Form 10-Q September 30, 2013
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
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þ | | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended September 30, 2013
OR
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o | | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the transition period from to
Commission file number: 001-11312
COUSINS PROPERTIES INCORPORATED
(Exact name of registrant as specified in its charter)
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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.
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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.
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Class | | Outstanding at October 24, 2013 |
Common Stock, $1 par value per share | | 189,663,983 shares |
FORWARD-LOOKING STATEMENTS
Certain matters contained in this report are “forward-looking statements” within the meaning of the federal securities laws and are subject to uncertainties and risks, as itemized in Item 1A included in the Company's Annual Report on Form 10-K for the year ended December 31, 2012 and in the Current Report on Form 8-K filed on July 29, 2013. These forward-looking statements include information about possible or assumed future results of the Company's business and the Company's financial condition, liquidity, results of operations, plans and objectives. They also include, among other things, statements regarding subjects that are forward-looking by their nature, such as:
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• | the Company's business and financial strategy; |
•the Company's ability to obtain future financing arrangements;
•future acquisitions and future dispositions of operating assets;
•future development and redevelopment opportunities;
•future dispositions of land and other non-core assets;
•projected operating results;
•market and industry trends;
•future distributions;
•projected capital expenditures; and
•interest rates.
The forward-looking statements are based upon management's beliefs, assumptions and expectations of the Company's future performance, taking into account information currently available. These beliefs, assumptions and expectations may change as a result of possible events or factors, not all of which are known. If a change occurs, the Company's business, financial condition, liquidity and results of operations may vary materially from those expressed in forward-looking statements. Actual results may vary from forward-looking statements due to, but not limited to, the following:
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• | the availability and terms of capital and financing; |
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• | the ability to refinance indebtedness as it matures; |
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• | the failure of purchase, sale or other contracts to ultimately close; |
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• | the failure to achieve anticipated benefits from acquisitions; |
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• | the potential dilutive effect of common stock offerings; |
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• | the availability of buyers and adequate pricing with respect to the disposition of assets; |
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• | risks related to the geographic concentration of our portfolio; |
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• | risks and uncertainties related to national and local economic conditions, the real estate industry in general and the commercial real estate markets in particular; |
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• | changes to the Company's strategy with regard to land and other non-core holdings that require impairment losses to be recognized; |
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• | 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; |
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• | the financial condition of existing tenants; |
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• | volatility in interest rates and insurance rates; |
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• | the availability of sufficient investment opportunities; |
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• | competition from other developers or investors; |
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• | the risks associated with real estate developments and acquisitions (such as construction delays, cost overruns and leasing risk); |
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• | the loss of key personnel; |
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• | the potential liability for uninsured losses, condemnation or environmental issues; |
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• | the potential liability for a failure to meet regulatory requirements; |
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• | the financial condition and liquidity of, or disputes with, joint venture partners; |
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• | any failure to comply with debt covenants under credit agreements; and |
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• | 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 the Company believes its plans, intentions and expectations reflected in any forward-looking statements are reasonable, the Company can give no assurance that such plans, intentions or expectations will be achieved. The Company undertakes no obligation to publicly update or revise any forward-looking statement, whether as a result of future events, new information or otherwise, except as required under U.S. federal securities laws.
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, 2013 | | December 31, 2012 |
| (unaudited) | | |
ASSETS | | | |
PROPERTIES: | | | |
Operating properties, net of accumulated depreciation of $235,349 and $255,128 in 2013 and 2012, respectively | $ | 1,846,953 |
| | $ | 669,652 |
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Projects under development, net of accumulated depreciation of $0 and $183 in 2013 and 2012, respectively | 14,576 |
| | 25,209 |
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Land held | 35,305 |
| | 42,187 |
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Other | — |
| | 151 |
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Total properties | 1,896,834 |
| | 737,199 |
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OPERATING PROPERTY AND RELATED ASSETS HELD FOR SALE, net of accumulated depreciation of $2,947 in 2013 and 2012 | 2,694 |
| | 1,866 |
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CASH AND CASH EQUIVALENTS | 5,408 |
| | 176,892 |
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RESTRICTED CASH | 2,953 |
| | 2,852 |
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NOTES AND ACCOUNTS RECEIVABLE, net of allowance for doubtful accounts of $1,883 and $1,743 in 2013 and 2012, respectively | 11,669 |
| | 9,972 |
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DEFERRED RENTS RECEIVABLE | 37,140 |
| | 39,378 |
