Form 10-Q June 30, 2015
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, 2015
OR
o
 
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from                      to                     
Commission file number: 001-11312
COUSINS PROPERTIES INCORPORATED
(Exact name of registrant as specified in its charter)
GEORGIA
(State or other jurisdiction of
incorporation or organization)
58-0869052
(I.R.S. Employer
Identification No.)
191 Peachtree Street, Suite 500, Atlanta, Georgia
(Address of principal executive offices)
30303-1740
(Zip Code)
(404) 407-1000
(Registrant’s telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes þ No o
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes þ No o
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer þ
Accelerated filer o
Non-accelerated filer o
Smaller reporting company o
 
 
(Do not check if a smaller reporting company)
 
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
Yes o No þ
Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.
Class
 
Outstanding at July 23, 2015
Common Stock, $1 par value per share
 
216,685,420 shares


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FORWARD-LOOKING STATEMENTS

Certain matters contained in this report are “forward-looking statements” within the meaning of the federal securities laws and are subject to uncertainties and risks, as itemized in Item 1A included in the Annual Report on Form 10-K/A for the year ended December 31, 2014. These forward-looking statements include information about possible or assumed future results of the business and our financial condition, liquidity, results of operations, plans, and objectives. They also include, among other things, statements regarding subjects that are forward-looking by their nature, such as:
our business and financial strategy;
our ability to obtain future financing arrangements;
future acquisitions and future dispositions of operating assets;
future acquisitions of land;
future development and redevelopment opportunities;
future dispositions of land and other non-core assets;
projected operating results;
market and industry trends;
future distributions;
projected capital expenditures; and
interest rates.
Any forward-looking statements are based upon management's beliefs, assumptions, and expectations of our future performance, taking into account information currently available. These beliefs, assumptions, and expectations may change as a result of possible events or factors, not all of which are known. If a change occurs, our business, financial condition, liquidity, and results of operations may vary materially from those expressed in forward-looking statements. Actual results may vary from forward-looking statements due to, but not limited to, the following:
the availability and terms of capital and financing;
the ability to refinance or repay indebtedness as it matures;
the failure of purchase, sale, or other contracts to ultimately close;
the failure to achieve anticipated benefits from acquisitions and investments or from dispositions;
the potential dilutive effect of 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, including, but not limited to, metropolitan Houston and metropolitan Atlanta;
risks related to industry concentration of our portfolio including, but, not limited to, the energy industry;
risks and uncertainties related to national and local economic conditions, the real estate industry in general, and the commercial real estate markets in particular;
changes to our strategy with regard to land and other non-core holdings that require impairment losses to be recognized;
leasing risks, including the ability to obtain new tenants or renew expiring tenants, and the ability to lease newly developed and/or recently acquired space;
the adverse change in the financial condition of one or more of our major tenants;
volatility in interest rates and insurance rates;
the availability of sufficient investment opportunities;
competition from other developers or investors;
the risks associated with real estate developments (such as zoning approval, receipt of required permits, construction delays, cost overruns, and leasing risk);
the loss of key personnel;
the potential liability for uninsured losses, condemnation, or environmental issues;
the potential liability for a failure to meet regulatory requirements;
the financial condition and liquidity of, or disputes with, joint venture partners;
any failure to comply with debt covenants under credit agreements; and
any failure to continue to qualify for taxation as a real estate investment trust.
The words “believes,” “expects,” “anticipates,” “estimates,” “plans,” “may,” “intend,” “will,” or similar expressions are intended to identify forward-looking statements. Although we believe that our plans, intentions, and expectations reflected in any forward-looking statements are reasonable, we can give no assurance that such plans, intentions, or expectations will be achieved. We undertake no obligation to publicly update or revise any forward-looking statement, whether as a result of future events, new information, or otherwise, except as required under U.S. federal securities laws.

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PART I — FINANCIAL INFORMATION
Item 1.    Financial Statements.
COUSINS PROPERTIES INCORPORATED AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(in thousands, except share and per share amounts)
 
June 30, 2015
 
December 31, 2014
 
(unaudited)
 
 
Assets:
 
 
 
Real estate assets:
 
 
 
Operating properties, net of accumulated depreciation of $360,700 and $324,543 in 2015 and 2014, respectively
$
2,203,091

 
$
2,181,684

Projects under development
16,207

 
91,615

Land
12,355

 
21,646

 
2,231,653

 
2,294,945

Real estate assets and other assets held for sale, net of accumulated depreciation and amortization of $20,884 in 2015
86,775

 

 
 
 
 
Cash and cash equivalents
1,972

 

Restricted cash
5,430

 
5,042

Notes and accounts receivable, net of allowance for doubtful accounts of $2,006 and $1,643 in 2015 and 2014, respectively
13,299

 
10,732

Deferred rents receivable
63,755

 
57,939

Investment in unconsolidated joint ventures
103,665

 
100,498

Intangible assets, net of accumulated amortization of $88,776 and $76,050 in 2015 and 2014, respectively
139,557

 
163,244

Other assets
39,360

 
34,930

Total assets
$
2,685,466

 
$
2,667,330

Liabilities:


 


Notes payable
$
849,772

 
$
792,344

Accounts payable and accrued expenses
56,700

 
76,240

Deferred income
23,290

 
23,277

Intangible liabilities, net of accumulated amortization of $21,925 and $16,897 in 2015 and 2014, respectively
64,557

 
70,020

Other liabilities
33,318

 
31,991

Liabilities of real estate assets held for sale, net of accumulated amortization of $308 in 2015
3,132

 

Total liabilities
1,030,769

 
993,872

Commitments and contingencies

 

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

 
220,083

Additional paid-in capital
1,721,560

 
1,720,972

Treasury stock at cost, 3,570,082 shares in 2015 and 2014
(86,840
)
 
(86,840
)
Distributions in excess of cumulative net income
(200,279
)
 
(180,757
)
Total equity
1,654,697

 
1,673,458

Total liabilities and equity
$
2,685,466

 
$
2,667,330

 
 
 
 
See accompanying notes.
 
