Edgar Filing: COUSINS PROPERTIES INC

Document

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, 2018



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.)
3344 Peachtree Road NE, Suite 1800, Atlanta, Georgia (Address of principal executive offices)	30326-4802 (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, a smaller reporting company, or an emerging growth company. See definitions of “large accelerated filer,” “accelerated filer”, “smaller reporting company”, and "emerging growth company" in Rule 12b-2 of the Exchange Act.



Large accelerated filer	ý	Accelerated filer	¨
Non-accelerated filer	o (Do not check if a smaller reporting company)	Smaller reporting company	¨
		Emerging growth company	¨

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. o

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

Yes o No þ

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.



Class		Outstanding at October 17, 2018
Common Stock, $1 par value per share		420,384,785 shares

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	Page No.
PART I-FINANCIAL INFORMATION	3
Item 1. Financial Statements (Unaudited)	3
CONDENSED CONSOLIDATED BALANCE SHEETS	3
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS	4
CONDENSED CONSOLIDATED STATEMENTS OF EQUITY	5
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS	6
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS	7
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations	18
Item 3. Quantitative and Qualitative Disclosures About Market Risk	24
Item 4. Controls and Procedures	24

PART II. OTHER INFORMATION	25
Item 1. Legal Proceedings	25
Item 1A. Risk Factors	25
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds	25
Item 6. Exhibits	26
SIGNATURES	27

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FORWARD-LOOKING STATEMENTS

Certain matters contained in this report are “forward-looking statements” within the meaning of the federal securities laws and are subject to uncertainties and risks, as itemized in Item 1A included in the Annual Report on Form 10-K for the year ended December 31, 2017 and as itemized herein. These forward-looking statements include information about possible or assumed future results of the business and our financial condition, liquidity, results of operations, plans, and objectives. They also include, among other things, statements regarding subjects that are forward-looking by their nature, such as:


•	our 2018 guidance and underlying assumptions;


•	business and financial strategy;

•future financings;

•future acquisitions and dispositions of land, including ground leases;

•future acquisitions and dispositions of operating assets;

•future development and redevelopment opportunities;

•future fee development opportunities;

•future issuances and repurchases of common or preferred stock;

•future distributions;

•future projected capital expenditures;

•future changes in interest rates;

•market and industry trends; and


•	all statements that address operating performance, events, or developments that we expect or anticipate will occur in the future — including statements relating to creating value for stockholders.

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;


•	the ability to refinance or repay indebtedness as it matures;


•	the failure of purchase, sale, or other contracts to ultimately close;


•	the failure to achieve anticipated benefits from acquisitions, investments, or dispositions;


•	the potential dilutive effect of common stock or operating partnership unit issuances;


•	the availability of buyers and pricing with respect to the disposition of assets;


•	risks and uncertainties related to national and local economic conditions, the real estate industry, and the commercial real estate markets in which we operate, particularly in Atlanta, Charlotte, Austin, Phoenix, and Tampa where we have high concentrations of our lease revenue;


•	changes to our strategy with regard to non-core holdings that require impairment losses to be recognized;


•	leasing risks, including the ability to obtain new tenants or renew expiring tenants, the ability to lease newly developed and/or recently acquired space, and the risk of declining leasing rates;


•	the adverse change in the financial condition of one or more of our major tenants;


•	volatility in interest rates and insurance rates;


•	competition from other developers or investors;


•	the risks associated with real estate developments (such as zoning approval, receipt of required permits, construction delays, cost overruns, and leasing risk);


•	changes in senior management and the loss of key personnel;


•	the potential liability for uninsured losses, condemnation, or environmental issues;


•	the potential liability for a failure to meet regulatory requirements;


•	the financial condition and liquidity of, or disputes with, joint venture partners;


•	any failure to comply with debt covenants under credit agreements;


•	any failure to continue to qualify for taxation as a real estate investment trust and meet regulatory requirements;


•	potential changes to state, local, or federal regulations applicable to our business;


•	material changes in the dividend rates or the ability to pay dividends on common shares or other securities;


•	potential changes to the tax laws and accounting standards impacting REITs and real estate in general; and


•	those additional risks and factors discussed in reports filed with the Securities and Exchange Commission by the Company.

The words “believes,” “expects,” “anticipates,” “estimates,” “plans,” “may,” “intend,” “will,” or similar expressions are intended to identify forward-looking statements. Although we believe that our plans, intentions, and expectations reflected in any forward-looking statements are reasonable, we can give no assurance that such plans, intentions, or expectations will be achieved. We undertake no obligation to publicly update or revise any forward-looking statement, whether as a result of future events, new information, or otherwise, except as required under U.S. federal securities laws.

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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, 2018			December 31, 2017
	(unaudited)
Assets:
Real estate assets:
Operating properties, net of accumulated depreciation of $384,097 and $275,977 in 2018 and 2017, respectively	$	3,499,741		$	3,332,619
Projects under development	128,580			280,982
Land	4,221			4,221
	3,632,542			3,617,822

Cash and cash equivalents	82,706			148,929
Restricted cash	419			56,816
Notes and accounts receivable, net of allowance for doubtful accounts of $456 and $535 in 2018 and 2017, respectively	10,400			14,420
Deferred rents receivable	76,494			58,158
Investment in unconsolidated joint ventures	154,070			101,414
Intangible assets, net	155,025			186,206
Other assets	31,943			20,854
Total assets	$	4,143,599		$	4,204,619
Liabilities:
Notes payable	$	1,065,012		$	1,093,228
Accounts payable and accrued expenses	114,229			137,909
Deferred income	40,035			37,383
Intangible liabilities, net of accumulated amortization of $39,332 and $28,960 in 2018 and 2017, respectively	60,082			70,454
Other liabilities	39,786			40,534
Total liabilities	1,319,144			1,379,508
Commitments and contingencies
Equity:
Stockholders' investment:
Preferred stock, $1 par value, 20,000,000 shares authorized, 6,867,357 shares issued and outstanding in 2018 and 2017	6,867			6,867
Common stock, $1 par value, 700,000,000 shares authorized, 430,724,520 and 430,349,620 shares issued in 2018 and 2017, respectively	430,725			430,350
Additional paid-in capital	3,605,617			3,604,776
Treasury stock at cost, 10,339,735 and 10,329,082 shares in 2018 and 2017, respectively	(148,473		)	(148,373		)
Distributions in excess of cumulative net income	(1,124,518		)	(1,121,647		)
Total stockholders' investment	2,770,218			2,771,973
Nonredeemable noncontrolling interests	54,237			53,138
Total equity	2,824,455			2,825,111
Total liabilities and equity	$	4,143,599		$	4,204,619

See accompanying notes.