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INVESTMENT IN UNCONSOLIDATED JOINT VENTURES | 98,183 |
| | 97,868 |
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OTHER ASSETS | 208,885 |
| | 58,215 |
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TOTAL ASSETS | $ | 2,263,766 |
| | $ | 1,124,242 |
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LIABILITIES AND EQUITY | | | |
NOTES PAYABLE | $ | 642,834 |
| | $ | 425,410 |
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ACCOUNTS PAYABLE AND ACCRUED EXPENSES | 53,095 |
| | 34,751 |
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DEFERRED INCOME | 21,781 |
| | 11,888 |
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OTHER LIABILITIES | 80,826 |
| | 9,240 |
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TOTAL LIABILITIES | 798,536 |
| | 481,289 |
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STOCKHOLDERS’ INVESTMENT: | | | |
Preferred stock, 20,000,000 shares authorized, $1 par value: | | | |
7.75% Series A cumulative redeemable preferred stock, $25 liquidation preference; 0 and 2,993,090 shares issued and outstanding in 2013 and 2012, respectively | — |
| | 74,827 |
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7.50% Series B cumulative redeemable preferred stock, $25 liquidation preference; 3,791,000 shares issued and outstanding in 2013 and 2012 | 94,775 |
| | 94,775 |
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Common stock, $1 par value, 250,000,000 shares authorized, 193,230,213 and 107,660,080 shares issued in 2013 and 2012, respectively | 193,230 |
| | 107,660 |
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Additional paid-in capital | 1,420,810 |
| | 690,024 |
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Treasury stock at cost, 3,570,082 shares in 2013 and 2012 | (86,840 | ) | | (86,840 | ) |
Distributions in excess of cumulative net income | (158,308 | ) | | (260,104 | ) |
TOTAL STOCKHOLDERS’ INVESTMENT | 1,463,667 |
| | 620,342 |
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Nonredeemable noncontrolling interests | 1,563 |
| | 22,611 |
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TOTAL EQUITY | 1,465,230 |
| | 642,953 |
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TOTAL LIABILITIES AND EQUITY | $ | 2,263,766 |
| | $ | 1,124,242 |
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See accompanying notes. | | | |
COUSINS PROPERTIES INCORPORATED AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(unaudited, in thousands, except per share amounts)
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| | | | | | | | | | | | | | | |
| Three Months Ended | | Nine Months Ended |
| September 30, | | September 30, |
| 2013 | | 2012 | | 2013 | | 2012 |
REVENUES: | | | | | | | |
Rental property revenues | $ | 49,208 |
| | $ | 31,125 |
| | $ | 122,686 |
| | $ | 88,347 |
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Fee income | 2,420 |
| | 7,343 |
| | 8,932 |
| | 12,985 |
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Land sales | 155 |
| | 732 |
| | 1,551 |
| | 2,216 |
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Other | 292 |
| | 86 |
| | 2,960 |
| | 1,612 |
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| 52,075 |
| | 39,286 |
| | 136,129 |
| | 105,160 |
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COSTS AND EXPENSES: | | | | | | | |
Rental property operating expenses | 22,730 |
| | 13,946 |
| | 57,135 |
| | 38,317 |
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Reimbursed expenses | 1,097 |
| | 1,235 |
| | 4,365 |
| | 3,968 |
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Land cost of sales | 147 |
| | 354 |
| | 1,543 |
| | 1,333 |
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General and administrative expenses | 6,635 |
| | 6,399 |
| | 17,257 |
| | 18,668 |
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Interest expense | 5,149 |
| | 5,793 |
| | 14,325 |
| | 17,936 |
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Depreciation and amortization | 19,003 |
| | 10,542 |
| | 46,243 |
| | 30,338 |
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Separation expenses | 520 |
| | 574 |
| | 520 |
| | 866 |
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Acquisition and related costs | 6,859 |
| | 350 |
| | 7,427 |
| | 495 |
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Other | 925 |
| | 1,252 |
| | 1,715 |
| | 2,351 |
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| 63,065 |
| | 40,445 |
| | 150,530 |
| | 114,272 |
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LOSS ON EXTINGUISHMENT OF DEBT | — |
| | — |
| | — |
| | (94 | ) |
LOSS FROM CONTINUING OPERATIONS BEFORE TAXES, UNCONSOLIDATED JOINT VENTURES AND SALE OF INVESTMENT PROPERTIES | (10,990 | ) | | (1,159 | ) | | (14,401 | ) | | (9,206 | ) |
PROVISION FOR INCOME TAXES FROM OPERATIONS | (1 | ) | | (60 | ) | | (3 | ) | | (120 | ) |
INCOME FROM UNCONSOLIDATED JOINT VENTURES | 63,078 |
| | 2,269 |
| | 65,862 |
| | 14,217 |
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INCOME FROM CONTINUING OPERATIONS BEFORE GAIN ON SALE OF INVESTMENT PROPERTIES | 52,087 |
| | 1,050 |
| | 51,458 |
| | 4,891 |
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GAIN ON SALE OF INVESTMENT PROPERTIES | 3,801 |
| | 60 |
| | 61,384 |
| | 146 |
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INCOME FROM CONTINUING OPERATIONS | 55,888 |
| | 1,110 |
| | 112,842 |
| | 5,037 |
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INCOME FROM DISCONTINUED OPERATIONS: | | | | | | | |
Income (loss) from discontinued operations | 803 |
| | 4,724 |
| | 1,394 |
| | (1,087 | ) |
Gain on sale of investment properties | 8,346 |
| | 7,444 |
| | 8,527 |
| | 8,204 |
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| 9,149 |
| | 12,168 |
| | 9,921 |
| | 7,117 |
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NET INCOME | 65,037 |
| | 13,278 |
| | 122,763 |
| | 12,154 |
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NET (INCOME) LOSS ATTRIBUTABLE TO NONCONTROLLING INTERESTS | (3,879 | ) | | (608 | ) | | (4,901 | ) | | 259 |
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NET INCOME ATTRIBUTABLE TO CONTROLLING INTEREST | 61,158 |
| | 12,670 |
| | 117,862 |
| | 12,413 |
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PREFERRED SHARE ORIGINAL ISSUANCE COSTS | — |
| | — |
| | (2,656 | ) | | — |
|
DIVIDENDS TO PREFERRED STOCKHOLDERS | (1,777 | ) | | (3,226 | ) | | (8,231 | ) | | (9,680 | ) |
NET INCOME AVAILABLE TO COMMON STOCKHOLDERS | $ | 59,381 |
| | $ | 9,444 |
| | $ | 106,975 |
| | $ | 2,733 |
|
PER COMMON SHARE INFORMATION — BASIC AND DILUTED: | | | | | | | |
Income (loss) from continuing operations attributable to controlling interest | $ | 0.31 |
| | $ | (0.03 | ) | | $ | 0.75 |
| | $ | (0.04 | ) |
Income from discontinued operations | 0.05 |
| | 0.12 |
| | 0.08 |
| | 0.07 |
|
Net income available to common stockholders | $ | 0.36 |
| | $ | 0.09 |
| | $ | 0.83 |
| | $ | 0.03 |
|
WEIGHTED AVERAGE SHARES — BASIC | 163,426 |
| | 104,193 |
| | 128,953 |
| | 104,120 |
|
WEIGHTED AVERAGE SHARES — DILUTED | 163,603 |
| | 104,203 |
| | 129,121 |
| | 104,125 |
|
DIVIDENDS DECLARED PER COMMON SHARE | $ | 0.045 |
| | $ | 0.045 |
| | $ | 0.135 |
| | $ | 0.135 |
|
See accompanying notes.