 
 

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


 
Three Months Ended
 
Six Months Ended
 
June 30,
 
June 30,
 
2015
 
2014
 
2015
 
2014
Revenues:
 
 
 
 
 
 
 
Rental property revenues
$
96,177

 
$
80,034

 
$
186,216

 
$
157,518

Fee income
1,704

 
2,025

 
3,520

 
4,363

Other
22

 
2,446

 
143

 
4,347

 
97,903

 
84,505

 
189,879

 
166,228

Costs and expenses:
 

 
 

 
 
 
 
Rental property operating expenses
41,387

 
35,959

 
79,340

 
70,816

Reimbursed expenses
717

 
988

 
1,828

 
1,920

General and administrative expenses
5,936

 
5,756

 
9,431

 
11,366

Interest expense
7,869

 
6,970

 
15,546

 
14,137

Depreciation and amortization
34,879

 
35,135

 
71,026

 
69,274

Separation expenses

 

 
102

 
84

Acquisition and related costs
2

 
149

 
85

 
171

Other
341

 
877

 
698

 
1,370

 
91,131

 
85,834

 
178,056

 
169,138

Income (loss) from continuing operations before taxes, unconsolidated joint ventures, and sale of investment properties
6,772

 
(1,329
)
 
11,823

 
(2,910
)
Benefit for income taxes from operations

 
9

 

 
21

Income from unconsolidated joint ventures
1,761

 
2,027

 
3,372

 
3,313

Income from continuing operations before gain on sale of investment properties
8,533

 
707

 
15,195

 
424

Gain (loss) on sale of investment properties
(576
)
 
1,327

 
530

 
1,488

Income from continuing operations
7,957

 
2,034

 
15,725

 
1,912

Income (loss) from discontinued operations:
 

 
 

 
 
 
 
Income (loss) from discontinued operations
(6
)
 
566

 
(19
)
 
1,457

Gain (loss) on sale from discontinued operations

 
14

 
(551
)
 
6,379

 
(6
)
 
580

 
(570
)
 
7,836

Net income
7,951

 
2,614

 
15,155

 
9,748

Net income attributable to noncontrolling interests

 
(129
)
 

 
(284
)
Net income attributable to controlling interests
7,951

 
2,485

 
15,155

 
9,464

Dividends to preferred stockholders

 
(1,178
)
 

 
(2,955
)
Preferred share original issuance costs

 
(3,530
)
 

 
(3,530
)
Net income (loss) available to common stockholders
$
7,951

 
$
(2,223
)
 
$
15,155

 
$
2,979

Per common share information — basic and diluted:
 

 
 

 
 
 
 
Income (loss) from continuing operations attributable to controlling interest
$
0.04

 
$
(0.01
)
 
$
0.07

 
$
(0.02
)
Income from discontinued operations

 

 

 
0.04

Net income (loss) available to common stockholders
$
0.04

 
$
(0.01
)
 
$
0.07

 
$
0.02

Weighted average shares — basic
216,630

 
198,440

 
216,599

 
195,108

Weighted average shares — diluted
216,766

 
198,440

 
216,753

 
195,347

Dividends declared per common share
$
0.080

 
$
0.075

 
$
0.160

 
$
0.150


See accompanying notes.

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

 
$
220,083

 
$
1,720,972

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

 
$

 
$
1,673,458

Net income

 

 

 

 
15,155

 
15,155

 

 
15,155

Common stock issued pursuant to:
 

 
 

 
 

 
 

 
 

 
 

 
 

 
 
Director stock grants

 
79

 
686

 

 

 
765

 

 
765

Stock option exercises

 
4

 
(19
)
 

 

 
(15
)
 

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

 
90

 
(911
)
 

 

 
(821
)
 

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

 

 
808

 

 

 
808

 

 
808

Common dividends

 

 

 

 
(34,677
)
 
(34,677
)
 

 
(34,677
)
Other

 

 
24

 

 

 
24

 

 
24

Balance June 30, 2015
$

 
$
220,256

 
$
1,721,560

 
$
(86,840
)
 
$
(200,279
)
 
$
1,654,697

 
$

 
$
1,654,697

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
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 nonredeemable 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

See accompanying notes.

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


 
Six Months Ended June 30,
 
2015
 
2014
Cash flows from operating activities:
 
 
 
Net income
$
15,155

 
$
9,748

Adjustments to reconcile net income to net cash provided by operating activities:
 
 
 
(Gain) loss on sale of investment properties, including discontinued operations
21

 
(7,867
)
Depreciation and amortization, including discontinued operations
70,381

 
69,354

Amortization of deferred financing costs
716

 
604

Amortization of stock options and restricted stock, net of forfeitures
808

 
1,059

Effect of certain non-cash adjustments to rental revenues
(15,047
)
 
(15,139
)
Income from unconsolidated joint ventures
(3,372
)
 
(3,313
)
Operating distributions from unconsolidated joint ventures
1,820

 
3,165

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

 
255

Changes in other operating assets and liabilities:
 
 
 
Change in other receivables and other assets, net
(10,106
)
 
(680
)
Change in operating liabilities
(15,311
)
 
(7,133
)
Net cash provided by operating activities
45,065

 
50,053

Cash flows from investing activities:
 
 
 
Proceeds from investment property sales
9,164

 
29,050

Property acquisition, development, and tenant asset expenditures
(73,344
)
 
