10-Q
Table of Contents


UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
þ
 
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 2015
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
(State or other jurisdiction of
incorporation or organization)
58-0869052
(I.R.S. Employer
Identification No.)
191 Peachtree Street, Suite 500, Atlanta, Georgia
(Address of principal executive offices)
30303-1740
(Zip Code)
(404) 407-1000
(Registrant’s telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes þ No o
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes þ No o
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer þ
Accelerated filer o
Non-accelerated filer o
Smaller reporting company o
 
 
(Do not check if a smaller reporting company)
 
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
Yes o No þ
Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.
Class
 
Outstanding at October 22, 2015
Common Stock, $1 par value per share
 
214,670,759 shares

Table of Contents


 
Page No.
 
 

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 the Annual Report on Form 10-K/A for the year ended December 31, 2014. These forward-looking statements include information about possible or assumed future results of the business and our financial condition, liquidity, results of operations, plans, and objectives. They also include, among other things, statements regarding subjects that are forward-looking by their nature, such as:
•
our business and financial strategy;
•our ability to obtain future financing arrangements;
•future acquisitions and future dispositions of operating assets;
•future acquisitions of land;
•future development and redevelopment opportunities;
•future dispositions of land and other non-core assets;
•future repurchases of our common stock;
•projected operating results;
•market and industry trends;
•future distributions;
•projected capital expenditures; and
•interest rates.
Any forward-looking statements are based upon management's beliefs, assumptions, and expectations of our future performance, taking into account information currently available. These beliefs, assumptions, and expectations may change as a result of possible events or factors, not all of which are known. If a change occurs, our business, financial condition, liquidity, and results of operations may vary materially from those expressed in forward-looking statements. Actual results may vary from forward-looking statements due to, but not limited to, the following:
•
the availability and terms of capital and financing;
•
the ability to refinance or repay indebtedness as it matures;
•
the failure of purchase, sale, or other contracts to ultimately close;
•
the failure to achieve anticipated benefits from acquisitions and investments or from dispositions;
•
the potential dilutive effect of any common stock offerings;
•
the failure to achieve benefits from the repurchase of our common stock;
•
the availability of buyers and adequate pricing with respect to the disposition of assets;
•
risks related to the geographic concentration of our portfolio, including, but not limited to, metropolitan Houston and metropolitan Atlanta;
•
risks related to industry concentration of our portfolio including, but, not limited to, the energy industry;
•
risks and uncertainties related to national and local economic conditions, the real estate industry in general, and the commercial real estate markets in particular;
•
changes to our strategy with regard to land and other non-core holdings that require impairment losses to be recognized;
•
leasing risks, including the ability to obtain new tenants or renew expiring tenants, and the ability to lease newly developed and/or recently acquired space;
•
the adverse change in the financial condition of one or more of our major tenants;
•
volatility in interest rates and insurance rates;
•
the availability of sufficient investment opportunities;
•
competition from other developers or investors;
•
the risks associated with real estate developments (such as zoning approval, receipt of required permits, construction delays, cost overruns, and leasing risk);
•
the loss of key personnel;
•
the potential liability for uninsured losses, condemnation, or environmental issues;
•
the potential liability for a failure to meet regulatory requirements;
•
the financial condition and liquidity of, or disputes with, joint venture partners;
•
any failure to comply with debt covenants under credit agreements; and
•
any failure to continue to qualify for taxation as a real estate investment trust.
The words “believes,” “expects,” “anticipates,” “estimates,” “plans,” “may,” “intend,” “will,” or similar expressions are intended to identify forward-looking statements. Although we believe that our plans, intentions, and expectations reflected in any forward-looking statements are reasonable, we can give no assurance that such plans, intentions, or expectations will be achieved. We undertake no obligation to publicly update or revise any forward-looking statement, whether as a result of future events, new information, or otherwise, except as required under U.S. federal securities laws.

2
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PART I — FINANCIAL INFORMATION
Item 1.    Financial Statements.
COUSINS PROPERTIES INCORPORATED AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(in thousands, except share and per share amounts)
 
September 30, 2015
 
December 31, 2014
 
(unaudited)
 
 
Assets:
 
 
 
Real estate assets:
 
 
 
Operating properties, net of accumulated depreciation of $385,657 and $324,543 in 2015 and 2014, respectively
$
2,160,655

 
$
2,181,684

Projects under development
53,118

 
91,615

Land
17,829

 
21,646

 
2,231,602

 
2,294,945

Real estate assets and other assets held for sale, net of accumulated depreciation and amortization of $60,078 in 2015
50,491

 
—

 
 
 
 
Cash and cash equivalents
5,331

 
—

Restricted cash
4,486

 
5,042

Notes and accounts receivable, net of allowance for doubtful accounts of $1,736 and $1,643 in 2015 and 2014, respectively
9,513

 
10,732

Deferred rents receivable
63,738

 
57,939

Investment in unconsolidated joint ventures
103,470

 
100,498

Intangible assets, net of accumulated amortization of $96,349 and $76,050 in 2015 and 2014, respectively
131,858

 
163,244

Other assets
37,118

 
34,930

Total assets
$
2,637,607

 
$
2,667,330

Liabilities:


 


Notes payable
$
779,570

 
$
792,344

Accounts payable and accrued expenses
66,049

 
76,240

Deferred income
24,132

 
23,277

Intangible liabilities, net of accumulated amortization of $24,464 and $16,897 in 2015 and 2014, respectively
62,019

 
70,020

Other liabilities
30,407

 
31,991

Liabilities of real estate assets held for sale
2,843

 
—

Total liabilities
965,020

 
993,872

Commitments and contingencies
—

 
—

Equity:
 
 
 
Stockholders' investment:
 
 
 
Common stock, $1 par value, 350,000,000 shares authorized, 220,255,502 and 220,082,610 shares issued in 2015 and 2014, respectively
220,256

 
220,083

Additional paid-in capital
1,721,856

 
1,720,972

Treasury stock at cost, 5,584,743 and 3,570,082 shares in 2015 and 2014, respectively
(105,531
)
 
(86,840
)
Distributions in excess of cumulative net income
(163,994
)
 
(180,757
)
Total equity
1,672,587

 
1,673,458

Total liabilities and equity
$
2,637,607

 
$
2,667,330

 
 
 
 
See accompanying notes.
 