COUSINS PROPERTIES INCORPORATED AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF EQUITY
Nine Months Ended September 30, 2013 and 2012
(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, 2012 | $ | 169,602 |
| | $ | 107,660 |
| | $ | 690,024 |
| | $ | (86,840 | ) | | $ | (260,104 | ) | | $ | 620,342 |
| | $ | 22,611 |
| | $ | 642,953 |
|
Net income | — |
| | — |
| | — |
| | — |
| | 117,862 |
| | 117,862 |
| | 4,840 |
| | $ | 122,702 |
|
Common stock issued pursuant to: | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
Director stock grants | — |
| | 50 |
| | 494 |
| | — |
| | — |
| | 544 |
| | — |
| | $ | 544 |
|
Stock option exercises | — |
| | 25 |
| | (162 | ) | | — |
| | — |
| | (137 | ) | | — |
| | $ | (137 | ) |
Common stock offering, net of issuance costs | — |
| | 85,507 |
| | 741,022 |
| | — |
| | — |
| | 826,529 |
| | — |
| | $ | 826,529 |
|
Restricted stock grants, net of amounts withheld for income taxes | — |
| | 30 |
| | (1,209 | ) | | — |
| | — |
| | (1,179 | ) | | — |
| | $ | (1,179 | ) |
Amortization of stock options and restricted stock, net of forfeitures | — |
| | (42 | ) | | 1,463 |
| | — |
| | — |
| | 1,421 |
| | — |
| | $ | 1,421 |
|
Distributions to noncontrolling interests | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | (25,888 | ) | | $ | (25,888 | ) |
Redemption of preferred shares | (74,827 | ) | | — |
| | (10,822 | ) | | — |
| | 10,822 |
| | (74,827 | ) | | — |
| | $ | (74,827 | ) |
Cash preferred dividends paid | — |
| | — |
| | — |
| | — |
| | (8,231 | ) | | (8,231 | ) | | — |
| | $ | (8,231 | ) |
Cash common dividends paid | — |
| | — |
| | — |
| | — |
| | (18,657 | ) | | (18,657 | ) | | — |
| | $ | (18,657 | ) |
Balance September 30, 2013 | $ | 94,775 |
| | $ | 193,230 |
| | $ | 1,420,810 |
| | $ | (86,840 | ) | | $ | (158,308 | ) | | $ | 1,463,667 |
| | $ | 1,563 |
| | $ | 1,465,230 |
|
Balance December 31, 2011 | $ | 169,602 |
| | $ | 107,272 |
| | $ | 687,835 |
| | $ | (86,840 | ) | | $ | (274,177 | ) | | $ | 603,692 |
| | $ | 33,703 |
| | $ | 637,395 |
|
Net income (loss) | — |
| | — |
| | — |
| | — |
| | 12,413 |
| | 12,413 |
| | 1,743 |
| | $ | 14,156 |
|
Common stock issued pursuant to: | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
|
Director stock grants | — |
| | 72 |
| | 468 |
| | — |
| | — |
| | 540 |
| | — |
| | $ | 540 |
|
Restricted stock grants, net of amounts withheld for income taxes | — |
| | 448 |
| | (617 | ) | | — |
| | — |
| | (169 | ) | | — |
| | $ | (169 | ) |
Amortization of stock options and restricted stock, net of forfeitures | — |
| | (86 | ) | | 1,508 |
| | — |
| | — |
| | 1,422 |
| | — |
| | $ | 1,422 |
|
Distributions to noncontrolling interests | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | (1,700 | ) | | $ | (1,700 | ) |
Cash preferred dividends paid | — |
| | — |
| | — |
| | — |
| | (9,680 | ) | | (9,680 | ) | | — |
| | $ | (9,680 | ) |
Cash common dividends paid | — |
| | — |
| | — |
| | — |
| | (14,064 | ) | | (14,064 | ) | | — |
| | $ | (14,064 | ) |
Balance September 30, 2012 | $ | 169,602 |
| | $ | 107,706 |
| | $ | 689,194 |
| | $ | (86,840 | ) | | $ | (285,508 | ) | | $ | 594,154 |
| | $ | 33,746 |
| | $ | 627,900 |
|
See accompanying notes.
COUSINS PROPERTIES INCORPORATED AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited, in thousands)
|
| | | | | | | |
| Nine Months Ended September 30, |
| 2013 | | 2012 |
CASH FLOWS FROM OPERATING ACTIVITIES: | | | |
Net income | $ | 122,763 |
| | $ | 12,154 |
|
Adjustments to reconcile net income to net cash provided by operating activities: | | | |
Gain on sale of investment properties, including discontinued operations | (69,911 | ) | | (8,350 | ) |
Loss on extinguishment of debt | — |
| | 94 |
|
Impairment loss included in discontinued operations | — |
| | 12,721 |
|
Depreciation and amortization, including discontinued operations | 45,950 |
| | 41,148 |
|
Amortization of deferred financing costs | 778 |
| | 784 |
|
Amortization of stock options and restricted stock, net of forfeitures | 1,421 |
| | 1,422 |
|
Effect of certain non-cash adjustments to rental revenues | (5,605 | ) | | (3,056 | ) |
Income from unconsolidated joint ventures | (65,862 | ) | | (14,217 | ) |
Operating distributions from unconsolidated joint ventures | 65,563 |
| | 12,065 |
|
Land and multi-family cost of sales, net of closing costs paid | 904 |
| | 1,385 |
|
Land and multi-family acquisition and development expenditures | — |
| | (51 | ) |
Changes in other operating assets and liabilities: | | | |
Change in other receivables and other assets, net | (3,572 | ) | | (2,069 | ) |
Change in operating liabilities | 6,247 |
| | (1,619 | ) |
Net cash provided by operating activities | 98,676 |
| | 52,411 |
|
CASH FLOWS FROM INVESTING ACTIVITIES: | | | |
Proceeds from investment property sales | 171,779 |
| | 73,052 |
|
Property acquisition, development and tenant asset expenditures | (1,502,016 | ) | | (94,118 | ) |
Investment in unconsolidated joint ventures | (2,139 | ) | | (6,571 | ) |
Distributions from unconsolidated joint ventures | 86,752 |
| | 25,767 |
|
Collection of notes receivable | 1,233 |
| | 1,156 |
|
Change in notes receivable and other assets | (1,930 | ) | | (2,733 | ) |
Change in restricted cash | (101 | ) | | 2,180 |
|
Net cash used in investing activities | (1,246,422 | ) | | (1,267 | ) |
CASH FLOWS FROM FINANCING ACTIVITIES: | | | |
Proceeds from credit facility | 343,725 |
| | 414,200 |
|
Repayment of credit facility | (292,650 | ) | | (518,950 | ) |
Proceeds from other notes payable | 304,268 |
| | 111,632 |
|
Repayment of notes payable | (76,314 | ) | | (27,694 | ) |
Payment of loan issuance costs | (1,693 | ) | | (3,419 | ) |
Common stock issued, net of expenses | 826,529 |
| | — |
|
Redemption of preferred shares | (74,827 | ) | | — |
|
Common dividends paid | (18,657 | ) | | (14,064 | ) |
Preferred dividends paid | (8,231 | ) | | (9,680 | ) |
Distributions to noncontrolling interests | (25,888 | ) | | (2,558 | ) |
Net cash provided by (used in) financing activities | 976,262 |
| | (50,533 | ) |
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS | (171,484 | ) | | 611 |
|
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD | 176,892 |
| | 4,858 |
|
CASH AND CASH EQUIVALENTS AT END OF PERIOD | $ | 5,408 |
| | $ | 5,469 |
|
INTEREST PAID, NET OF AMOUNTS CAPITALIZED | $ | 14,522 |
| | $ | 17,320 |
|
SIGNIFICANT NON-CASH TRANSACTIONS: | | | |
|
Transfer from operating properties to operating properties and related assets held for sale | $ | 49,435 |
| | $ | 174,054 |
|
Transfer from projects under development to operating properties | 25,629 |
| | — |
|
Transfer from other assets to projects under development | 3,062 |
| | — |
|
See accompanying notes.
