 | 1,952 | ||||||
|
Interest carryforward
|
13,158 | 13,318 | ||||||
|
Federal and state tax carryforwards
|
13,149 | — | ||||||
|
Other
|
938 | 524 | ||||||
|
Total deferred tax assets
|
47,155 | 17,359 | ||||||
|
Income from unconsolidated joint ventures
|
— | (7,490 | ) | |||||
|
Residential lots basis differential
|
— | (963 | ) | |||||
|
Capitalized salaries
|
(14 | ) | (9 | ) | ||||
|
Total deferred tax liabilities
|
(14 | ) | (8,462 | ) | ||||
|
Valuation allowance
|
(47,141 | ) | — | |||||
|
Net deferred tax asset (liability)
|
$ | — | $ | 8,897 | ||||
A valuation allowance is required to be recorded against
deferred tax assets if, based on the available evidence, it is
more likely than not that such assets will not be realized. When
assessing the need for a valuation allowance, appropriate
consideration should be given to all positive and negative
evidence related to the realization of the deferred tax assets.
This evidence includes, among other things, the existence of
current losses and cumulative losses in recent years, forecasts
of future profitability, the length of statutory carryforward
periods, the Company’s experience with loss carryforwards
expiring unused and available tax planning strategies.
In 2009, the Company established a valuation allowance against
the deferred tax assets of its taxable REIT subsidiary, CREC,
totaling $47.1 million. The Company’s conclusion that
a valuation allowance against its deferred tax assets should be
recorded was based on losses at CREC in recent years, including
consideration of losses incurred in 2009, and the inability of
the Company to predict, with any degree of certainty, when CREC
would generate income in the future in amounts sufficient to
utilize the deferred tax asset. This uncertainty is the result
of the continued decline in the housing market which directly
impacts CREC’s residential land business and multi-family
business.
As of December 31, 2009, the Company’s federal and
state net operating loss (“NOL”) carryforwards are
$32.7 million and $32.6 million, respectively, and
will expire between 2011 and 2029. In addition, the Company has
Alternative Minimum Tax (“AMT”) credit carryforwards
of $400,000, which do not expire. On an after-tax basis, the
Company’s federal and state NOL carryforwards and AMT
credit carryforwards result in a deferred tax asset of
$13.1 million.
The Company has interest carryforwards related to interest
deductions of approximately $33.7 million and
$34.1 million as of December 31, 2009 and 2008,
respectively. The Company recorded deferred tax assets of
$13.2 million and $13.3 million as of
December 31, 2009 and 2008, respectively, reflecting the
benefit of the interest carryforwards. Although such deferred
tax assets do not expire, realization is dependent upon
generating sufficient taxable income in the future.
F-32
Table of Contents
COUSINS
PROPERTIES INCORPORATED AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
As of December 31, 2009 and 2008, the Company had
carryforwards related to limited charitable contribution
deductions of approximately $2.0 million and
$2.1 million, respectively. These carryforwards will expire
between 2010 and 2014. On an after-tax basis, the Company’s
charitable contribution carryforwards resulted in a deferred tax
asset of approximately $800,000 as of December 31, 2009 and
2008.
The income tax receivable as of December 31, 2009 of
$2.8 million relates to the carryback of loss incurred in
2009 to open tax years in which the Company previously paid
income taxes.
| 9. | PROPERTY TRANSACTIONS |
Investment
Property Sales
Accounting rules require that the gains and losses from the
disposition of certain real estate assets and the related
historical operating results be included in a separate section,
Discontinued Operations, in the Consolidated Statements of
Income for all periods presented.
During 2008 and 2007, the Company sold the following properties
that met the criteria for Discontinued Operations. There were no
properties that met the criteria in 2009.
|
Rentable
|
||||
|
Property Name
|
Square Feet | |||
|
2008
|
||||
|
3100 Windy Hill Road
|
188,000 | |||
|
2007
|
||||
|
North Point Ground Leases — 5 Parcels
|
N/A | |||
|
3301 Windy Ridge Parkway
|
107,000 | |||
The following table details the components of Income (Loss) from
Discontinued Operations for the years ended December 31,
2009, 2008 and 2007 ($ in thousands).
| 2009 | 2008 | 2007 | ||||||||||
|
Rental property revenues
|
$ | (2 | ) | $ | 35 | $ | 842 | |||||
|
Other income
|
— | 22 | 106 | |||||||||
|
Rental property operating expenses
|
(2 | ) | (668 | ) | (1,516 | ) | ||||||
|
Depreciation and amortization
|
— | (486 | ) | (846 | ) | |||||||
| $ | (4 | ) | $ | (1,097 | ) | $ | (1,414 | ) | ||||
Gain on sale of investment properties included in Discontinued
Operations described above is as follows for the years ended
December 31, 2009, 2008 and 2007 (net of income taxes; $ in
thousands):
| 2009 | 2008 | 2007 | ||||||||||
|
3100 Windy Hill Road
|
$ | 147 | $ | 2,436 | $ | — | ||||||
|
3301 Windy Ridge Parkway
|
— | — | 9,892 | |||||||||
|
North Point Ground Leases
|
— | 36 | 8,164 | |||||||||
|
Other
|
— | — | 39 | |||||||||
| $ | 147 | $ | 2,472 | $ | 18,095 | |||||||
F-33
Table of Contents
COUSINS
PROPERTIES INCORPORATED AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
| 10. | NOTES AND OTHER RECEIVABLES |
At December 31, 2009 and 2008, notes and other receivables
included the following ($ in thousands):
| 2009 | 2008 | |||||||
|
Notes receivable, net of allowance for doubtful accounts of
$1,469 and $514 in 2009 and 2008, respectively
|
$ | 5,649 | $ | 12,757 | ||||
|
Cumulative rental revenue recognized on a straight-line basis in
excess of revenue accrued in accordance with lease terms (see
Note 2)
|
30,779 | 24,674 | ||||||
|
Tenant and other receivables, net of allowance for doubtful
accounts of $4,265 and $2,250 in 2009 and 2008, respectively
|
13,250 | 13,836 | ||||||
| $ | 49,678 | $ | 51,267 | |||||
Fair
Value
At December 31, 2009 and 2008, the fair value of the
Company’s notes receivable was approximately equal to book
value. The fair value was calculated by discounting future cash
flows from the notes receivable at estimated rates in which
similar loans would have been made at December 31, 2009 and
2008. This fair value calculation is considered to be a
Level 3 calculation under the accounting guidelines, as the
Company utilizes internally generated assumptions regarding
current interest rates at which similar instruments would be
executed.
| 11. | OTHER ASSETS |
At December 31, 2009 and 2008, Other Assets included the
following ($ in thousands):
| 2009 | 2008 | |||||||
|
Investment in Verde
|
$ | 9,376 | $ | 9,376 | ||||
|
Furniture, fixtures and equipment and leasehold improvements,
net of accumulated depreciation of $14,195 and $11,540 as of
December 31, 2009 and 2008, respectively
|
5,306 | 5,845 | ||||||
|
Airplane, net of accumulated depreciation of $965 as of
December 31, 2008
|
— | 14,408 | ||||||
|
Predevelopment costs and earnest money
|
7,673 | 16,302 | ||||||
|
Lease inducements, net of accumulated amortization of $1,860 and
$931 as of December 31, 2009 and 2008, respectively
|
12,545 | 13,903 | ||||||
|
Loan closing costs, net of accumulated amortization of $4,177
and $3,035 as of December 31, 2009 and 2008, respectively
|
3,385 | 5,231 | ||||||
|
Prepaid expenses and other assets
|
2,631 | 2,641 | ||||||
|
Deferred tax asset
|
— | 8,897 | ||||||
|
Intangible Assets:
|
||||||||
|
Goodwill
|
5,450 | 5,450 | ||||||
|
Above market leases, net of accumulated amortization of $8,704
and $9,106 as of December 31, 2009 and 2008, respectively
|
564 | 734 | ||||||
|
In-place leases, net of accumulated amortization of $2,391 and
$2,270 as of December 31, 2009 and 2008, respectively
|
423 | 543 | ||||||
| $ | 47,353 | $ | 83,330 | |||||
Information
Related to Other Assets
See Note 8 for information related to the Company’s
deferred tax asset and related valuation allowance. The Company
sold its airplane in 2009. See Note 6 for more information.
F-34
Table of Contents
COUSINS
PROPERTIES INCORPORATED AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
Investment in Verde relates to a cost method investment in a
non-public real estate owner and developer. Intangible assets
relate primarily to the acquisitions of the interests in 191
Peachtree and Cosmopolitan Center in 2006. The Company also
acquired intangible liabilities related to the purchases,
including below market tenant leases and an above market ground
lease, which are recorded within Accounts Payable and Accrued
Liabilities on the Consolidated Balance Sheets. Both above and
below market tenant leases are amortized into rental revenues
over the individual remaining lease terms. The below market
ground lease is amortized into rental property operating
expenses. In-place leases are amortized into depreciation and
amortization expense, also over the individual remaining lease
terms. Aggregate amortization related to intangible assets and
liabilities was $165,000, $4.4 million and
$5.6 million for the years ended December 31, 2009,
2008 and 2007, respectively.
The Company has goodwill recorded on its Consolidated Balance
Sheets, which relates entirely to the office reporting unit. As
office assets are sold, either by the Company or by joint
ventures in which the Company has an interest, goodwill is
allocated to the cost of each sale. The following is a summary
of goodwill activity for the years ended December 31, 2009
and 2008 ($ in thousands):
| 2009 | 2008 | |||||||
|
Beginning Balance
|
$ | 5,450 | $ | 5,529 | ||||
|
Allocated to sales
|
— | (79 | ) | |||||
|
Ending Balance
|
$ | 5,450 | $ | 5,450 | ||||
| 12. | CONSOLIDATED STATEMENTS OF CASH FLOWS — SUPPLEMENTAL INFORMATION |
Supplemental information related to cash flows, including
significant non-cash activity affecting the Statements of Cash
Flows, for the years ended December 31, 2009, 2008 and 2007
is as follows ($ in thousands):
| 2009 | 2008 | 2007 | ||||||||||
|
Interest paid, net of amounts capitalized
|
$ | 40,219 | $ | 31,094 | $ | 5,760 | ||||||
|
Net income taxes refunded
|
(891 | ) | (8,072 | ) | (2,025 | ) | ||||||
|
Non-Cash Transactions:
|
||||||||||||
|
Issuance of common stock for payment of common dividends
|
19,711 | — | — | |||||||||
|
Transfer from notes receivable to multi-family residential units
|
8,167 | — | — | |||||||||
|
Transfer from notes payable and accrued liabilities to
redeemable noncontrolling interests
|
8,767 | — | — | |||||||||
|
Transfer from investment in joint venture to land upon
consolidation of entities
|
9,116 | 1,570 | — | |||||||||
|
Change in accumulated other comprehensive loss on derivative
instruments
|
7,084 | 12,299 | 4,302 | |||||||||
|
Transfer from other assets to land
|
2,440 | 6,419 | — | |||||||||
|
Issuance of note receivable for sale of land
|
— | 5,172 | — | |||||||||
|
Increase in notes payable upon consolidation of entities
|
11,918 | — | — | |||||||||
|
Issuance of note payable for purchase of townhomes
|
3,150 | — | — | |||||||||
|
Change in property additions included in accounts payable
|
5,093 | 2,851 | 5,652 | |||||||||
|
Change in fair value of redeemable noncontrolling interests
|
180 | 3,545 | 2,318 | |||||||||
|
Transfer from projects under development to investment in joint
venture
|
— | — | 29,637 | |||||||||
|
Transfer from minority interest to deferred gain
|
— | — | 2,363 | |||||||||
|
Transfer from other assets to projects under development
|
— | — | 18,694 | |||||||||
|
Transfer from other assets to operating properties
|
— | — | 136 | |||||||||
F-35
Table of Contents
COUSINS
PROPERTIES INCORPORATED AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
| 13. | NONCONTROLLING INTERESTS |
The Company consolidates various ventures that are involved in
the ownership
and/or
development of real estate that it controls and in periods prior
to 2009 recorded the other partner’s interest as a minority
interest, which was presented between liabilities and equity on
the Company’s Consolidated Balance Sheets. Effective
January 1, 2009, under new guidance within ASC 810, certain
amounts formerly reflected as minority interests were renamed
noncontrolling interests and reflected in equity, if
appropriate, in the Company’s Consolidated Balance Sheets.
