Form 10-Q June 30, 2014
Table of Contents


UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
þ
 
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 2014
OR
o
 
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from                      to                     
Commission file number: 001-11312
COUSINS PROPERTIES INCORPORATED
(Exact name of registrant as specified in its charter)
GEORGIA
(State or other jurisdiction of
incorporation or organization)
58-0869052
(I.R.S. Employer
Identification No.)
191 Peachtree Street, Suite 500, Atlanta, Georgia
(Address of principal executive offices)
30303-1740
(Zip Code)
(404) 407-1000
(Registrant’s telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes þ No o
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes þ No o
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer þ
Accelerated filer o
Non-accelerated filer o
Smaller reporting company o
 
 
(Do not check if a smaller reporting company)
 
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
Yes o No þ
Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.
Class
 
Outstanding at July 24, 2014
Common Stock, $1 par value per share
 
198,478,534 shares

Table of Contents


 
Page No.
 
 

Table of Contents


FORWARD-LOOKING STATEMENTS

Certain matters contained in this report are “forward-looking statements” within the meaning of the federal securities laws and are subject to uncertainties and risks, as itemized in Item 1A included in the Company's Annual Report on Form 10-K for the year ended December 31, 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:
•
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 acquisitions of land;
•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:
•
the availability and terms of capital and financing;
•
the ability to refinance indebtedness as it matures;
•
the failure of purchase, sale, or other contracts to ultimately close;
•
the failure to achieve anticipated benefits from acquisitions and investments or from dispositions;
•
the potential dilutive effect of common stock offerings;
•
the availability of buyers and adequate pricing with respect to the disposition of assets;
•
risks related to the geographic concentration of our portfolio;
•
risks and uncertainties related to national and local economic conditions, the real estate industry in general, and the commercial real estate markets in particular;
•
changes to the Company's strategy with regard to land and other non-core holdings that require impairment losses to be recognized;
•
leasing risks, including the ability to obtain new tenants or renew expiring tenants, and the ability to lease newly developed and/or recently acquired space;
•
the financial condition of existing tenants;
•
volatility in interest rates and insurance rates;
•
the availability of sufficient investment opportunities;
•
competition from other developers or investors;
•
the risks associated with real estate developments (such as zoning approval, receipt of required permits, construction delays, cost overruns, and leasing risk);
•
the loss of key personnel;
•
the potential liability for uninsured losses, condemnation, or environmental issues;
•
the potential liability for a failure to meet regulatory requirements;
•
the financial condition and liquidity of, or disputes with, joint venture partners;
•
any failure to comply with debt covenants under credit agreements; and
•
any failure to continue to qualify for taxation as a real estate investment trust.
The words “believes,” “expects,” “anticipates,” “estimates,” “plans,” “may,” “intend,” “will,” or similar expressions are intended to identify forward-looking statements. Although 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.

2
Table of Contents


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)
 
June 30, 2014
 
December 31, 2013
 
(unaudited)
 
 
Assets:
 
 
 
Real estate assets:
 
 
 
Operating properties, net of accumulated depreciation of $283,119 and $235,707 in 2014 and 2013, respectively
$
1,817,439

 
$
1,828,437

Projects under development
56,760

 
21,681

Land
26,790

 
35,053

 
1,900,989

 
1,885,171

Operating properties and related assets held for sale, net of accumulated depreciation of $12,001 and $21,444 in 2014 and 2013, respectively
11,396

 
24,554

Cash and cash equivalents
6,257

 
975

Restricted cash
3,912

 
2,810

Notes and accounts receivable, net of allowance for doubtful accounts of $1,335 and $1,827 in 2014 and 2013, respectively
10,733

 
11,778

Deferred rents receivable
51,555

 
39,969

Investment in unconsolidated joint ventures
111,164

 
107,082

Intangible assets, net of accumulated amortization of $60,591 and $37,544 in 2014 and 2013, respectively
147,721

 
170,973

Other assets
35,773

 
29,894

Total assets
$
2,279,500

 
$
2,273,206

Liabilities:
 
 
 
Notes payable
$
665,852

 
$
630,094

Accounts payable and accrued expenses
72,577

 
76,668

Deferred income
23,681

 
25,754

Intangible liabilities, net of accumulated amortization of $11,993 and $6,323 in 2014 and 2013, respectively
60,806

 
66,476

Other liabilities
15,704

 
15,242

Total liabilities
838,620

 
814,234

Commitments and contingencies
—

 
—

Equity:
 
 
 
Stockholders' investment:
 
 
 
Preferred stock, 7.50% Series B cumulative redeemable preferred stock, $1 par value, $25 liquidation preference, 20,000,000 shares authorized, -0- and 3,791,000 shares issued and outstanding in 2014 and 2013, respectively
—

 
94,775

Common stock, $1 par value, 350,000,000 and 250,000,000 shares authorized, 202,043,854 and 193,236,454 shares issued in 2014 and 2013, respectively
202,044

 
193,236

Additional paid-in capital
1,514,959

 
1,420,951

Treasury stock at cost, 3,570,082 shares in 2014 and 2013
(86,840
)
 
(86,840
)
Distributions in excess of cumulative net income
(190,857
)
 
(164,721
)
 
1,439,306

 
1,457,401

Nonredeemable noncontrolling interests
1,574

 
1,571

Total equity
1,440,880

 
1,458,972

Total liabilities and equity
$
2,279,500

 
$
2,273,206

 
 
 
 
See accompanying notes.
 