(70,730
)
Investment in unconsolidated joint ventures
(3,443
)
 
(7,752
)
Distributions from unconsolidated joint ventures
1,649

 
4,112

Change in notes receivable and other assets
772

 
(2,332
)
Change in restricted cash
(652
)
 
(1,094
)
Net cash used in investing activities
(65,854
)
 
(48,746
)
Cash flows from financing activities:
 
 
 
Proceeds from credit facility
114,100

 
213,325

Repayment of credit facility
(52,300
)
 
(172,950
)
Repayment of notes payable
(4,371
)
 
(4,617
)
Payment of loan issuance costs

 
(3,176
)
Common stock issued, net of expenses
9

 
98,519

Redemption of preferred shares

 
(94,775
)
Common dividends paid
(34,677
)
 
(29,115
)
Preferred dividends paid

 
(2,955
)
Distributions to noncontrolling interests

 
(281
)
Net cash provided by financing activities
22,761

 
3,975

Net increase in cash and cash equivalents
1,972

 
5,282

Cash and cash equivalents at beginning of period

 
975

Cash and cash equivalents at end of period
$
1,972

 
$
6,257

 
 
 
 
Interest paid, net of amounts capitalized
$
15,477


$
14,256

 
 
 
 
Significant non-cash transactions:
 
 
 

Change in accrued property acquisition, development, and tenant asset expenditures
$
416

 
$
999

Transfer from operating properties to real estate assets and other assets held for sale
86,775

 

Transfer from operating properties to liabilities of real estate assets held for sale
3,132

 


See accompanying notes.

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COUSINS PROPERTIES INCORPORATED AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
June 30, 2015
(Unaudited)
1. DESCRIPTION OF BUSINESS AND BASIS OF PRESENTATION
Cousins Properties Incorporated (“Cousins”), a Georgia corporation, is a self-administered and self-managed real estate investment trust (“REIT”). Through December 31, 2014, Cousins Real Estate Corporation (“CREC”) was a taxable entity wholly-owned by and consolidated with Cousins. CREC owned, developed, and managed its own real estate portfolio and performed certain real estate related services for other parties. On December 31, 2014, CREC merged into Cousins and coincident with this merger, Cousins formed Cousins TRS Services LLC ("CTRS"), a new taxable entity wholly-owned by Cousins. Upon formation, CTRS received a capital contribution of some of the real estate assets and contracts that were previously owned by CREC. CTRS owns and manages its own real estate portfolio and performs certain real estate related services for other parties. All of the entities included in the condensed 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.
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, 2015 and the results of operations for the three and six months ended June 30, 2015 and 2014. The results of operations for the three and six months ended June 30, 2015 are not necessarily indicative of results expected for the full year. Certain information and footnote disclosures normally included in financial statements prepared in accordance with GAAP have been condensed or omitted pursuant to the rules and regulations of the SEC. These condensed consolidated financial statements should be read in conjunction with the consolidated financial statements and the notes thereto included in the Company's Annual Report on Form 10-K/A for the year ended December 31, 2014. The accounting policies employed are substantially the same as those shown in note 2 to the consolidated financial statements included in such Form 10-K/A.
For the three and six months ended June 30, 2015 and 2014, there were no items of other comprehensive income. Therefore, no presentation of comprehensive income is required.
The Company evaluates all partnerships, joint ventures and other arrangements with variable interests to determine if the entity or arrangement qualifies as a variable interest entity (“VIE”), as defined in the Financial Accounting Standards Board's ("FASB") Accounting Standards Codification ("ASC"). If the entity or arrangement qualifies as a VIE and the Company is determined to be the primary beneficiary, the Company is required to consolidate the assets, liabilities, and results of operations of the VIE.
In April 2014, the FASB issued new guidance related to the presentation of discontinued operations. Prior to this new guidance, the Company included activity for all operating properties held for sale and disposals in which it did not have "continuing involvement", 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 was effective for periods beginning after December 15, 2014 with early adoption permitted. The Company adopted this guidance in 2014.
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 under the current guidance. The new guidance specifically excludes revenue associated with lease contracts. The guidance is effective for periods beginning after December 15, 2017, with early adoption permitted for periods beginning after December 15, 2016. The Company expects to adopt this guidance effective January 1, 2018, and is currently assessing the potential impact of adopting the new guidance.
In February 2015, the FASB issued new guidance which amends the consolidation requirements in ASC 810. All legal entities are subject to reevaluation under the revised consolidation model. The amendment modifies the evaluation of whether limited

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partnerships and similar legal entities are variable interest entities or voting interest entities. It also eliminates the presumption that a general partner should consolidate a limited partnership. The guidance is effective for public entities with periods beginning after December 15, 2015 with early adoption permitted. The Company expects to adopt this guidance effective January 1, 2016, and is currently assessing the potential impact of adopting the new guidance.
In April 2015, the FASB issued new guidance which changes the presentation of debt issuance costs in financial statements. Under the new guidance, companies will present debt issuance costs as a direct deduction from the related debt rather than as an asset. These costs will continue to be amortized into interest expense. The guidance is effective for periods beginning after December 15, 2015 with early adoption permitted. The Company expects to adopt this guidance effective January 1, 2016, and the Company does not expect the adoption of this guidance to have a material impact on its consolidated financial statements.
Certain prior year amounts have been reclassified for consistency with the current period presentation. In first quarter of 2015, the Company concluded that certain liabilities associated with variable stock-based compensation should be classified as other liabilities. Previously, these items had been classified as accounts payable and accrued expenses. This change in classification does not affect the previously reported Condensed Consolidated Statement of Cash Flows or Consolidated Statement of Operations for any period.
2.    REAL ESTATE ASSETS HELD FOR SALE