 
 

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Table of Contents
COUSINS PROPERTIES INCORPORATED AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(unaudited, in thousands, except per share amounts)


 
Three Months Ended
 
Nine Months Ended
 
September 30,
 
September 30,
 
2015
 
2014
 
2015
 
2014
Revenues:
 
 
 
 
 
 
 
Rental property revenues
$
96,016

 
$
86,857

 
$
282,226

 
$
244,375

Fee income
1,686

 
1,802

 
5,206

 
6,165

Other
444

 
439

 
593

 
4,786

 
98,146

 
89,098

 
288,025

 
255,326

Costs and expenses:
 

 
 

 
 
 
 
Rental property operating expenses
41,331

 
38,685

 
120,672

 
109,501

Reimbursed expenses
686

 
783

 
2,514

 
2,703

General and administrative expenses
2,971

 
5,021

 
12,502

 
16,388

Interest expense
7,673

 
6,817

 
23,219

 
20,954

Depreciation and amortization
32,538

 
32,704

 
103,564

 
101,979

Acquisition and related costs
19

 
644

 
104

 
815

Other
175

 
481

 
873

 
1,936

 
85,393

 
85,135

 
263,448

 
254,276

Income from continuing operations before taxes, unconsolidated joint ventures, and gain on sale of investment properties
12,753

 
3,963

 
24,577

 
1,050

Benefit (provision) for income taxes from operations
—

 
(1
)
 
—

 
20

Income from unconsolidated joint ventures
3,716

 
2,030

 
7,088

 
5,343

Income from continuing operations before gain on sale of investment properties
16,469

 
5,992

 
31,665

 
6,413

Gain on sale of investment properties
37,145

 
81

 
37,674

 
1,569

Income from continuing operations
53,614

 
6,073

 
69,339

 
7,982

Income (loss) from discontinued operations:
 

 
 

 
 
 
 
Income (loss) from discontinued operations
6

 
348

 
(14
)
 
1,806

Gain (loss) on sale from discontinued operations
—

 
12,993

 
(551
)
 
19,372

 
6

 
13,341

 
(565
)
 
21,178

Net income
53,620

 
19,414

 
68,774

 
29,160

Net income attributable to noncontrolling interests
—

 
(92
)
 
—

 
(376
)
Net income attributable to controlling interests
53,620

 
19,322

 
68,774

 
28,784

Dividends to preferred stockholders
—

 
—

 
—

 
(2,955
)
Preferred share original issuance costs
—

 
—

 
—

 
(3,530
)
Net income available to common stockholders
$
53,620

 
$
19,322

 
$
68,774

 
$
22,299

Per common share information — basic and diluted:
 

 
 

 
 
 
 
Income from continuing operations attributable to controlling interest
$
0.25

 
$
0.03

 
$
0.32

 
$
—

Income from discontinued operations
—

 
0.06

 
—

 
0.11

Net income available to common stockholders
$
0.25

 
$
0.09

 
$
0.32

 
$
0.11

Weighted average shares — basic
216,261

 
209,839

 
216,485

 
200,073

Weighted average shares — diluted
216,374

 
210,111

 
216,625

 
200,325

Dividends declared per common share
$
0.080

 
$
0.075

 
$
0.240

 
$
0.225


See accompanying notes.

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COUSINS PROPERTIES INCORPORATED AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF EQUITY
Nine Months Ended September 30, 2015 and 2014
(unaudited, in thousands)
 
Preferred
Stock
 
Common
Stock
 
Additional
Paid-In
Capital
 
Treasury
Stock
 
Distributions in
Excess of
Net Income
 
Stockholders’
Investment
 
Nonredeemable
Noncontrolling
Interests
 
Total
Equity
Balance December 31, 2014
$
—

 
$
220,083

 
$
1,720,972

 
$
(86,840
)
 
$
(180,757
)
 
$
1,673,458

 
$
—

 
$
1,673,458

Net income
—

 
—

 
—

 
—

 
68,774

 
68,774

 
—

 
68,774

Common stock issued pursuant to:
 

 
 

 
 

 
 

 
 

 
 

 
 

 
 
Director stock grants
—

 
79

 
686

 
—

 
—

 
765

 
—

 
765

Stock option exercises
—

 
4

 
(19
)
 
—

 
—

 
(15
)
 
—

 
(15
)
Restricted stock grants, net of amounts withheld for income taxes
—

 
90

 
(911
)
 
—

 
—

 
(821
)
 
—

 
(821
)
Amortization of stock options and restricted stock, net of forfeitures
—

 
—

 
1,104

 
—

 
—

 
1,104

 
—

 
1,104

Repurchase of common stock
—

 
—

 
—

 
(18,691
)
 
—

 
(18,691
)
 
—

 
(18,691
)
Common dividends
—

 
—

 
—

 
—

 
(52,011
)
 
(52,011
)
 
—

 
(52,011
)
Other
—

 
—

 
24

 
—

 
—

 
24

 
—

 
24

Balance September 30, 2015
$
—

 
$
220,256

 
$
1,721,856

 
$
(105,531
)
 
$
(163,994
)
 
$
1,672,587

 
$
—

 
$
1,672,587

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Balance December 31, 2013
$
94,775

 
$
193,236

 
$
1,420,951

 
$
(86,840
)
 
$
(164,721
)
 
$
1,457,401

 
$
1,571

 
$
1,458,972

Net income
—

 
—

 
—

 
—

 
28,784

 
28,784

 
376

 
29,160

Common stock issued pursuant to:
 

 
 

 
 

 
 

 
 

 
 

 
 

 
 

Director stock grants
—

 
55

 
598

 
—

 
—

 
653

 
—

 
653

Stock option exercises
—

 
40

 
(267
)
 
—

 
—

 
(227
)
 
—

 
(227
)
Common stock offering, net of issuance costs
—

 
26,700

 
295,212

 
—

 
—

 
321,912

 
—

 
321,912

Restricted stock grants, net of amounts withheld for income taxes
—

 
53

 
(978
)
 
—

 
—

 
(925
)
 
—

 
(925
)
Amortization of stock options and restricted stock, net of forfeitures
—

 
(5
)
 
1,513

 
—

 
—

 
1,508

 
—

 
1,508

Distributions to nonredeemable noncontrolling interests
—

 
—

 
—

 
—

 
—

 
—

 
(369
)
 
(369
)
Redemption of preferred shares
(94,775
)
 
—

 
3,530

 
—

 
(3,530
)
 
(94,775
)
 
—

 
(94,775
)
Preferred dividends
—

 
—

 
—

 
—

 
(2,955
)
 
(2,955
)
 
—

 
(2,955
)
Common dividends
—

 
—

 
—

 
—

 
(45,351
)
 
(45,351
)
 
—

 
(45,351
)
Balance September 30, 2014
$
—

 
$
220,079

 
$
1,720,559

 
$
(86,840
)
 
$
(187,773
)
 
$
1,666,025

 
$
1,578

 
$
1,667,603

See accompanying notes.

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Table of Contents
COUSINS PROPERTIES INCORPORATED AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited, in thousands)


 
Nine Months Ended September 30,
 
2015
 
2014
Cash flows from operating activities:
 
 
 
Net income
$
68,774

 
$
29,160

Adjustments to reconcile net income to net cash provided by operating activities:
 
 
 
Gain on sale of investment properties, including discontinued operations
(37,123
)
 
(20,941
)
Depreciation and amortization, including discontinued operations
103,614

 
102,481

Amortization of deferred financing costs
1,073

 
604

Amortization of stock options and restricted stock, net of forfeitures
1,104

 
1,508

Effect of certain non-cash adjustments to rental revenues
(21,907
)
 
(21,740
)
Income from unconsolidated joint ventures
(7,087
)
 
(5,343
)
Operating distributions from unconsolidated joint ventures
5,570

 
5,195

Land and multi-family cost of sales, net of closing costs paid
—

 
302

Changes in other operating assets and liabilities:
 
 
 
Change in other receivables and other assets, net
(6,452
)
 
(1,912
)
Change in operating liabilities
(4,526
)
 
5,282

Net cash provided by operating activities
103,040

 
94,596

Cash flows from investing activities:
 
 
 
Proceeds from investment property sales
136,498

 
53,827

Property acquisition, development, and tenant asset expenditures
(151,384
)
 
(351,657
)
Investment in unconsolidated joint ventures
(7,486
)
 