 
 

3
Table of Contents
COUSINS PROPERTIES INCORPORATED AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(unaudited, in thousands, except per share amounts)


 
Three Months Ended
 
Six Months Ended
 
June 30,
 
June 30,
 
2014
 
2013
 
2014
 
2013
Revenues:
 
 
 
 
 
 
 
Rental property revenues
$
80,034

 
$
37,100

 
$
157,518

 
$
70,224

Fee income
2,025

 
2,931

 
4,363

 
6,511

Other
2,446

 
2,490

 
4,347

 
4,049

 
84,505

 
42,521

 
166,228

 
80,784

Costs and expenses:
 
 
 
 
 
 
 
Rental property operating expenses
35,959

 
17,868

 
70,816

 
33,079

Reimbursed expenses
988

 
1,359

 
1,920

 
3,268

General and administrative expenses
5,756

 
4,552

 
11,366

 
10,622

Interest expense
6,970

 
4,241

 
14,137

 
9,176

Depreciation and amortization
35,135

 
14,928

 
69,274

 
26,176

Separation expenses
—

 
—

 
84

 
—

Acquisition and related costs
149

 
333

 
171

 
568

Other
877

 
731

 
1,370

 
2,186

 
85,834

 
44,012

 
169,138

 
85,075

Loss from continuing operations before taxes, unconsolidated joint ventures, and sale of investment properties
(1,329
)
 
(1,491
)
 
(2,910
)
 
(4,291
)
Benefit (provision) for income taxes from operations
9

 
(1
)
 
21

 
(2
)
Income from unconsolidated joint ventures
2,027

 
1,132

 
3,313

 
2,784

Income (loss) from continuing operations before gain on sale of investment properties
707

 
(360
)
 
424

 
(1,509
)
Gain on sale of investment properties
1,327

 
406

 
1,488

 
57,560

Income from continuing operations
2,034

 
46

 
1,912

 
56,051

Income from discontinued operations:
 
 
 
 
 
 
 
Income from discontinued operations
566

 
687

 
1,457

 
1,470

Gain on sale from discontinued operations
14

 
86

 
6,379

 
204

 
580

 
773

 
7,836

 
1,674

Net income
2,614

 
819

 
9,748

 
57,725

Net income attributable to noncontrolling interests
(129
)
 
(515
)
 
(284
)
 
(1,022
)
Net income attributable to controlling interests
2,485

 
304

 
9,464

 
56,703

Dividends to preferred stockholders
(1,178
)
 
(3,227
)
 
(2,955
)
 
(6,454
)
Preferred share original issuance costs
(3,530
)
 
(2,656
)
 
(3,530
)
 
(2,656
)
Net income (loss) available to common stockholders
$
(2,223
)
 
$
(5,579
)
 
$
2,979

 
$
47,593

Per common share information — basic and diluted:
 
 
 
 
 
 
 
Income (loss) from continuing operations attributable to controlling interest
$
(0.01
)
 
$
(0.06
)
 
$
(0.02
)
 
$
0.41

Income from discontinued operations
—

 
0.01

 
0.04

 
0.02

Net income (loss) available to common stockholders
$
(0.01
)
 
$
(0.05
)
 
$
0.02

 
$
0.43

Weighted average shares — basic
198,440

 
118,661

 
195,108

 
111,430

Weighted average shares — diluted
198,440

 
118,661

 
195,347

 
111,593

Dividends declared per common share
$
0.075

 
$
0.045

 
$
0.150

 
$
0.090


See accompanying notes.

4
Table of Contents


COUSINS PROPERTIES INCORPORATED AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF EQUITY
Six Months Ended June 30, 2014 and 2013
(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, 2013
$
94,775

 
$
193,236

 
$
1,420,951

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

 
$
1,571

 
$
1,458,972

Net income
—

 
—

 
—

 
—

 
9,464

 
9,464

 
284

 
9,748

Common stock issued pursuant to:
 

 
 

 
 

 
 

 
 

 
 

 
 

 
 
Director stock grants
—

 
55

 
598

 
—

 
—

 
653

 
—

 
653

Stock option exercises
—

 
3

 
(23
)
 
—

 
—

 
(20
)
 
—

 
(20
)
Common stock offering, net of issuance costs
—

 
8,700

 
89,819

 
—

 
—

 
98,519

 
—

 
98,519

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

 
53

 
(978
)
 
—

 
—

 
(925
)
 
—

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

 
(3
)
 
1,062

 
—

 
—

 
1,059

 
—

 
1,059

Distributions to noncontrolling interests
—

 
—

 
—

 
—

 
—

 
—

 
(281
)
 
(281
)
Redemption of preferred shares
(94,775
)
 
—

 
3,530

 
—

 
(3,530
)
 
(94,775
)
 
—

 
(94,775
)
Preferred dividends
—

 
—

 
—

 
—

 
(2,955
)
 
(2,955
)
 
—

 
(2,955
)
Common dividends
—

 
—

 
—

 
—

 
(29,115
)
 
(29,115
)
 
—

 
(29,115
)
Balance June 30, 2014
$
—

 
$
202,044

 
$
1,514,959

 
$
(86,840
)
 
$
(190,857
)
 
$
1,439,306

 
$
1,574

 
$
1,440,880

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Balance December 31, 2012
$
169,602

 
$
107,660

 
$
690,024

 
$
(86,840
)
 
$
(260,104
)
 
$
620,342

 
$
22,611

 
$
642,953

Net income
—

 
—

 
—

 
—

 
56,703

 
56,703

 
970

 
57,673

Common stock issued pursuant to:
 

 
 

 
 

 
 

 
 

 
 

 
 

 
 

Director stock grants
—

 
50

 
494

 
—

 
—

 
544

 
—

 
544

Stock option exercises
—

 
22

 
(143
)
 
—

 
—

 
(121
)
 
—

 
(121
)
Common stock offering, net of issuance costs
—

 
16,507

 
148,593

 
—

 
—

 
165,100

 
—

 
165,100

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
—

 
(11
)
 
998

 
—

 
—

 
987

 
—

 
987

Distributions to nonredeemable noncontrolling interests
—

 
—

 
—

 
—

 
—

 
—

 
(942
)
 
(942
)
Redemption of preferred shares
(74,827
)
 
—

 
(10,822
)
 
—

 
10,822

 
(74,827
)
 
—

 
(74,827
)
Preferred dividends
—

 
—

 
—

 
—

 
(6,454
)
 
(6,454
)
 
—

 
(6,454
)
Common dividends
—

 
—

 
—

 
—

 
(10,120
)
 
(10,120
)
 
—

 
(10,120
)
Balance June 30, 2013
$
94,775

 
$
124,258

 
$
827,935

 
$
(86,840
)
 
$
(209,153
)
 
$
750,975

 
$
22,639

 
$
773,614

See accompanying notes.