During the second quarter of 2015, the Company determined that 2100 Ross, an 844,000 square foot office property in Dallas, Texas, met the criteria for held for sale. The Company also determined the sale of the property would not represent a strategic shift in operations and, therefore, it is presented in continuing operations for all periods present. This property is also classified as an office segment under segment reporting requirements. The Company transferred the assets and liabilities of 2100 Ross to assets and liabilities held for sale on the Condensed Consolidated Balance Sheet as of June 30, 2015.
The major classes of assets and liabilities of the property held for sale as of June 30, 2015 are as follows (in thousands):

Real estate assets and related assets held for sale
 
 
Operating Properties, net of accumulated depreciation of $13,294
 
$
74,667

Notes and accounts receivable
 
560

Deferred rents receivable
 
6,195

Intangible assets, net of accumulated amortization of $7,590
 
4,391

Other assets
 
962

 
 
$
86,775

 
 
 
Liabilities of real estate assets held for sale
 
 
Accounts payable and accrued expenses
 
$
2,319

Intangible liabilities, net of accumulated amortization of $308
 
128

Other liabilities
 
685

 
 
$
3,132


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/A for the year ended December 31, 2014. The following table summarizes balance sheet data of the Company's unconsolidated joint ventures as of June 30, 2015 and December 31, 2014 (in thousands):

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Total Assets
 
Total Debt
 
Total Equity
 
Company’s Investment
 
SUMMARY OF FINANCIAL POSITION:
2015
 
2014
 
2015
 
2014
 
2015
 
2014
 
2015
 
2014
 
 Terminus Office Holdings
$
291,133

 
$
288,415

 
$
212,444

 
$
213,640

 
$
64,374

 
$
62,830

 
$
32,916

 
$
32,323

 
 EP I LLC
84,490

 
85,228

 
58,029

 
58,029

 
24,611

 
26,671

 
22,217

 
22,905

 
 EP II LLC
65,213

 
42,772

 
32,879

 
12,735

 
24,858

 
24,969

 
19,839

 
19,905

 
 Charlotte Gateway Village, LLC
127,949

 
130,272

 
26,676

 
35,530

 
87,736

 
92,808

 
11,201

 
11,218

 
 HICO Victory Center LP
12,458

 
10,450

 

 

 
12,204

 
10,450

 
8,636

 
7,572

 
 CL Realty, L.L.C.
7,403

 
7,264

 

 

 
7,285

 
7,042

 
3,676

 
3,546

 
 Temco Associates, LLC
6,536

 
6,910

 

 

 
6,144

 
6,709

 
2,769

 
3,027

 
 Carolina Square Holdings LP
4,960

 

 

 

 
4,960

 

 
2,409

 

 
 Wildwood Associates
16,440

 
16,400

 

 

 
16,402

 
16,389

 
(1,136
)
(1)
(1,106
)
(1)
 Crawford Long - CPI, LLC
30,986

 
29,946

 
75,000

 
75,000

 
(57,595
)
 
(45,762
)
 
(21,722
)
(1)
(21,931
)
(1)
 Other
1,118

 
1,411

 

 

 
906

 
979

 
2

 
2

 
 
$
648,686

 
$
619,068

 
$
405,028

 
$
394,934

 
$
191,885

 
$
203,085

 
$
80,807

 
$
77,461

 
(1) Negative balances are included in deferred income on the balance sheets.
The following table summarizes statement of operations information of the Company's unconsolidated joint ventures for the six months ended June 30, 2015 and 2014 (in thousands):
 
Total Revenues
 
Net Income (Loss)
 
Company's Share of Income (Loss)
SUMMARY OF OPERATIONS:
2015
 
2014
 
 
2015
 
2014
 
 
2015
 
2014
 
Terminus Office Holdings
$
19,638

 
$
19,357

 
 
$
1,139

 
$
(2
)
 
 
$
570

 
$
(23
)
 
EP I LLC
6,218

 
5,975

 
 
1,480

 
1,417

 
 
1,112

 
1,062

 
Charlotte Gateway Village, LLC
16,913

 
16,732

 
 
6,225

 
5,689

 
 
589

 
588

 
CL Realty, L.L.C.
469

 
827

 
 
243

 
550

 
 
130

 
264

 
Temco Associates, LLC
1,144

 
714

 
 
435

 
114

 
 
242

 
(34
)
 
Wildwood Associates

 
29

 
 
(58
)
 
(86
)
 
 
(30
)
 
(30
)
 
Crawford Long - CPI, LLC
6,139

 
5,881

 
 
1,446

 
1,348

 
 
728

 
701

 
Cousins Watkins LLC

 
2,526

 
 

 
159

 
 

 
1,133

 
Other
12

 
5

 
 
(181
)
 
(180
)
 
 
31

 
(348
)
 
 
$
50,533

 
$
52,046

 
 
$
10,729

 
$
9,009

 
 
$
3,372

 
$
3,313

 
On May 1, 2015, Carolina Square Holdings LP ("Carolina Square") was formed between the Company and NR 123 Franklin LLC ("Northwood Ravin"). Carolina Square is a 50-50 joint venture formed for the purpose of developing and constructing a mixed-use property in Chapel Hill, North Carolina pursuant to a ground lease. Upon formation, each partner contributed $1.7 million in cash towards pre-development costs. Carolina Square also entered into a construction loan agreement, secured by the project, which is expected to provide up to $79.8 million to fund future construction costs. The loan bears interest at LIBOR plus 1.90% and matures on May 1, 2018. The Company and Northwood Ravin will each guarantee 12.5% of the loan amount.
4. INTANGIBLE ASSETS
Intangible assets on the balance sheets as of June 30, 2015 and December 31, 2014 included the following (in thousands):
 