(10,578
)
Distributions from unconsolidated joint ventures
6,318

 
7,433

Change in notes receivable and other assets
1,149

 
(1,818
)
Change in restricted cash
293

 
(1,834
)
Net cash used in investing activities
(14,612
)
 
(304,627
)
Cash flows from financing activities:
 
 
 
Proceeds from credit facility
269,000

 
395,175

Repayment of credit facility
(275,200
)
 
(347,550
)
Proceeds from other notes payable
—

 
68

Repayment of notes payable
(6,574
)
 
(6,713
)
Payment of loan issuance costs
—

 
(3,176
)
Common stock issued, net of expenses
8

 
321,912

Repurchase of common stock
(18,320
)
 
—

Redemption of preferred shares
—

 
(94,775
)
Common dividends paid
(52,011
)
 
(45,351
)
Preferred dividends paid
—

 
(2,955
)
Distributions to noncontrolling interests
—

 
(369
)
Net cash provided by (used in) financing activities
(83,097
)
 
216,266

Net increase in cash and cash equivalents
5,331

 
6,235

Cash and cash equivalents at beginning of period
—

 
975

Cash and cash equivalents at end of period
$
5,331

 
$
7,210

 
 
 
 
Interest paid, net of amounts capitalized
$
22,579


$
20,450

 
 
 
 
Significant non-cash transactions:
 
 
 

Change in accrued property acquisition, development, and tenant asset expenditures
$
(4,118
)
 
$
3,055

Transfer from operating properties to real estate assets and other assets held for sale
50,491

 
181,116

Transfer from operating properties to liabilities of real estate assets held for sale
2,843

 
—

Transfer from projects under development to operating properties
93,019

 
—


See accompanying notes.

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COUSINS PROPERTIES INCORPORATED AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2015
(Unaudited)
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”). Through December 31, 2014, Cousins Real Estate Corporation (“CREC”) was a taxable entity wholly-owned by and consolidated with Cousins. CREC owned, developed, and managed its own real estate portfolio and performed certain real estate related services for other parties. On December 31, 2014, CREC merged into Cousins and coincident with this merger, Cousins formed Cousins TRS Services LLC ("CTRS"), a new taxable entity wholly-owned by Cousins. Upon formation, CTRS received a capital contribution of some of the real estate assets and contracts that were previously owned by CREC. CTRS owns and manages its own real estate portfolio and performs certain real estate related services for other parties. Cousins, CREC, CTRS and their subsidiaries are included in the condensed consolidated financial statements and are hereinafter referred to collectively as the "Company."
The Company develops, acquires, leases, manages, and owns primarily Class A office properties and opportunistic mixed-use properties in Sunbelt markets with a focus on Georgia, Texas, and North Carolina. Cousins has elected to be taxed as a real estate investment trust (“REIT”) and intends to, among other things, distribute 90% of its net taxable income to stockholders, thereby eliminating any liability for federal income taxes under current law. Therefore, the results included herein do not include a federal income tax provision for Cousins.
Basis of Presentation
The condensed consolidated financial statements are unaudited and were prepared by the Company in accordance with accounting principles generally accepted in the United States of America (“GAAP”) for interim financial information and in accordance with the rules and regulations of the Securities and Exchange Commission (“SEC”). In the opinion of management, these financial statements reflect all adjustments necessary (which adjustments are of a normal and recurring nature) for the fair presentation of the Company's financial position as of September 30, 2015 and the results of operations for the three and nine months ended September 30, 2015 and 2014. The results of operations for the three and nine months ended September 30, 2015 are not necessarily indicative of results expected for the full year. Certain information and footnote disclosures normally included in financial statements prepared in accordance with GAAP have been condensed or omitted pursuant to the rules and regulations of the SEC. These condensed consolidated financial statements should be read in conjunction with the consolidated financial statements and the notes thereto included in the Company's Annual Report on Form 10-K/A for the year ended December 31, 2014. The accounting policies employed are substantially the same as those shown in note 2 to the consolidated financial statements included in such Form 10-K/A.
For the three and nine months ended September 30, 2015 and 2014, there were no items of other comprehensive income. Therefore, no presentation of comprehensive income is required.
The Company evaluates all partnerships, joint ventures and other arrangements with variable interests to determine if the entity or arrangement qualifies as a variable interest entity (“VIE”), as defined in the Financial Accounting Standards Board's ("FASB") Accounting Standards Codification ("ASC"). If the entity or arrangement qualifies as a VIE and the Company is determined to be the primary beneficiary, the Company is required to consolidate the assets, liabilities, and results of operations of the VIE.
In July 2015, the Company acquired land and transferred it to a special purpose entity to facilitate a potential Section 1031 exchange under the Internal Revenue Code. To realize the tax deferral available under the Section 1031 exchange, the Company must complete the Section 1031 exchange, and take title to the to-be-exchanged land within 180 days of the acquisition date. The Company has determined that this entity is a VIE, and the Company is the primary beneficiary. Therefore, the Company consolidates this entity. As of September 30, 2015, this VIE had total assets of $34.1 million, no significant liabilities, and no significant cash flows.
Certain prior year amounts have been reclassified for consistency with the current period presentation. In the first quarter of 2015, the Company concluded that certain liabilities associated with variable stock-based compensation should be classified as other liabilities. Previously, these items had been classified as accounts payable and accrued expenses. This change in classification does not affect the previously reported Condensed Consolidated Statement of Cash Flows or Condensed Consolidated Statement of Operations for any period.



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Recent Accounting Pronouncements
In February 2015, the FASB issued ASC 2015-02 "Consolidation (Topic 810): Amendments to the Consolidation Analysis." All legal entities are subject to reevaluation under the revised consolidation model. The amendment modifies the evaluation of whether limited partnerships and similar legal entities are variable interest entities or voting interest entities. It also eliminates the presumption that a general partner should consolidate a limited partnership. The guidance is effective for public entities with periods beginning after December 15, 2015 with early adoption permitted. The Company expects to adopt this guidance effective January 1, 2016 and is currently assessing the potential impact of adopting the new guidance.
In April 2015, the FASB issued ASU 2015-03, "Simplifying the Presentation of Debt Issuance Costs," which will require companies to present debt issuance costs as a direct deduction from the related debt rather than as an asset. These costs will continue to be amortized into interest expense. The guidance is effective for periods beginning after December 15, 2015 with early adoption permitted. The Company expects to adopt this guidance effective January 1, 2016, and the Company does not expect the adoption of this guidance to have a material impact on its consolidated financial statements.
In April 2015, the FASB voted to defer ASU 2014-09, "Revenue from Contracts with Customers (Topic 606)." Under the new guidance, companies will recognize revenue when the seller satisfies a performance obligation, which would be when the buyer takes control of the good or service. This new guidance could result in different amounts of revenue being recognized and could result in revenue being recognized in different reporting periods than under the current guidance. The standard specifically excludes revenue associated with lease contracts. The guidance is effective for periods beginning after December 15, 2017, with early adoption permitted for periods beginning after December 15, 2016. The Company expects to adopt this guidance effective January 1, 2018 and is currently assessing the potential impact of adopting the new guidance.
2. REAL ESTATE TRANSACTIONS

Acquisitions
    
In July 2015, the Company acquired a 4.16 acre land site located in Atlanta, Georgia for $27.0 million. An approximately 485,000 square foot office building is expected to be developed on this site. The site also includes an additional parcel for a second office building development.