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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,
	2018			2017			2018			2017
Revenues:
Rental property revenues	$	115,443		$	109,569		$	342,489		$	336,093
Fee income	2,519			2,597			7,211			6,387
Other	744			993			2,836			9,593
	118,706			113,159			352,536			352,073
Expenses:
Rental property operating expenses	41,579			40,688			122,501			123,715
Reimbursed expenses	955			895			2,757			2,667
General and administrative expenses	3,913			7,193			18,793			21,993
Interest expense	9,551			7,587			29,043			25,851
Depreciation and amortization	45,068			47,622			135,836			152,546
Acquisition and transaction costs	—			(677		)	228			1,499
Other	93			423			457			1,063
	101,159			103,731			309,615			329,334
Gain on extinguishment of debt	93			429			8			2,258
Income from continuing operations before unconsolidated joint ventures and gain (loss) on sale of investment properties	17,640			9,857			42,929			24,997
Income from unconsolidated joint ventures	2,252			2,461			10,173			43,362
Income from continuing operations before gain (loss) on sale of investment properties	19,892			12,318			53,102			68,359
Gain (loss) on sale of investment properties	(33		)	(33		)	4,912			119,729
Net income	19,859			12,285			58,014			188,088
Net income attributable to noncontrolling interests	(374		)	(218		)	(1,210		)	(3,181		)
Net income available to common stockholders	$	19,485		$	12,067		$	56,804		$	184,907
Net income per common share — basic and diluted	$	0.05		$	0.03		$	0.14		$	0.45
Weighted average shares — basic	420,385			419,998			420,279			414,123
Weighted average shares — diluted	427,520			427,300			427,472			421,954
Dividends declared per common share	$	0.065		$	0.060		$	0.195		$	0.240

See accompanying notes.

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COUSINS PROPERTIES INCORPORATED AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF EQUITY

Nine months ended September 30, 2018 and 2017

(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, 2017	$	6,867	$	430,350		$	3,604,776		$	(148,373	)	$	(1,121,647	)	$	2,771,973		$	53,138		$	2,825,111
Net income	—		—			—			—			56,804			56,804			1,210			58,014
Common stock issued pursuant to stock-based compensation	—		397			(864		)	(100		)	—			(567		)	—			(567		)
Cumulative effect of change in accounting principle	—		—			—			—			22,329			22,329			—			22,329
Amortization of stock options and restricted stock, net of forfeitures	—		(22		)	1,705			—			—			1,683			—			1,683
Contributions from nonredeemable noncontrolling interest	—		—			—			—			—			—			1,960			1,960
Distributions to nonredeemable noncontrolling interest	—		—			—			—			—			—			(2,071		)	(2,071		)
Common dividends ($0.195 per share)	—		—			—			—			(82,004		)	(82,004		)	—			(82,004		)
Balance September 30, 2018	$	6,867	$	430,725		$	3,605,617		$	(148,473	)	$	(1,124,518	)	$	2,770,218		$	54,237		$	2,824,455

Balance December 31, 2016	$	6,867	$	403,747		$	3,407,430		$	(148,373	)	$	(1,214,114	)	$	2,455,557		$	58,683		$	2,514,240
Net income	—		—			—			—			184,907			184,907			3,181			188,088
Common stock issued pursuant to:
Common stock offering, net of issuance costs	—		25,000			186,774			—			—			211,774			—			211,774
Stock-based compensation	—		403			(279		)	—			—			124			—			124
Spin-off of Parkway, Inc.	—		—			—			—			545			545			—			545
Common stock redemption by unit holders	—		1,203			8,865			—			—			10,068			(10,068		)	—
Amortization of stock options and restricted stock, net of forfeitures	—		(3		)	1,479			—			—			1,476			—			1,476
Contributions from nonredeemable noncontrolling interests	—		—			—			—			—			—			1,588			1,588
Distributions to nonredeemable noncontrolling interest	—		—			—			—			—			—			(1,364		)	(1,364		)
Common dividends ($0.24 per share)	—		—			—			—			(99,151		)	(99,151		)	—			(99,151		)
Balance September 30, 2017	$	6,867	$	430,350		$	3,604,269		$	(148,373	)	$	(1,127,813	)	$	2,765,300		$	52,020		$	2,817,320

See accompanying notes.

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COUSINS PROPERTIES INCORPORATED AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(unaudited, in thousands)



	Nine Months Ended September 30,
	2018			2017
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income	$	58,014		$	188,088
Adjustments to reconcile net income to net cash provided by operating activities:
Gain on sale of investment properties	(4,912		)	(119,821		)
Depreciation and amortization	135,836			152,546
Amortization of deferred financing costs and premium/discount on notes payable	1,808			(2,543		)
Stock-based compensation expense, net of forfeitures	2,825			2,486
Effect of non-cash adjustments to rental revenues	(24,028		)	(33,379		)
Income from unconsolidated joint ventures	(10,173		)	(43,362		)
Operating distributions from unconsolidated joint ventures	15,056			6,615
Gain on extinguishment of debt	(8		)	(2,258		)
Changes in other operating assets and liabilities:
Change in other receivables and other assets, net	(435		)	9,707
Change in operating liabilities, net	4,054			3,150
Net cash provided by operating activities	178,037			161,229
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from investment property sales	—			171,316
Property acquisition, development, and tenant asset expenditures	(132,468		)	(229,811		)
Purchase of tenant-in-common interest	—			(13,382		)
Collection of notes receivable	—			5,161
Investment in unconsolidated joint ventures	(43,276		)	(13,862		)
Distributions from unconsolidated joint ventures	2,032			74,531
Change in notes receivable and other assets	(4,429		)	(1,348		)
Other	(4,261		)	—
Net cash used in investing activities	(182,402		)	(7,395		)
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from credit facility	—			589,300
Repayment of credit facility	—			(723,300		)
Proceeds from issuance of notes payable	—			350,000
Repayment of notes payable	(28,719		)	(493,774		)
Payment of deferred financing costs	(6,166		)	(2,048		)
Common stock issued, net of expenses	—			211,598
Contributions from noncontrolling interests	252			1,588
Distributions to nonredeemable noncontrolling interests	(2,071		)	(1,364		)
Common dividends paid	(79,842		)	(73,950		)
Other	(1,709		)	(601		)
Net cash used in financing activities	(118,255		)	(142,551		)
NET INCREASE (DECREASE) IN CASH, CASH EQUIVALENTS, AND RESTRICTED CASH	(122,620		)	11,283
CASH, CASH EQUIVALENTS, AND RESTRICTED CASH AT BEGINNING OF PERIOD	205,745			51,321
CASH, CASH EQUIVALENTS, AND RESTRICTED CASH AT END OF PERIOD	$	83,125		$	62,604

See accompanying notes.