Income or loss associated with noncontrolling interests is
required to be presented separately, net of tax, below net
income on the Company’s income statements. These amounts
were previously included in net income as minority interest in
income of consolidated subsidiaries. In addition, a Statement of
Equity and a rollforward of Nonredeemable Noncontrolling
Interests are presented in financial statement filings each
reporting period.
The Company has several consolidated ventures with agreements
that contain provisions requiring the Company to purchase the
noncontrolling interest at the then fair value upon demand on or
after a future date. The obligation to the noncontrolling
partner is recognized as Redeemable Noncontrolling Interests and
continues to be presented between liabilities and equity on the
Consolidated Balance Sheets. The redemption values are adjusted
to the higher of fair value or cost basis in a separate line
item within Equity. The Company is recognizing changes in the
redemption value immediately as they occur.
The following table summarizes the impact of this new guidance
on the Company’s Consolidated Balance Sheet (in thousands).
| December 31, 2008 | ||||||||||||
|
As Presented Before
|
Adjustment for
|
|||||||||||
|
New Accounting
|
Noncontrolling
|
|||||||||||
| Standard | Interest Standard | As Adjusted | ||||||||||
|
Noncontrolling Interests
|
$ | 40,520 | $ | (36,575 | ) | $ | 3,945 | |||||
|
Equity:
|
||||||||||||
|
Distributions in excess of net income
|
(22,225 | ) | (964 | ) | (23,189 | ) | ||||||
|
Noncontrolling Interests
|
— | 37,539 | 37,539 | |||||||||
|
Total Equity
|
$ | 467,687 | $ | 36,575 | $ | 504,262 | ||||||
The new standard changed the presentation of certain items on
the Company’s Consolidated Statements of Income. Net income
is now shown before the noncontrolling interests’ share,
whereas previously the noncontrolling interests’ portion
was excluded when calculating net income. As a result, net
income for the years ended 2008 and 2007 was increased by
$2.4 million and $1.7 million, respectively, in the
Consolidated Statements of Income presented herein.
The following table details the components of Redeemable
Noncontrolling Interests in Consolidated Subsidiaries for the
years ended December 31, 2009 and 2008 (in thousands):
| 2009 | 2008 | |||||||
|
Beginning Balance
|
$ | 3,945 | $ | 11,717 | ||||
|
Net loss attributable to redeemable noncontrolling interests
|
(174 | ) | (353 | ) | ||||
|
Distributions to noncontrolling interests
|
(159 | ) | (3,885 | ) | ||||
|
Contributions to noncontrolling interests
|
32 | 11 | ||||||
|
Conversion of note payable and accrued interest to
noncontrolling interest
|
8,767 | — | ||||||
|
Change in fair value of noncontrolling interests
|
180 | (3,545 | ) | |||||
|
Ending Balance
|
$ | 12,591 | $ | 3,945 | ||||
F-36
Table of Contents
COUSINS
PROPERTIES INCORPORATED AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
For the years ended December 31, 2009, 2008 and 2007, net
income on the Consolidated Statements of Equity is reconciled to
the Consolidated Income Statements as follows (in thousands):
| 2009 | 2008 | 2007 | ||||||||||
|
Net income attributable to controlling interest
|
$ | 27,295 | $ | 22,547 | $ | 32,922 | ||||||
|
Net income attributable to nonredeemable noncontrolling interests
|
2,426 | 2,731 | 1,658 | |||||||||
|
Net loss attributable to redeemable noncontrolling interests
|
(174 | ) | (353 | ) | (2 | ) | ||||||
|
Net income
|
$ | 29,547 | $ | 24,925 | $ | 34,578 | ||||||
| 14. | COMMON STOCK |
In September 2009, the Company completed a common stock offering
of 46 million shares. The net proceeds of the offering of
approximately $318.4 million were used to partially repay
the outstanding borrowings under the Company’s credit
facility.
| 15. | RENTAL PROPERTY REVENUES |
The Company’s leases typically contain escalation
provisions and provisions requiring tenants to pay a pro rata
share of operating expenses. The leases typically include
renewal options and are classified and accounted for as
operating leases. In addition, leases for certain retail tenants
may include provisions regarding the leased percentage of the
property or specifics related to the tenant mix at the center
(“co-tenancy clauses”), and, if these criteria are not
met, the tenant could request an adjustment to their rental
rates or terminate their lease. The table below reflects
information prior to the potential invocation of any of these
co-tenancy clauses. The majority of the Company’s real
estate assets are concentrated in the Southeastern United States.
At December 31, 2009 future minimum rentals to be received
by consolidated entities under existing non-cancelable leases,
excluding tenants’ current pro rata share of operating
expenses, are as follows ($ in thousands):
| Office | Retail | Industrial | Total | |||||||||||||
|
2010
|
$ | 74,994 | $ | 29,329 | $ | 2,767 | $ | 107,090 | ||||||||
|
2011
|
70,526 | 31,371 | 2,976 | 104,873 | ||||||||||||
|
2012
|
66,974 | 29,944 | 2,343 | 99,261 | ||||||||||||
|
2013
|
62,791 | 29,900 | 1,901 | 94,592 | ||||||||||||
|
2014
|
58,313 | 29,317 | 1,940 | 89,570 | ||||||||||||
|
Thereafter
|
278,599 | 105,610 | 490 | 384,699 | ||||||||||||
| $ | 612,197 | $ | 255,471 | $ | 12,417 | $ | 880,085 | |||||||||
| 16. | RETIREMENT SAVINGS/401(k) PLAN |
The Company has a 401(k) plan which covers active regular
employees. Employees are eligible under this plan immediately
upon hire, and pre-tax contributions are allowed up to the
limits set by the Internal Revenue Service. The Company has a
retirement savings plan which covers active regular employees
who work a minimum of 1,000 hours per year. The
Compensation, Nominating and Governance Committee of the Board
of Directors makes an annual, discretionary determination of the
percentage contribution of an eligible employees’
compensation that will be made by the Company into the
retirement savings plan. In order to be an eligible employee,
the employee must, among other factors, be an active employee on
January 1 or July 1 and December 31 of that plan year. The
Company contributed or plans to contribute approximately
$1.4 million, $3.3 million and $3.8 million to
the retirement savings plan for the 2009, 2008 and 2007 plan
years, respectively.
F-37
Table of Contents
COUSINS
PROPERTIES INCORPORATED AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
| 17. | REPORTABLE SEGMENTS |
The Company follows the rules as outlined in ASC 280 for segment
reporting. The Company has five reportable segments: Office,
Retail, Land, Third-Party Management and Multi-Family. These
reportable segments represent an aggregation of operating
segments reported to the Chief Operating Decision Maker based on
similar economic characteristics that include the type of
product and nature of service. Each segment includes both
consolidated operations and joint ventures. The Office segment
includes results of operations for office properties. The Retail
segment includes results of operations for retail centers. The
Land segment includes results of operations for various tracts
of land that are held for investment or future development, and
single-family residential communities that are parceled into
lots and sold to various homebuilders or sold as undeveloped
tracts of land. The Third-Party Management segment includes fee
income where the Company manages, leases
and/or
develops properties for other owners. The Multi-Family segment
includes results of operations for the development and sale of
multi-family real estate. The Other segment includes:
| • | fee income, salary reimbursements and expenses for joint venture properties that the Company manages, develops and/or leases; | |
| • | compensation for employees, other than those in the Third-Party Management segment; | |
| • | general corporate overhead costs, interest expense for consolidated entities (as financing decisions are made at the corporate level, with the exception of joint venture interest expense, which is included in joint venture results); | |
| • | income attributable to noncontrolling interests; | |
| • | income taxes; | |
| • | depreciation; | |
| • | preferred dividends; and | |
| • | operations of the Industrial properties, which are not material for separate presentation. |
Company management evaluates the performance of its reportable
segments in part based on funds from operations available to
common stockholders (“FFO”). FFO is a supplemental
operating performance measure used in the real estate industry.
The Company calculated FFO using the National Association of
Real Estate Investment Trusts’ (“NAREIT”)
definition of FFO, which is net income available to common
stockholders (computed in accordance with GAAP), excluding
extraordinary items, cumulative effect of change in accounting
principle and gains or losses from sales of depreciable
property, plus depreciation and amortization of real estate
assets, and after adjustments for unconsolidated partnerships
and joint ventures to reflect FFO on the same basis.
FFO is used by industry analysts, investors and the Company as a
supplemental measure of an equity REIT’s operating
performance. Historical cost accounting for real estate assets
implicitly assumes that the value of real estate assets
diminishes predictably over time. Since real estate values
instead have historically risen or fallen with market
conditions, many industry investors and analysts have considered
presentation of operating results for real estate companies that
use historical cost accounting to be insufficient by themselves.
Thus, NAREIT created FFO as a supplemental measure of a
REIT’s operating performance that excludes historical cost
depreciation, among other items, from GAAP net income.
Management believes that the use of FFO, combined with the
required primary GAAP presentations, has been fundamentally
beneficial, improving the understanding of operating results of
REITs among the investing public and making comparisons of REIT
operating results more meaningful. Company management evaluates
operating performance in part based on FFO. Additionally, the
Company uses FFO and FFO per share, along with other measures,
to assess performance in connection with evaluating and granting
incentive compensation to its officers and other key employees.
F-38
Table of Contents
COUSINS
PROPERTIES INCORPORATED AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
Segment net income, investment in joint ventures and capital
expenditures are not presented in the following tables.