Dispositions

In September 2015, the Company sold 2100 Ross, an 844,000 square foot office tower located in Dallas, Texas for a gross sales price of $131.0 million and recognized a gain of $36.2 million on this disposition.

3. REAL ESTATE ASSETS HELD FOR SALE

As of September 30, 2015, the following operating properties were classified as held for sale:
Property
Property Type
Location
Rentable Square Feet
North Point Center East
Office
Atlanta, Georgia
540,000

The Points at Waterview
Office
Dallas, Texas
203,000

In the second quarter of 2014, the Company adopted ASU 2014-08 relating to the reporting of discontinued operations. Since the adoption of the guidance, the Company has determined that the sale of the properties listed above would not represent a strategic shift in operations and, therefore, will be presented in continuing operations for all periods present. The major classes of assets and liabilities of the properties held for sale as of September 30, 2015 are as follows (in thousands):


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Real estate assets and related assets held for sale
 
September 30, 2015
Operating Properties, net of accumulated depreciation of $57,967
 
$
44,560

Deferred rents receivable
 
4,239

Other assets, net of accumulated amortization of $2,111
 
1,086

Notes and accounts receivable
 
606

 
 
$
50,491

 
 
 
Liabilities of real estate assets held for sale
 
 
Accounts payable and accrued expenses
 
$
2,212

Other liabilities
 
631

 
 
$
2,843


4. INVESTMENT IN UNCONSOLIDATED JOINT VENTURES

The Company describes its investments in unconsolidated joint ventures in note 5 of the notes to consolidated financial statements in its Annual Report on Form 10-K/A for the year ended December 31, 2014. The following table summarizes balance sheet data of the Company's unconsolidated joint ventures as of September 30, 2015 and December 31, 2014 (in thousands):
 
Total Assets
 
Total Debt
 
Total Equity
 
Company’s Investment
 
SUMMARY OF FINANCIAL POSITION:
2015
 
2014
 
2015
 
2014
 
2015
 
2014
 
2015
 
2014
 
 Terminus Office Holdings LLC
$
285,336

 
$
288,415

 
$
211,835

 
$
213,640

 
$
59,753

 
$
62,830

 
$
30,814

 
$
32,323

 
 EP I LLC
83,256

 
85,228

 
58,030

 
58,029

 
24,172

 
26,671

 
22,249

 
22,905

 
 EP II LLC
70,233

 
42,772

 
39,149

 
12,735

 
24,818

 
24,969

 
19,834

 
19,905

 
 Charlotte Gateway Village, LLC
127,373

 
130,272

 
22,143

 
35,530

 
101,339

 
92,808

 
11,193

 
11,218

 
 HICO Victory Center LP
12,883

 
10,450

 
—

 
—

 
12,835

 
10,450

 
9,000

 
7,572

 
 Carolina Square Holdings LP
9,959

 
—

 
—

 
—

 
8,178

 
—

 
4,778

 
—

 
 CL Realty, L.L.C.
7,550

 
7,264

 
—

 
—

 
7,389

 
7,042

 
3,724

 
3,546

 
 Temco Associates, LLC
967

 
6,910

 
—

 
—

 
386

 
6,709

 
1,070

 
3,027

 
 HICO Avalon LLC
1,130

 
—

 
—

 
—

 
900

 
—

 
806

 
—

 
 Wildwood Associates
16,501

 
16,400

 
—

 
—

 
16,384

 
16,389

 
(1,108
)
(1)
(1,106
)
(1)
 Crawford Long - CPI, LLC
29,900

 
29,946

 
74,645

 
75,000

 
(46,627
)
 
(45,762
)
 
(22,216
)
(1)
(21,931
)
(1)
 Other
1,100

 
1,411

 
—

 
—

 
880

 
979

 
2

 
2

 
 
$
646,188

 
$
619,068

 
$
405,802

 
$
394,934

 
$
210,407

 
$
203,085

 
$
80,146

 
$
77,461

 
(1) Negative balances are included in deferred income on the balance sheets.
The following table summarizes statement of operations information of the Company's unconsolidated joint ventures for the nine months ended September 30, 2015 and 2014 (in thousands):
 
Total Revenues
 
Net Income (Loss)
 
Company's Share of Income (Loss)
SUMMARY OF OPERATIONS:
2015
 
2014
 
 
2015
 
2014
 
 
2015
 
2014
 
Terminus Office Holdings LLC
$
30,144

 
$
29,354

 
 
$
1,923

 
$
314

 
 
$
962

 
$
134

 
EP I LLC
9,587

 
9,024

 
 
2,481

 
2,102

 
 
1,864

 
1,577

 
EP II LLC
536

 
—

 
 
(150
)
 
—

 
 
(100
)
 
—

 
Charlotte Gateway Village, LLC
25,311

 
25,079

 
 
9,438

 
8,635

 
 
883

 
882

 
CL Realty, L.L.C.
674

 
1,240

 
 
346

 
846

 
 
178

 
410

 
Temco Associates, LLC
9,163

 
793

 
 
2,077

 
157

 
 
2,244

 
(24
)
 
Wildwood Associates
—

 
29

 
 
(89
)
 
(125
)
 
 
(45
)
 
(50
)
 
Crawford Long - CPI, LLC
9,193

 
8,905

 
 
2,131

 
2,075

 
 
1,071

 
1,062

 
Cousins Watkins LLC
—

 
3,801

 
 
—

 
217

 
 
—

 
1,702

 
Other
—

 
5

 
 
(95
)
 
(245
)
 
 
31

 
(350
)
 
 
$
84,608

 
$
78,230

 
 
$
18,062

 
$
13,976

 
 
$
7,088

 
$
5,343

 

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On May 1, 2015, Carolina Square Holdings LP ("Carolina Square") was formed between the Company and NR 123 Franklin LLC ("Northwood Ravin"). Carolina Square is a 50-50 joint venture formed for the purpose of developing and constructing a mixed-use property in Chapel Hill, North Carolina pursuant to a ground lease. Upon formation, each partner contributed $1.7 million in cash towards pre-development costs. Carolina Square also entered into a construction loan agreement, secured by the project, which is expected to provide up to $79.8 million to fund future construction costs. The loan bears interest at LIBOR plus 1.90% and matures on May 1, 2018. The Company and Northwood Ravin will each guarantee 12.5% of the outstanding loan amount. As of September 30, 2015, there is no outstanding balance on this construction loan.