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COUSINS PROPERTIES INCORPORATED AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

September 30, 2018

(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”) that conducts substantially all of its business through Cousins Properties, LP ("CPLP"). Cousins owns approximately 98% of CPLP and consolidates CPLP. CPLP owns Cousins TRS Services LLC ("CTRS"), a taxable entity which owns and manages its own real estate portfolio and performs certain real estate related services for other parties.

Cousins, CPLP, CTRS, and their subsidiaries (collectively, the “Company”) develop, acquire, lease, manage, and own primarily Class A office and mixed-use properties in Sunbelt markets with a focus on Georgia, Texas, Arizona, Florida, and North Carolina. As of September 30, 2018, the Company’s portfolio of real estate assets consisted of interests in 14.7 million square feet of office space and 310,000 square feet of retail space and apartments.

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, 2018 and the results of operations for the three and nine months ended September 30, 2018 and 2017. The results of operations for the three and nine months ended September 30, 2018 are not necessarily indicative of results expected for the full year or any other interim period. Certain information and footnote disclosures normally included in financial statements prepared in accordance with GAAP have been condensed or omitted pursuant to the rules and regulations of the SEC. These condensed consolidated financial statements should be read in conjunction with the consolidated financial statements and the notes thereto included in the Company's Annual Report on Form 10-K for the year ended December 31, 2017. The accounting policies employed herein are substantially the same as those shown in note 2 of Form 10-K for the year ended December 31, 2017.

For the three and nine months ended September 30, 2018 and 2017, there were no items of other comprehensive income. Therefore, the Company did not present comprehensive income.

Recently Issued Accounting Standards: In May 2014, the FASB issued ASU 2014-09 ("ASC 606"), "Revenue from Contracts with Customers." Under ASC 606, companies are required to recognize revenue when the seller satisfies a performance obligation, which is generally when the buyer takes control of the good or service. The Company adopted this guidance using the “modified retrospective” method effective January 1, 2018; as such, the Company applied the guidance only to the most recent period presented in the financial statements. Prior to adoption of ASC 606, gains or losses from real estate sales were adjusted at the time of the sale by the maximum exposure to loss related to continuing involvement with the real estate asset. After adoption, any continuing involvement is considered a separate performance obligation and the sales price is required to be allocated between the elements with continuing involvement and those without continuing involvement. As the continuing performance obligations are satisfied, additional gains or losses will be recognized. The Company had no sales of real estate with continuing involvement during 2018 or in any prior periods that affected results of operations in 2018 or could affect results of operations in future periods.

The Company categorizes its primary sources of revenue into revenue from contracts with customers and other revenue accounted for as leases under Accounting Standards Codification Topic 840 - Leases ("ASC 840") as follows:

•

Rental property revenue consists of (1) contractual revenues from leases recognized on a straight-line basis over the term of the respective lease; (2) percentage rents recognized once a specified sales target is achieved; (3) parking revenue; and (4) the reimbursement of the tenants' share of real estate taxes, insurance, and other operating expenses. Rental property revenue is accounted for in accordance with the guidance set forth in ASC 840.


•	Fee revenue consists of development fees, management fees, and leasing fees earned from unconsolidated joint ventures and from third parties. Fee revenue is accounted for in accordance with the guidance set forth in ASC 606.


•	Other revenue consists primarily of termination fees, which are accounted for in accordance with the guidance set forth in ASC 840.

Fee revenue and other revenue, as a whole, are immaterial to total revenues. There was no change to previously reported amounts from the cumulative effect of the adoption of ASC 606. For the three and nine months ended September 30, 2018 the Company recognized rental property revenue of $115.4 million and $342.5 million, respectively. For the three and nine months ended September 30, 2017 the Company recognized rental property revenue of $109.6 million and $336.1 million, respectively. For the three and nine months ended September 30, 2018, the Company recognized fee and other revenue of $3.3 million and

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$10.0 million, respectively. For the three and nine months ended September 30, 2017, the Company recognized fee and other revenue of $3.6 million and $16.0 million, respectively.

In February 2016, the FASB issued ASU 2016-02, "Leases," which amends the existing standards for lease accounting by requiring lessees to record most leases on their balance sheets and making targeted changes to lessor accounting and reporting. The new standard will require lessees to record a right-of-use asset and a lease liability for all leases with a term of greater than 12 months and classify such leases as either finance or operating leases based on the principle of whether the lease is effectively a financed purchase of the leased asset by the lessee. This classification will determine whether the lease expense is recognized based on an effective interest method (finance leases) or on a straight-line basis over the term of the lease (operating leases). Leases with a term of 12 months or less will be accounted for similarly to existing guidance for operating leases. The new standard requires lessors to account for leases using an approach that is substantially equivalent to existing guidance for sales-type leases, direct financing leases, and operating leases. ASU 2016-02 supersedes previous leasing standards. The guidance is effective for the fiscal years beginning after December 15, 2018, with early adoption permitted. The Company expects to adopt this guidance using the "modified retrospective" method effective January 1, 2019. Under the new standard, the accounting by a lessor is largely unchanged from that of the previous standard. However, the presentation and disclosure in the financial statements of certain non-lease components, such as charges to tenants for a building's operating expenses, has been updated. In July 2018, the FASB amended the new leasing standard, providing lessors with a practical expedient to not separately classify and disclose non-lease components of revenue from the related lease components under certain conditions. The Company believes that the majority of its leases with non-lease components of revenue would qualify for the practical expedient and expects to elect this practical expedient. The new standard also revises the treatment of indirect leasing costs and permits the capitalization and amortization only of direct leasing costs. Also, for leases where the Company is a ground lessee, the new standard will require the Company to record a right of use asset and a lease liability on its consolidated balance sheet with a minimal impact on the recognition of ground lease expense. The Company is currently assessing the potential impact of adopting the new guidance.