5
Table of Contents
COUSINS PROPERTIES INCORPORATED AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited, in thousands)


 
Six Months Ended June 30,
 
2014
 
2013
Cash flows from operating activities:
 
 
 
Net income
$
9,748

 
$
57,725

Adjustments to reconcile net income to net cash provided by operating activities:
 
 
 
Gain on sale of investment properties, including discontinued operations
(7,867
)
 
(57,764
)
Depreciation and amortization, including discontinued operations
69,354

 
27,113

Amortization of deferred financing costs
604

 
524

Amortization of stock options and restricted stock, net of forfeitures
1,059

 
987

Effect of certain non-cash adjustments to rental revenues
(15,139
)
 
(2,673
)
Income from unconsolidated joint ventures
(3,313
)
 
(2,784
)
Operating distributions from unconsolidated joint ventures
3,165

 
2,942

Land and multi-family cost of sales, net of closing costs paid
255

 
904

Changes in other operating assets and liabilities:
 
 
 
Change in other receivables and other assets, net
(680
)
 
(1,511
)
Change in operating liabilities
(7,133
)
 
(4,295
)
Net cash provided by operating activities
50,053

 
21,168

Cash flows from investing activities:
 
 
 
Proceeds from investment property sales
29,050

 
116,006

Property acquisition, development, and tenant asset expenditures
(70,730
)
 
(410,807
)
Investment in unconsolidated joint ventures
(7,752
)
 
(98
)
Distributions from unconsolidated joint ventures
4,112

 
54,116

Collection of notes receivable
506

 
681

Change in notes receivable and other assets
(2,838
)
 
(1,930
)
Change in restricted cash
(1,094
)
 
(378
)
Net cash used in investing activities
(48,746
)
 
(242,410
)
Cash flows from financing activities:
 
 
 
Proceeds from credit facility
213,325

 
174,925

Repayment of credit facility
(172,950
)
 
(123,925
)
Proceeds from other notes payable
—

 
1,292

Repayment of notes payable
(4,617
)
 
(75,722
)
Payment of loan issuance costs
(3,176
)
 
—

Common stock issued, net of expenses
98,519

 
165,100

Redemption of preferred shares
(94,775
)
 
(74,827
)
Common dividends paid
(29,115
)
 
(10,120
)
Preferred dividends paid
(2,955
)
 
(6,454
)
Distributions to noncontrolling interests
(281
)
 
(994
)
Net cash provided by financing activities
3,975

 
49,275

Net increase (decrease) in cash and cash equivalents
5,282

 
(171,967
)
Cash and cash equivalents at beginning of period
975

 
176,892

Cash and cash equivalents at end of period
$
6,257

 
$
4,925

 
 
 
 
Interest paid, net of amounts capitalized
$
14,256

 
$
9,719

 
 
 
 
Significant non-cash transactions:
 
 
 

(Increase) decrease in accrued property acquisition, development, and tenant asset expenditures
$
999

 
$
258

Transfer from operating properties to operating properties and related assets held for sale
—

 
49,435

Transfer from projects under development to operating properties
—

 
25,629

Transfer from other assets to projects under development
—

 
3,062


See accompanying notes.

6
Table of Contents


COUSINS PROPERTIES INCORPORATED AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
June 30, 2014
(Unaudited)
1. DESCRIPTION OF BUSINESS AND 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 assets and opportunistic mixed-use properties in Sunbelt markets with a focus on Georgia, Texas, and North Carolina. Cousins has elected to be taxed as a real estate investment trust (“REIT”) and intends to, among other things, distribute 90% of its net taxable income to stockholders, thereby eliminating any liability for federal income taxes under current law. Therefore, the results included herein do not include a federal income tax provision for Cousins. 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 June 30, 2014 and the results of operations for the three and six months ended June 30, 2014 and 2013. The results of operations for the three and six months ended June 30, 2014 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, 2013. 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 six months ended June 30, 2014 and 2013, there were no items of other comprehensive income. Therefore, no presentation of comprehensive income is required.
In April 2014, the Financial Accounting Standards Board ("FASB") issued new guidance related to the presentation of discontinued operations. Currently, the Company includes activity for all assets held for sale and disposals in discontinued operations on the statements of operations. Under the new guidance, only assets held for sale and disposals representing a major strategic shift in operations, such as the disposal of a line of business, a significant geographical area, or a major equity investment, will be presented as discontinued operations. Additionally, the new guidance requires expanded disclosures about discontinued operations that will provide more information about their assets, liabilities, income, and expenses. The guidance is effective for periods beginning after December 15, 2014. The Company does not expect adoption of this guidance to have a material effect on results of operations or financial condition.
In May 2014, the FASB issued new guidance related to the accounting for revenue from contracts with customers. Under the new guidance, companies will recognize revenue when the seller satisfies a performance obligation, which would be when the buyer takes control of the good or service. This new guidance could result in different amounts of revenue being recognized and could result in revenue being recognized in different reporting periods than it is under the current guidance. The new guidance specifically excludes revenue associated with lease contracts. The guidance is effective for periods beginning after December 15, 2016 and early adoption is prohibited.
2. 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.
The following properties were held for sale or sold in 2014 or 2013, respectively, and met the criteria for discontinued operations presentation ($ in thousands):