On August 10, 2015, HICO Avalon LLC ("HICO Avalon"), a joint venture between the Company and Hines Avalon Investor LLC ("Hines"), was formed for the purpose of acquiring and potentially developing an office building in Alpharetta, Georgia. Pursuant to the joint venture agreement, all pre-development expenditures, other than land, are funded 75% by Cousins and 25% by Hines. If the project moves forward and HICO Avalon acquires land and commences construction, the acquisition of land and subsequent development expenditures will be funded 90% by Cousins and 10% by Hines. As of September 30, 2015, the Company accounts for its investment in HICO Avalon under the equity method as it does not currently control the activities of the venture. If the project moves to commence construction, the capital accounts and economics of the venture will be adjusted such that the Company will effectively own at least 90% of the venture, and Hines will own up to 10%. Additionally, Cousins will have unilateral control over the operational aspects of the venture, and the Company expects to consolidate the venture at that time. The Company's investment in HICO Avalon at September 30, 2015 includes only its share of pre-development expenditures.
5. INTANGIBLE ASSETS
Intangible assets on the balance sheets as of September 30, 2015 and December 31, 2014 included the following (in thousands):
 
 
September 30, 2015
 
December 31, 2014
In-place leases, net of accumulated amortization of $81,458 and $62,302 in 2015 and 2014, respectively
 
$
119,539

 
$
147,360

Above-market tenant leases, net of accumulated amortization of $14,891 and $13,748 in 2015 and 2014, respectively
 
8,579

 
12,017

Goodwill
 
3,740

 
3,867

 
 
$
131,858

 
$
163,244



Goodwill relates entirely to the office reportable segment. As office assets are sold, either by the Company or by joint ventures in which the Company has an ownership interest, goodwill is reduced. The following is a summary of goodwill activity for the nine months ended September 30, 2015 and 2014 (in thousands):
 
Nine Months Ended September 30,
 
2015
 
2014
Beginning balance
$
3,867

 
$
4,131

Allocated to property sales
(127
)
 
(74
)
Ending balance
$
3,740

 
$
4,057

6. OTHER ASSETS
Other assets on the balance sheets as of September 30, 2015 and December 31, 2014 included the following (in thousands):
 
 
September 30, 2015
 
December 31, 2014
FF&E and leasehold improvements, net of accumulated depreciation of $22,375 and $19,137 in 2015 and 2014, respectively
 
$
13,283

 
$
10,590

Lease inducements, net of accumulated amortization of $7,469 and $5,475 in 2015 and 2014, respectively
 
13,201

 
12,245

Loan closing costs, net of accumulated amortization of $3,359 and $2,286 in 2015 and 2014, respectively
 
5,805

 
6,878

Prepaid expenses and other assets
 
4,077

 
3,428

Predevelopment costs and earnest money
 
752

 
1,789

 
 
$
37,118

 
$
34,930


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7. NOTES PAYABLE
The following table summarizes the terms and amounts of the Company’s notes payable at September 30, 2015 and December 31, 2014 (in thousands):
Description
 
Interest Rate
 
Maturity
 
September 30, 2015
 
December 31, 2014
Post Oak Central mortgage note
 
4.26
%
 
2020
 
$
182,618

 
$
185,109

Credit Facility, unsecured
 
1.29
%
 
2019
 
134,000

 
140,200

The American Cancer Society Center mortgage note
 
6.45
%
 
2017
 
129,794

 
131,083

Promenade mortgage note
 
4.27
%
 
2022
 
108,899

 
110,946

191 Peachtree Tower mortgage note
 
3.35
%
 
2018
 
100,000

 
100,000

816 Congress mortgage note
 
3.75
%
 
2024
 
85,000

 
85,000

Meridian Mark Plaza mortgage note
 
6.00
%
 
2020
 
25,088

 
25,408

The Points at Waterview mortgage note
 
5.66
%
 
2016
 
14,171

 
14,598

 
 
 
 
 
 
$
779,570

 
$
792,344


Fair Value
At September 30, 2015 and December 31, 2014, the aggregate estimated fair values of the Company's notes payable were $806.0 million and $835.4 million, respectively, calculated by discounting the debt's remaining contractual cash flows at estimated rates at which similar loans could have been obtained at those respective dates. The estimate of the current market rate, which is the most significant input in the discounted cash flow calculation, is intended to replicate debt of similar maturity and loan-to-value relationships. These fair value calculations are considered to be Level 2 under the guidelines as set forth in ASC 820, Fair Value Measurement, as the Company utilizes market rates for similar type loans from third party brokers.
Other Information
For the three and nine months ended September 30, 2015 and 2014, interest expense was as follows (in thousands):
 
Three Months Ended September 30,
 
Nine Months Ended September 30,
 
2015
 
2014
 
2015
 
2014
Total interest incurred
$
8,696

 
$
7,667

 
$
25,959

 
$
22,787

Interest capitalized
(1,023
)
 
(850
)
 
(2,740
)
 
(1,833
)
Total interest expense
$
7,673

 
$
6,817

 
$
23,219

 
$
20,954

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.
Subsequent Event
On October 1, 2015, the Company prepaid, without penalty, the $14.2 million The Points at Waterview mortgage note. The note was scheduled to mature on January 1, 2016.
8. COMMITMENTS AND CONTINGENCIES

Commitments
At September 30, 2015, the Company had outstanding letters of credit and performance bonds totaling $2.0 million. As a lessor, the Company had $87.6 million in future obligations under leases to fund tenant improvements as of September 30, 2015. As a lessee, the Company had future obligations under ground and office leases of $145.4 million as of September 30, 2015.
Litigation
The Company is subject to various legal proceedings, claims and administrative proceedings arising in the ordinary course of business, some of which are expected to be covered by liability insurance. Management makes assumptions and estimates

11
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concerning the likelihood and amount of any potential loss relating to these matters using the latest information available. The Company records a liability for litigation if an unfavorable outcome is probable and the amount of loss or range of loss can be reasonably estimated. If an unfavorable outcome is probable and a reasonable estimate of the loss is a range, the Company accrues the best estimate within the range. If no amount within the range is a better estimate than any other amount, the Company accrues the minimum amount within the range. If an unfavorable outcome is probable but the amount of the loss cannot be reasonably estimated, the Company discloses the nature of the litigation and indicates that an estimate of the loss or range of loss cannot be made. If an unfavorable outcome is reasonably possible and the estimated loss is material, the Company discloses the nature and estimate of the possible loss of the litigation. The Company does not disclose information with respect to litigation where an unfavorable outcome is considered to be remote or where the estimated loss would not be material. Based on current expectations, such matters, both individually and in the aggregate, are not expected to have a material adverse effect on the liquidity, results of operations, business or financial condition of the Company.
9. STOCKHOLDERS' EQUITY
On September 8, 2015, the Board of Directors of the Company authorized the repurchase of up to $100 million of its outstanding common shares. The plan expires on September 8, 2017. The repurchases may be executed in the open market, through private negotiations, or in other transactions permitted under applicable law. The timing, manner, price and amount of any repurchases will be determined by the Company in its discretion and will be subject to economic and market conditions, stock price, applicable legal requirements and other factors. The share repurchase program may be suspended or discontinued at any time.
Under this plan, through September 30, 2015, the Company has repurchased approximately 2.0 million shares of its common stock for a total cost of approximately $18.7 million.  The share repurchases were funded from cash on hand and borrowings under its Credit Facility. The repurchased shares were recorded as treasury shares on the Condensed Consolidated Balance Sheet.
10. STOCK-BASED COMPENSATION
The Company has several types of stock-based compensation - stock options, restricted stock, and restricted stock units (“RSUs”) - which are described in note 13 of the notes to consolidated financial statements in the Company's Annual Report on Form 10-K/A for the year ended December 31, 2014. The expense related to a portion of the stock-based compensation awards is fixed. The expense related to other stock-based compensation awards fluctuates from period to period dependent, in part, on the Company's stock price and stock performance relative to its peers. The Company recorded net stock-based compensation reversal of $683,000 and expense of $2.3 million for the three months ended September 30, 2015 and 2014, respectively, and $1.2 million and $7.2 million of net stock-based compensation expense for the nine months ended September 30, 2015 and 2014, respectively.
The Company maintains the 2009 Incentive Stock Plan (the "2009 Plan") and the 2005 Restricted Stock Unit Plan (the “RSU Plan”), which are described in note 13 of the notes to consolidated financial statements in the Company's Annual Report on Form 10-K/A for the year ended December 31, 2014. Under the 2009 Plan, the Company made restricted stock grants in 2015 of 165,922 shares to key employees, which vest ratably over a three-year period. Under the RSU Plan, the Company awarded two types of RSUs to key employees based on the following metrics: (1) Total Stockholder Return of the Company, as defined in the RSU Plan, as compared to the companies in the SNL US REIT Office index (“SNL RSUs”), and (2) the ratio of cumulative funds from operations per share to targeted cumulative funds from operations per share (“FFO RSUs”) as defined in the RSU Plan. The performance period for both awards is January 1, 2015 to December 31, 2017, and the targeted units awarded of SNL RSUs and FFO RSUs is 175,849 and 68,110, respectively. The ultimate payout of these awards can range from 0% to 200% of the targeted number of units depending on the achievement of the market and performance metrics described above. Both of these RSUs cliff vest on February 2, 2018 and are to be settled in cash with payment dependent upon the attainment of required service, market and performance criteria. The number of RSUs vesting will be determined at that date, and the payout per unit will be equal to the average closing price on each trading day during the 30-day period ending on December 31, 2017. The SNL RSUs are valued using a quarterly Monte Carlo valuation and are expensed over the vesting period. The FFO RSUs are expensed over the vesting period using the fair market value of the Company's stock at the reporting date multiplied by the anticipated number of units to be paid based on the current estimate of what the ratio is expected to be upon vesting.
11. EARNINGS PER SHARE
Net income per share-basic is calculated as net income available to common stockholders divided by the weighted average number of common shares outstanding during the period, including nonvested restricted stock which has nonforfeitable dividend rights. Net income per share-diluted is calculated as net income available to common stockholders divided by the diluted weighted average number of common shares outstanding during the period. Diluted weighted average number of common shares uses the same weighted average share number as in the basic calculation and adds the potential dilution, if any, that would occur if stock options (or any other contracts to issue common stock) were exercised and resulted in additional common shares outstanding, calculated using the treasury stock method. The numerator is reduced for the effect of preferred dividends in both the basic and