In the fourth quarter of 2017, the Company adopted ASU 2016-15, "Classification of Certain Cash Receipts and Cash Payments" ("ASU 2016-15") which updated ASC Topic 230, "Statement of Cash Flows." ASU 2016-15 clarified guidance on the classification of certain cash receipts and payments in the statement of cash flows to reduce diversity in practice. The Company adopted this standard with retrospective application and as a result, changed the classification of distributions from equity method investments such that it now classifies distributions received on the basis of the nature of the activity that generated the distribution. The adoption of this new approach resulted in a decrease in net cash from operating activities of $33.6 million and a corresponding increase in net cash from investing activities of $33.6 million for the nine months ended September 30, 2017.

In the fourth quarter of 2017, the Company adopted ASU 2016-18, "Restricted Cash" ("ASU 2016-18"), which updated ASC Topic 230, "Statement of Cash Flows." ASU 2016-18 required companies to include restricted cash and restricted cash equivalents with cash and cash equivalents when reconciling the beginning-of-period and end-of-period total amounts shown on the statement of cash flows. The adoption of this standard resulted in a decrease in net cash from investing activities of $15.1 million and a decrease in net cash from operating activities of $92,000 for the nine months ended September 30, 2017.

On January 1, 2018, the Company adopted ASU No. 2017-05, “Other Income - Gains and Losses from the Derecognition of Nonfinancial Assets (Subtopic 610-20): Clarifying the Scope of Asset Derecognition Guidance and Accounting for Partial Sales of Nonfinancial Assets (“ASU 2017-05”).” ASU 2017-05 updated the definition of an “in substance nonfinancial asset” and clarified the derecognition guidance for nonfinancial assets to conform with the new revenue recognition standard. Among other things, ASU 2017-05 requires companies to recognize 100% of the gain on the transfer of a nonfinancial asset to an entity in which it has a noncontrolling interest. The Company adopted this guidance using the "modified retrospective" method. As a result of the adoption of ASU 2017-05, the Company recorded a cumulative effect from change in accounting principle, which resulted in an increase in investments in unconsolidated joint ventures and a corresponding credit to distributions in excess of cumulative net income of $22.3 million. This cumulative effect adjustment resulted from the 2013 transfer of a wholly-owned property to an entity in which it had a noncontrolling interest.

On January 1, 2018, the Company adopted ASU 2017-09, "Scope of Modification Accounting," which amended the scope of modification accounting for share-based payment arrangements and provided guidance on the types of changes to the terms or conditions of share-based payment awards to which an entity would be required to apply modification accounting under ASC 718, "Compensation—Stock Compensation." Adoption of the standard did not have a material impact on the Company's financial statements.

2. INVESTMENT IN UNCONSOLIDATED JOINT VENTURES

The following information summarizes financial data and principal activities of the Company's unconsolidated joint ventures. The information included in the following table entitled summary of financial position is as of September 30, 2018 and December 31, 2017. The information included in the summary of operations table is for the nine months ended September 30, 2018 and 2017 (in thousands).

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	Total Assets				Total Debt				Total Equity						Company’s Investment
SUMMARY OF FINANCIAL POSITION:	2018		2017		2018		2017		2018			2017			2018					2017
Terminus Office Holdings	$	260,668	$	261,999	$	199,851	$	203,131	$	49,458		$	48,033		$	48,019				$	24,898
DC Charlotte Plaza LLLP	129,916		53,791		—		—		84,385			42,853			43,656					22,293
Austin 300 Colorado Project, LP	39,467		—		—		—		37,187			—			19,180					—
Carolina Square Holdings LP	109,830		106,580		73,993		64,412		34,305			33,648			16,943					19,384
HICO Victory Center LP	14,857		14,403		—		—		14,683			14,401			9,925					9,752
Charlotte Gateway Village, LLC	115,071		124,691		—		—		110,172			121,386			8,478					14,568
AMCO 120 WT Holdings, LLC	28,791		18,066		—		—		24,878			16,354			4,004					1,664
CL Realty, L.L.C.	4,342		8,287		—		—		4,228			8,127			2,909					2,980
Temco Associates, LLC	4,506		4,441		—		—		4,402			4,337			907					875
EP II LLC	254		277		—		—		160			180			28					44
EP I LLC	501		521		—		—		320			319			21					25
HICO Avalon II, LLC	—		6,379		—		—		—			6,303			—					4,931
Wildwood Associates	11,219		16,337		—		—		11,140			16,297			(444		)	(1	)	(1,151		)	(1	)
Crawford Long - CPI, LLC	27,296		27,362		69,911		71,047		(44,561		)	(44,815		)	(21,258		)	(1	)	(21,323		)	(1	)
	$	746,718	$	643,134	$	343,755	$	338,590	$	330,757		$	267,423		$	132,368				$	78,940



	Total Revenues				Net Income (Loss)						Company's Share of Income (Loss)
SUMMARY OF OPERATIONS:	2018		2017		2018			2017			2018			2017
Charlotte Gateway Village, LLC	$	20,043	$	20,125	$	7,792		$	7,202		$	3,896		$	3,601
Wildwood Associates	—		—		(1,108		)	(86		)	2,739			(43		)
Terminus Office Holdings	33,545		33,503		4,424			4,907			2,276			2,453
Crawford Long - CPI, LLC	9,381		9,017		2,631			2,285			1,254			1,142
HICO Victory Center LP	282		320		282			320			160			171
Austin 300 Colorado Project, LP	385		—		173			—			86			—
Temco Associates, LLC	128		144		58			70			32			35
Courvoisier Centre JV, LLC	—		12,701		—			(1,000		)	5			(80		)
111 West Rio Building	—		—		—			—			—			(2,592		)
AMCO 120 WT Holdings, LLC	—		—		(28		)	(22		)	—			—
DC Charlotte Plaza LLLP	—		2		—			2			(1		)	1
EP I LLC	27		4,094		1			44,865			(5		)	28,479
HICO Avalon II, LLC	—		—		(14		)	—			(10		)	—
EP II LLC	—		2,644		(21		)	13,023			(15		)	9,768
CL Realty, L.L.C.	—		2,899		(116		)	2,657			(71		)	408
Carolina Square Holdings LP	7,403		640		5			(100		)	(173		)	19
	$	71,194	$	86,089	$	14,079		$	74,123		$	10,173		$	43,362

(1) Negative balances are included in deferred income on the balance sheets.