7
Table of Contents


Property
 
Property Type
 
Location
 
Square Feet
 
Sales Price
2014
 
 
 
 
 
 
 
 
Lakeshore Park Plaza
 
Office
 
Birmingham, AL
 
197,000

 
Held for sale

600 University Park Place
 
Office
 
Birmingham, AL
 
123,000

 
$
19,700

2013
 
 
 
 
 
 
 
 
Tiffany Springs MarketCenter
 
Retail
 
Kansas City, MO
 
238,000

 
$
53,500

Lakeshore Park Plaza
 
Office
 
Birmingham, AL
 
197,000

 
Held for sale

600 University Park Place
 
Office
 
Birmingham, AL
 
123,000

 
Held for sale

Inhibitex
 
Office
 
Atlanta, GA
 
51,000

 
$
8,300

The components of discontinued operations and the gains and losses on property sales for the three and six months ended June 30, 2014 and 2013 are as follows (in thousands):
 
 
Three Months Ended June 30,
 
Six Months Ended June 30,
 
 
2014
 
2013
 
2014
 
2013
Income from discontinued operations:
 
 
 
 
 
 
 
 
Rental property revenues
 
$
967

 
$
2,940

 
$
2,323

 
$
5,940

Fee income
 
—

 
3

 
—

 
77

Other income
 
8

 
8

 
15

 
15

Rental property operating expenses
 
(402
)
 
(1,182
)
 
(866
)
 
(2,373
)
General and administrative expenses
 
(1
)
 
(27
)
 
(2
)
 
(79
)
Depreciation and amortization
 
—

 
(1,046
)
 
—

 
(2,097
)
Other expenses
 
(6
)
 
(9
)
 
(13
)
 
(13
)
 
 
$
566

 
$
687

 
$
1,457

 
$
1,470

 
 

 

 
 
 
 
Gain on sale of discontinued operations:
 
 
 
 
 
 
 
 
600 University
 
$
—

 
$
—

 
$
6,371

 
$
—

King Mill
 
—

 
89

 
—

 
208

Other
 
14

 
(3
)
 
8

 
(4
)
 
 
$
14

 
$
86

 
$
6,379

 
$
204

Subsequent Event
In July 2014, the Company entered into an agreement to purchase Fifth Third Center, a 698,000 square feet Class-A office property located in Charlotte, North Carolina. The gross purchase price for this property is $215.0 million. The Company expects to close this acquisition in the third quarter of 2014 and to fund this acquisition through net proceeds from an equity issuance or proceeds from its credit facility.

3. 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, 2013. The following table summarizes balance sheet data of the Company's unconsolidated joint ventures as of June 30, 2014 and December 31, 2013 (in thousands):

8
Table of Contents


 
Total Assets
 
Total Debt
 
Total Equity
 
Company’s Investment
 
SUMMARY OF FINANCIAL POSITION:
2014
 
2013
 
2014
 
2013
 
2014
 
2013
 
2014
 
2013
 
 Terminus Office Holdings
$
294,372

 
$
297,815

 
$
214,806

 
$
215,942

 
$
65,665

 
$
69,867

 
$
33,750

 
$
35,885

 
 EP I LLC
87,330

 
88,130

 
57,912

 
57,092

 
27,486

 
29,229

 
24,012

 
25,319

 
 Cousins Watkins LLC
50,497

 
51,653

 
27,428

 
27,710

 
22,057

 
23,081

 
17,502

 
17,213

 
 EP II LLC
24,281

 
12,644

 
1

 
1

 
21,329

 
11,695

 
16,947

 
9,566

 
 Charlotte Gateway Village, LLC
134,303

 
135,966

 
44,104

 
52,408

 
87,457

 
82,373

 
11,235

 
11,252

 
 Temco Associates, LLC
8,467

 
8,474

 
—

 
—

 
8,229

 
8,315

 
3,949

 
4,083

 
 CL Realty, L.L.C.
7,652

 
7,602

 
—

 
—

 
7,524

 
7,374

 
3,768

 
3,704

 
 Wildwood Associates
21,111

 
21,127

 
—

 
—

 
21,036

 
21,121

 
(1,720
)
(1)
(1,689
)
(1)
 Crawford Long - CPI, LLC
31,841

 
32,042

 
75,000

 
75,000

 
(44,860
)
 
(44,295
)
 
(21,333
)
(1)
(21,071
)
(1)
 Other
1,451

 
1,931

 
—

 
—

 
1,270

 
1,700

 
1

 
60

 
 
$
661,305

 
$
657,384

 
$
419,251

 
$
428,153

 
$
217,193

 
$
210,460

 
$
88,111

 
$
84,322

 
(1) Negative balances are included in deferred income on the balance sheets.
The following table summarizes statement of operations information of the Company's unconsolidated joint ventures for the six months ended June 30, 2014 and 2013 (in thousands):
 
Total Revenues
 
Net Income (Loss)
 
Company's Share of Income (Loss)
SUMMARY OF OPERATIONS:
2014
 
2013
 
2014
 
2013
 
2014
 
2013
 Terminus Office Holdings
$
19,357

 
$
14,616

 
$
(2
)
 
$
29

 
$
(23
)
 
$
14

 EP I LLC
5,975

 
2,988

 
1,417

 
(695
)
 
1,062

 
(521
)
 Cousins Watkins LLC
2,526

 
2,595

 
159

 
46

 
1,133

 
1,159

 Charlotte Gateway Village, LLC
16,732

 
16,815

 
5,689

 
5,224

 
588

 
588

 Temco Associates, LLC
714

 
206

 
114

 
18

 
(34
)
 
(15
)
 CL Realty, L.L.C.
827

 
373

 
550

 
216

 
264

 
206

 Wildwood Associates
29

 
—

 
(86
)
 