12
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diluted net income per share calculations. Weighted average shares-basic and diluted for the three and nine months ended September 30, 2015 and 2014, respectively, are as follows (in thousands):
 
Three Months Ended September 30,
 
Nine Months Ended September 30,
 
2015
 
2014
 
2015
 
2014
Weighted average shares — basic
216,261

 
209,839

 
216,485

 
200,073

Dilutive potential common shares — stock options
113

 
272

 
140

 
252

Weighted average shares — diluted
216,374

 
210,111

 
216,625

 
200,325

Weighted average anti-dilutive stock options
1,553

 
2,200

 
1,553

 
2,200

Stock options are dilutive when the average market price of the Company's stock during the period exceeds the option exercise price. In periods where the Company is in a net loss position, the dilutive effect of stock options is not included in the diluted weighted average shares total.
Anti-dilutive stock options represent stock options which are outstanding but which are not exercisable during the period because the exercise price exceeded the average market value of the Company's stock. These anti-dilutive stock options are not included in the current calculation of dilutive weighted average shares but could be dilutive in the future.

12. REPORTABLE SEGMENTS
The Company has four reportable segments: Office, Retail, Land and Other. 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 the nature of service. Each segment includes both consolidated operations and joint ventures, where applicable. The Office and Retail segments show the results for that product type. The Land segment includes results of operations for residential and commercial land holdings. The Other segment includes:
•
fee income and related expenses for third party owned properties and joint venture properties for which the Company performs management, development and leasing services;
•
operations for mixed-use operating properties;
•
compensation for corporate employees;
•
general corporate overhead costs;
•
interest expense for consolidated and unconsolidated entities;
•
income attributable to noncontrolling interests;
•
income taxes;
•
depreciation; and
•
preferred dividends.
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 (loss) available to common stockholders (computed in accordance with GAAP), excluding extraordinary items, cumulative effect of change in accounting principle and gains on sale or impairment losses on depreciable property, plus depreciation and amortization of real estate assets, and after adjustments for unconsolidated partnerships and joint ventures to reflect FFO on the same basis.
FFO is used by industry analysts, investors and the Company as a supplemental measure of a REIT’s operating performance. Historical cost accounting for real estate assets implicitly assumes that the value of real estate assets diminishes predictably over time. Since real estate values instead have historically risen or fallen with market conditions, many industry investors and analysts have considered presentation of operating results for real estate companies that use historical cost accounting to be insufficient by themselves. Thus, NAREIT created FFO as a supplemental measure of a REIT’s operating performance that excludes historical cost depreciation, among other items, from GAAP net income. Management believes 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, along with other measures, to assess performance in connection with evaluating and granting incentive compensation to its officers and other key employees.

13
Table of Contents


Segment net income and the amount of 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 available to common stockholders on a total Company basis (in thousands):
 
Three Months Ended September 30, 2015
 
Office
 
Retail
 
Land
 
Other
 
Total
 Net operating income
$
59,328

 
$
—

 
$
—

 
$
1,488

 
$
60,816

 Sales less costs of sales
—

 
—

 
3,016

 
—

 
3,016

 Fee income
—

 
—

 
—

 
1,686

 
1,686

 Other income
—

 
—

 
—

 
845

 
845

 General and administrative expenses
—

 
—

 
—

 
(2,971
)
 
(2,971
)
 Reimbursed expenses
—

 
—

 
—

 
(686
)
 
(686
)
 Interest expense
—

 
—

 
—

 
(9,518
)
 
(9,518
)
 Other expenses
—

 
—

 
—

 
(721
)
 
(721
)
 Funds from operations available to common stockholders
 
$
59,328

 
$
—

 
$
3,016

 
$
(9,877
)
 
52,467

 Real estate depreciation and amortization, including Company's share of joint ventures
 
 
 
 
 
 
 
 
 
(35,014
)
Gain on sale of depreciated investment properties, including Company's share of joint ventures
 
 
 
 
 
 
 
 
 
36,167

 Net income available to common stockholders
 
 
 
 
 
 
 
 
 
$
53,620

Three Months Ended September 30, 2014
 
Office
 
Retail
 
Land
 
Other
 
Total
 Net operating income
 
$
52,691

 
$
1,221

 
$
—

 
$
1,200

 
$
55,112

 Sales less costs of sales
 
—

 
—

 
82

 
—

 
82

 Fee income
 
—

 
—

 
—

 
1,802

 
1,802

 Other income
 
—

 
—

 
—

 
399

 
399

 General and administrative expenses
 
—

 
—

 
—

 
(5,021
)
 
(5,021
)
 Reimbursed expenses
 
—

 
—

 
—

 
(783
)
 
(783
)
 Interest expense
 
—

 
—

 
—

 
(8,660
)
 
(8,660
)
 Other expenses
 
—

 
—

 
—

 
(1,255
)
 
(1,255
)
 Preferred stock dividends and original issuance costs
 
—

 
—

 
—

 
—

 
—

 Funds from operations available to common stockholders
 
$
52,691

 
$
1,221

 
$
82

 
$
(12,318
)
 
41,676

 Real estate depreciation and amortization, including Company's share of joint ventures
 
 
 
 
 