Hico Avalon II LLC, a joint venture between the Company and Hines Avalon II Investor, LLC ("Hines"), commenced development of 10000 Avalon, a 251,000 square foot office building in Atlanta, GA. Pursuant to the joint venture agreement, all predevelopment expenditures were funded 75% by the Company and 25% by Hines until June 2018 when a notice to proceed was issued to the general contractor. At this time, the capital accounts and economics of the joint venture were adjusted such that the Company owns 90% of the venture and Hines owns 10%. Additionally, the Company now has control over the operational aspects of the venture and, therefore, has consolidated the joint venture.

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3. INTANGIBLE ASSETS

Intangible assets on the balance sheets as of September 30, 2018 and December 31, 2017 were as follows (in thousands):



	September 30, 2018		December 31, 2017
In-place leases, net of accumulated amortization of $117,553 and $91,548 at September 30, 2018 and December 31, 2017, respectively	$	113,542	$	139,548
Above-market tenant leases, net of accumulated amortization of $18,007 and $13,038 at September 30, 2018 and December 31, 2017, respectively	21,948		26,917
Below-market ground lease, net of accumulated amortization of $552 and $345 at September 30, 2018 and December 31, 2017, respectively	17,861		18,067
Goodwill	1,674		1,674
	$	155,025	$	186,206

Goodwill did not change for the nine months ended September 30, 2018 or the year ended December 31, 2017.

4. OTHER ASSETS

Other assets on the balance sheets as of September 30, 2018 and December 31, 2017 were as follows (in thousands):



	September 30, 2018		December 31, 2017
Furniture, fixtures and equipment, leasehold improvements, and other deferred costs, net of accumulated depreciation of $24,350 and $21,925 at September 30, 2018 and December 31, 2017, respectively	$	13,181	$	12,241
Line of credit deferred financing costs, net of accumulated amortization of $1,086 and $3,119 at September 30, 2018 and December 31, 2017, respectively	6,209		1,213
Prepaid expenses and other assets	4,999		3,902
Predevelopment costs and earnest money	3,965		372
Lease inducements, net of accumulated amortization of $1,344 and $978 at September 30, 2018 and December 31, 2017, respectively	3,589		3,126
	$	31,943	$	20,854

5. NOTES PAYABLE

The following table details the terms and amounts of the Company’s outstanding notes payable at September 30, 2018 and December 31, 2017 ($ in thousands):



Description	Interest Rate		Maturity(1)	September 30, 2018				December 31, 2017
Term Loan, Unsecured	3.46	%	2021	$	250,000			$	250,000
Senior Notes, Unsecured	3.91	%	2025	250,000				250,000
Fifth Third Center	3.37	%	2026	144,271				146,557
Colorado Tower	3.45	%	2026	120,000				120,000
Promenade	4.27	%	2022	100,030				102,355
Senior Notes, Unsecured	4.09	%	2027	100,000				100,000
816 Congress	3.75	%	2024	82,089				83,304
Meridian Mark Plaza	6.00	%	2020	23,655				24,038
The Pointe (2)	4.01	%	2019	—				22,510
Credit Facility, Unsecured	3.31	%	2023	—				—
				1,070,045			—	1,098,764
Unamortized premium, net				—				219
Unamortized loan costs				(5,033		)		(5,755		)
Total Notes Payable				$	1,065,012			$	1,093,228

(1) Weighted average maturity of notes payable outstanding at September 30, 2018 was 6.0 years.

(2) In August 2018, the Company repaid in full, without penalty, the note payable secured by The Pointe.

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Credit Facility

Through January 2, 2018, the Company had a $500 million senior unsecured line of credit (the "Credit Facility") that was scheduled to mature on May 28, 2019. The Credit Facility contained financial covenants that required, among other things, the maintenance of an unencumbered interest coverage ratio of at least 2.00; a fixed charge coverage ratio of at least 1.50; an overall leverage ratio of no more than 60%; and a minimum stockholders' equity balance in an amount equal to $1.0 billion, plus a portion of the net cash proceeds from certain equity issuances. The Credit Facility also contained customary representations and warranties and affirmative and negative covenants, as well as customary events of default.

The interest rate applicable to the Credit Facility varied according to the Company’s leverage ratio and was, at the election of the Company, determined based on either (1) the current London Interbank Offered Rate ("LIBOR") plus a spread of between 1.10% and 1.45%, based on leverage, or (2) the greater of Bank of America's prime rate, the federal funds rate plus 0.50%, or the one-month LIBOR plus 1.0% (the “Base Rate”), plus a spread of between 0.10% and 0.45%, based on leverage. The Company also paid an annual facility fee on the total commitments under the Credit Facility of between 0.15% and 0.30%, based on leverage.

On January 3, 2018, the Company entered into a Fourth Amended and Restated Credit Agreement (the "New Credit Facility") under which the Company may borrow up to $1 billion if certain conditions are satisfied.

The New Credit Facility recasts the Credit Facility by, among other things, increasing the size from $500 million to $1 billion; extending the maturity date from May 28, 2019 to January 3, 2023; providing for the expansion of the New Credit Facility by an additional $500 million, subject to receipt of additional commitments from lenders and other customary conditions; and decreasing the Consolidated Unencumbered Interest Coverage ratio from 2.00 to 1.75.

The interest rate applicable to the New Credit Facility varies according to the Company's leverage ratio, and may, at the election of the Company, be determined based on either (1) the current LIBOR plus a spread of between 1.05% and 1.45%, based on leverage, or (2) the greater of Bank of America's prime rate, the federal funds rate plus 0.50%, or the one-month LIBOR plus 1.00% (the "Base Rate"), plus a spread of between 0.10% and 0.45%, based on leverage.

At September 30, 2018, the New Credit Facility's spread over LIBOR was 1.05%. The amount that the Company had available to be drawn under the New Credit Facility was a defined calculation based on the Company's unencumbered assets and other factors. As of September 30, 2018, the Company had no amounts drawn under the New Credit Facility and had the ability to borrow $998 million of the $1 billion available with $2 million utilized by outstanding letters of credit.