COUSINS PROPERTIES INCORPORATED AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2013
(Unaudited)
1. BASIS OF PRESENTATION
The consolidated financial statements included herein include the accounts of Cousins Properties Incorporated (“Cousins”) and its consolidated subsidiaries, including Cousins Real Estate Corporation and its subsidiaries (“CREC”). All of the entities included in the consolidated financial statements are hereinafter referred to collectively as the “Company.”
The Company develops, acquires, leases, manages and owns primarily Class-A office 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. CREC operates as a taxable REIT subsidiary and is taxed separately from Cousins as a C-Corporation. Accordingly, if applicable, the statements of operations include a provision for, or benefit from, CREC's income taxes.
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, 2013 and the results of operations for the three and nine months ended September 30, 2013 and 2012. The results of operations for the three and nine months ended September 30, 2013 are not necessarily indicative of results expected for the full year. Certain information and footnote disclosures normally included in financial statements prepared in accordance with GAAP have been condensed or omitted pursuant to the rules and regulations of the SEC. These condensed consolidated financial statements should be read in conjunction with the consolidated financial statements and the notes thereto included in the Company's Annual Report on Form 10-K for the year ended December 31, 2012. 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.
For the three and nine months ended September 30, 2013 and 2012, there were no items of other comprehensive income. Therefore, no presentation of comprehensive income is required.
2. EARNINGS PER SHARE
Net income (loss) per share-basic is calculated as net income (loss) 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 (loss) per share-diluted is calculated as net income (loss) 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 diluted net income (loss) per share calculations. Weighted average shares-basic and diluted for the three and nine months ended September 30, 2013 and 2012 are as follows (in thousands):
|
| | | | | | | | | | | |
| Three Months Ended September 30, | | Nine Months Ended September 30, |
| 2013 | | 2012 | | 2013 | | 2012 |
Weighted average shares — basic | 163,426 |
| | 104,193 |
| | 128,953 |
| | 104,120 |
|
Dilutive potential common shares — stock options | 177 |
| | 10 |
| | 168 |
| | 5 |
|
Weighted average shares — diluted | 163,603 |
| | 104,203 |
| | 129,121 |
| | 104,125 |
|
Weighted average anti-dilutive stock options | 2,784 |
| | 4,795 |
| | 2,908 |
| | 4,799 |
|
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.
3. NOTES PAYABLE
The following table summarizes the terms and amounts of the Company’s notes payable at September 30, 2013 and December 31, 2012 ($ in thousands):
|
| | | | | | | | | | | | | |
Description | | Interest Rate | | Maturity | | September 30, 2013 | | December 31, 2012 |
Post Oak Central mortgage note (see discussion below) | | 4.26 | % | | 2020 | | $ | 188,830 |
| | $ | — |
|
The American Cancer Society Center mortgage note | | 6.45 | % | | 2017 | | 133,112 |
| | 134,243 |
|
Promenade mortgage note (see discussion below) | | 4.27 | % | | 2022 | | 114,000 |
| | — |
|
191 Peachtree Tower mortgage note (interest only until May 1, 2016) | | 3.35 | % | | 2018 | | 100,000 |
| | 100,000 |
|
Credit Facility, unsecured | | 1.70 | % | | 2016 | | 51,075 |
| | — |
|
Meridian Mark Plaza mortgage note | | 6.00 | % | | 2020 | | 25,910 |
| | 26,194 |
|
The Points at Waterview mortgage note | | 5.66 | % | | 2016 | | 15,270 |
| | 15,651 |
|
Mahan Village construction facility | | 1.85 | % | | 2014 | | 14,463 |
| | 13,027 |
|
Callaway Gardens | | 4.13 | % | | 2013 | | 174 |
| | 172 |
|
Terminus 100 mortgage note (see discussion below) | | 5.25 | % | | 2023 | | — |
| | 136,123 |
|
| | | | | | $ | 642,834 |
| | $ | 425,410 |
|
Debt Activity
In September 2013, the Company entered into a $188.8 million non-recourse mortgage note payable secured by Post Oak Central, a 1.3 million square foot office complex in Houston, Texas. The interest rate is fixed at 4.26% and the maturity date is October 2020. In September 2013, the Company also entered into a $114.0 million non-recourse mortgage note payable secured by Promenade, a 777,000 square foot office building in Atlanta, Georgia. The interest rate is fixed at 4.27% and the maturity date is October 2022.
In February 2013, the Company effectively sold 50% of its interest in Terminus 100 to a third party. Based upon the ownership and management structure of the joint venture that owns Terminus 100 after these transactions, the Company accounts for its investment in this entity under the equity method. Therefore, the Terminus 100 mortgage note is no longer consolidated. See note 7 for further details.
Fair Value
At September 30, 2013 and December 31, 2012, the aggregate estimated fair values of the Company's notes payable were $746.4 million and $456.0 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 relationship. These fair value calculations are considered to be Level 2 under the guidelines as set forth in the Financial Accounting Standards Board's Accounting Standards Codification ("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, 2013 and 2012, interest expense was as follows (in thousands): |
| | | | | | | | | | | | | | | |
| Three Months Ended September 30, | | Nine Months Ended September 30, |
| 2013 | | 2012 | | 2013 | | 2012 |
Total interest incurred | $ | 5,268 |
| | $ | 6,337 |
| | $ | 14,602 |
| | $ | 19,395 |
|
Interest capitalized | (119 | ) | | (544 | ) | | (277 | ) | | (1,459 | ) |
Total interest expense | $ | 5,149 |
| | $ | 5,793 |
| | $ | 14,325 |
| | $ | 17,936 |
|
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.
4. COMMITMENTS AND CONTINGENCIES
Commitments
At September 30, 2013, the Company had outstanding letters of credit and performance bonds totaling $2.4 million. As a lessor, the Company has $109.5 million in future obligations under leases to fund tenant improvements as of September 30, 2013. As a lessee, the Company has future obligations under ground and office leases of approximately $148.4 million as of September 30, 2013.
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.