Management does not utilize these measures when analyzing its
segments or when making resource allocation decisions, and
therefore this information is not provided. FFO is reconciled to
net income on a total company basis. Dollars are stated in
thousands.
|
Third Party
|
||||||||||||||||||||||||||||
|
Year Ended December 31, 2009
|
Office | Retail | Land | Management | Multi-Family | Other | Total | |||||||||||||||||||||
|
Net rental property revenues less rental property operating
expenses
|
$ | 57,257 | $ | 24,395 | $ | — | $ | — | $ | — | $ | 1,568 | $ | 83,220 | ||||||||||||||
|
Fee income
|
— | — | 717 | 21,469 | — | 11,620 | 33,806 | |||||||||||||||||||||
|
Residential, multi-family and outparcel sales, net of cost of
sales
|
276 | 1,841 | 1,466 | — | 5,212 | 58 | 8,853 | |||||||||||||||||||||
|
Other income
|
286 | 1,431 | — | — | — | 1,308 | 3,025 | |||||||||||||||||||||
|
Gain on extinguishment of debt and interest rate swaps, net
|
— | — | — | — | — | 9,732 | 9,732 | |||||||||||||||||||||
|
General and administrative expenses
|
— | — | — | (21,531 | ) | — | (31,180 | ) | (52,711 | ) | ||||||||||||||||||
|
Interest expense
|
— | — | — | — | — | (41,393 | ) | (41,393 | ) | |||||||||||||||||||
|
Impairment losses
|
— | — | — | — | (36,500 | ) | (4,012 | ) | (40,512 | ) | ||||||||||||||||||
|
Depreciation and amortization of non-real estate assets
|
— | — | — | — | — | (3,382 | ) | (3,382 | ) | |||||||||||||||||||
|
Other expenses
|
— | — | — | — | — | (13,143 | ) | (13,143 | ) | |||||||||||||||||||
|
Funds from operations from unconsolidated joint ventures
|
(11,149 | ) | 6,440 | (4,091 | ) | — | (60 | ) | (37 | ) | (8,897 | ) | ||||||||||||||||
|
Impairment losses on investment in unconsolidated joint ventures
|
(17,993 | ) | — | (27,000 | ) | — | (6,065 | ) | — | (51,058 | ) | |||||||||||||||||
|
Income attributable to noncontrolling interests
|
— | — | — | — | — | (2,252 | ) | (2,252 | ) | |||||||||||||||||||
|
Provision for income taxes from operations
|
— | — | — | — | — | (4,341 | ) | (4,341 | ) | |||||||||||||||||||
|
Preferred stock dividends
|
— | — | — | — | — | (12,907 | ) | (12,907 | ) | |||||||||||||||||||
|
Funds from operations available to common stockholders
|
$ | 28,677 | $ | 34,107 | $ | (28,908 | ) | $ | (62 | ) | $ | (37,413 | ) | $ | (88,361 | ) | (91,960 | ) | ||||||||||
|
Real estate depreciation and amortization
|
(61,205 | ) | ||||||||||||||||||||||||||
|
Gain on sale of depreciated investment properties
|
167,553 | |||||||||||||||||||||||||||
|
Net income available to common stockholders
|
$ | 14,388 | ||||||||||||||||||||||||||
|
Total Assets
|
$ | 650,958 | $ | 429,099 | $ | 273,026 | $ | 7,291 | $ | 31,206 | $ | 99,972 | $ | 1,491,552 | ||||||||||||||
F-39
Table of Contents
COUSINS
PROPERTIES INCORPORATED AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
|
Third Party
|
||||||||||||||||||||||||||||
|
Year Ended December 31, 2008
|
Office | Retail | Land | Management | Multi-Family | Other | Total | |||||||||||||||||||||
|
Net rental property revenues less rental property operating
expenses
|
$ | 65,060 | $ | 23,602 | $ | — | $ | — | $ | — | $ | 1,492 | $ | 90,154 | ||||||||||||||
|
Fee income
|
— | — | — | 34,337 | — | 13,325 | 47,662 | |||||||||||||||||||||
|
Residential, multi-family and outparcel sales, net of cost of
sales
|
620 | 3,976 | 7,113 | — | 1,114 | 2,119 | 14,942 | |||||||||||||||||||||
|
Other income
|
41 | 388 | — | — | — | 3,751 | 4,180 | |||||||||||||||||||||
|
General and administrative expenses
|
— | — | — | (25,418 | ) | — | (33,035 | ) | (58,453 | ) | ||||||||||||||||||
|
Interest expense
|
— | — | — | — | — | (33,151 | ) | (33,151 | ) | |||||||||||||||||||
|
Impairment loss
|
— | — | — | — | (2,100 | ) | — | (2,100 | ) | |||||||||||||||||||
|
Depreciation and amortization of non-real estate assets
|
— | — | — | — | — | (3,743 | ) | (3,743 | ) | |||||||||||||||||||
|
Other expenses
|
— | — | — | — | — | (6,049 | ) | (6,049 | ) | |||||||||||||||||||
|
Funds from operations from unconsolidated joint ventures
|
5,134 | 5,653 | 3,503 | — | 1,892 | (45 | ) | 16,137 | ||||||||||||||||||||
|
Income attributable to noncontrolling interests
|
— | — | — | — | — | (2,378 | ) | (2,378 | ) | |||||||||||||||||||
|
Benefit for income taxes from operations
|
— | — | — | — | — | 8,770 | 8,770 | |||||||||||||||||||||
|
Preferred stock dividends
|
— | — | — | — | — | (14,957 | ) | (14,957 | ) | |||||||||||||||||||
|
Funds from operations available to common stockholders
|
$ | 70,855 | $ | 33,619 | $ | 10,616 | $ | 8,919 | $ | 906 | $ | (63,901 | ) | 61,014 | ||||||||||||||
|
Real estate depreciation and amortization
|
(56,084 | ) | ||||||||||||||||||||||||||
|
Gain on sale of depreciated investment properties
|
2,660 | |||||||||||||||||||||||||||
|
Net income available to common stockholders
|
$ | 7,590 | ||||||||||||||||||||||||||
|
Total Assets
|
$ | 675,813 | $ | 455,484 | $ | 300,899 | $ | 5,335 | $ | 78,860 | $ | 177,404 | $ | 1,693,795 | ||||||||||||||
F-40
Table of Contents
COUSINS
PROPERTIES INCORPORATED AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
|
Third Party
|
||||||||||||||||||||||||||||
|
Year Ended December 31, 2007
|
Office | Retail | Land | Management | Multi-Family | Other | Total | |||||||||||||||||||||
|
Net rental property revenues less rental property operating
expenses
|
$ | 45,016 | $ | 18,867 | $ | — | $ | — | $ | — | $ | 1,949 | $ | 65,832 | ||||||||||||||
|
Fee income
|
— | — | — | 23,652 | — | 12,662 | 36,314 | |||||||||||||||||||||
|
Residential, tract and outparcel sales, net of cost of sales
|
21 | 13,535 | 1,123 | — | 144 | 622 | 15,445 | |||||||||||||||||||||
|
Other income
|
3,556 | 1,743 | — | — | — | 1,236 | 6,535 | |||||||||||||||||||||
|
General and administrative expenses
|
— | — | — | (25,582 | ) | — | (32,228 | ) | (57,810 | ) | ||||||||||||||||||
|
Loss on extinguishment of debt
|
— | — | — | — | — | (446 | ) | (446 | ) | |||||||||||||||||||
|
Interest expense
|
— | — | — | — | — | (8,816 | ) | (8,816 | ) | |||||||||||||||||||
|
Depreciation and amortization of non-real estate assets
|
— | — | — | — | — | (2,793 | ) | (2,793 | ) | |||||||||||||||||||
|
Other expenses
|
— | — | — | — | — | (2,822 | ) | (2,822 | ) | |||||||||||||||||||
|
Funds from operations from unconsolidated joint ventures
|
4,452 | 4,100 | 1,149 | — | (185 | ) | (35 | ) | 9,481 | |||||||||||||||||||
|
Income attributable to noncontrolling interests
|
— | — | — | — | — | (1,656 | ) | (1,656 | ) | |||||||||||||||||||
|
Benefit for income taxes from operations
|
— | — | — | — | — | 4,423 | 4,423 | |||||||||||||||||||||
|
Preferred stock dividends
|
— | — | — | — | — | (15,250 | ) | (15,250 | ) | |||||||||||||||||||
|
Funds from operations available to common stockholders
|
$ | 53,045 | $ | 38,245 | $ | 2,272 | $ | (1,930 | ) | $ | (41 | ) | $ | (43,154 | ) | 48,437 | ||||||||||||
|
Real estate depreciation and amortization
|
(42,420 | ) | ||||||||||||||||||||||||||
|
Gain on sale of depreciated investment properties
|
11,655 | |||||||||||||||||||||||||||
|
Net income available to common stockholders
|
$ | 17,672 | ||||||||||||||||||||||||||
|
Total Assets
|
$ | 641,929 | $ | 397,387 | $ | 271,981 | $ | 5,293 | $ | 77,793 | $ | 115,228 | $ | 1,509,611 | ||||||||||||||
F-41
Table of Contents
COUSINS
PROPERTIES INCORPORATED AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
| Year Ended December 31, | ||||||||||||
|
Reconciliation to Revenues on Consolidated Income
Statements
|
2009 | 2008 | 2007 | |||||||||
|
Net rental property revenues less rental property operating
expenses
|
$ | 83,220 | $ | 90,154 | $ | 65,832 | ||||||
|
Plus rental property operating expenses
|
66,565 | 56,607 | 46,139 | |||||||||
|
Fee income
|
33,806 | 47,662 | 36,314 | |||||||||
|
Residential, multi-family and outparcel sales, net of cost of
sales
|
7,610 | 4,331 | 2,284 | |||||||||
|
Residential, multi-family and outparcel cost of sales
|
30,652 | 11,106 | 7,685 | |||||||||
|
Net rental property revenues less rental property operating
expenses from discontinued operations
|
4 | 633 | 538 | |||||||||
|
Other income
|
3,025 | 4,158 | 6,535 | |||||||||
|
Total consolidated revenues
|
$ | 224,882 | $ | 214,651 | $ | 165,327 | ||||||
| 224,882 | 214,651 | 165,357 | ||||||||||
********
F-42
Table of Contents
CL
Realty, L.L.C.
(A Limited Liability Company)
(A Limited Liability Company)
Consolidated Financial Statements as of December 31,
2009 and 2008 and for the Years Ended December 31,
2009, 2008 and 2007, and Independent Auditors’ Report
G-1
Table of Contents
INDEPENDENT
AUDITORS’ REPORT
To CL Realty, L.L.C.:
We have audited the accompanying consolidated balance sheets of
CL Realty, L.L.C. (a limited liability company) (the
“Company”) as of December 31, 2009 and 2008, and
the related consolidated statements of operations, members’
equity, and cash flows for each of the three years in the period
ended December 31, 2009. These consolidated 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 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 consideration
of internal control over financial reporting as a basis for
designing audit procedures that are appropriate in the
circumstances but not for the purpose of expressing an opinion
on the effectiveness of the Company’s internal control over
financial reporting. Accordingly, we express no such opinion. An
audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements,
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
provide a reasonable basis for our opinion.
In our opinion, such consolidated financial statements present
fairly, in all material respects, the financial position of the
Company as of December 31, 2009 and 2008, and the results
of its operations and its cash flows for each of the three years
in the period ended December 31, 2009 in conformity with
accounting principles generally accepted in the United States of
America.
/s/
DELOITTE &
TOUCHE LLP
Atlanta, Georgia
February 26, 2010
G-2
Table of Contents
CL
REALTY, L.L.C.
(A Limited Liability Company)
CONSOLIDATED BALANCE SHEETS
AS OF DECEMBER 31, 2009 AND 2008
(In thousands)
(A Limited Liability Company)
CONSOLIDATED BALANCE SHEETS
AS OF DECEMBER 31, 2009 AND 2008
(In thousands)
| 2009 | 2008 | |||||||
|
ASSETS
|
||||||||
|
REAL ESTATE
|
$ | 85,330 | $ | 89,305 | ||||
|
CASH
|
900 | 1,789 | ||||||
|
INVESTMENT IN UNCONSOLIDATED JOINT VENTURES
|
27,839 | 35,113 | ||||||
|
RECEIVABLES
|
92 | 14 | ||||||
|
OTHER ASSETS
|
437 | 507 | ||||||
|
TOTAL
|
$ | 114,598 | $ | 126,728 | ||||
| LIABILITIES AND MEMBERS’ EQUITY | ||||||||
|
NOTES PAYABLE
|
$ | 3,568 | $ | 4,901 | ||||
|
ACCOUNTS PAYABLE AND ACCRUED LIABILITIES
|
1,642 | 3,447 | ||||||
|
DUE TO MEMBER
|
204 | 336 | ||||||
|
Total liabilities
|
5,414 | 8,684 | ||||||
|
COMMITMENTS AND CONTINGENCIES (Note 7)
|
||||||||
|
MEMBERS’ EQUITY:
|
||||||||
|
Cousins Real Estate Corporation
|
54,592 | 59,022 | ||||||
|
Forestar (USA) Real Estate Group Inc.
|
54,592 | 59,022 | ||||||
|
Total members’ equity
|
109,184 | 118,044 | ||||||
|
TOTAL
|
$ | 114,598 | $ | 126,728 | ||||
See notes to consolidated financial statements.