 
June 30, 2015
 
December 31, 2014
In-place leases, net of accumulated amortization of $74,457 and $62,302 in 2015 and 2014, respectively
 
$
126,539

 
$
147,360

Above-market tenant leases, net of accumulated amortization of $14,319 and $13,748 in 2015 and 2014, respectively
 
9,151

 
12,017

Goodwill
 
3,867

 
3,867

 
 
$
139,557

 
$
163,244



Goodwill relates entirely to the office reportable segment. As office assets are sold, either by the Company or by joint ventures in which the Company has an ownership interest, goodwill is reduced. The following is a summary of goodwill activity for the six months ended June 30, 2015 and 2014 (in thousands):

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Six Months Ended June 30,
 
2015
 
2014
Beginning balance
$
3,867

 
$
4,131

Allocated to property sales

 
(30
)
Ending balance
$
3,867

 
$
4,101

5. OTHER ASSETS
Other assets on the balance sheets as of June 30, 2015 and December 31, 2014 included the following (in thousands):
 
 
June 30, 2015
 
December 31, 2014
Lease inducements, net of accumulated amortization of $7,057 and $5,475 in 2015 and 2014, respectively
 
$
14,233

 
$
12,245

FF&E and leasehold improvements, net of accumulated depreciation of $21,512 and $19,137 in 2015 and 2014, respectively
 
12,577

 
10,590

Loan closing costs, net of accumulated amortization of $3,001 and $2,286 in 2015 and 2014, respectively
 
6,171

 
6,878

Prepaid expenses and other assets
 
5,250

 
3,428

Predevelopment costs and earnest money
 
1,129

 
1,789

 
 
$
39,360

 
$
34,930


6. NOTES PAYABLE
The following table summarizes the terms and amounts of the Company’s notes payable at June 30, 2015 and December 31, 2014 ($ in thousands):
Description
 
Interest Rate
 
Maturity
 
June 30, 2015
 
December 31, 2014
Credit Facility, unsecured
 
1.29
%
 
2019
 
$
202,000

 
$
140,200

Post Oak Central mortgage note
 
4.26
%
 
2020
 
183,457

 
185,109

The American Cancer Society Center mortgage note
 
6.45
%
 
2017
 
130,215

 
131,083

Promenade mortgage note
 
4.27
%
 
2022
 
109,588

 
110,946

191 Peachtree Tower mortgage note
 
3.35
%
 
2018
 
100,000

 
100,000

816 Congress mortgage note
 
3.75
%
 
2024
 
85,000

 
85,000

Meridian Mark Plaza mortgage note
 
6.00
%
 
2020
 
25,197

 
25,408

The Points at Waterview mortgage note
 
5.66
%
 
2016
 
14,315

 
14,598

 
 
 
 
 
 
$
849,772

 
$
792,344


Fair Value
At June 30, 2015 and December 31, 2014, the aggregate estimated fair values of the Company's notes payable were $881.0 million and $835.4 million, respectively, calculated by discounting the debt's remaining contractual cash flows at estimated rates at which similar loans could have been obtained at those respective dates. The estimate of the current market rate, which is the most significant input in the discounted cash flow calculation, is intended to replicate debt of similar maturity and loan-to-value relationship. These fair value calculations are considered to be Level 2 under the guidelines as set forth in ASC 820, Fair Value Measurement, as the Company utilizes market rates for similar type loans from third party brokers.
Other Information
For the three and six months ended June 30, 2015 and 2014, interest expense was as follows (in thousands):

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Three Months Ended June 30,
 
Six Months Ended June 30,
 
2015
 
2014
 
2015
 
2014
Total interest incurred
$
8,683

 
$
7,580

 
$
17,263

 
$
15,120

Interest capitalized
(814
)
 
(610
)
 
(1,717
)
 
(983
)
Total interest expense
$
7,869

 
$
6,970

 
$
15,546

 
$
14,137

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, 2015, the Company had outstanding letters of credit and performance bonds totaling $2.0 million. As a lessor, the Company had $106.3 million in future obligations under leases to fund tenant improvements as of June 30, 2015. As a lessee, the Company had future obligations under ground and office leases of $146.0 million as of June 30, 2015.
Litigation
The Company is subject to various legal proceedings, claims and administrative proceedings arising in the ordinary course of business, some of which are expected to be covered by liability insurance. Management makes assumptions and estimates 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.

8. STOCK-BASED COMPENSATION
The Company has several types of stock-based compensation - stock options, restricted stock, and restricted stock units (“RSUs”) - which are described in note 13 of notes to consolidated financial statements in the Company's Annual Report on Form 10-K/A for the year ended December 31, 2014. The expense related to a portion of the stock-based compensation awards is fixed. The expense related to other stock-based compensation awards fluctuates from period to period dependent, in part, on the Company's stock price and stock performance relative to its peers. The Company recorded stock-based compensation expense, net of forfeitures, of $2.0 million and $2.4 million for the three months ended June 30, 2015 and 2014, respectively and $1.9 million and $4.8 million for the six months ended June 30, 2015 and 2014, respectively.
The Company maintains the 2009 Incentive Stock Plan (the "2009 Plan") and the 2005 Restricted Stock Unit Plan (the “RSU Plan”), which are described in note 13 of notes to consolidated financial statements in the Company's Annual Report on Form 10-K/A for the year ended December 31, 2014. Under the 2009 Plan, the Company made restricted stock grants in 2015 of 165,922 shares to key employees, which vest ratably over a three-year period. Under the RSU Plan, the Company awarded two types of RSUs to key employees based on the following metrics: (1) Total Stockholder Return of the Company, as defined in the RSU Plan, as compared to the companies in the SNL US REIT Office index (“SNL RSUs”), and (2) the ratio of cumulative funds from operations per share to targeted cumulative funds from operations per share (“FFO RSUs”) as defined in the RSU Plan. The performance period for both awards is January 1, 2015 to December 31, 2017, and the targeted units awarded of SNL RSUs and FFO RSUs is 175,849 and 68,110, respectively. The ultimate payout of these awards can range from 0% to 200% of the targeted number of units depending on the achievement of the market and performance metrics described above. Both of these RSUs cliff vest on 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, 2017. The SNL RSUs are valued using a quarterly Monte Carlo valuation