5. INVESTMENT IN UNCONSOLIDATED JOINT VENTURES
The Company describes its investments in unconsolidated joint ventures in note 5 of notes to consolidated financial statements in its Annual Report on Form 10-K for the year ended December 31, 2012. The following table summarizes balance sheet data of the Company's unconsolidated joint ventures as of September 30, 2013 and December 31, 2012 (in thousands):
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Total Assets | | Total Debt | | Total Equity | | Company’s Investment | |
SUMMARY OF FINANCIAL POSITION: | 2013 | | 2012 | | 2013 | | 2012 | | 2013 | | 2012 | | 2013 | | 2012 | |
Terminus Office Holdings LLC (1) | $ | 300,683 |
| | $ | — |
| | $ | 216,497 |
| | $ | — |
| | $ | 70,056 |
| | $ | — |
| | $ | 35,923 |
| | $ | — |
| |
EP I LLC | 88,382 |
| | 83,235 |
| | 56,313 |
| | 43,515 |
| | 30,249 |
| | 32,611 |
| | 26,079 |
| | 27,864 |
| |
Cousins Watkins LLC | 53,211 |
| | 54,285 |
| | 27,852 |
| | 28,244 |
| | 23,857 |
| | 25,259 |
| | 17,209 |
| | 16,692 |
| |
Charlotte Gateway Village, LLC | 138,852 |
| | 140,384 |
| | 56,462 |
| | 68,242 |
| | 79,913 |
| | 70,917 |
| | 11,260 |
| | 10,299 |
| |
Temco Associates, LLC | 8,576 |
| | 8,409 |
| | — |
| | — |
| | 8,267 |
| | 8,233 |
| | 4,083 |
| | 4,095 |
| |
CL Realty, L.L.C. | 7,353 |
| | 7,549 |
| | — |
| | — |
| | 7,147 |
| | 7,155 |
| | 3,571 |
| | 3,579 |
| |
CF Murfreesboro Associates | — |
| | 121,451 |
| | — |
| | 94,540 |
| | — |
| | 25,411 |
| | — |
| | 14,571 |
| |
CP Venture Five LLC | — |
| | 286,647 |
| | — |
| | 35,417 |
| | — |
| | 243,563 |
| | — |
| | 13,884 |
| |
MSREF/ Cousins Terminus 200 LLC (1) | — |
| | 95,520 |
| | — |
| | 74,340 |
| | — |
| | 19,659 |
| | — |
| | 3,930 |
| |
CP Venture Two LLC | — |
| | 96,345 |
| | — |
| | — |
| | — |
| | 94,819 |
| | — |
| | 2,894 |
| |
Wildwood Associates | 21,096 |
| | 21,176 |
| | — |
| | — |
| | 21,096 |
| | 21,173 |
| | (1,727 | ) | * | (1,664 | ) | * |
Crawford Long - CPI, LLC | 33,762 |
| | 32,818 |
| | 75,000 |
| | 46,496 |
| | (42,080 | ) | | (15,129 | ) | | (19,959 | ) | * | (6,407 | ) | * |
Other | 1,913 |
| | 2,194 |
| | — |
| | — |
| | 1,630 |
| | 1,844 |
| | 58 |
| | 60 |
| |
| $ | 653,828 |
| | $ | 950,013 |
| | $ | 432,124 |
| | $ | 390,794 |
| | $ | 200,135 |
| | $ | 535,515 |
| | $ | 76,497 |
| | $ | 89,797 |
| |
*Negative balances are included in deferred income on the balance sheets.
(1) See note 7 for further discussion of the transactions affecting these entities.
The following table summarizes statement of operations information of the Company's unconsolidated joint ventures for the nine months ended September 30, 2013 and 2012 (in thousands):
|
| | | | | | | | | | | | | | | | | | | | | | | |
| Total Revenues | | Net Income (Loss) | | Company's Share of Income (Loss) |
SUMMARY OF OPERATIONS: | 2013 | | 2012 | | 2013 | | 2012 | | 2013 | | 2012 |
Terminus Office Holdings LLC (1) | $ | 23,842 |
| | $ | — |
| | $ | (219 | ) | | $ | — |
| | $ | (110 | ) | | $ | — |
|
EP I LLC | 5,499 |
| | 306 |
| | (348 | ) | | (53 | ) | | (261 | ) | | (39 | ) |
Cousins Watkins LLC | 4,297 |
| | 4,365 |
| | 16 |
| | 24 |
| | 1,738 |
| | 1,810 |
|
Charlotte Gateway Village, LLC | 25,079 |
| | 24,821 |
| | 7,931 |
| | 7,189 |
| | 882 |
| | 882 |
|
Temco Associates, LLC | 437 |
| | 560 |
| | 48 |
| | (141 | ) | | (12 | ) | | (275 | ) |
CL Realty, L.L.C. | 1,246 |
| | 2,294 |
| | 801 |
| | 840 |
| | 392 |
| | 105 |
|
CF Murfreesboro Associates | 8,079 |
| | 9,920 |
| | 48,969 |
| | 316 |
| | 23,562 |
| | (46 | ) |
CP Venture Five LLC | 20,192 |
| | 22,558 |
| | 3,056 |
| | 2,814 |
| | 17,146 |
| | 778 |
|
MSREF/ Cousins Terminus 200 LLC (1) | 1,268 |
| | 9,242 |
| | (172 | ) | | (727 | ) | | (28 | ) | | (146 | ) |
CP Venture Two LLC | 12,965 |
| | 14,535 |
| | 7,035 |
| | 7,280 |
| | 21,592 |
| | 752 |
|
Wildwood Associates | — |
| | — |
| | (126 | ) | | (127 | ) | | (63 | ) | | (63 | ) |
Crawford Long - CPI, LLC | 8,826 |
| | 8,697 |
| | 2,134 |
| | 1,908 |
| | 1,028 |
| | 950 |
|
Palisades West LLC | — |
| | 12,566 |
| | (27 | ) | | 4,350 |
| | — |
| | 2,083 |
|
Ten Peachtree Place Associates | — |
| | 2,488 |
| | — |
| | 20,938 |
| | — |
| | 7,852 |
|
Other | 1,273 |
| | 1,269 |
| | (348 | ) | | (121 | ) | | (4 | ) | | (426 | ) |
| $ | 113,003 |
| | $ | 113,621 |
| | $ | 68,750 |
| | $ | 44,490 |
| | $ | 65,862 |
| | $ | 14,217 |
|
(1) See note 7 for further discussion of the transactions affecting these entities.
In the third quarter of 2013, the Company sold to its partner its interest in CP Venture Two LLC for $23.3 million and its interest in CP Venture Five LLC for $30.0 million. The Company recorded gains on these transactions totaling $37.0 million, which are included in income from unconsolidated joint ventures on the statement of operations.
In the third quarter of 2013, CF Murfreesboro Associates sold The Avenue Murfreesboro, the venture's only asset. The Company received a distribution of $33.8 million from the sale and the Company recognized a gain of $23.5 million, which is included in income from unconsolidated joint ventures on the statement of operations.
In the second quarter of 2013, Crawford Long-CPI, LLC refinanced its mortgage debt which was scheduled to mature in June 2013. The new loan, a $75 million 3.5% fixed rate mortgage note, matures in 2023. Upon closing of the new mortgage note, the Company received a distribution of $14.3 million from the joint venture as a result of the financing.
In October 2013, the Company formed EP II LLC, an unconsolidated joint venture for the purpose of developing and operating the second phase of the Emory Point mixed-use property in Atlanta, Georgia. The second phase will consist of 307 apartments and 43,000 square feet of retail space with a total projected cost of $73.3 million.