G-3
Table of Contents
CL
REALTY, L.L.C.
(A Limited Liability Company)
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED DECEMBER 31, 2009, 2008 AND 2007
(In thousands)
(A Limited Liability Company)
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED DECEMBER 31, 2009, 2008 AND 2007
(In thousands)
| 2009 | 2008 | 2007 | ||||||||||
|
REVENUES:
|
||||||||||||
|
Residential lot sales
|
$ | 570 | $ | 2,463 | $ | 5,458 | ||||||
|
Land tract sales
|
735 | 1,611 | 1,427 | |||||||||
|
Other income
|
1,393 | 4,241 | 508 | |||||||||
|
Total revenues
|
2,698 | 8,315 | 7,393 | |||||||||
|
EXPENSES:
|
||||||||||||
|
Residential lot cost of sales
|
484 | 1,522 | 4,333 | |||||||||
|
Tract cost of sales
|
196 | 682 | 325 | |||||||||
|
General and administrative expenses
|
2,482 | 3,111 | 3,051 | |||||||||
|
Interest and other expenses
|
376 | 484 | 386 | |||||||||
|
Impairment loss
|
3,300 | 650 | — | |||||||||
|
Total expenses
|
6,838 | 6,449 | 8,095 | |||||||||
|
INCOME (LOSS) FROM CONTINUING OPERATIONS BEFORE UNCONSOLIDATED
JOINT VENTURES
|
(4,140 | ) | 1,866 | (702 | ) | |||||||
|
INCOME (LOSS) FROM UNCONSOLIDATED JOINT VENTURES
|
||||||||||||
|
Equity in net income from unconsolidated joint ventures
|
878 | 4,914 | 4,076 | |||||||||
|
Impairment losses on investments in unconsolidated joint ventures
|
(5,238 | ) | — | — | ||||||||
| (4,360 | ) | 4,914 | 4,076 | |||||||||
|
NET INCOME (LOSS)
|
$ | (8,500 | ) | $ | 6,780 | $ | 3,374 | |||||
See notes to consolidated financial statements.
G-4
Table of Contents
CL
REALTY, L.L.C.
(A Limited Liability Company)
CONSOLIDATED STATEMENTS OF MEMBERS’ EQUITY
FOR THE YEARS ENDED DECEMBER 31, 2009, 2008 AND 2007
(In thousands)
(A Limited Liability Company)
CONSOLIDATED STATEMENTS OF MEMBERS’ EQUITY
FOR THE YEARS ENDED DECEMBER 31, 2009, 2008 AND 2007
(In thousands)
|
Forestar
|
||||||||||||
|
Cousins
|
(USA) Real
|
|||||||||||
|
Real Estate
|
Estate
|
|||||||||||
| Corporation | Group Inc. | Total | ||||||||||
|
BALANCE — December 31, 2006
|
$ | 54,158 | $ | 54,158 | $ | 108,316 | ||||||
|
Contributions
|
2,750 | 2,750 | 5,500 | |||||||||
|
Distributions
|
(1,350 | ) | (1,350 | ) | (2,700 | ) | ||||||
|
Net income
|
1,687 | 1,687 | 3,374 | |||||||||
|
BALANCE — December 31, 2007
|
57,245 | 57,245 | 114,490 | |||||||||
|
Contributions
|
1,287 | 1,287 | 2,574 | |||||||||
|
Distributions
|
(2,900 | ) | (2,900 | ) | (5,800 | ) | ||||||
|
Net income
|
3,390 | 3,390 | 6,780 | |||||||||
|
BALANCE — December 31, 2008
|
59,022 | 59,022 | 118,044 | |||||||||
|
Contributions
|
1,260 | 1,260 | 2,520 | |||||||||
|
Distributions
|
(1,440 | ) | (1,440 | ) | (2,880 | ) | ||||||
|
Net loss
|
(4,250 | ) | (4,250 | ) | (8,500 | ) | ||||||
|
BALANCE — December 31, 2009
|
$ | 54,592 | $ | 54,592 | $ | 109,184 | ||||||
See notes to consolidated financial statements.
G-5
Table of Contents
CL
REALTY, L.L.C.
(A Limited Liability Company)
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 2009, 2008 AND 2007
(In thousands)
(A Limited Liability Company)
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 2009, 2008 AND 2007
(In thousands)
| 2009 | 2008 | 2007 | ||||||||||
|
CASH FLOWS FROM OPERATING ACTIVITIES:
|
||||||||||||
|
Net income (loss)
|
$ | (8,500 | ) | $ | 6,780 | $ | 3,374 | |||||
|
Adjustments to reconcile net income (loss) to net cash provided
by (used in) operating activities:
|
||||||||||||
|
Loss on impairment of real estate
|
3,300 | 650 | — | |||||||||
|
Impairment loss on investment in unconsolidated joint venture
|
5,238 | — | — | |||||||||
|
Residential lot and tract cost of sales
|
633 | 2,130 | 4,544 | |||||||||
|
Income from unconsolidated joint ventures in excess of operating
distributions
|
(536 | ) | (2,709 | ) | (2,257 | ) | ||||||
|
Residential lot development reimbursement (expenditures)
|
42 | (1,129 | ) | (11,622 | ) | |||||||
|
Net changes in assets and liabilities:
|
||||||||||||
|
Receivables and other assets
|
(8 | ) | 480 | 902 | ||||||||
|
Accounts payable, accrued liabilities, and due to Member
|
(1,937 | ) | 201 | (565 | ) | |||||||
|
Net cash provided by (used in) operating activities
|
(1,768 | ) | 6,403 | (5,624 | ) | |||||||
|
CASH FLOWS FROM INVESTING ACTIVITIES:
|
||||||||||||
|
Investment in joint ventures
|
(6 | ) | (700 | ) | — | |||||||
|
Distributions from unconsolidated joint ventures in excess of
income
|
2,578 | — | — | |||||||||
|
Net change in restricted cash
|
— | — | 145 | |||||||||
|
Net cash provided by (used in) investing activities
|
2,572 | (700 | ) | 145 | ||||||||
|
CASH FLOWS FROM FINANCING ACTIVITIES:
|
||||||||||||
|
Contributions by Members
|
2,520 | 2,574 | 5,500 | |||||||||
|
Distributions to Members
|
(2,880 | ) | (5,800 | ) | (2,700 | ) | ||||||
|
Proceeds from notes payable
|
276 | 2,129 | 7,793 | |||||||||
|
Repayments of notes payable
|
(1,609 | ) | (3,578 | ) | (6,800 | ) | ||||||
|
Net cash provided by (used in) financing activities
|
(1,693 | ) | (4,675 | ) | 3,793 | |||||||
|
NET INCREASE (DECREASE) IN CASH
|
(889 | ) | 1,028 | (1,686 | ) | |||||||
|
CASH:
|
||||||||||||
|
Beginning of year
|
1,789 | 761 | 2,447 | |||||||||
|
End of year
|
$ | 900 | $ | 1,789 | $ | 761 | ||||||
|
CASH PAID FOR INTEREST
|
$ | 219 | $ | 365 | $ | 321 | ||||||
See notes to consolidated financial statements.
G-6
Table of Contents
| 1. | ORGANIZATION AND PRESENTATION |
Organization
— CL Realty, L.L.C. (the
“Company”) was formed under the terms of a limited
liability company agreement (the “Agreement”)
effective August 29, 2002, between Cousins Real Estate
Corporation (“CREC”) and Forestar (USA) Real Estate
Group Inc. (“Forestar”) for the purpose of acquiring,
developing and selling real estate for residential communities.
CREC and Forestar (collectively the “Members”) each
have a 50% general interest in the Company. Pursuant to the
Agreement, the Members make capital contributions to the Company
(as mutually agreed by the Members) in accordance with each
Member’s respective percentage interest. Upon mutual
agreement by the Members, the Company shall distribute Operating
Cash Flow, as defined, in accordance with each Member’s
respective percentage interest. The Company will exist until
December 31, 2052, or such prior time that the Company is
dissolved in accordance with the Agreement.
At December 31, 2009, the Company owned lots intended for
resale in eleven wholly owned residential communities and three
unconsolidated joint ventures in various stages of development
in Texas, Florida, and Georgia.
The Company expects to generate sufficient cash flow from
operations to fund its operating activities and from the
refinancing of its outstanding debt to fund such obligations as
they mature. Should the Company be unable to refinance its debts
in a timely basis or fund its operations, its Members have
represented that they will provide financial support to meet
such maturities and to fund the liquidity needs of the Company
during 2010.
Consolidation and Presentation
— The financial
statements consolidate the accounts of the Company and its
wholly owned subsidiaries. Intercompany transactions and
balances have been eliminated in consolidation.
The Company evaluates all partnership interests or other
variable interests to determine if the related venture is a
variable interest entity (“VIE”). The Company had no
interests in VIEs at December 31, 2009 or 2008. For
entities that are not considered VIEs, the Company determines
whether the entities should be consolidated or accounted for
under the equity method of accounting. A description of the
Company’s investments accounted for under the equity method
is included in Note 4.
The Company follows the guidelines in ASC
810-10
for
determining the appropriate consolidation treatment of
non-wholly owned entities. The Company will adopt new guidelines
effective January 1, 2010, which modify how a company
determines when an entity that is insufficiently capitalized or
is not controlled through voting (or similar rights) should be
consolidated. The determination of whether a company is required
to consolidate an entity is based on, among other things, an
entity’s purpose and design and a company’s ability to
direct the activities of the entity that most significantly
impact the entity’s economic performance. An ongoing
reassessment of whether a company is the primary beneficiary of
a VIE, and additional disclosures about a company’s
involvement in VIEs, including any significant changes in risk
exposure due to that involvement, will be required. These new
rules are not anticipated to have an effect on financial
condition, results of operations or cash flows.
| 2. | SIGNIFICANT ACCOUNTING POLICIES |
New Accounting Pronouncements
— In the third
quarter of 2009, the Financial Accounting Standard Board’s
Accounting Standards Codification (the “Codification”
or “ASC”) became effective for the Company. The
Codification is the single source of authoritative accounting
principles applied by nongovernmental entities in the
preparation of financial statements in conformity with generally
accepted accounting principles (“GAAP”). The
Codification does not change current GAAP, but is intended to
simplify user access to GAAP by providing all the authoritative
literature related to a particular topic in one place. As of the
effective date, all existing accounting standard documents were
superseded.
The Company adopted ASC
855-10-05
regarding the accounting and disclosures for subsequent events
on December 31, 2009, which provided guidance for
disclosing events that occur after the balance sheet date, but
G-7
Table of Contents
before financial statements are issued or available to be
issued. This adoption had no impact on the Company’s
financial statements. The Company has evaluated subsequent
events through February 26, 2010, the filing date of this
report, and determined that there have not been any significant
events that have occurred through that date.