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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.
9. EARNINGS PER SHARE
Net income per share-basic is calculated as net income available to common stockholders divided by the weighted average number of common shares outstanding during the period, including nonvested restricted stock which has nonforfeitable dividend rights. Net income per share-diluted is calculated as net income available to common stockholders divided by the diluted weighted average number of common shares outstanding during the period. Diluted weighted average number of common shares uses the same weighted average share number as in the basic calculation and adds the potential dilution, if any, that would occur if stock options (or any other contracts to issue common stock) were exercised and resulted in additional common shares outstanding, calculated using the treasury stock method. The numerator is reduced for the effect of preferred dividends in both the basic and diluted net income per share calculations. Weighted average shares-basic and diluted for the three and six months ended June 30, 2015 and 2014, respectively, are as follows (in thousands):
 
Three Months Ended June 30,
 
Six Months Ended June 30,
 
2015
 
2014
 
2015
 
2014
Weighted average shares — basic
216,630

 
198,440

 
216,599

 
195,108

Dilutive potential common shares — stock options
136

 

 
154

 
239

Weighted average shares — diluted
216,766

 
198,440

 
216,753

 
195,347

Weighted average anti-dilutive stock options
1,553

 
2,200

 
1,553

 
2,200

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

10. SUBSEQUENT EVENTS

In July 2015, the Company purchased a 4.16 acre site for $27.0 million in Atlanta, Georgia for the development of NCR Corporation’s headquarters building. The site is expected to include an approximately 485,000 square foot office building, which is 100% pre-leased to NCR Corporation for 15 years. The site also includes a parcel for a potential future second phase.
11. REPORTABLE SEGMENTS
The Company has four reportable segments: Office, Retail, Land and Other. These reportable segments represent an aggregation of operating segments reported to the chief operating decision maker based on similar economic characteristics that include the type of product and the nature of service. Each segment includes both consolidated operations and joint ventures, where applicable. The Office and Retail segments show the results for that product type. The Land segment includes results of operations for residential and commercial land holdings. The Other segment includes:
fee income and related expenses for third party owned properties and joint venture properties for which the Company performs management, development and leasing services;
compensation for corporate employees;
general corporate overhead costs;
interest expense for consolidated and unconsolidated entities;
income attributable to noncontrolling interests;
income taxes;
depreciation; and
preferred dividends.
Company management evaluates the performance of its reportable segments in part based on funds from operations available to common stockholders (“FFO”). FFO is a supplemental operating performance measure used in the real estate industry. The Company calculated FFO using the National Association of Real Estate Investment Trusts’ (“NAREIT”) definition of FFO, which

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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 available to common stockholders on a total Company basis (in thousands):
 
Three Months Ended June 30, 2015
 
Office
 
Retail
 
Land
 
Other
 
Total
 Net operating income
$
59,269

 
$

 
$

 
$
1,505

 
$
60,774

 Sales less costs of sales

 

 
(324
)
 

 
(324
)
 Fee income

 

 

 
1,704

 
1,704

 Other income

 

 

 
238

 
238

 General and administrative expenses

 

 

 
(5,942
)
 
(5,942
)
 Reimbursed expenses

 

 

 
(717
)
 
(717
)
 Interest expense

 

 

 
(9,696
)
 
(9,696
)
 Other expenses

 

 

 
(799
)
 
(799
)
 Funds from operations available to common stockholders
 
$
59,269

 
$

 
$
(324
)
 
$
(13,707
)
 
45,238

 Real estate depreciation and amortization, including Company's share of joint ventures
 
 
 
 
 
 
 
 
 
(37,277
)
Loss on sale of depreciated investment properties, including Company's share of joint ventures
 
 
 
 
 
 
 
 
 
(10
)
 Net income available to common stockholders
 
 
 
 
 
 
 
 
 
$
7,951

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 the Company's share of joint ventures
 
 
 
 
 
 
 
 
 
15

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


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Table of Contents




Six Months Ended June 30, 2015
 
Office
 
Retail
 
Land
 
Other
 
Total
 Net operating income
 
$
116,003

 
$

 
$

 
$
2,824

 
$
118,827

 Sales less costs of sales
 

 

 
486

 

 
486

 Fee income
 

 

 

 
3,520

 
3,520

 Other income
 

 

 

 
645

 
645

 Separation expenses
 

 

 

 
(102
)
 
(102
)
 General and administrative expenses
 

 

 

 
(9,435
)
 
(9,435
)
 Reimbursed expenses
 

 

 

 
(1,828
)
 
(1,828
)
 Interest expense
 

 

 

 
(19,194
)
 
(19,194
)
 Other expenses
 

 

 

 
(1,746
)
 
(1,746
)
Funds from operations available to common stockholders
 
$
116,003

 
$

 
$
486

 
$
(25,316
)
 
91,173

Real estate depreciation and amortization, including Company's share of joint ventures
 
 
 
 
 
 
 
 
 
(75,743
)
Loss on sale of depreciated investment properties, including Company's share of joint ventures
 
 
 
 
 
 
 
 
 
(275
)
Net income available to common stockholders
 
 
 
 
 
 
 
 
 
$
15,155

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


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):