(84
)
 
(30
)
 
(42
)
 Crawford Long - CPI, LLC
5,881

 
5,873

 
1,348

 
1,382

 
701

 
686

 CF Murfreesboro Associates
—

 
6,576

 
—

 
(507
)
 
(390
)
 
(379
)
 CP Venture Five LLC
—

 
15,140

 
—

 
2,193

 
—

 
558

 CP Venture Two LLC
—

 
9,741

 
—

 
5,386

 
—

 
556

 MSREF/ Cousins Terminus 200 LLC
—

 
1,278

 
—

 
(161
)
 
—

 
(28
)
 Other
5

 
1,268

 
(180
)
 
(168
)
 
42

 
2

 
$
52,046

 
$
77,469

 
$
9,009

 
$
12,879

 
$
3,313

 
$
2,784

4. INTANGIBLE ASSETS
Intangible assets on the balance sheets as of June 30, 2014 and December 31, 2013 included the following (in thousands):
 
 
June 30, 2014
 
December 31, 2013
In-place leases, net of accumulated amortization of $47,850 and $26,239 in 2014 and 2013, respectively
 
$
131,219

 
$
152,830

Above-market tenant leases, net of accumulated amortization of $12,700 and $11,284 in 2014 and 2013, respectively
 
10,742

 
12,332

Below-market ground lease, net of accumulated amortization of $41 and $21 in 2014 and 2013, respectively
 
1,659

 
1,680

Goodwill
 
4,101

 
4,131

 
 
$
147,721

 
$
170,973


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 six months ended June 30, 2014 and 2013 (in thousands):

9
Table of Contents


 
Six Months Ended June 30,
 
2014
 
2013
Beginning balance
$
4,131

 
$
4,751

Allocated to property sales
(30
)
 
(604
)
Ending balance
$
4,101

 
$
4,147

5. OTHER ASSETS
Other assets on the balance sheets as of June 30, 2014 and December 31, 2013 included the following (in thousands):
 
 
June 30, 2014
 
December 31, 2013
Lease inducements, net of accumulated amortization of $4,816 and $4,181 in 2014 and 2013, respectively
 
$
12,195

 
$
12,548

FF&E and leasehold improvements, net of accumulated depreciation of $18,690 and $17,684 in 2014 and 2013, respectively
 
10,647

 
8,743

Loan closing costs, net of accumulated amortization of $1,589 and $2,621 in 2014 and 2013, respectively
 
6,750

 
4,176

Prepaid expenses and other assets
 
4,845

 
3,606

Predevelopment costs and earnest money
 
1,336

 
821

 
 
$
35,773

 
$
29,894


6. NOTES PAYABLE
The following table summarizes the terms and amounts of the Company’s notes payable at June 30, 2014 and December 31, 2013 ($ in thousands):
Description
 
Interest Rate
 
Maturity
 
June 30, 2014
 
December 31, 2013
Post Oak Central mortgage note
 
4.26
%
 
2020
 
$
186,726

 
$
188,310

The American Cancer Society Center mortgage note
 
6.45
%
 
2017
 
131,900

 
132,714

Promenade mortgage note
 
4.27
%
 
2022
 
112,273

 
113,573

191 Peachtree Tower mortgage note
 
3.35
%
 
2018
 
100,000

 
100,000

Meridian Mark Plaza mortgage note
 
6.00
%
 
2020
 
25,614

 
25,813

The Points at Waterview mortgage note
 
5.66
%
 
2016
 
14,872

 
15,139

Mahan Village construction facility
 
1.81
%
 
2014
 
14,017

 
14,470

Credit Facility, unsecured
 
1.26
%
 
2019
 
80,450

 
40,075

 
 
 
 
 
 
$
665,852

 
$
630,094


On May 28, 2014, the Company entered into a Third Amended and Restated Credit Agreement (the “New Facility”) under which the Company may borrow up to $500 million if certain conditions are satisfied. The New Facility recast the Company's existing $350 million senior unsecured revolving line of credit, dated February 28, 2012 (the “Existing Facility”) by:
•
Increasing the size by $150 million to $500 million;
•
Extending the maturity date from February 28, 2016 to May 28, 2019;
•
Reducing the per annum variable interest rate spread and other fees; and
•
Providing for the expansion of the New Facility by an additional $250 million for a total available of $750 million, subject to receipt of additional commitments from lenders and other customary conditions.
The New Facility contains certain financial covenants that require, 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 of no more than 60%; and a minimum shareholders’ equity in an amount equal to $1.0 billion, plus a portion of the net cash proceeds from certain equity issuances. The New Facility also contains customary representations and warranties and affirmative and negative covenants, as well as customary events of default. The amounts outstanding under the New Facility may be accelerated upon the occurrence of any events of default.
The interest rate applicable to the New 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 the applicable spread detailed below, 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

10
Table of Contents


the applicable spread detailed below. Fees on letters of credit issued under the New Facility are payable at an annual rate equal to the spread applicable to loans bearing interest based on LIBOR. The Company also pays an annual facility fee on the total commitments under the New Facility. The pricing spreads and the facility fee under the New Facility are as follows:
Leverage Ratio
 
Applicable % Spread for LIBOR Loans
 
Applicable % Spread for Base Rate Loans
 
Annual Facility Fee %
≤ 30%
 
1.10%
 
0.10%
 
0.15%
> 30% but ≤ 35%
 
1.10%
 
0.10%
 
0.20%
> 35% but ≤ 40%
 
1.15%
 
0.15%
 
0.20%
> 40% but ≤ 45%
 
1.20%
 
0.20%
 
0.20%
> 45% but ≤ 50%
 
1.20%
 
0.20%
 
0.25%
> 50%
 
1.45%
 
0.45%
 
0.30%
The New Facility also provides for alternative pricing spreads and facility fees, which would be available to the Company on any date after the Company obtains an investment grade credit rating.
Fair Value
At June 30, 2014 and December 31, 2013, the aggregate estimated fair values of the Company's notes payable were $701.2 million and $654.1 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 six months ended June 30, 2014 and 2013, interest expense was as follows (in thousands):
 