Real Estate
— Real estate includes all costs
related to the acquisition, development, and construction of
residential lots, as well as land held for future residential
lot development or for future commercial sale
and/or
development. The Company capitalizes real estate taxes and
interest to qualifying assets. Once development is complete or
the project is no longer under active development, the Company
charges all holding costs associated with lots in inventory to
expense and ceases interest capitalization.
Management routinely evaluates its real estate assets for
indicators of impairment on a
project-by-project
basis for recoverability in accordance with ASC
360-10.
If
an impairment indicator exists, the Company calculates the
undiscounted cash flows expected to be generated for that
project. The undiscounted cash flows are compared to the
project’s carrying amount, and if lower, a discounted
calculation is performed to estimate the fair value and the
asset is written down to this value. If a project is completed,
and, therefore considered held for sale as defined by ASC
360-10,
the
Company recognizes impairment losses if fair value, net of
selling costs, is less than its carrying value. The estimates
that enter into the cash flow projections are generally based on
current market conditions and include lot and tract sale prices
to be obtained at projects in the future, the timing of the lot
and tract sales, and the cash outlays to complete development
and fund carrying costs. Under current fair value rules, these
inputs are considered to be Level 3 valuations within the
fair value hierarchy, as there are significant unobservable
inputs. The projects considered held for sale that were valued
using Level 3 inputs had values of $7.2 million and
$11.1 million at December 31, 2009 and 2008,
respectively. The assumptions are highly subjective, susceptible
to frequent change, and could differ materially from actual
results. Given the current state of the economy and the market
for real estate, the timing and extent of a market turnaround is
a significant estimate and one that requires considerable
judgment. Management frequently reviews similar products in the
market in which its projects are located and adjusts its holding
period, pricing assumptions, and other factors as it feels
necessary. The cyclical nature of the real estate industry,
combined with the current credit market difficulties,
availability of existing inventories in the locations of the
Company’s projects, consumer confidence, retailer health,
employment levels and additional factors, all enter into
management’s judgment while assessing the recoverability of
its assets. In addition, the expected use of the Company’s
assets could change over the coming periods as more information
on the market is obtained. A change in any of the factors
mentioned above could result in an impairment charge in the
future on the Company’s real estate assets.
The Company recorded impairment losses of $3.3 million on
the Creekside Preserve and River Plantation projects during the
year ended December 31, 2009. The Company recorded an
impairment loss of $650,000 on the Stillwater Canyon project
during the year ended December 31, 2008. The Company
recorded no impairment losses during the year ended
December 31, 2007. Other than noted above, management does
not believe any of its assets require an impairment charge at
this time, but will continue to monitor the state of the
economy, the market for real estate in the locations of the
Company’s projects, and the expected results of these
projects.
Investment in Unconsolidated Joint Ventures
—
Management performs an impairment analysis of its investments in
joint ventures in accordance with ASC 323. In accordance with
ASC 323, at each reporting period, management reviews its
investments in joint ventures for indicators of impairment. If
indicators of impairment are present for any of the
Company’s investments in joint ventures, management is
required to calculate the fair value of the investment. If the
fair value of the investment is less than the carrying value of
the investment, management must determine whether the impairment
is temporary or other than temporary. If management assesses the
impairment as temporary, the Company does not record an
impairment charge. If management concludes that the impairment
is other than temporary, the Company records an impairment
charge equal to the difference between the fair value of the
investment and its carrying value.
Consistent with the ASC
360-10
analysis described in the preceding section, management uses
considerable judgment in determining whether there are
indicators of impairment present and in the assumptions used in
calculating the fair value of the investment. Management also
uses judgment in making the determination as to whether the
impairment is temporary or other than temporary and considers
the length of time that the impairment
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Table of Contents
has existed, the financial condition of the joint venture and
the ability and intent of the holder to retain the investment
long enough for a recovery in market value.
If management changes its conclusion that an impairment is
temporary, the Company could be required to record an impairment
charge. Based on the Level 3 inputs discussed above, the
Company determined that the fair value of its investment in CL
Chatham, LLC was zero and recorded an other than temporary
impairment loss of $5.2 million in 2009. The Company
recorded no such impairment losses on its investments in joint
ventures in 2008 or 2007.
Income Taxes
— The Company has elected to be
treated as a partnership for income tax purposes, and taxable
income or loss of the Company is reported in the income tax
returns of the Members. Accordingly, these financial statements
do not reflect a provision for income taxes.
Revenue Recognition
— The Company’s
revenues are primarily comprised of sales of residential lots
and land tracts. Revenue is recognized when it is determined
that the sale has been consummated, the buyer’s initial and
continuing investment is adequate, the Company’s
receivable, if any, is not subject to future subordination, and
the buyer has assumed the usual risks and rewards of ownership
of the asset.
Oil and Gas Lease Bonuses
— Certain of the
Company’s projects are located in areas that are rich in
natural resources. During 2008, the Company entered into two oil
and gas exploration agreements related to mineral rights at its
Summer Creek Ranch development and received payments totaling
$2.4 million. As the Company has no obligation for future
performance, these payments were recorded as income and are
included in Other Income in the accompanying Consolidated
Statements of Operations. During 2009, the Company recorded
mineral income related to these leases of approximately
$600,000, which is included in Other Income in the accompanying
Consolidated Statements of Operations.
Cost of Sales
— Residential lot and land tract
cost of sales is generally determined as a calculated value for
each lot and land tract sold in each land development project.
The values used are based on actual costs incurred and estimates
of development costs and sales revenues at completion of each
project. The values are reviewed regularly and revised
periodically for changes in estimates or development plans.
Significant changes in these estimates or development plans,
whether due to changes in market conditions or other factors,
could result in changes to the cost ratio used for a specific
project. From time to time, parcels of land that are adjacent to
certain residential communities are sold. The specific
identification method plus an allocation of common costs is used
to determine cost of sales of these parcels of land.
Fair Value of Financial Instruments
— At
December 31, 2009 and 2008, outstanding loans would most
likely be refinanced at higher interest rates than the current
variable rates on each loan. However, due to the short duration
of time to maturity on each of the notes, the fair value of the
loans is comparable to the carrying values at December 31,
2009 and 2008.
Use of Estimates
— The preparation of
consolidated financial statements in conformity with accounting
principles generally accepted in the United States of America
requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of
the consolidated financial statements and the reported amounts
of revenues and expenses during the reporting period. Actual
results could differ from those estimates.
| 3. | REAL ESTATE |
The following details the Company’s consolidated
residential community and land holdings as of December 31,
2009 and 2008, with lot information as of December 31, 2009
(carrying value in thousands). The carrying
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Table of Contents
values below include basis attributable to certain land tracts
that are expected to be sold prior to land development. Such
acreage is noted below as tract acres.
|
Estimated
|
Project
|
|||||||||||||||||||||||
|
Initial
|
Total Lots
|
to Date
|
Carrying Value
|
|||||||||||||||||||||
|
Year
|
to be
|
Lots
|
Remaining
|
December 31, | ||||||||||||||||||||
| Acquired | Developed | Sold | Lots | 2009 | 2008 | |||||||||||||||||||
|
Residential Communities
|
||||||||||||||||||||||||
|
Summer Creek Ranch (363 tract acres)
|
2003 | 2,568 | 796 | 1,772 | $ | 22,981 | $ | 22,948 | ||||||||||||||||
|
Tarrant County
Fort Worth, Texas |
||||||||||||||||||||||||
|
Bar C Ranch
|
2004 | 1,199 | 192 | 1,007 | 7,953 | 8,251 | ||||||||||||||||||
|
Tarrant County
Fort Worth, Texas |
||||||||||||||||||||||||
|
Summer Lakes
|
2003 | 1,123 | 325 | 798 | 7,269 | 7,472 | ||||||||||||||||||
|
Fort Bend County
Rosenberg, Texas |
||||||||||||||||||||||||
|
Village Park (2 tract acres)
|
2003 | 560 | 339 | 221 | 7,053 | 7,024 | ||||||||||||||||||
|
Collin County
McKinney, Texas |
||||||||||||||||||||||||
|
Waterford Park (37 tract acres)
|
2005 | 493 | — | 493 | 8,396 | 8,416 | ||||||||||||||||||
|
Fort Bend County
Rosenberg, Texas |
||||||||||||||||||||||||
|
Manatee River Plantation
|
2003 | 457 | 348 | 109 | 2,604 | 4,197 | ||||||||||||||||||
|
Manatee County
Tampa, Florida |
||||||||||||||||||||||||
|
Stillwater Canyon
|
2003 | 335 | 225 | 110 | 2,324 | 2,317 | ||||||||||||||||||
|
Dallas County
DeSoto, Texas |
||||||||||||||||||||||||
|
Creekside Oaks
|
2003 | 301 | 125 | 176 | 4,431 | 6,132 | ||||||||||||||||||
|
Manatee County
Bradenton, Florida |
||||||||||||||||||||||||
|
Village Park North
|
2005 | 189 | 71 | 118 | 2,324 | 2,448 | ||||||||||||||||||
|
Collin County
McKinney, Texas |
||||||||||||||||||||||||
|
Bridle Path Estates
|
2004 | 87 | — | 87 | 3,152 | 3,290 | ||||||||||||||||||
|
Hillsborough County
Tampa, Florida |
||||||||||||||||||||||||
|
West Park
|
2005 | 84 | 21 | 63 | 5,298 | 5,265 | ||||||||||||||||||
|
Cobb County
Suburban Atlanta, Georgia |
||||||||||||||||||||||||
| 7,396 | 2,442 | 4,954 | 73,785 | 77,760 | ||||||||||||||||||||
|
Land Holdings
|
||||||||||||||||||||||||
|
Padre Island-15 acres —
Corpus Christi, TX |
2005 | — | — | — | 11,545 | 11,545 | ||||||||||||||||||
|
Total Real Estate
|
$ | 85,330 | $ | 89,305 | ||||||||||||||||||||
| 4. | INVESTMENT IN UNCONSOLIDATED JOINT VENTURES |
Information on the Company’s investments in unconsolidated
joint ventures is as follows:
LM Land Holdings, LP (“LM Land”)
— LM
Land is a limited partnership in which the Company holds a 37.5%
interest. The remaining 62.5% is owned by the general partner,
LM Land, LLC (2.5%), and several other limited partners. The
purpose of the venture is to acquire, develop, and sell
approximately 2,700
G-10
Table of Contents
residential lots and outparcels on approximately
1,300 acres in Fort Bend County, Texas. Distributions
are made to the Members as follows: first to repay certain
members’ preferred return and unreturned capital accounts,
and then in proportion to their percentage interest in LM Land.
During 2009, 2008 and 2007, the Company received distributions
of approximately $2.6 million, $2.0 million and
$1.4 million, respectively, from LM Land. LM Land had a
construction loan with an original principal of
$8.0 million ($1.8 million outstanding at
December 31, 2008) with an interest rate of Prime. The
loan matured on September 8, 2009 and was repaid.
CL Ashton Woods, L.P. (“CL AW”)
— CL
AW is a limited partnership in which the Company holds an 80%
interest. The remaining 20% is owned by a general partner and
limited partner subsidiary of Ashton Woods Homes
(“AWH”). The AWH interest carries significant
participating rights, and as such, the Company accounts for its
investment in CLAW under the equity method. The purpose of the
venture is to acquire, develop, and sell approximately 1,100
residential lots on 522 acres in Brazoria County, Texas.