 
 
 
 
(35,347
)
 Gain on sale of depreciated investment properties including the Company's share of joint ventures
 
 
 
 
 
 
 
 
 
12,993

 Net income available to common stockholders
 
 
 
 
 
 
 
 
 
$
19,322

Nine Months Ended September 30, 2015
 
Office
 
Retail
 
Land
 
Other
 
Total
 Net operating income
 
$
175,331

 
$
—

 
$
—

 
$
4,312

 
$
179,643

 Sales less costs of sales
 
—

 
—

 
3,502

 
—

 
3,502

 Fee income
 
—

 
—

 
—

 
5,206

 
5,206

 Other income
 
—

 
—

 
—

 
1,490

 
1,490

 General and administrative expenses
 
—

 
—

 
—

 
(12,502
)
 
(12,502
)
 Reimbursed expenses
 
—

 
—

 
—

 
(2,514
)
 
(2,514
)
 Interest expense
 
—

 
—

 
—

 
(28,712
)
 
(28,712
)
 Other expenses
 
—

 
—

 
—

 
(2,473
)
 
(2,473
)
Funds from operations available to common stockholders
 
$
175,331

 
$
—

 
$
3,502

 
$
(35,193
)
 
143,640

Real estate depreciation and amortization, including Company's share of joint ventures
 
 
 
 
 
 
 
 
 
(110,759
)
Gain on sale of depreciated investment properties, including Company's share of joint ventures
 
 
 
 
 
 
 
 
 
35,893

Net income available to common stockholders
 
 
 
 
 
 
 
 
 
$
68,774


14
Table of Contents


Nine Months Ended September 30, 2014
 
Office
 
Retail
 
Land
 
Other
 
Total
 Net operating income
 
$
149,110

 
$
3,813

 
$
—

 
$
3,496

 
$
156,419

 Sales less costs of sales
 
—

 
—

 
1,573

 
42

 
1,615

 Fee income
 
—

 
—

 
—

 
6,165

 
6,165

 Other income
 
—

 
—

 
—

 
4,563

 
4,563

 General and administrative expenses
 
—

 
—

 
—

 
(16,472
)
 
(16,472
)
 Reimbursed expenses
 
—

 
—

 
—

 
(2,703
)
 
(2,703
)
 Interest expense
 
—

 
—

 
—

 
(26,485
)
 
(26,485
)
 Other expenses
 
—

 
—

 
—

 
(2,974
)
 
(2,974
)
 Preferred stock dividends and original issuance costs
 
—

 
—

 
—

 
(6,485
)
 
(6,485
)
Funds from operations available to common stockholders
 
$
149,110

 
$
3,813

 
$
1,573

 
$
(40,853
)
 
113,643

Real estate depreciation and amortization, including Company's share of joint ventures
 
 
 
 
 
 
 
 
 
(110,319
)
Gain on sale of depreciated investment properties, including Company's share of joint ventures
 
 
 
 
 
 
 
 
 
18,975

Net income available to common stockholders
 
 
 
 
 
 
 
 
 
$
22,299


When reviewing the results of operations for the Company, management analyzes the following revenue and income items net of their related costs:
•
Rental property operations;
•
Land sales; and
•
Gains on sales of investment properties.
These amounts are shown in the segment tables above in the same “net” manner as shown to management. In addition, management reviews the operations of discontinued operations and its share of the operations of its joint ventures in the same manner as the operations of its wholly-owned properties included in the continuing operations. Therefore, the information in the tables below include the operations of discontinued operations and its share of joint ventures in the same categories as the operations of the properties included in continuing operations. Certain adjustments are required to reconcile the above segment information to the Company’s consolidated revenues. The following table reconciles information presented in the tables above to the Company’s consolidated revenues (in thousands):
 
Three Months Ended September 30,
 
Nine Months Ended September 30,
 
2015
 
2014
 
2015
 
2014
Net operating income
$
60,816

 
$
55,112

 
$
179,643

 
$
156,419

Sales less cost of sales
3,016

 
82

 
3,502

 
1,615

Fee income
1,686

 
1,802

 
5,206

 
6,165

Other income
845

 
399

 
1,490

 
4,563

Rental property operating expenses
41,331

 
38,685

 
120,672

 
109,501

Cost of sales on residential lot sales
—

 
55

 
—

 
325

Net operating income in joint ventures
(6,132
)
 
(6,601
)
 
(18,102
)
 
(19,748
)
Sales less cost of sales in joint ventures
(2,038
)
 
—

 
(2,280
)
 
(47
)
Net operating (income) loss in discontinued operations
—

 
(341
)
 
14

 
(1,798
)
Other income in discontinued operations and in joint ventures
(129
)
 
(14
)
 
(479
)
 
(29
)
Termination fees in discontinued operations and in joint ventures
(271
)
 
—

 
(419
)
 
(74
)
Gain on land sales (included in gain on investment properties)
(978
)
 
(81
)
 
(1,222
)
 
(1,566
)
Total consolidated revenues
$
98,146

 
$
89,098

 
$
288,025

 
$
255,326

    


15
Table of Contents


Item 2.    Management's Discussion and Analysis of Financial Condition and Results of Operations
Overview
Cousins Properties Incorporated (and collectively, with its subsidiaries, the "Company", "we","our", or "us") is a self-administered and self-managed real estate investment trust, or REIT. Our core focus is on the acquisition, development, leasing, management and ownership of Class-A office properties in Sunbelt markets with a particular focus on Georgia, Texas, and North Carolina. As of September 30, 2015, our portfolio of real estate assets consisted of interests in 16 operating office properties containing 15.2 million square feet of space, 2 operating mixed-use properties containing 786,000 square feet of space, and 3 projects (two office and one mixed-use) under active development. We have a comprehensive strategy in place based on a simple platform, trophy assets and opportunistic investments. This streamlined approach enables us to maintain a targeted, asset-specific approach to investing where we seek to leverage our development skills, relationships, market knowledge, and operational expertise. We intend to generate returns and create value for shareholders through the continued lease up of our portfolio, through the execution of our development pipeline, and through opportunistic investments in office and mixed-use projects within our core markets.
We leased or renewed 770,009 square feet of office space during the third quarter of 2015, bringing total square footage leased for the year to 1.7 million. Net effective rent, representing base rent less operating expense reimbursements and leasing costs, on new, renewal and expansion leases was $17.59 per square foot for office properties in the third quarter of 2015 and $15.80 for the first nine months of 2015, excluding the NCR lease. Net rent per square foot for office properties decreased 0.3% during the third quarter of 2015 and increased 11.6% for the first nine months of 2015, compared to prior year periods, on spaces that have been previously occupied in the past year. Same property net operating income increased by 1.1% and 2.6% between the three and nine month 2015 and 2014 periods, respectively. We will continue to target urban high-barrier-to-entry submarkets in Austin, Dallas, Houston, Atlanta, Charlotte, and Raleigh/Durham. We believe these markets continue to show positive demographic and economic trends compared to the national average.
Results of Operations
Comparison of the three and nine months ended September 30, 2015 and 2014
The following results include the performance of our Same Property portfolio. Our Same Property portfolio includes office properties that have been fully operational in each of the comparable reporting periods. A fully operational property is one that has achieved 90% economic occupancy for each of the periods presented or has been substantially complete and owned by us for each of the periods presented. Same Property amounts shown below are from properties that have been owned since January 1, 2014 through the end of the current reporting period, excluding dispositions. This information includes revenues and expenses of only consolidated properties. The Same Property information in the Same Property Net Operating Income section outlined later in this Form 10-Q, includes joint venture properties. Amounts shown below are in thousands.
Rental Property Revenues