Three Months Ended June 30,
 
Six Months Ended June 30,
 
2014
 
2013
 
2014
 
2013
Total interest incurred
$
7,580

 
$
4,298

 
$
15,120

 
$
9,334

Interest capitalized
(610
)
 
(57
)
 
(983
)
 
(158
)
Total interest expense
$
6,970

 
$
4,241

 
$
14,137

 
$
9,176

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.
7. COMMITMENTS AND CONTINGENCIES

Commitments
At June 30, 2014, the Company had outstanding letters of credit and performance bonds totaling $2.4 million. As a lessor, the Company has $101.2 million in future obligations under leases to fund tenant improvements as of June 30, 2014. As a lessee, the Company has future obligations under ground and office leases of $149.7 million as of June 30, 2014.
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

11
Table of Contents


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.

8. 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 six months ended June 30, 2014 and 2013 (in thousands):
 
Six Months Ended June 30,
 
2014
 
2013
Beginning Balance
$
—

 
$
—

Net income attributable to redeemable noncontrolling interests
—

 
52

Distributions to redeemable noncontrolling interests
—

 
(52
)
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 six months ended June 30, 2014 and 2013 (in thousands):
 
Six Months Ended June 30,
 
2014
 
2013
Net income attributable to nonredeemable noncontrolling interests
$
284

 
$
970

Net income attributable to redeemable noncontrolling interests
—

 
52

Net income attributable to noncontrolling interests
$
284

 
$
1,022

9. STOCKHOLDERS' EQUITY
In March 2014, the Company issued 8.7 million shares of common stock resulting in net proceeds to the Company of $98.5 million. In April 2014, the Company redeemed all outstanding shares of its 7.5% Series B Cumulative Redeemable Preferred Stock, par value $1.00 per share, for $25.00 per share or $94.8 million, excluding accrued dividends. In connection with the redemption of Preferred Stock, the Company decreased net income available for common shareholders by $3.5 million (non-cash), which represents the original issuance costs applicable to the shares redeemed.
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, for $25.00 per share or $74.8 million, excluding accrued dividends. In connection with the redemption of Preferred Stock, the Company increased net loss available for common shareholders by $2.7 million (non-cash), which represents the original issuance costs applicable to the shares redeemed. In 2013, 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.
10. 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 13 of notes to consolidated financial statements in the Company's Annual Report on Form 10-K for the year ended December 31, 2013. 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 and stock performance relative to its peers. The Company recorded stock-based compensation expense, net of forfeitures, of $2.4 million and $862,000 for the three months ended June 30, 2014 and 2013, respectively and $4.8 million and $3.6 million for the six months ended June 30, 2014 and 2013, respectively.
The Company maintains the 2005 Restricted Stock Unit Plan (the “RSU Plan”), which is described in note 13 of notes to consolidated financial statements in the Company's Annual Report on Form 10-K for the year ended December 31, 2013. The Company made restricted stock grants in 2014 of 137,591 shares to key employees, which vest ratably over a three-year period.

12
Table of Contents


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, 2014 to December 31, 2016, and the targeted units awarded of SNL RSUs and FFO RSUs is 108,751 and 56,405, 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, 2017 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, 2016. The SNL RSUs are valued using a quarterly Monte Carlo valuation and are expensed over the vesting period. The FFO RSUs are expensed over the vesting period using the fair market value of the Company's stock at the reporting date multiplied by the anticipated number of units to be paid based on the current estimate of what the ratio is expected to be upon vesting.
11. EARNINGS PER SHARE
Net income (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 six months ended June 30, 2014 and 2013, respectively, are as follows (in thousands):
 
Three Months Ended June 30,
 
Six Months Ended June 30,
 
2014
 
2013
 
2014
 
2013
Weighted average shares — basic
198,440

 
118,661

 
195,108

 
111,430

Dilutive potential common shares — stock options
—

 
—

 
239

 
163

Weighted average shares — diluted
198,440

 
118,661

 
195,347

 
111,593

Weighted average anti-dilutive stock options
2,200

 
2,942

 
2,200

 
3,129

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

12. REPORTABLE SEGMENTS
The Company has four reportable segments: Office, Retail, Land, and Other. These reportable segments represent an aggregation of operating segments reported to the chief operating decision maker based on similar economic characteristics that include the type of product and the nature of service. Each segment includes both consolidated operations and joint ventures, where applicable. The Office and Retail segments show the results for that product type. The Land segment includes results of operations for certain land holdings and single-family residential communities. The Other segment includes:
•
fee income and related expenses for third party owned properties and joint venture properties for which the Company performs management, development and leasing services;
•
compensation for corporate employees;
•
general corporate overhead costs, interest expense for consolidated and unconsolidated entities;
•
income attributable to noncontrolling interests;
•
income taxes;
•
depreciation; and
•
preferred dividends.