Unsecured Term Loan

The Company has a $250 million unsecured term loan (the "Term Loan") that matures on December 2, 2021. Through January 21, 2018, the Term Loan contained financial covenants substantially consistent with those of the Credit Facility. On January 22, 2018, the Term Loan was amended to make the financial covenants consistent with those of the New Credit Facility. The interest rate applicable to the Term Loan varies according to the Company’s leverage ratio, and may, at the election of the Company, be determined based on either (1) LIBOR plus a spread of between 1.20% and 1.70%, based on leverage, or (2) the greater of Bank of America's prime rate, the federal funds rate plus 0.50%, or the one-month LIBOR plus 1.00%, plus a spread of between 0.00% and 0.75%, based on leverage. At September 30, 2018, the Term Loan's spread over LIBOR was 1.20%.

Unsecured Senior Notes

In 2017, the Company closed a $350 million private placement of senior unsecured notes, which was funded in two tranches. The first tranche of $100 million has a 10-year maturity and a fixed annual interest rate of 4.09%. The second tranche of $250 million has an 8-year maturity and a fixed annual interest rate of 3.91%.

The senior unsecured notes contain financial covenants 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; an overall leverage ratio of no more than 60%; and secured leverage ratio of 40% or less. The senior notes also contain customary representations and warranties and affirmative and negative covenants, as well as customary events of default.

Fair Value

At September 30, 2018 and December 31, 2017, the aggregate estimated fair values of the Company's notes payable were $1.1 billion for both periods 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 relationship. These fair value calculations are considered to be Level 2 under the guidelines as set forth in ASC 820, "Fair Value Measurement," as the Company utilizes market rates for similar type loans from third-party brokers.

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Other Information

For the three and nine months ended September 30, 2018 and 2017, interest expense was as follows (in thousands):



	Three Months Ended September 30,						Nine Months Ended September 30,
	2018			2017			2018			2017
Total interest incurred	$	11,087		$	10,288		$	33,064		$	32,360
Interest capitalized	(1,536		)	(2,701		)	(4,021		)	(6,509		)
Total interest expense	$	9,551		$	7,587		$	29,043		$	25,851

6. COMMITMENTS AND CONTINGENCIES

Commitments

The Company had outstanding letters of credit and performance bonds totaling $2.7 million at September 30, 2018. As a lessor, the Company had $93.8 million in future obligations under leases to fund tenant improvements and other future construction obligations at September 30, 2018. As a lessee, the Company had future obligations under ground and other operating leases of $206.3 million at September 30, 2018.

Litigation

The Company is subject to various legal proceedings, claims, and administrative proceedings arising in the ordinary course of business, some of which are expected to be covered by liability insurance. Management makes assumptions and estimates concerning the likelihood and amount of any potential loss relating to these matters using the latest information available. The Company records a liability for litigation if an unfavorable outcome is probable and the amount of loss or range of loss can be reasonably estimated. If an unfavorable outcome is probable and a reasonable estimate of the loss is a range, the Company accrues the best estimate within the range. If no amount within the range is a better estimate than any other amount, the Company accrues the minimum amount within the range. If an unfavorable outcome is probable but the amount of the loss cannot be reasonably estimated, the Company discloses the nature of the litigation and indicates that an estimate of the loss or range of loss cannot be made. If an unfavorable outcome is reasonably possible and the estimated loss is material, the Company discloses the nature and estimate of the possible loss of the litigation. The Company does not disclose information with respect to litigation where an unfavorable outcome is considered to be remote or where the estimated loss would not be material. Based on current expectations, such matters, both individually and in the aggregate, are not expected to have a material adverse effect on the liquidity, results of operations, business, or financial condition of the Company.

7. STOCK-BASED COMPENSATION

The Company grants restricted stock and restricted stock units ("RSUs") to officers, directors, and key employees. In the past, the Company also awarded stock options to officers, directors, and key employees. The expense related to stock options and time vested restricted stock is generally fixed. The expense related to RSUs generally fluctuates from period to period dependent, in part, on the Company's absolute stock price and stock price performance relative to its peers and in part as a result of the Company's financial performance relative to goals. The Company recorded stock-based compensation expense, net of forfeitures, of $403,000 and $3.3 million for the three months ended September 30, 2018 and 2017, respectively, and $6.4 million and $7.9 million for the nine months ended September 30, 2018 and 2017, respectively.

The Company maintains the 2009 Incentive Stock Plan (the "2009 Plan") and the 2005 Restricted Stock Unit Plan (the “RSU Plan”). Under the 2009 Plan, during the quarter ended March 31, 2018, the Company made restricted stock grants of 315,199 shares to key employees, which vest ratably over a three-year period. Under the RSU Plan, during the nine months ended September 30, 2018, the Company awarded two types of performance-based 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 (“TSR RSUs”) and (2) the ratio of cumulative funds from operations per share to targeted cumulative funds from operations per share (“FFO RSUs”) as defined in the RSU Plan. The performance period for both awards is January 1, 2018 to December 31, 2020, and the targeted units awarded of TSR RSUs and FFO RSUs was 315,124 and 135,054, respectively. The ultimate payout of these awards can range from 0% to 200% of the targeted number of units depending on the achievement of the market and performance metrics described above. These RSU awards cliff vest on December 31, 2020 and are to be settled in cash with payment dependent upon attainment of required service, market, and performance criteria. The number of RSUs vesting will be determined by the Compensation Committee, and the payout per unit will be equal to the average closing price on each trading day during the 30-day period ending on December 31, 2020. The Company expenses an estimate of the fair value of the TSR RSUs over the performance period using a quarterly Monte Carlo valuation. The FFO RSUs are expensed over the vesting period using the fair market value of the Company's stock at the reporting date multiplied by the anticipated number of units to be paid

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based on the current estimate of what the ratio is expected to be upon vesting. Dividend equivalents on the TSR RSUs and the FFO RSUs will also be paid based upon the percentage vested.

During the nine months ended September 30, 2018, the Company issued 118,555 shares of common stock at fair value to members of its board of directors in lieu of fees, and recorded $1.1 million in general and administrative expense related to these issuances.

During the nine months ended September 30, 2018, 457,206 stock options were exercised. As a result, the Company issued 47,309 shares and paid $945,000 to optionees.