6. EQUITY AND STOCK-BASED COMPENSATION
The Company has several types of stock-based compensation - stock options, restricted stock, long-term incentive awards and restricted stock units (“RSUs”) - which are described in note 7 of notes to consolidated financial statements in the Company's Annual Report on Form 10-K for the year ended December 31, 2012. The expense related to certain stock-based compensation awards is fixed. The expense related to other awards fluctuates from period to period dependent, in part, on the Company's stock price. The Company recorded stock-based compensation expense, net of forfeitures, of $2.3 million and $334,000 for the three months ended September 30, 2013 and 2012, respectively, and $5.9 million and $2.5 million for the nine months ended September 30, 2013 and 2012, respectively.
The Company maintains the 2005 Restricted Stock Unit Plan (the “RSU Plan”), which is described in note 7 of notes to consolidated financial statements in the Company's Annual Report on Form 10-K for the year ended December 31, 2012. The Company made restricted stock grants in 2013 of 159,782 shares to key employees, which vest ratably over a three-year period. In addition, 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, 2013 to December 31, 2015, and the targeted units awarded of SNL RSUs and FFO RSUs is 124,992 and 65,347, 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 January 30, 2016 and are 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, 2015. 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.
In August 2013, the Company issued 69.0 million shares of common stock resulting in net proceeds to the Company of $661.3 million. In April 2013, the Company issued 16.5 million shares of common stock resulting in net proceeds to the Company of $165.1 million.
In May 2013, the Company redeemed all outstanding shares of its 7 3/4% Series A Cumulative Redeemable Preferred Stock, par value $1.00 per share (the "Preferred Stock"), for $25.00 per share or $74.8 million. In connection with the redemption of the Preferred Stock, the Company increased net loss available for common shareholders by $2.7 million, which represents the original issuance costs applicable to the shares redeemed. In addition, the Company reclassified these costs as well as the basis difference in the Preferred Stock repurchased by the Company in 2008 from Additional Paid-In Capital to Distributions in Excess of Net Income within the Company's statements of equity.
7. PROPERTY TRANSACTIONS
Discontinued Operations
Accounting rules require that the historical operating results of held-for-sale or sold assets which meet certain accounting rules be included in a separate section, discontinued operations, in the statements of operations for all periods presented. If the asset is sold, the related gain or loss on sale is also included in discontinued operations. In addition, assets and liabilities of held for sale properties, as defined, are required to be separately categorized on the balance sheet.
In the third quarter of 2013, the Company sold Tiffany Springs MarketCenter. This transaction met the criteria for discontinued operations. Accordingly, the operating results are included in discontinued operations on the accompanying statements of operations for each of the periods presented.
The following properties were held for sale or sold in 2013 or 2012, respectively, and met the criteria for discontinued operations presentation ($ in thousands):
|
| | | | | | | | | | | |
Property | | Property Type | | Location | | Square Feet | | Sales Price |
2013: | | | | | | | | |
Tiffany Springs MarketCenter | | Retail | | Kansas City, MO | | 238,000 |
| | $ | 53,500 |
|
Inhibitex | | Office | | Atlanta, GA | | 51,000 |
| | Held for sale |
|
2012: | | | | | | | | |
The Avenue Forsyth | | Retail | | Atlanta, GA | | 524,000 |
| | $ | 119,000 |
|
The Avenue Collierville | | Retail | | Memphis, TN | | 511,000 |
| | 55,000 |
|
The Avenue Webb Gin | | Retail | | Atlanta, GA | | 322,000 |
| | 59,600 |
|
Galleria 75 | | Office | | Atlanta, GA | | 111,000 |
| | 9,200 |
|
Cosmopolitan Center | | Office | | Atlanta, GA | | 51,000 |
| | 7,000 |
|
Inhibitex | | Office | | Atlanta, GA | | 51,000 |
| | Held for sale |
|
In addition, the Company sold its third party management and leasing business in 2012. As a result, the operations of this business are presented as discontinued operations in the accompanying statements of operations. The final purchase price was subject to, among other things, an earn-out based on the performance of the contributed management and leasing contracts for the year ended September 30, 2013. As a result, the Company recognized an additional $4.5 million gain in the third quarter of 2013.
The components of discontinued operations and the gains and losses on property sales for the three and nine months ended September 30, 2013 and 2012 are as follows (in thousands):
|
| | | | | | | | | | | | | | | |
| Three Months Ended September 30, | | Nine Months Ended September 30, |
| 2013 | | 2012 | | 2013 | | 2012 |
Income (loss) from discontinued operations: | | | | | | | |
Rental property revenues | $ | 1,237 |
| | $ | 6,522 |
| | $ | 3,924 |
| | $ | 23,468 |
|
Fee income | — |
| | 4,789 |
| | 76 |
| | 15,529 |
|
Other income | 10 |
| | 3,242 |
| | 10 |
| | 3,447 |
|
Rental property operating expenses | (423 | ) | | (1,962 | ) | | (1,470 | ) | | (7,280 | ) |
Reimbursed expenses | — |
| | (2,477 | ) | | — |
| | (7,133 | ) |
General and administrative expenses | (15 | ) | | (1,782 | ) | | (94 | ) | | (6,035 | ) |
Depreciation and amortization | — |
| | (3,600 | ) | | (1,033 | ) | | (10,810 | ) |
Impairment losses | — |
| | — |
| | — |
| | (12,233 | ) |
Other expenses | (6 | ) | | (8 | ) | | (19 | ) | | (40 | ) |
Income (loss) from discontinued operations | $ | 803 |
| | $ | 4,724 |
| | $ | 1,394 |
| | $ | (1,087 | ) |
|
| |
| | | | |
Gain on sale of discontinued operations: | | | | | | | |
Third party management and leasing business | $ | 4,531 |
| | $ | 7,384 |
| | $ | 4,531 |
| | $ | 7,384 |
|
Tiffany Springs MarketCenter | 3,715 |
| | — |
| | 3,715 |
| | — |
|
Lakeside | 62 |
| | (9 | ) | | 62 |
| | (60 | ) |
King Mill | 38 |
| | 89 |
| | 246 |
| | 264 |
|
Galleria 75 | — |
| | — |
| | — |
| | 546 |
|
The Avenue Collierville | — |
| | (20 | ) | | — |
| | 66 |
|
Other | — |
| | — |
| | (27 | ) | | 4 |
|
Gain on sale of discontinued operations | $ | 8,346 |
| | $ | 7,444 |
| | $ | 8,527 |
| | $ | 8,204 |
|
Acquisitions
In the third quarter of 2013, the Company acquired Greenway Plaza, a 10-building, 4.3 million square foot office complex in Houston, Texas, and 777 Main, a 980,000 square foot Class A office building in the central business district of Fort Worth, Texas (collectively the “Texas Acquisition”). The aggregate purchase price for the Texas Acquisition was $1.1 billion, before adjustment for brokers fees, transfer taxes and other customary closing costs.