13
Table of Contents


Company management evaluates the performance of its reportable segments in part based on funds from operations available to common stockholders (“FFO”). FFO is a supplemental operating performance measure used in the real estate industry. The Company calculated FFO using the National Association of Real Estate Investment Trusts’ (“NAREIT”) definition of FFO, which is net income (loss) available to common stockholders (computed in accordance with GAAP), excluding extraordinary items, cumulative effect of change in accounting principle and gains on sale or impairment losses on depreciable property, plus depreciation and amortization of real estate assets, and after adjustments for unconsolidated partnerships and joint ventures to reflect FFO on the same basis.
FFO is used by industry analysts, investors and the Company as a supplemental measure of a REIT’s operating performance. Historical cost accounting for real estate assets implicitly assumes that the value of real estate assets diminishes predictably over time. Since real estate values instead have historically risen or fallen with market conditions, many industry investors and analysts have considered presentation of operating results for real estate companies that use historical cost accounting to be insufficient by themselves. Thus, NAREIT created FFO as a supplemental measure of a REIT’s operating performance that excludes historical cost depreciation, among other items, from GAAP net income. Management believes the use of FFO, combined with the required primary GAAP presentations, has been fundamentally beneficial, improving the understanding of operating results of REITs among the investing public and making comparisons of REIT operating results more meaningful. Company management evaluates operating performance in part based on FFO. Additionally, the Company uses FFO, along with other measures, to assess performance in connection with evaluating and granting incentive compensation to its officers and other key employees.
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 June 30, 2014
 
Office
 
Retail
 
Land
 
Other
 
Total
 Net operating income
$
48,821

 
$
1,288

 
$
—

 
$
1,179

 
$
51,288

 Sales less costs of sales
—

 
—

 
1,331

 
42

 
1,373

 Fee income
—

 
—

 
—

 
2,025

 
2,025

 Other income
—

 
—

 
—

 
2,256

 
2,256

 General and administrative expenses
—

 
—

 
—

 
(5,756
)
 
(5,756
)
 Reimbursed expenses
—

 
—

 
—

 
(988
)
 
(988
)
 Interest expense
—

 
—

 
—

 
(8,813
)
 
(8,813
)
 Other expenses
—

 
—

 
—

 
(893
)
 
(893
)
 Preferred stock dividends and original issuance costs
—

 
—

 
—

 
(4,708
)
 
(4,708
)
 Funds from operations available to common stockholders
 
$
48,821

 
$
1,288

 
$
1,331

 
$
(15,656
)
 
35,784

 Real estate depreciation and amortization, including Company's share of joint ventures
 
 
 
 
 
 
 
 
 
(38,022
)
 Gain on sale of depreciated investment properties, including Company's share of joint ventures
 
 
 
 
 
 
 
 
 
15

 Net loss available to common stockholders
 
 
 
 
 
 
 
 
 
$
(2,223
)

14
Table of Contents


Three Months Ended June 30, 2013
 
Office
 
Retail
 
Land
 
Other
 
Total
 Net operating income
 
$
23,894

 
$
4,302

 
$
—

 
$
376

 
$
28,572

 Sales less costs of sales
 
—

 
—

 
276

 
(8
)
 
268

 Fee income
 
—

 
—

 
—

 
2,933

 
2,933

 Other income
 
—

 
—

 
—

 
2,064

 
2,064

 General and administrative expenses
 
—

 
—

 
—

 
(4,552
)
 
(4,552
)
 Reimbursed expenses
 
—

 
—

 
—

 
(1,359
)
 
(1,359
)
 Interest expense
 
—

 
—

 
—

 
(6,573
)
 
(6,573
)
 Other expenses
 
—

 
—

 
—

 
(1,312
)
 
(1,312
)
 Preferred stock dividends and original issuance costs
 
—

 
—

 
—

 
(5,883
)
 
(5,883
)
 Funds from operations available to common stockholders
 
$
23,894

 
$
4,302

 
$
276

 
$
(14,314
)
 
14,158

 Real estate depreciation and amortization, including Company's share of joint ventures
 
 
 
 
 
 
 
 
 
(19,953
)
 Gain on sale of depreciated investment properties including the Company's share of joint ventures
 
 
 
 
 
 
 
 
 
216

 Net loss available to common stockholders
 
 
 
 
 
 
 
 
 
$
(5,579
)
Six Months Ended June 30, 2014
 
Office
 
Retail
 
Land
 
Other
 
Total
 Net operating income
 
$
96,419

 
$
2,591

 
$
—

 
$
2,296

 
$
101,306

 Sales less costs of sales
 
—

 
—

 
1,491

 
42

 
1,533

 Fee income
 
—

 
—

 
—

 
4,363

 
4,363

 Other income
 
—

 
—

 
—

 
4,172

 
4,172

 Separation expenses
 
—

 
—

 
—

 
(84
)
 
(84
)
 General and administrative expenses
 
—

 
—

 
—

 
(11,367
)
 
(11,367
)
 Reimbursed expenses
 
—

 
—

 
—

 
(1,920
)
 
(1,920
)
 Interest expense
 
—

 
—

 
—

 
(17,825
)
 
(17,825
)
 Other expenses
 
—

 
—

 
—

 
(1,727
)
 
(1,727
)
 Preferred stock dividends and original issuance costs
 
—

 
—

 
—

 
(6,485
)
 
(6,485
)
Funds from operations available to common stockholders
 
$
96,419

 
$
2,591

 
$
1,491

 
$
(28,535
)
 
71,966

Real estate depreciation and amortization, including Company's share of joint ventures
 
 
 
 
 
 
 
 
 
(74,974
)
Gain on sale of depreciated investment properties, including Company's share of joint ventures
 
 
 
 
 
 
 
 
 
5,987

Net income available to common stockholders
 
 
 
 
 
 
 
 
 
$
2,979

Six Months Ended June 30, 2013
 
Office
 
Retail
 
Land
 
Other
 
Total
 Net operating income
 
$
45,731

 
$
8,592

 
$
—

 
$
419

 
$
54,742

 Sales less costs of sales
 
—

 
—

 
519

 
160

 
679

 Fee income
 
—

 
—

 
—

 
6,587

 
6,587

 Other income
 
—

 
—

 
—

 
2,346

 
2,346

 General and administrative expenses
 
—

 
—

 
—

 
(10,621
)
 
(10,621
)
 Reimbursed expenses
 
—

 
—

 
—

 
(3,269
)
 