8. EARNINGS PER SHARE

The following table sets forth the computation of basic and diluted earnings per share for the three and nine months ended September 30, 2018 and 2017 (in thousands except per share amounts):



	Three Months Ended September 30,						Nine Months Ended September 30,
	2018			2017			2018			2017
Earnings per common share - basic:
Numerator:
Income from continuing operations	$	19,859		$	12,285		$	58,014		$	188,088
Net income attributable to noncontrolling interests in CPLP from continuing operations	(326		)	(213		)	(1,023		)	(3,170		)
Net income attributable to other noncontrolling interests	(48		)	(5		)	(187		)	(11		)
Net income available to common stockholders	$	19,485		$	12,067		$	56,804		$	184,907

Denominator:
Weighted average common shares - basic	420,385			419,998			420,279			414,123

Earnings per common share - basic	$	0.05		$	0.03		$	0.14		$	0.45

Earnings per common share - diluted:
Numerator:
Income from continuing operations	$	19,859		$	12,285		$	58,014		$	188,088
Net income attributable to other noncontrolling interests from continuing operations	(48		)	(5		)	(187		)	(11		)
Net income available to common stockholders before net income attributable to noncontrolling interests in CPLP	$	19,811		$	12,280		$	57,827		$	188,077

Denominator:
Weighted average common shares - basic	420,385			419,998			420,279			414,123
Add:
Potential dilutive common shares - stock options	161			328			219			320
Weighted average units of CPLP convertible into common shares	6,974			6,974			6,974			7,511
Weighted average common shares - diluted	427,520			427,300			427,472			421,954

Earnings per common share - diluted	$	0.05		$	0.03		$	0.14		$	0.45

Weighted average anti-dilutive stock options outstanding	—			731			8			740

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9. CONSOLIDATED STATEMENTS OF CASH FLOWS - SUPPLEMENTAL INFORMATION

Supplemental information related to cash flows, including significant non-cash activity affecting the consolidated statements of cash flows, for the nine months ended September 30, 2018 and 2017 is as follows (in thousands):



		September 30,
		2018		2017
Interest paid, net of amounts capitalized		$	31,601	$	26,927
Non-Cash Transactions:
	Transfer from projects under development to operating properties	212,628		58,928
	Common stock dividends declared and accrued	27,364		25,201
	Change in accrued property acquisition, development, and tenant expenditures	21,920		(18,081		)
	Cumulative effect of change in accounting principle	22,329		—
	Transfer from investment in unconsolidated joint ventures to projects under development	7,025		—
	Transfer from investment in unconsolidated joint ventures to operating properties	—		68,390

The following table provides a reconciliation of cash, cash equivalents, and restricted cash recorded on the balance sheet to cash, cash equivalents, and restricted cash in the statements of cash flows (in thousands):



	September 30,				December 31,
	2018		2017		2017		2016
Cash and cash equivalents	$	82,706	$	62,167	$	148,929	$	35,687
Restricted cash	419		437		56,816		15,634
Total cash, cash equivalents, and restricted cash	$	83,125	$	62,604	$	205,745	$	51,321

10. REPORTABLE SEGMENTS

The Company's segments are based on the Company's method of internal reporting which classifies operations by property type and geographical area. The segments by property type are: Office and Mixed-Use. The segments by geographical region are: Atlanta, Austin, Charlotte, Phoenix, Tampa, Orlando, and Other. In the fourth quarter of 2017, the Company sold its properties in the Orlando market as part of its ongoing investment strategy of exiting non-core markets and recycling investment capital to fund investment activity. These reportable segments represent an aggregation of operating segments reported to the Chief Operating Decision Maker based on similar economic characteristics that include the type of property and the geographical location. Each segment includes both consolidated operations and the Company's share of unconsolidated joint venture operations.

Company management evaluates the performance of its reportable segments in part based on net operating income (“NOI”). NOI represents rental property revenues less rental property operating expenses. NOI is not a measure of cash flows or operating results as measured by GAAP, is not indicative of cash available to fund cash needs, and should not be considered an alternative to cash flows as a measure of liquidity. All companies may not calculate NOI in the same manner. The Company considers NOI to be an appropriate supplemental measure to net income as it helps both management and investors understand the core operations of the Company's operating assets. NOI excludes corporate general and administrative expenses, interest expense, depreciation and amortization, impairments, gains/loss on sales of real estate, and other non-operating items.

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Segment net income, capital expenditures, and total assets are not presented in the following tables because management does not utilize these measures when analyzing its segments or when making resource allocation decisions. Information on the Company's segments along with a reconciliation of NOI to net income for the three and nine months ended September 30, 2018 and 2017 are as follows (in thousands):



Three Months Ended September 30, 2018	Office		Mixed-Use		Total
Net Operating Income:
Atlanta	$	32,296	$	—	$	32,296
Charlotte	15,924		—		15,924
Austin	15,180		—		15,180
Phoenix	9,265		—		9,265
Tampa	7,446		—		7,446
Other	310		437		747
Total Net Operating Income	$	80,421	$	437	$	80,858



Three Months Ended September 30, 2017	Office		Mixed-Use		Total
Net Operating Income:
Atlanta	$	25,247	$	—	$	25,247
Charlotte	15,074		—		15,074
Austin	15,489		—		15,489
Phoenix	8,667		—		8,667
Tampa	7,412		—		7,412
Orlando	3,356		—		3,356
Other	525		45		570
Total Net Operating Income	$	75,770	$	45	$	75,815



Nine Months Ended September 30, 2018	Office		Mixed-Use		Total
Net Operating Income:
Atlanta	$	96,639	$	—	$	96,639
Charlotte	47,197		—		47,197
Austin	45,209		—		45,209
Phoenix	27,119		—		27,119
Tampa	22,816		—		22,816
Other	1,183		1,468		2,651
Total Net Operating Income	$	240,163	$	1,468	$	241,631



Nine Months Ended September 30, 2017	Office		Mixed-Use		Total
Net Operating Income:
Atlanta	$	84,437	$	3,125	$	87,562
Charlotte	46,117		—		46,117
Austin	44,113		—		44,113
Phoenix	24,722		—		24,722
Tampa	21,700		—		21,700
Orlando	10,464		—		10,464
Other	1,374		45		1,419
Total Net Operating Income	$	232,927	$	3,170	$	236,097

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The following reconciles Net Operating Income to Net Income for each of the periods presented (in thousands):