In conjunction with the Texas Acquisition, the Company entered into a Loan Agreement with JPMorgan Chase Bank, N.A. and Bank of America, N.A. which would permit it to draw up to $950 million, with an accordion feature permitting it, under certain conditions, to increase the amount available by up to $150 million (the “Term Loan”). The Company entered into the Term Loan to assist, if necessary, in the funding of the Texas Acquisition. The Term Loan was not used to finance the Texas Acquisition and, therefore, the Company has no further material benefit or obligation under the agreement. The Company incurred fees and other costs associated with the Term Loan of $2.6 million. In addition, the Company recorded $4.2 million in other acquisition costs related to this acquisition. The term loan costs and other acquisition costs are included in acquisition and related costs on the statement of operations.
In the second quarter of 2013, the Company acquired 816 Congress Avenue, a 435,000 square foot Class-A office property located in the central business district of Austin, Texas. The purchase price for this property, net of rent credits, was $102.4 million. The Company incurred $342,000 in acquisition and related costs associated with this acquisition.
In the first quarter of 2013, the Company purchased the remaining 80% interest in MSREF/ Cousins Terminus 200 LLC for $53.8 million and simultaneously repaid the mortgage loan secured by the Terminus 200 property in the amount of $74.6 million. The Company recognized a gain of $19.7 million on this acquisition achieved in stages. Immediately thereafter, the Company contributed its interest in the Terminus 200 property and its interest in the Terminus 100 property, together with the existing mortgage loan secured by the Terminus 100 property, to a newly-formed entity, Terminus Office Holdings LLC (“TOH”), and sold 50% of TOH to institutional investors advised by J.P. Morgan Asset Management for $112.2 million. The Company recognized a gain of $37.1 million on this transaction. The Company incurred $122,000 in acquisition and related costs associated with these transactions. In March 2013, Terminus Venture T200 LLC, an affiliate of TOH, closed a new mortgage loan on the Terminus 200 property in the amount of $82.0 million, and the Company received a distribution of $39.2 million from TOH as a result. The Company accounts for its interest in TOH under the equity method because both partners have the ability to participate in and approve major decisions of the venture and, therefore, have substantive participating rights in the venture.
Concurrent with the Terminus 100 and 200 transactions, the Company purchased Post Oak Central, a 1.3 million square foot, Class-A office complex in the Galleria district of Houston, Texas for $230.9 million, net of rent credits, from an affiliate of J.P. Morgan Asset Management. The Company incurred $231,000 in acquisition and related costs associated with this purchase.
The following tables summarize preliminary allocations of the estimated fair values of the assets and liabilities of the acquisitions discussed above (in thousands):
|
| | | | | | | | | | | | | | | |
| Post Oak Central | | Terminus 200 | | 816 Congress | | Texas Acquisition |
Tangible assets: | | | | | | | |
Land and improvements | $ | 88,406 |
| | $ | 25,040 |
| | $ | 6,817 |
| | $ | 306,563 |
|
Building | 118,470 |
| | 101,472 |
| | 86,391 |
| | 586,150 |
|
Tenant improvements | 10,877 |
| | 17,600 |
| | 3,500 |
| | 114,220 |
|
Other assets | — |
| | 101 |
| | — |
| | — |
|
Deferred rents receivable | — |
| | 44 |
| | — |
| | — |
|
Tangible assets | 217,753 |
| | 144,257 |
| | 96,708 |
| | 1,006,933 |
|
| | | | | | | |
Intangible assets: | | | | | | | |
Above-market leases | 995 |
| | 1,512 |
| | 89 |
| | 4,959 |
|
In-place leases | 26,968 |
| | 14,355 |
| | 8,222 |
| | 117,630 |
|
Below-market ground leases | — |
| | — |
| | — |
| | 2,958 |
|
Ground lease purchase option | — |
| | — |
| | 2,403 |
| | — |
|
Total intangible assets | 27,963 |
| | 15,867 |
| | 10,714 |
| | 125,547 |
|
| | | | | | | |
Intangible liabilities: | | | | | | | |
Below-market leases | (14,792 | ) | | (9,273 | ) | | (2,820 | ) | | (47,170 | ) |
Above-market ground lease | — |
| | — |
| | (1,981 | ) | | (2,508 | ) |
Total intangible liabilities | (14,792 | ) | | (9,273 | ) | | (4,801 | ) | | (49,678 | ) |
| | | | | | | |
Total net assets acquired | $ | 230,924 |
| | $ | 150,851 |
| | $ | 102,621 |
| | $ | 1,082,802 |
|
The following supplemental pro forma information is presented for the three and nine months ended September 30, 2013 and 2012, respectively. The pro forma information is based upon the Company's historical consolidated statements of operations, adjusted as if the transactions discussed above had occurred at the beginning of each of the periods presented. The supplemental pro forma information is not necessarily indicative of future results or of actual results that would have been achieved had the transactions been consummated at the beginning of each period.