Three Months Ended September 30,
 
Nine Months Ended September 30,
 
2015
 
2014
 
$ Change
 
% Change
 
2015
 
2014
 
$ Change
 
% Change
Rental Property Revenues - Consolidated
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Same Property
$
70,685

 
$
70,085

 
$
600

 
1
%
 
$
207,456

 
$
202,396

 
$
5,060

 
3
%
Non-Same Property
25,331

 
16,772

 
8,559

 
51
%
 
74,770

 
41,979

 
32,791

 
78
%
 
$
96,016

 
$
86,857

 
$
9,159

 
11
%
 
$
282,226

 
$
244,375

 
$
37,851

 
15
%
Same property revenues increased between the nine month 2015 and 2014 periods due to increased occupancy rates and increased recoveries. Non-same property revenues increased between the three and nine month 2015 and 2014 periods mainly due to the 2014 acquisitions of Northpark and Fifth Third Center, and Colorado Tower commencing operations in 2015, offset by the sale of 2100 Ross in the third quarter of 2015 and the sale of 777 Main in the fourth quarter of 2014.






16
Table of Contents



Rental Property Operating Expenses

Three Months Ended September 30,
 
Nine Months Ended September 30,
 
2015
 
2014
 
$ Change
 
% Change
 
2015
 
2014
 
$ Change
 
% Change
Rental Property Operating Expenses- Consolidated
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Same Property
$
30,687

 
$
30,510

 
$
177

 
1
%
 
$
89,404

 
$
87,624

 
$
1,780

 
2
%
Non-Same Property
10,644

 
8,175

 
2,469

 
30
%
 
31,268

 
21,877

 
9,391

 
43
%
 
$
41,331

 
$
38,685

 
$
2,646

 
7
%
 
$
120,672

 
$
109,501

 
$
11,171

 
10
%
Non-same property revenues increased between the three and nine month 2015 and 2014 periods mainly due to the 2014 acquisitions of Northpark and Fifth Third Center, and Colorado Tower commencing operations in 2015, offset by the sale of 2100 Ross in the third quarter of 2015 and the sale of 777 Main in the fourth quarter of 2014.
Other Revenue
Other Revenue decreased $4.2 million (88%) between the nine month 2015 and 2014 periods. This decrease was primarily due to lower lease termination fees.
General and Administrative Expenses
General and administrative expenses decreased $2.1 million (41%) and $3.9 million (24%) between the three and nine month 2015 and 2014 periods. This decrease was primarily due to a reduction in long-term incentive compensation expense as a result of the decline in our common stock price relative to our office peers included in the SNL US Office REIT Index.
Interest Expense
Interest expense increased $2.3 million (11%) between the nine month 2015 and 2014 periods. This increase was primarily due to a mortgage loan on 816 Congress that closed in 2014 and additional average borrowings on our Credit Facility. These increases were was partially offset by an increase in capitalized interest as a result of increased development activities.
Depreciation and Amortization
Depreciation and amortization increased $1.6 million (2%) between the nine month 2015 and 2014 periods, primarily due to the 2014 acquisitions of Fifth Third Center and Northpark Town Center. These increases were partially offset by the December 2014 sale of 777 Main and the sale of 2100 Ross in 2015.
Gain on Sale of Investment Properties
Gain on sale of investment properties increased $37.1 million and $36.1 million between the three and nine month 2015 and 2014 periods. This increase was primarily due to a $36.2 million gain recognized on the sale of 2100 Ross in the third quarter of 2015.
Discontinued Operations
Income from discontinued operations decreased $13.3 million and $21.7 million between the three and nine month 2015 and 2014 periods, due to new accounting guidance. In April 2014, the Financial Accounting Standards Board issued new guidance on discontinued operations. Under the new guidance, only assets held for sale and disposals representing a major strategic shift in operations will be presented as discontinued operations. This guidance is effective for periods beginning after December 15, 2014 with early adoption permitted. We adopted this new standard in the second quarter of 2014. Therefore, the properties sold subsequently are not reflected as discontinued operations in our Consolidated Statements of Operations.
Dividends to Preferred Stockholders and Preferred Stock Original Issuance Costs
Dividends to preferred stockholders decreased $3.0 million between the nine month 2015 and 2014 periods due to the redemption of the 7.5% Series B Cumulative Redeemable Preferred Stock in the second quarter of 2014. We have no remaining outstanding preferred stock and, therefore, no preferred stock dividends. In connection with the redemption of preferred stock, we decreased net income available to common stockholders by $3.5 million (non-cash), which represents the original issuance costs applicable to the shares redeemed.




17
Table of Contents


Funds From Operations
The table below shows Funds from Operations Available to Common Stockholders (“FFO”) and the related reconciliation to our net income available to common stockholders. We calculate FFO in accordance with the National Association of Real Estate Investment Trusts’ (“NAREIT”) definition, which is net income available to common stockholders (computed in accordance with GAAP), excluding extraordinary items, cumulative effect of change in accounting principle and gains on sale or impairment losses on depreciable property, plus depreciation and amortization of real estate assets, and after adjustments for unconsolidated partnerships and joint ventures to reflect FFO on the same basis.
FFO is used by industry analysts and investors as a supplemental measure of a REIT’s operating performance. Historical cost accounting for real estate assets implicitly assumes that the value of real estate assets diminishes predictably over time. Since real estate values instead have historically risen or fallen with market conditions, many industry investors and analysts have considered presentation of operating results for real estate companies that use historical cost accounting to be insufficient by themselves. Thus, NAREIT created FFO as a supplemental measure of REIT operating performance that excludes historical cost depreciation, among other items, from GAAP net income. The use of FFO combined with the required primary GAAP presentations, has been fundamentally beneficial, improving the understanding of operating results of REITs among the investing public and making comparisons of REIT operating results more meaningful. Company management evaluates operating performance in part based on FFO. Additionally, we use FFO, along with other measures, to assess performance in connection with evaluating and granting incentive compensation to its officers and other key employees. The reconciliation of net income available to common stockholders to FFO is as follows for the three and nine months ended September 30, 2015 and 2014 (in thousands, except per share information):
 
Three Months Ended September 30,
 
Nine Months Ended September 30,
 
2015
 
2014
 
2015
 
2014
Net Income Available to Common Stockholders
$
53,620

 
$
19,322

 
$
68,774

 
$
22,299

Depreciation and amortization of real estate assets:

 

 

 

Consolidated properties
32,123

 
32,473

 
102,353

 
101,361

Share of unconsolidated joint ventures
2,891

 
2,874

 
8,406

 
8,958

(Gain) loss on sale of depreciated properties:

 

 

 

Consolidated properties
(36,167
)
 
—

 
(35,893
)
 
—

Discontinued properties
—

 
(12,993
)
 
—

 
(19,362
)
Share of unconsolidated joint ventures
—

 
—

 
—

 
387

Funds From Operations Available to Common Stockholders
$
52,467

 
$
41,676

 
$
143,640

 
$
113,643

Per Common Share — Basic and Diluted:
 
 
 
 
 
 
 
Net Income Available
$
0.25