(3,269
)
 Interest expense
 
—

 
—

 
—

 
(13,218
)
 
(13,218
)
 Other expenses
 
—

 
—

 
—

 
(2,517
)
 
(2,517
)
 Preferred stock dividends and original issuance costs
 
—

 
—

 
—

 
(9,110
)
 
(9,110
)
Funds from operations available to common stockholders
 
$
45,731

 
$
8,592

 
$
519

 
$
(29,223
)
 
25,619

Real estate depreciation and amortization, including Company's share of joint ventures
 
 
 
 
 
 
 
 
 
(35,273
)
Gain on sale of depreciated investment properties, including Company's share of joint ventures
 
 
 
 
 
 
 
 
 
57,247

Net income available to common stockholders
 
 
 
 
 
 
 
 
 
$
47,593


15
Table of Contents


When reviewing the results of operations for the Company, management analyzes the following revenue and income items net of their related costs:
•
Rental property operations;
•
Land sales; and
•
Gains on sales of investment properties.
These amounts are shown in the segment tables above in the same “net” manner as shown to management. In addition, management reviews the operations of discontinued operations and its share of the operations of its joint ventures in the same manner as the operations of its wholly-owned properties included in the continuing operations. Therefore, the information in the tables above includes the operations of discontinued operations and its share of joint ventures in the same categories as the operations of the properties included in continuing operations. Certain adjustments are required to reconcile the above segment information to the Company’s consolidated revenues. The following table reconciles information presented in the tables above to the Company’s consolidated revenues (in thousands):
 
Three Months Ended June 30,
 
Six Months Ended June 30,
 
2014
 
2013
 
2014
 
2013
Net operating income
$
51,288

 
$
28,572

 
$
101,306

 
$
54,742

Sales less cost of sales
1,373

 
268

 
1,533

 
679

Fee income
2,025

 
2,933

 
4,363

 
6,587

Other income
2,256

 
2,064

 
4,172

 
2,346

Rental property operating expenses
35,959

 
17,868

 
70,816

 
33,079

Cost of sales
270

 
433

 
270

 
1,578

Net operating income in joint ventures
(6,648
)
 
(7,582
)
 
(13,147
)
 
(14,029
)
Sales less cost of sales in joint ventures
(47
)
 
8

 
(47
)
 
(2
)
Net operating income in discontinued operations
(565
)
 
(1,758
)
 
(1,457
)
 
(3,567
)
Fee income in discontinued operations
—

 
(3
)
 
—

 
(77
)
Other income in discontinued operations
(82
)
 
(8
)
 
(89
)
 
(15
)
Gain on land sales (included in gain on investment properties)
(1,324
)
 
(274
)
 
(1,492
)
 
(537
)
Total consolidated revenues
$
84,505

 
$
42,521

 
$
166,228

 
$
80,784



16
Table of Contents


Item 2.    Management's Discussion and Analysis of Financial Condition and Results of Operations
Overview:
The Company is a self-administered and self-managed real estate investment trust, or REIT. The Company's core focus is on the acquisition, development, leasing, management and ownership of Class-A office properties in Sunbelt markets with a particular focus on Georgia, Texas, and North Carolina. As of June 30, 2014, the Company's portfolio of real estate assets consisted of interests in 16 operating office properties containing 14.6 million square feet of space, 6 operating retail properties containing 566,000 square feet of space, and two projects (one office and one mixed use) under active development. The Company has a comprehensive strategy in place based on a simple platform, trophy assets and opportunistic investments. This streamlined approach enables the Company to maintain a targeted, asset specific approach to investing where it seeks to leverage its development skills, relationships, market knowledge, and operational expertise. The Company intends to generate returns and create value for shareholders through the continued lease up of its portfolio, through the execution of its development pipeline, and through opportunistic investments in office, retail, and mixed-use projects within its core markets.
In March 2014, the Company issued 8.7 million shares of common stock resulting in net proceeds to the Company of $98.5 million. In April 2014, the Company redeemed all outstanding shares of its 7.5% Series B Cumulative Redeemable Preferred Stock, par value $1.00 per share, for $25.00 per share or $94.8 million, excluding accrued dividends. The Company believes that this transaction will improve the financial condition of the Company by reducing fixed charges and by eliminating preferred stock from its capital structure and effectively replacing it with common stock.
In May 2014, the Company's Credit Facility was recast to, among other things, increase the size from $350 million to $500 million, extend the maturity from February 28, 2016 to May 28, 2019, and reduce the per annum variable interest rate spread and other fees. The Company believes that this transaction will improve the financial condition of the Company by reducing interest expense and by extending the average maturity of the Company's debt.
The Company leased or renewed 416,000 square feet of office and retail space during the second quarter of 2014, bringing total square footage leased for the year to 870,000. Net effective rent, representing base rent less operating expense reimbursements and leasing costs, was $17.37 per square foot for office properties in the second quarter of 2014 and was $16.26 for the first half of 2014. Net effective rent per square foot for office properties increased 48.4% during the second quarter of 2014 and increased 31.2% for the first half of 2014 on spaces that have been previously occupied in the past year. The same property leasing percentage remained stable throughout the first half of 2014. The Company continues to target urban high-barrier to entry submarkets in Austin, Dallas-Fort Worth, Houston, Atlanta, Charlotte, and Raleigh. Management believes these markets continue to show positive demographic and economic trends compared to the national average.
Results of Operations
Rental Property Revenues
Rental property revenues increased $42.9 million (116%) and $87.3 million (124%) between the three and six month 2014 and 2013 periods, respectively, primarily due to the following:
•
Increase of $34.0 million and $65.8 million between the three and six month periods, respectively, due to the September 2013 acquisition of Greenway Plaza;
•
Increase of $5.5 million and $11.1 million between the three and six month periods, respectively, due to the September 2013 acquisition of 777 Main;
•