Distributions are to be made to the partners as follows: first
in proportion to their percentage interests for preferred
returns and unreturned capital accounts, then in proportion to
their respective residual interests. CL AW had a construction
line with an original principal of $13.0 million ($0
outstanding at December 31, 2008) that matured on
January 31, 2009.
HM Stonewall Estates,
Ltd. (“Stonewall”)
—
Stonewall is a limited partnership in which the Company holds a
1% general partnership interest and a 49% limited partnership
interest. The remaining 50% is owned by the other general
partner, HM Dominion Ridge GP, Inc., and the other limited
partner, HM Stonewall Nevada, Inc. The purpose of the venture is
to acquire, develop, and sell approximately 400 residential lots
on 145 acres in Bexar County, Texas. Distributions are to
be made to the partners in proportion to their percentage
interests in Stonewall. During 2009, 2008 and 2007, the Company
received distributions of approximately $341,000, $204,000 and
$422,000, respectively, from Stonewall. Stonewall has a
construction loan with an original principal of
$6.0 million ($195,000 and $3.1 million outstanding at
December 31, 2009 and 2008, respectively), a maturity of
May 31, 2010, and an interest rate of Prime (4.5% at
December 31, 2009). The assets of the Stonewall Estates
project, with a net book value of approximately
$6.8 million at December 31, 2009, have been pledged
as security for the loan. Management expects the loan to be
repaid using proceeds from lot sales prior to maturity.
CL Chatham, LLC (“CL Chatham”)
— CL
Chatham is a limited liability company in which the Company
holds a 25% interest formed to develop a residential community
in Georgia called Blue Valley. The remaining 75% is owned by
Liberty Grove, LLC. CL Chatham has three construction loans with
aggregate original principal amounts of $26.3 million
($23.0 million outstanding at December 31, 2009 and
2008). The loans had a maturity of September 30, 2009 and
were not repaid or extended. The assets of the Blue Valley
project were pledged as security for the loan, and repayment of
the loans, plus interest and expenses, is guaranteed by the
owner of Liberty Grove, LLC (the “Guarantor”). In
December 2009, the Guarantor received a notice of foreclosure
from the lending bank and the Company anticipates the project
will proceed through foreclosure. During 2009, the Company
recorded an impairment loss of $5.2 million that reduced
its investment in CL Chatham to zero.
G-11
Table of Contents
The following information summarizes financial data of the
Company’s unconsolidated joint ventures. The information
included in the Summary of financial position table is as of
December 31, 2009 and 2008. The information included in the
Summary of operations table is for the years ended
December 31, 2009, 2008 and 2007 (dollars in thousands).
|
Total
|
Total
|
Total
|
Company’s
|
|||||||||||||
| Assets | Debt | Equity | Investment | |||||||||||||
|
Summary of financial position:
|
||||||||||||||||
|
2009
|
||||||||||||||||
|
LM Land Holdings, LP
|
$ | 19,807 | $ | — | $ | 18,301 | $ | 4,284 | ||||||||
|
CL Ashton Woods, L.P.
|
24,769 | — | 24,769 | 20,327 | ||||||||||||
|
HM Stonewall Estates, Ltd.
|
7,149 | 195 | 6,939 | 3,228 | ||||||||||||
|
CL Chatham, LLC
|
— | 22,960 | (22,960 | ) | — | |||||||||||
| $ | 51,725 | $ | 23,155 | $ | 27,049 | $ | 27,839 | |||||||||
|
2008
|
||||||||||||||||
|
LM Land Holdings, LP
|
$ | 24,606 | $ | 1,812 | $ | 22,273 | $ | 7,041 | ||||||||
|
CL Ashton Woods, L.P.
|
23,842 | — | 18,191 | 19,868 | ||||||||||||
|
CL Chatham, LLC
|
33,391 | 22,960 | 9,067 | 5,376 | ||||||||||||
|
HM Stonewall Estates, Ltd.
|
6,833 | 3,075 | 3,680 | 2,828 | ||||||||||||
| $ | 88,672 | $ | 27,847 | $ | 53,211 | $ | 35,113 | |||||||||
|
Company’s
|
||||||||||||
|
Net
|
Share of
|
|||||||||||
|
Total
|
Income
|
Net Income
|
||||||||||
| Revenues | (Loss) | (Loss) | ||||||||||
|
Summary of operations:
|
||||||||||||
|
2009
|
||||||||||||
|
LM Land Holdings, LP
|
$ | 510 | $ | (634 | ) | $ | (178 | ) | ||||
|
CL Ashton Woods, L.P.
|
3,031 | 1,032 | 458 | |||||||||
|
HM Stonewall Estates, Ltd.
|
4,222 | 1,108 | 742 | |||||||||
|
CL Chatham, LLC
|
— | (34,015 | ) | (5,382 | ) | |||||||
| $ | 7,763 | $ | (32,509 | ) | $ | (4,360 | ) | |||||
|
2008
|
||||||||||||
|
LM Land Holdings, LP
|
$ | 12,789 | $ | 8,528 | $ | 3,802 | ||||||
|
CL Ashton Woods, L.P.
|
2,714 | 741 | 593 | |||||||||
|
CL Chatham, LLC
|
— | (512 | ) | (128 | ) | |||||||
|
HM Stonewall Estates, Ltd.
|
3,974 | 805 | 647 | |||||||||
| $ | 19,477 | $ | 9,562 | $ | 4,914 | |||||||
|
2007
|
||||||||||||
|
LM Land Holdings, LP
|
$ | 14,785 | $ | 8,057 | $ | 2,345 | ||||||
|
CL Ashton Woods, L.P.
|
2,534 | 1,166 | 933 | |||||||||
|
CL Chatham, LLC
|
230 | 5 | 7 | |||||||||
|
HM Stonewall Estates, Ltd.
|
5,232 | 739 | 791 | |||||||||
| $ | 22,781 | $ | 9,967 | $ | 4,076 | |||||||
G-12
Table of Contents
| 5. | NOTES PAYABLE |
The Company’s debt outstanding at December 31, 2009
and 2008, was as follows (dollars in thousands):
| Rate | Maturity | 2009 | 2008 | |||||||||
|
Summer Creek Development, Ltd.
|
PRIME+1.5% | August 22, 2010 | $ | 1,412 | $ | 2,481 | ||||||
|
Waterford Park
|
PRIME+1.5% | May 8, 2010 | 1,263 | 1,225 | ||||||||
|
McKinney Village Park, L.P.
|
LIBOR+2.25% | March 28, 2011 | 893 | 1,195 | ||||||||
| $ | 3,568 | $ | 4,901 | |||||||||
The Summer Creek Development, Ltd. loan represents a residential
development loan with Sovereign Bank, N.A. The loan is for a
maximum of $5.6 million for purposes of financing the
acquisition, development, marketing, and sale of the Summer
Lakes project. The loan is expected to be repaid with proceeds
from the sale of residential lots as prescribed in the loan
agreement or repaid using Member contributions. Interest on the
loan is payable monthly. The assets of the Summer Lakes project,
with a net book value of approximately $7.3 million at
December 31, 2009, have been pledged as security for the
loan.
The Waterford Park note represents a residential development
loan with Sovereign Bank, N.A. The loan is for a maximum of
$8.2 million for purposes of financing the acquisition,
development, marketing, and sale of the Waterford Park project.
The loan is expected to be refinanced or repaid using Member
contributions, and interest is payable monthly. The assets of
the Waterford Park project, with a net book value of
approximately $8.4 million at December 31, 2009, have
been pledged as security for the loan.
The McKinney Village Park, L.P. loan represents a lot
development loan with Colonial Bank, N.A. for the purpose of
acquiring, developing, and constructing the Village Park
project. The loan is expected to be repaid with proceeds from
the sale of residential lots as prescribed in the loan
agreement, and interest is payable monthly. The assets of the
Village Park project, with a net book value of approximately
$7.1 million at December 31, 2009, have been pledged
as security for the loan.
Based on the maturity dates of the notes payable, total
principal payments of approximately $2.7 million and
$893,000 will be repaid in 2010 and 2011, respectively.
| 6. | RELATED-PARTY TRANSACTIONS |
The Company and its joint ventures engaged Forestar to serve as
Development Manager for 12 projects under development and CREC
to serve as Development Manager for 2 projects under
development. Pursuant to a development agreement for each
project, Forestar and CREC are paid fees ranging from 1% to 5%
of gross lot sales revenue. Additionally, CREC is the
Administrative Manager of the Company and, as such, performs
certain accounting functions on behalf of the Company, including
financial statement and tax return preparation. During 2009,
CREC was paid a fee of $9,000 per month. Prior to 2009, CREC was
reimbursed for all costs and expenses incurred in performing
these services. At December 31, 2009 and 2008, the Company
had recorded in accounts payable and accrued liabilities
$204,000 and $336,000, respectively, related to the fees and
reimbursements. Fees to Forestar and CREC incurred by the
Company during 2009, 2008 and 2007 are as follows (dollars in
thousands):
| 2009 | 2008 | 2007 | ||||||||||
|
Development fees to Forestar
|
$ | 12 | $ | 120 | $ | 94 | ||||||
|
Adminstrative Manager Fee to CREC
|
108 | — | — | |||||||||
|
Reimbursement of costs to CREC
|
— | 348 | 391 | |||||||||
| $ | 120 | $ | 468 | $ | 485 | |||||||
| 7. | COMMITMENTS AND CONTINGENCIES |
The Company is party to various claims, legal actions and
complaints arising in the ordinary course of business. In the
opinion of management, the disposition of these matters will not
have a material adverse effect on the financial statements of
the Company.