	Three Months Ended September 30,						Nine Months Ended September 30,
	2018			2017			2018			2017
Net Operating Income	$	80,858		$	75,815		$	241,631		$	236,097
Net operating income from unconsolidated joint ventures	(6,994		)	(6,934		)	(21,643		)	(23,719		)
Fee income	2,519			2,597			7,211			6,387
Other income	744			993			2,836			9,593
Reimbursed expenses	(955		)	(895		)	(2,757		)	(2,667		)
General and administrative expenses	(3,913		)	(7,193		)	(18,793		)	(21,993		)
Interest expense	(9,551		)	(7,587		)	(29,043		)	(25,851		)
Depreciation and amortization	(45,068		)	(47,622		)	(135,836		)	(152,546		)
Acquisition and transaction costs	—			677			(228		)	(1,499		)
Gain on extinguishment of debt	93			429			8			2,258
Other expenses	(93		)	(423		)	(457		)	(1,063		)
Income from unconsolidated joint ventures	2,252			2,461			10,173			43,362
Gain (loss) on sale of investment properties	(33		)	(33		)	4,912			119,729
Net Income	$	19,859		$	12,285		$	58,014		$	188,088

Revenues by reportable segment, including a reconciliation to total rental property revenues on the condensed consolidated statements of operations, for three and nine months ended September 30, 2018 and 2017 are as follows (in thousands):



Three Months Ended September 30, 2018	Office			Mixed-Use			Total
Revenues:
Atlanta	$	51,088		$	—		$	51,088
Austin	26,415			—			26,415
Charlotte	23,263			—			23,263
Phoenix	12,830			—			12,830
Tampa	12,228			—			12,228
Other	1,104			429			1,533
Total segment revenues	126,928			429			127,357
Less: Company's share of rental property revenues from unconsolidated joint ventures	(11,485		)	(429		)	(11,914		)
Total rental property revenues	$	115,443		$	—		$	115,443



Three Months Ended September 30, 2017	Office			Mixed-Use			Total
Revenues:
Atlanta	$	41,507		$	—		$	41,507
Austin	25,385			—			25,385
Charlotte	23,153			—			23,153
Tampa	11,815			—			11,815
Phoenix	11,692			—			11,692
Orlando	6,408			—			6,408
Other	915			143			1,058
Total segment revenues	120,875			143			121,018
Less: Company's share of rental property revenues from unconsolidated joint ventures	(11,306		)	(143		)	(11,449		)
Total rental property revenues	$	109,569		$	—		$	109,569

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Nine Months Ended September 30, 2018	Office			Mixed-Use			Total
Revenues:
Atlanta	$	150,917		$	—		$	150,917
Austin	79,329			—			79,329
Charlotte	69,342			—			69,342
Tampa	37,014			—			37,014
Phoenix	37,137			—			37,137
Other	3,238			997			4,235
Total segment revenues	376,977			997			377,974
Less: Company's share of rental property revenues from unconsolidated joint ventures	(34,488		)	(997		)	(35,485		)
Total rental property revenues	$	342,489		$	—		$	342,489



Nine Months Ended September 30, 2017	Office			Mixed-Use			Total
Revenues:
Atlanta	$	135,319		$	5,049		$	140,368
Austin	75,348			—			75,348
Charlotte	68,495			—			68,495
Tampa	34,913			—			34,913
Phoenix	33,689			—			33,689
Orlando	19,380			—			19,380
Other	2,492			143			2,635
Total segment revenues	369,636			5,192			374,828
Less: Company's share of rental property revenues from unconsolidated joint ventures	(33,543		)	(5,192		)	(38,735		)
Total rental property revenues	$	336,093		$	—		$	336,093

Table of Contents

Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations

Overview:

Cousins Properties Incorporated ("Cousins") (and collectively, with its subsidiaries, the "Company," "we," "our," or "us") is a self-administered and self-managed real estate investment trust, or REIT. Cousins conducts substantially all of its business through Cousins Properties, LP ("CPLP"). Cousins owns approximately 98% of CPLP and consolidates CPLP. CPLP owns Cousins TRS Services LLC, a taxable entity which owns and manages its own real estate portfolio and performs certain real estate related services for other parties. Our strategy is to create value for our stockholders through ownership of the premier urban office portfolio in the Sunbelt markets, with a particular focus on Georgia, Texas, North Carolina, Florida, and Arizona. This strategy is based on a disciplined approach to capital allocation that includes strategic acquisitions, selective development projects, and timely dispositions of non-core assets. This strategy is also based on a simple, flexible, and low-leveraged balance sheet that allows us to pursue investment opportunities at the most advantageous points in the cycle. To implement this strategy, we leverage our strong local operating platforms within each of our major markets. As of September 30, 2018, our portfolio of real estate assets consisted of interests in 27 operating properties (26 office and one mixed-use) containing 15.1 million square feet of space and five projects (four office and one mixed-use) under active development.

We leased or renewed 485,598 square feet of office space during the third quarter of 2018. The weighted average net effective rent of these leases, representing base rent less operating expense reimbursements and leasing costs, was $20.83 per square foot. For those leases that were previously occupied within the past year, net effective rent increased 25.8%. Same property net operating income (defined below) for consolidated properties and our share of unconsolidated properties increased by 2.7% between the three months ended September 30, 2018 and 2017.

Results of Operations

Net Operating Income

The following table summarizes rental property revenues, rental property operating expenses, and net operating income ("NOI") for each of the periods presented, including our same property portfolio. NOI represents rental property revenue less rental property operating expenses. Our same property portfolio is comprised of office properties that have been fully operational in each of the comparable reporting periods. A fully operational property is one that has achieved 90% economic occupancy or has been substantially complete and owned by us for each of the periods presented. This information is presented for consolidated properties only and does not include net operating income from our unconsolidated joint ventures.



	Three Months Ended September 30,								Nine Months Ended September 30,
	2018		2017		$ Change		% Change		2018		2017		$ Change			% Change
Rental Property Revenues
Same Property	$	105,755	$	101,196	$	4,559	4.5	%	$	313,611	$	301,438	$	12,173		4.0	%
Non-Same Property	9,688		8,373		1,315		15.7	%	28,878		34,655		(5,777		)	(16.7	)%
Total Rental Property Revenues	$	115,443	$	109,569	$	5,874	5.4	%	$	342,489	$	336,093	$	6,396		1.9	%