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Table of Contents


 
Three Months Ended June 30,
 
Six Months Ended June 30,
 
2015
 
2014
 
2015
 
2014
Net operating income
$
60,774

 
$
51,288

 
$
118,827

 
$
101,306

Sales less cost of sales
(324
)
 
1,373

 
486

 
1,533

Fee income
1,704

 
2,025

 
3,520

 
4,363

Other income
238

 
2,256

 
645

 
4,172

Rental property operating expenses
41,387

 
35,959

 
79,340

 
70,816

Cost of sales

 
270

 

 
270

Net operating income in joint ventures
(5,984
)
 
(6,648
)
 
(11,971
)
 
(13,147
)
Sales less cost of sales in joint ventures
(242
)
 
(47
)
 
(242
)
 
(47
)
Net operating income in discontinued operations

 
(565
)
 
14

 
(1,457
)
Other income in discontinued operations and in joint ventures
(188
)
 
(82
)
 
(348
)
 
(89
)
Termination fees in discontinued operations and in joint ventures
(28
)
 

 
(148
)
 

(Gain) loss on land sales (included in gain on investment properties)
566

 
(1,324
)
 
(244
)
 
(1,492
)
Total consolidated revenues
$
97,903

 
$
84,505

 
$
189,879

 
$
166,228

    


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Item 2.    Management's Discussion and Analysis of Financial Condition and Results of Operations
Overview:
Cousins Properties Incorporated (and collectively, with its subsidiaries, the "Company", "we","our", or "us") is a self-administered and self-managed real estate investment trust, or REIT. Our core focus is on the acquisition, development, leasing, management and ownership of Class-A office properties in Sunbelt markets with a particular focus on Georgia, Texas, and North Carolina. As of June 30, 2015, our portfolio of real estate assets consisted of interests in 17 operating office properties containing 16.1 million square feet of space, one operating mixed-use property containing 484,000 square feet of space, and three projects (one office and two mixed-use) under active development. We have a comprehensive strategy in place based on a simple platform, trophy assets and opportunist investments. This streamlined approach enables us to maintain a targeted, asset specific approach to investing where we seek to leverage our development skills, relationships, market knowledge, and operational expertise. We intend to generate returns and create value for shareholders through the continued lease up of our portfolio, through the execution of our development pipeline, and through opportunistic investments in office and mixed-use projects within our core markets.
We leased or renewed 521,348 square feet of office space during the second quarter of 2015, bringing total square footage leased for the year to 962,187. Net effective rent, representing base rent less operating expense reimbursements and leasing costs, was $16.96 per square foot for office properties in the second quarter of 2015 and $16.00 for the first half of 2015. Net effective rent per square foot for office properties decreased 2.4% during the second quarter of 2015 and decreased 1.6% for the first half of 2015 compared to prior year periods, on spaces that have been previously occupied in the past year. The same property leasing percentage remained stable at 91.7% throughout the first six months of 2015. Same property net operating income increased by 1.6% and 3.4% between the three and six month 2015 and 2014 periods. We will continue to target urban high-barrier-to-entry submarkets in Austin, Dallas, Houston, Atlanta, Charlotte, and Raleigh/Durham. We believe these markets continue to show positive demographic and economic trends compared to the national average.
Results of Operations
The following is based on our Consolidated Statements of Operations for the three and six months ended June 30, 2015 and 2014:
Rental Property Revenues
Rental property revenues increased $16.1 million (20%) and $28.7 million (18%) between the three and six month 2015 and 2014 periods primarily due to the following:
Increase of $9.8 million and $19.0 million between the three and six month 2015 and 2014 periods due to the October 2014 purchase of Northpark Town Center;
Increase of $5.3 million and $10.8 million between the three and six month 2015 and 2014 periods due to the August 2014 purchase of Fifth Third Center;
Increase of $2.8 million and $3.5 million between the three and six month 2015 and 2014 at Colorado Tower due to commenced operations during the first quarter of 2015.
Increase of $2.4 million and $3.6 million between the three and six month 2015 and 2014 periods due to increased rental rates with tenant renewals at Post Oak;
Increase of $1.0 million and $2.0 million between the three and six month 2015 and 2014 periods due to increased occupancy at 2100 Ross;
Increase of $1.4 million between the six month 2015 and 2014 periods due to increased occupancy at Promenade; and
Decrease of $5.5 million and $11.1 million between the three and six month 2015 and 2014 periods due to the December 2014 sale of 777 Main.
Other Revenue
Other Revenue decreased $2.4 million (99%) and $4.2 million (97%) between the three month 2015 and 2014 periods. This decrease is primarily due to lower lease termination fees.
Rental Property Operating Expenses
Rental property operating expenses increased $5.4 million (15%) and $8.5 million (12%) between the three and six month 2015 and 2014 periods. This increase is primarily due to the following:
Increase of $4.3 million and $7.7 million between the three and six month 2015 and 2014 periods due to the October 2014 purchase of Northpark Town Center;
Increase of $1.6 million and $3.4 million between the three and six month 2015 and 2014 periods due to the August 2014 purchase of Fifth Third Center;