******
G-13
Table of Contents
SCHEDULE III
(Page 1 of 5)
(Page 1 of 5)
COUSINS
PROPERTIES INCORPORATED AND SUBSIDIARIES
REAL ESTATE AND ACCUMULATED DEPRECIATION
DECEMBER 31, 2009
($ in thousands)
REAL ESTATE AND ACCUMULATED DEPRECIATION
DECEMBER 31, 2009
($ in thousands)
|
Costs Capitalized Subsequent to
|
||||||||||||||||||||||||||||||||||||||||||||||
| Acquisition | Gross Amount at Which Carried at Close of Period |
Life on Which
|
||||||||||||||||||||||||||||||||||||||||||||
|
Building and
|
Building and
|
Depreciation in
|
||||||||||||||||||||||||||||||||||||||||||||
| Initial Cost to Company |
Improvements Less
|
Improvements Less
|
Date of
|
2009 Statement
|
||||||||||||||||||||||||||||||||||||||||||
|
Land and
|
Buildings and
|
Land and
|
Cost of Sales and
|
Land and
|
Cost of Sales,
|
Accumulated
|
Construction/
|
Date
|
of Income is
|
|||||||||||||||||||||||||||||||||||||
|
Description/Metropolitan Area
|
Encumbrances | Improvements | Improvements | Improvements | Other | Improvements | Transfers and Other | Total(a) | Depreciation(a) | Renovation | Acquired | Computed(b) | ||||||||||||||||||||||||||||||||||
|
LAND HELD FOR INVESTMENT OR FUTURE DEVELOPMENT
|
||||||||||||||||||||||||||||||||||||||||||||||
|
North Point Land
Suburban Atlanta, GA |
$ | — | $ | 10,294 | $ | — | $ | 23,735 | $ | (31,476 | ) | $ | 34,029 | $ | (31,476 | ) | $ | 2,553 | $ | — | — | 1970-1985 | — | |||||||||||||||||||||||
|
Terminus Land
Atlanta, GA |
— | 18,745 | — | 14,311 | (20,347 | ) | 33,056 | (20,347 | ) | 12,709 | — | — | 2005 | — | ||||||||||||||||||||||||||||||||
|
King Mill Distribution Park
Suburban Atlanta, GA |
— | 10,528 | — | 6,564 | — | 17,092 | — | 17,092 | — | — | 2005 | — | ||||||||||||||||||||||||||||||||||
|
Jefferson Mill Business Park
Suburban Atlanta, GA |
— | 14,223 | — | 9,533 | (9,986 | ) | 23,756 | (9,986 | ) | 13,770 | — | — | 2006 | — | ||||||||||||||||||||||||||||||||
|
Lakeside Ranch Business Park
Dallas, TX |
— | 6,328 | — | 3,490 | — | 9,818 | — | 9,818 | — | — | 2006 | — | ||||||||||||||||||||||||||||||||||
|
615 Peachtree Street
Atlanta, GA |
— | 10,164 | — | 2,328 | — | 12,492 | — | 12,492 | — | — | 1996 | — | ||||||||||||||||||||||||||||||||||
|
Wildwood Land
Suburban Atlanta, GA |
— | 10,214 | — | 5,073 | (14,292 | ) | 15,287 | (14,292 | ) | 995 | — | — | 1971-1989 | — | ||||||||||||||||||||||||||||||||
|
Handy Road Associates
Suburban Atlanta, GA |
3,340 | 5,342 | — | — | — | 5,342 | — | 5,342 | — | — | 2009 | — | ||||||||||||||||||||||||||||||||||
|
Glenmore Garden Villas
Suburban Charlotte, NC |
8,674 | 3,774 | — | — | — | 3,774 | — | 3,774 | — | — | 2009 | — | ||||||||||||||||||||||||||||||||||
|
Round Rock Land
Austin, TX |
— | 12,802 | — | 4,313 | — | 17,115 | — | 17,115 | — | — | 2005 | — | ||||||||||||||||||||||||||||||||||
|
Land Adjacent to The Avenue Forsyth
Suburban Atlanta, GA |
— | 11,240 | — | 10,879 | (11,673 | ) | 22,119 | (11,673 | ) | 10,446 | — | — | 2007 | — | ||||||||||||||||||||||||||||||||
|
Land Adjacent to The Avenue Webb Gin
Suburban Atlanta, GA |
— | 946 | — | — | — | 946 | — | 946 | — | — | 2005 | — | ||||||||||||||||||||||||||||||||||
|
Lancaster Land
Dallas, TX |
— | 3,901 | — | 943 | — | 4,844 | — | 4,844 | — | — | 2007 | — | ||||||||||||||||||||||||||||||||||
|
Land Adjacent to The Avenue Carriage Crossing
Suburban Memphis, TN |
— | 7,208 | — | 2,052 | (7,291 | ) | 9,260 | (7,291 | ) | 1,969 | — | — | 2004 | — | ||||||||||||||||||||||||||||||||
|
549 / 555 / 557 Peachtree Street
Atlanta, GA |
— | 5,988 | — | 6,152 | (3,346 | ) | 12,140 | (3,346 | ) | 8,794 | — | — | 2004 | — | ||||||||||||||||||||||||||||||||
|
Research Park V
Austin, TX |
— | 4,373 | — | 551 | — | 4,924 | — | 4,924 | — | — | 1998 | — | ||||||||||||||||||||||||||||||||||
|
Blalock Lakes
Suburban Atlanta, GA |
— | 9,646 | — | 4 | — | 9,650 | — | 9,650 | — | — | 2008 | — | ||||||||||||||||||||||||||||||||||
|
Total Land Held for Investment or Future Development
|
12,014 | 145,716 | — | 89,928 | (98,411 | ) | 235,644 | (98,411 | ) | 137,233 | — | |||||||||||||||||||||||||||||||||||
S-1
Table of Contents
SCHEDULE III
(Page 2 of 5)
(Page 2 of 5)
COUSINS
PROPERTIES INCORPORATED AND SUBSIDIARIES
REAL ESTATE AND ACCUMULATED DEPRECIATION
DECEMBER 31, 2009
($ in thousands)
REAL ESTATE AND ACCUMULATED DEPRECIATION
DECEMBER 31, 2009
($ in thousands)
|
Costs Capitalized Subsequent to
|
||||||||||||||||||||||||||||||||||||||||||||||
| Acquisition | Gross Amount at Which Carried at Close of Period |
Life on Which
|
||||||||||||||||||||||||||||||||||||||||||||
|
Building and
|
Building and
|
Depreciation
|
||||||||||||||||||||||||||||||||||||||||||||
| Initial Cost to Company |
Improvements Less
|
Improvements Less
|
Date of
|
2009 Statement
|
||||||||||||||||||||||||||||||||||||||||||
|
Land and
|
Buildings and
|
Land and
|
Cost of Sales and
|
Land and
|
Cost of Sales,
|
Accumulated
|
Construction/
|
Date
|
of Income
|
|||||||||||||||||||||||||||||||||||||
|
Description/Metropolitan Area
|
Encumbrances | Improvements | Improvements | Improvements | Other | Improvements | Transfers and Other | Total(a) | Depreciation(a) | Renovation | Acquired | Computed(b) | ||||||||||||||||||||||||||||||||||
|
OPERATING PROPERTIES
|
||||||||||||||||||||||||||||||||||||||||||||||
|
Office
|
||||||||||||||||||||||||||||||||||||||||||||||
|
The American Cancer Society Center
Atlanta, GA |
$ | 136,000 | $ | 5,226 | $ | 67,370 | $ | — | $ | 22,183 | $ | 5,226 | $ | 89,553 | $ | 94,779 | $ | 50,484 | — | 1999 | 25 years | |||||||||||||||||||||||||
|
Terminus 100
Atlanta, GA |
180,000 | 15,559 | — | (2,513 | ) | 156,935 | 13,046 | 156,935 | 169,981 | 19,895 | 2008 | 2005 | 30 years | |||||||||||||||||||||||||||||||||
|
Galleria 75 Suburban
Atlanta, GA |
— | 6,673 | 4,743 | — | 50 | 6,673 | 4,793 | 11,466 | 1,761 | — | 2004 | 25 years | ||||||||||||||||||||||||||||||||||
|
The Points at Waterview
Suburban Dallas, TX |
17,024 | 2,558 | 22,910 | — | 5,063 | 2,558 | 27,973 | 30,531 | 12,849 | — | 2000 | 25 years | ||||||||||||||||||||||||||||||||||
|
Lakeshore Park Plaza
Birmingham, AL |
17,903 | 3,362 | 12,261 | — | 4,872 | 3,362 | 17,133 | 20,495 | 7,403 | — | 1998 | 30 years | ||||||||||||||||||||||||||||||||||
|
600 University Park Place
Birmingham, AL |
12,536 | 1,899 | — | — | 16,719 | 1,899 | 16,719 | 18,618 | 5,924 | 1998 | 1998 | 30 years | ||||||||||||||||||||||||||||||||||
|
333 North Point Center East
Suburban Atlanta, GA |
27,287 | (c) | 551 | — | — | 13,602 | 551 | 13,602 | 14,153 | 6,766 | 1996 | 1996 | 30 years | |||||||||||||||||||||||||||||||||
|
555 North Point Center East
Suburban Atlanta, GA |
— | (c) | 368 | — | — | 17,427 | 368 | 17,427 | 17,795 | 7,202 | 1998 | 1998 | 30 years | |||||||||||||||||||||||||||||||||
|
One Georgia Center
Atlanta, GA |
— | 9,267 | 27,079 | — | 23,504 | 9,267 | 50,583 | 59,850 | 13,082 | — | 2000 | 30 years | ||||||||||||||||||||||||||||||||||
|
100 North Point Center East
Suburban Atlanta, GA |
25,000 | (d) | 1,475 | 9,625 | — | 1,518 | 1,475 | 11,143 | 12,618 | 4,667 | — | 2003 | 25 years | |||||||||||||||||||||||||||||||||
|
200 North Point Center East
Suburban Atlanta, GA |
— | (d) | 1,726 | 7,920 | — | 2,479 | 1,726 | 10,399 | 12,125 | 3,705 | — | 2003 | 25 years | |||||||||||||||||||||||||||||||||
|
Cosmopolitan Center(e)
Atlanta, GA |
— | 9,465 | 2,581 | (1,513 | ) | 92 | 7,952 | 2,673 | 10,625 | 987 | — | 2006 | 24 years | |||||||||||||||||||||||||||||||||
|
191 Peachtree Tower(e)
Atlanta, GA |
— | 5,355 | 141,012 | — | 57,269 | 5,355 | 198,281 | 203,636 | 22,584 | — | 2006 | 40 years | ||||||||||||||||||||||||||||||||||
|
221 Peachtree Center Avenue Parking Garage
Atlanta, GA |
— | 4,217 | 13,337 | — | 111 | 4,217 | 13,448 | 17,665 | 932 | — | 2007 | 39 years | ||||||||||||||||||||||||||||||||||
|
Meridian Mark Plaza
Atlanta, GA |
22,279 | 2,219 | — | — | 24,982 | 2,219 | 24,982 | 27,201 | 11,690 | 1997 | 1997 | 30 years | ||||||||||||||||||||||||||||||||||
|
Inhibitex
Suburban Atlanta, GA |
— | 675 | — | — | 5,727 | 675 | 5,727 | 6,402 | 1,565 | 2004 | 2004 | 30 years | ||||||||||||||||||||||||||||||||||
|
8995 Westside Parkway (formerly known as AtheroGenics)
Suburban Atlanta, GA |
— | 200 | — | — | 7,563 | 200 | 7,563 | 7,763 | 5,382 | 1998 | 1998 | 30 years | ||||||||||||||||||||||||||||||||||
|
Total Office
|
438,029 | 70,795 | 308,838 | (4,026 | ) | 360,096 | 66,769 | 668,934 | 735,703 | 176,878 | ||||||||||||||||||||||||||||||||||||
S-2
Table of Contents
SCHEDULE III
(Page 3 of 5)
(Page 3 of 5)
COUSINS
PROPERTIES INCORPORATED AND SUBSIDIARIES
REAL ESTATE AND ACCUMULATED DEPRECIATION
DECEMBER 31, 2009
($ in thousands)
REAL ESTATE AND ACCUMULATED DEPRECIATION
DECEMBER 31, 2009
($ in thousands)
|
Costs Capitalized Subsequent to
|
||||||||||||||||||||||||||||||||||||||||||||||||
| Acquisition | Gross Amount at Which Carried at Close of Period |
Life on Which
|
||||||||||||||||||||||||||||||||||||||||||||||
|
Building and
|
Building and
|
Depreciation
|
||||||||||||||||||||||||||||||||||||||||||||||
| Initial Cost to Company |
Improvements less
|
Improvements less
|
Date of
|
2009 Statement
|
||||||||||||||||||||||||||||||||||||||||||||
|
Land and
|
Buildings and
|