|
| | | | | | | | | | | | | | | |
| Three Months Ended September 30, | | Nine Months Ended September 30, |
| 2013 | | 2012 | | 2013 | | 2012 |
| (in thousands, except per share amounts) |
Revenues | $ | 80,698 |
| | $ | 80,426 |
| | $ | 243,927 |
| | $ | 228,581 |
|
Income from continuing operations | 58,756 |
| | 5,153 |
| | 123,702 |
| | 17,167 |
|
Net income | 67,905 |
| | 17,321 |
| | 133,623 |
| | 24,284 |
|
Net income available to common stockholders | 62,249 |
| | 13,487 |
| | 117,835 |
| | 14,863 |
|
Per share information: | | | | | | | |
Basic | $ | 0.33 |
| | $ | 0.07 |
| | $ | 0.62 |
| | $ | 0.08 |
|
Diluted | $ | 0.33 |
| | $ | 0.07 |
| | $ | 0.62 |
| | $ | 0.08 |
|
8. OTHER ASSETS
Other assets on the balance sheets as of September 30, 2013 and December 31, 2012 included the following (in thousands):
|
| | | | | | | | |
| | September 30, 2013 | | December 31, 2012 |
Lease inducements, net of accumulated amortization of $3,892 and $4,718 in 2013 and 2012, respectively | | $ | 9,743 |
| | $ | 11,089 |
|
FF&E and leasehold improvements, net of accumulated depreciation of $19,779 and $18,877 in 2013 and 2012, respectively | | 6,894 |
| | 4,814 |
|
Prepaid expenses and other assets | | 3,476 |
| | 2,044 |
|
Predevelopment costs and earnest money | | 2,765 |
| | 3,284 |
|
Loan closing costs, net of accumulated amortization of $2,784 and $2,624 in 2013 and 2012, respectively | | 4,379 |
| | 3,704 |
|
Intangible Assets: | | | | |
In-place leases, net of accumulated amortization of $16,276 and $5,729 in 2013 and 2012, respectively | | 162,792 |
| | 21,637 |
|
Above market leases, net of accumulated amortization of $10,629 and $9,424 in 2013 and 2012, respectively | | 12,988 |
| | 6,892 |
|
Below market ground lease, net of accumulated amortization of $24 and $-0- in 2013 and 2012, respectively | | 1,701 |
| | — |
|
Goodwill | | 4,147 |
| | 4,751 |
|
| | $ | 208,885 |
| | $ | 58,215 |
|
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, 2013 and 2012 (in thousands):
|
| | | | | | | |
| Nine Months Ended September 30, |
| 2013 | | 2012 |
Beginning balance | $ | 4,751 |
| | $ | 5,155 |
|
Allocated to property sales | (604 | ) | | (116 | ) |
Ending balance | $ | 4,147 |
| | $ | 5,039 |
|
9. NONCONTROLLING INTERESTS
The Company consolidates various joint ventures that are involved in the ownership and/or development of real estate. The following table details the components of redeemable noncontrolling interests in consolidated entities for the nine months ended September 30, 2013 and 2012 (in thousands):
|
| | | | | | | |
| Nine Months Ended September 30, |
| 2013 | | 2012 |
Beginning Balance | $ | — |
| | $ | 2,763 |
|
Net income (loss) attributable to redeemable noncontrolling interests | 61 |
| | (2,002 | ) |
Distributions to redeemable noncontrolling interests | (61 | ) | | (858 | ) |
Other | — |
| | 97 |
|
Ending Balance | $ | — |
| | $ | — |
|
The following reconciles the net income or loss attributable to nonredeemable noncontrolling interests as shown in the statements of equity to the net income or loss attributable to noncontrolling interests as shown in the statements of operations, which includes both redeemable and nonredeemable interests, for the nine months ended September 30, 2013 and 2012 (in thousands):
|
| | | | | | | |
| Nine Months Ended September 30, |
| 2013 | | 2012 |
Net income attributable to nonredeemable noncontrolling interests | $ | (4,840 | ) | | $ | (1,743 | ) |
Net (income) loss attributable to redeemable noncontrolling interests | (61 | ) | | 2,002 |
|
Net (income) loss | $ | (4,901 | ) | | $ | 259 |
|
In the third quarter of 2013, the Company purchased its partner's interest in CP Venture Six LLC, a consolidated joint venture, for $24.5 million. As a result, net income attributable to nonredeemable noncontrolling interests increased by $3.4 million.
10. REPORTABLE SEGMENTS
The Company has five reportable segments: Office, Retail, Land, Third Party Management and Leasing, 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 certain land holdings and single-family residential communities. Fee income and related expenses for the third party-owned properties which are managed or leased by the Company are included in the Third Party Management and Leasing segment. In 2012, the Company sold its third party management and leasing business. The Other segment includes:
| |
• | fee income for third party owned and joint venture properties for which the Company performs management, development and leasing services; |
| |
• | compensation for corporate employees, other than those in the Third Party Management and Leasing segment; |
| |
• | general corporate overhead costs, interest expense for consolidated and unconsolidated entities; |
| |
• | income attributable to noncontrolling interests; |
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.
During the fourth quarter of 2012, the Company changed the format of the information presented to the chief operating decision maker about its segments and revised its presentation of the segment information included in the following tables. These changes did not result in a change in the number of reportable segments. Prior years' amounts were changed to be consistent with the current year's presentation.
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.
Segment net income, the balance of the Company’s investment in joint ventures 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 (loss) on a total Company basis (in thousands):
|
| | | | | | | | | | | | | | | | | | | | | | | | |
Three Months Ended September 30, 2013 | | Office | | Retail | | Land | | Third Party Management and Leasing | | Other | | Total |
Net operating income | $ | 30,308 |
| | $ | 3,663 |
| | $ | — |
| | $ | — |
| | $ | 861 |
| | $ | 34,832 |
|
Sales less costs of sales | — |
| | — |
| | 725 |
| | — |
| | (6 | ) | | 719 |
|
Fee income | — |
| | — |
| | — |
| | — |
| | 2,420 |
| | 2,420 |
|
Other income | — |
| | — |
| | — |
| | — |
| | 303 |
| | 303 |
|
Gain on sale of third party management and leasing business | — |
| | — |
| | — |
| | 4,531 |
| | — |
| | 4,531 |
|
Third party management and leasing expenses | — |
| | — |
| | — |
| | (14 | ) | | — |
| | (14 | ) |
Separation expenses | — |
| | — |
| | — |
| | — |
| | (520 | ) | | (520 | ) |
General and administrative expenses | — |
| | — |
| | — |
| | — |
| | (6,635 | ) | | (6,635 | ) |
Reimbursed expenses | — |
| | — |
| | — |
| | — |
| | (1,097 | ) | | (1,097 | ) |
Interest expense | — |
| | — |
| | — |
| | — |
| | (7,224 | ) | | (7,224 | ) |
Other expenses | — |
| | — |
| | — |
| | — |
| | (8,312 | ) | | (8,312 | ) |
Preferred stock dividends | — |
| | — |
| | — |
| | — |
| | (1,777 | ) | | (1,777 | ) |
Funds from operations available to common stockholders | | $ | 30,308 |
| | $ | 3,663 |
| | $ | 725 |
| | $ | 4,517 |
| | $ | (21,987 | ) | | 17,226 |
|
Real estate depreciation and amortization, including Company's share of joint ventures | | | | | | | | | | | | (21,890 | ) |
Gain on sale of depreciated investment properties, including Company's share of joint ventures | | | | | | | | | | | | 67,435 |
|
Non-controlling interest related to the sale of depreciated properties | | | | | | | | | | | | (3,390 | ) |
Net income available to common stockholders | | | | | | | | | | | | $ | 59,381 |
|
|
| | | | | | | | | | | | | | | | | | | | | | | | |
Three Months Ended September 30, 2012 | | Office | | Retail | | Land | | Third Party Management and Leasing | | Other | | Total |
Net operating income | $ | 20,451 |
| | $ | 7,168 |
| | $ | — |
| | $ | — |
| | $ | — |
| | $ | 27,619 |
|
Sales less costs of sales | — |
| | — |
| | 378 |
| | — |
| | — |
| | 378 |
|
Fee income | — |
| | — |
| | — |
| | 4,789 |
| | 7,343 |
| | 12,132 |
|
Other income | — |
| | — |
| | — |
| | — |
| | 3,329 |
| | 3,329 |
|
Gain on sale of third party management and leasing business | — |
| | — |
| | — |
| | 7,384 |
| | — |
| | 7,384 |
|
Third party management and leasing expenses | — |
| | — |
| | — |
| | (4,26 |