Land and
|
Cost of Sales and
|
Land and
|
Cost of Sales,
|
Accumulated
|
Construction/
|
Date
|
of Income is
|
|||||||||||||||||||||||||||||||||||||||
|
Description/Metropolitan Area
|
Encumbrances | Improvements | Improvements | Improvements | Other | Improvements | Transfers and Other | Total(a) | Depreciation(a) | Renovation | Acquired | Computed(b) | ||||||||||||||||||||||||||||||||||||
|
Retail
|
||||||||||||||||||||||||||||||||||||||||||||||||
|
The Avenue Carriage Crossing
Suburban Memphis, TN |
$ | — | $ | 11,470 | $ | — | $ | (1,675 | ) | $ | 82,773 | $ | 9,795 | $ | 82,773 | $ | 92,568 | $ | 20,147 | 2004 | 2004 | 30 years | ||||||||||||||||||||||||||
|
The Avenue Forsyth
Suburban Atlanta, GA |
— | 22,848 | — | 5,866 | 93,259 | 28,714 | 93,259 | 121,973 | 7,956 | 2009 | 2007 | 30 years | ||||||||||||||||||||||||||||||||||||
|
Tiffany Springs MarketCenter
Kansas City, MO |
— | 8,174 | — | 3,474 | 46,618 | 11,648 | 46,618 | 58,266 | 2,178 | 2009 | 2007 | 30 years | ||||||||||||||||||||||||||||||||||||
|
The Avenue Webb Gin
Suburban Atlanta, GA |
— | 11,583 | — | (1,745 | ) | 69,516 | 9,838 | 69,516 | 79,354 | 12,150 | 2005 | 2005 | 30 years | |||||||||||||||||||||||||||||||||||
|
San Jose MarketCenter
San Jose, CA |
— | 39,121 | — | — | 45,647 | 39,121 | 45,647 | 84,768 | 7,435 | 2005 | 2005 | 30 years | ||||||||||||||||||||||||||||||||||||
|
Total Retail
|
— | 93,196 | — | 5,920 | 337,813 | 99,116 | 337,813 | 436,929 | 49,866 | |||||||||||||||||||||||||||||||||||||||
|
Industrial
|
||||||||||||||||||||||||||||||||||||||||||||||||
|
Lakeside Ranch Business Park — Building 20
Dallas, TX |
— | 5,073 | — | — | 22,781 | 5,073 | 22,781 | 27,854 | 2,792 | 2008 | 2006 | 30 years | ||||||||||||||||||||||||||||||||||||
|
Jefferson Mill Business Park — Building A
Suburban Atlanta, GA |
— | 1,287 | — | — | 12,421 | 1,287 | 12,421 | 13,708 | 728 | 2008 | 2006 | 30 years | ||||||||||||||||||||||||||||||||||||
|
King Mill Distribution Park — Building 3
Suburban Atlanta, GA |
— | 3,886 | — | 345 | 21,426 | 4,231 | 21,426 | 25,657 | 2,827 | 2007 | 2005 | 30 years | ||||||||||||||||||||||||||||||||||||
|
Total Industrial
|
— | 10,246 | — | 345 | 56,628 | 10,591 | 56,628 | 67,219 | 6,347 | |||||||||||||||||||||||||||||||||||||||
|
Total Operating Properties
|
438,029 | 174,237 | 308,838 | 2,239 | 754,537 | 176,476 | 1,063,375 | 1,239,851 | 233,091 | |||||||||||||||||||||||||||||||||||||||
S-3
Table of Contents
SCHEDULE III
(Page 4 of 5)
(Page 4 of 5)
COUSINS
PROPERTIES INCORPORATED AND SUBSIDIARIES
REAL ESTATE AND ACCUMULATED DEPRECIATION
DECEMBER 31, 2009
($ in thousands)
REAL ESTATE AND ACCUMULATED DEPRECIATION
DECEMBER 31, 2009
($ in thousands)
|
Costs Capitalized Subsequent to
|
||||||||||||||||||||||||||||||||||||||||||||||
| Acquisition | Gross Amount at Which Carried at Close of Period |
Life on Which
|
||||||||||||||||||||||||||||||||||||||||||||
|
Building and
|
Building and
|
Depreciation in
|
||||||||||||||||||||||||||||||||||||||||||||
| Initial Cost to Company |
Improvements Less
|
Improvements Less
|
Date of
|
2009 Statement
|
||||||||||||||||||||||||||||||||||||||||||
|
Land and
|
Buildings and
|
Land and
|
Cost of Sales and
|
Land and
|
Cost of Sales,
|
Accumulated
|
Construction/
|
Date
|
of Income is
|
|||||||||||||||||||||||||||||||||||||
|
Description/Metropolitan Area
|
Encumbrances | Improvements | Improvements | Improvements | Other | Improvements | Transfers and Other | Total(a) | Depreciation(a) | Renovation | Acquired | Computed(b) | ||||||||||||||||||||||||||||||||||
|
RESIDENTIAL LOTS
|
||||||||||||||||||||||||||||||||||||||||||||||
|
River’s Call
Suburban Atlanta, GA |
$ | — | $ | 2,001 | $ | — | $ | 11,075 | $ | (12,504 | ) | $ | 13,076 | $ | (12,504 | ) | $ | 572 | $ | — | 2000 | 1971-1989 | — | |||||||||||||||||||||||
|
The Lakes at Cedar Grove
Suburban Atlanta, GA |
— | 4,720 | — | 30,319 | (29,941 | ) | 35,039 | (29,941 | ) | 5,098 | — | 2001 | 2001 | — | ||||||||||||||||||||||||||||||||
|
Blalock Lakes
Suburban Atlanta, GA |
— | 17,657 | — | 24,206 | (3,821 | ) | 41,863 | (3,821 | ) | 38,042 | — | 2006 | 2006 | — | ||||||||||||||||||||||||||||||||
|
Longleaf at Callaway
Pine Mountain, GA |
165 | 2,098 | — | 6,801 | (8,518 | ) | 8,899 | (8,518 | ) | 381 | — | 2002 | 2002 | — | ||||||||||||||||||||||||||||||||
|
Callaway Gardens
Pine Mountain, GA |
— | 1,584 | — | 15,669 | (1,406 | ) | 17,253 | (1,406 | ) | 15,847 | — | 2006 | 2006 | — | ||||||||||||||||||||||||||||||||
|
Tillman Hall
Suburban Atlanta, GA |
— | 2,904 | — | 506 | (525 | ) | 3,410 | (525 | ) | 2,885 | — | — | 2008 | — | ||||||||||||||||||||||||||||||||
|
Total Residential Lots
|
165 | 30,964 | — | 88,576 | (56,715 | ) | 119,540 | (56,715 | ) | 62,825 | — | |||||||||||||||||||||||||||||||||||
|
MULTI-FAMILY UNITS HELD FOR SALE
|
||||||||||||||||||||||||||||||||||||||||||||||
|
10 Terminus Place
Atlanta, GA |
— | 7,810 | — | — | 17,993 | 7,810 | 17,993 | 25,803 | — | 2008 | 2005 | — | ||||||||||||||||||||||||||||||||||
|
60 North Market
Asheville, NC |
— | — | 9,739 | — | (7,038 | ) | — | 2,701 | 2,701 | — | — | 2009 | — | |||||||||||||||||||||||||||||||||
|
Total Multi-Family Units Held for Sale
|
— | 7,810 | 9,739 | — | 10,955 | 7,810 | 20,694 | 28,504 | — | |||||||||||||||||||||||||||||||||||||
| $ | 450,208 | $ | 358,727 | $ | 318,577 | $ | 180,743 | $ | 610,366 | $ | 539,470 | $ | 928,943 | $ | 1,468,413 | $ | 233,091 | |||||||||||||||||||||||||||||
S-4
Table of Contents
SCHEDULE III
(Page 5 of 5)
(Page 5 of 5)
COUSINS
PROPERTIES INCORPORATED AND SUBSIDIARIES
REAL ESTATE AND ACCUMULATED DEPRECIATION
DECEMBER 31, 2009
($ in thousands)
REAL ESTATE AND ACCUMULATED DEPRECIATION
DECEMBER 31, 2009
($ in thousands)
NOTES:
| (a) | Reconciliations of total real estate carrying value and accumulated depreciation for the three years ended December 31, 2009 are as follows: |
| Real Estate | Accumulated Depreciation | |||||||||||||||||||||||
| 2009 | 2008 | 2007 | 2009 | 2008 | 2007 | |||||||||||||||||||
|
Balance at beginning of period
|
$ | 1,458,001 | $ | 1,309,821 | $ | 1,021,010 | $ | 186,252 | $ | 146,456 | $ | 117,769 | ||||||||||||
|
Additions during the period:
|
||||||||||||||||||||||||
|
Improvements and other capitalized costs
|
72,644 | 195,629 | 348,484 | — | — | — | ||||||||||||||||||
|
Impairment loss
|
(34,900 | ) | (2,100 | ) | — | — | — | — | ||||||||||||||||
|
Depreciation expense
|
— | — | — | 52,996 | 50,021 | 37,983 | ||||||||||||||||||
| 37,744 | 193,529 | 348,484 | 52,996 | 50,021 | 37,983 | |||||||||||||||||||
|
Deductions during the period:
|
||||||||||||||||||||||||
|
Cost of real estate sold
|
(31,908 | ) | (51,671 | ) | (58,766 | ) | (96 | ) | (8,169 | ) | (7,281 | ) | ||||||||||||
|
Write-off of fully depreciated assets
|
(5,991 | ) | (1,181 | ) | (1,047 | ) | (5,991 | ) | (1,181 | ) | (1,047 | ) | ||||||||||||
|
Transfers between account categories
|
10,567 | 7,503 | 140 | (34 | ) | (272 | ) | — | ||||||||||||||||
|
Amortization of rent adjustments
|
— | — | — | (36 | ) | (603 | ) | (968 | ) | |||||||||||||||
| (27,332 | ) | (45,349 | ) | (59,673 | ) | (6,157 | ) | (10,225 | ) | (9,296 | ) | |||||||||||||
|
Balance at the end of period
|
$ | 1,468,413 | $ | 1,458,001 | $ | 1,309,821 | $ | 233,091 | $ | 186,252 | $ | 146,456 | ||||||||||||
| (b) | Buildings and improvements are depreciated over 25 to 40 years. Leasehold improvements and other capitalized leasing costs are depreciated over the life of the asset or the term of the lease, whichever is shorter. | |
| (c) | 333 North Point Center East and 555 North Point Center East were financed together with such properties being collateral for one recourse mortgage note payable. | |
| (d) | 100 North Point Center East and 200 North Point Center East were financed together with such properties being collateral for one non-recourse mortgage note payable. | |
| (e) | Certain intangible assets related to the purchase of this property are included in other assets and not in the above table, although included in the basis of the property on Item 2. |
S-5
TABLE OF CONTENTS
Part IItem 1 . BusinessItem 1A . Risk FactorsItem 1B . Unresolved Staff CommentsItem 2 . PropertiesItem 3 . Legal ProceedingsItem 4 . Submission Of Matters To A Vote Of Security HoldersItem X . Executive Officers Of The RegistrantPart IIItem 5 . Market For Registrant S Common Stock and Related Stockholder MattersItem 6 . Selected Financial DataItem 7 . Management S Discussion and Analysis Of Financial Condition and Results Of OperationsItem 7A . Quantitative and Qualitative Disclosure About Market RiskItem 8 . Financial Statements and Supplementary DataItem 9 . Changes in and Disagreements with Accountants on Accounting and Financial DisclosureItem 9A . Controls and ProceduresItem 9B . Other InformationPart IIIItem 10 . Directors, Executive Officers and Corporate GovernanceItem 11 . Executive CompensationItem 12 . Security Ownership Of Certain Beneficial Owners and Management and Related Stockholder MattersItem 13 . Certain Relationships and Related Transactions, and Director IndependenceItem 14 . Principal Accountant Fees and ServicesPart IVItem 15 . Exhibits and Financial Statement Schedules