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Increase of $1.0 million and $1.4 million between the three and six month 2015 and 2014 periods at Colorado Tower due to commenced operations during the first quarter of 2015;
Increase of $700,000 and $1.2 million between the three and six month 2015 and 2014 periods at 191 Peachtree due to net changes in bad debt expense.
Decrease of $3.0 million and $6.0 million between the three and six month 2015 and 2014 periods due to the December 2014 sale of 777 Main.
General and Administrative Expenses
General and administrative expenses decreased $1.9 million between the six month 2015 and 2014 periods. This decrease is primarily due to a reduction in long term incentive compensation expense as a result of the decline in our common stock price relative to our office peers included in the SNL US Office REIT Index.
Interest Expense
Interest expense increased $1.4 million (10%) between the six month 2015 and 2014 periods, primarily due to the following:
Increase of $1.6 million related to a mortgage loan on 816 Congress that closed in 2014;
Increase of $760,000 related to additional average borrowings on our Credit Facility; and
Decrease of $734,000 related to an increase in capitalized interest as a result of an increase in development activities.
Depreciation and Amortization
Depreciation and amortization increased $1.8 million (3%) between the six month 2015 and 2014 periods, primarily due to the 2014 acquisitions of Fifth Third Center and Northpark Town Center. These were partially offset by the December 2014 sale of 777 Main.
Gain on Sale of Investment Properties
Gain on sale of investment properties decreased $1.9 million between the three month 2015 and 2014 periods. This decrease is due to $1.3 million of gain recognized on undeveloped tracts of land in the 2014 period in addition to a second quarter loss of $576,000 on the sale of the Blalock Lakes project in the 2015 period.
Discontinued Operations
Income from discontinued operations decreased $8.4 million between the six month 2015 and 2014 periods, due to new accounting guidance. In April 2014, the Financial Accounting Standards Board issued new guidance on discontinued operations. Under the new guidance, only assets held for sale and disposals representing a major strategic shift in operations will be presented as discontinued operations. This guidance is effective for periods beginning after December 15, 2014 with early adoption permitted. We adopted this new standard in the second quarter of 2014. Therefore, the properties sold subsequently are not reflected as discontinued operations in our Consolidated Statements of Operations.
Dividends to Preferred Stockholders
Dividends to preferred stockholders decreased $1.2 million and $3.0 million between the three and six month 2015 and 2014 periods due to the redemption of the 7.5% Series B Cumulative Redeemable Preferred Stock in the second quarter of 2014. We have no remaining outstanding preferred stock as of June 30, 2014 and, as a result, in future periods will have no preferred stock dividends.
Preferred Stock Original Issuance Costs
In April 2014, we redeemed all outstanding shares of our 7.5% Series B Cumulative Redeemable Preferred Stock. In connection with the redemption of Preferred Stock, we decreased net income available by common shareholders by $3.5 million (non-cash), which represents the original issuance costs applicable to the shares redeemed.
Funds From Operations
The table below shows Funds from Operations Available to Common Stockholders (“FFO”) and the related reconciliation to our net income available to common stockholders. We calculate FFO in accordance with the National Association of Real Estate Investment Trusts’ (“NAREIT”) definition, which is net income available to common stockholders (computed in accordance with GAAP), excluding extraordinary items, cumulative effect of change in accounting principle and gains on sale or impairment losses on depreciable property, plus depreciation and amortization of real estate assets, and after adjustments for unconsolidated partnerships and joint ventures to reflect FFO on the same basis.
FFO is used by industry analysts and investors as a supplemental measure of a REIT’s operating performance. Historical cost accounting for real estate assets implicitly assumes that the value of real estate assets diminishes predictably over time. Since real estate values instead have historically risen or fallen with market conditions, many industry investors and analysts have considered presentation of operating results for real estate companies that use historical cost accounting to be insufficient by

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themselves. Thus, NAREIT created FFO as a supplemental measure of REIT operating performance that excludes historical cost depreciation, among other items, from GAAP net income. The use of FFO, combined with the required primary GAAP presentations, has been fundamentally beneficial, improving the understanding of operating results of REITs among the investing public and making comparisons of REIT operating results more meaningful. Company management evaluates operating performance in part based on FFO. Additionally, we use FFO, along with other measures, to assess performance in connection with evaluating and granting incentive compensation to its officers and other key employees. The reconciliation of net income available to common stockholders to FFO is as follows for the three and six months ended June 30, 2015 and 2014 (in thousands, except per share information):
 
Three Months Ended June 30,
 
Six Months Ended June 30,
 
2015
 
2014
 
2015
 
2014
Net Income (Loss) Available to Common Stockholders
$
7,951

 
$
(2,223
)
 
$
15,155

 
$
2,979

Depreciation and amortization of real estate assets:

 

 

 

Consolidated properties
34,505

 
34,934

 
70,228

 
68,888

Share of unconsolidated joint ventures
2,772

 
3,088

 
5,515

 
6,086

(Gain) loss on sale of depreciated properties:

 

 

 

Consolidated properties
10

 
(1
)
 
(276
)
 
(1
)
Discontinued properties

 
(14
)
 
551

 
(6,373
)
Share of unconsolidated joint ventures

 

 

 
387

Funds From Operations Available to Common Stockholders
$
45,238

 
$
35,784

 
$
91,173

 
$
71,966

Per Common Share — Basic and Diluted:

 

 

 

Net Income (Loss) Available
$
0.04

 
$
(0.01
)
 
$
0.07

 
$
0.02

Funds From Operations
$
0.21

 
$
0.18

 
$
0.42

 
$
0.37

Weighted Average Shares — Basic
216,630

 
198,440

 
216,599

 
195,108

Weighted Average Shares — Diluted
216,766

 
198,440

 
216,753

 
195,347



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Same Property Net Operating Income
We use Net Operating Income, a non-GAAP financial measure, to measure operating performance of our properties. Net Operating Income is also widely used by industry analysts and investors to evaluate performance. Net Operating Income, which is rental property revenues less rental property operating expenses, excludes certain components from net income in order to provide results that are more closely related to a property's results of operations. Certain items, such as interest expense, while included in FFO and net income, do not affect the operating performance of a real estate asset and are often incurred at the corporate level as opposed to the property level. As a result, management uses only those income and expense items that are incurred at the property level to evaluate a property's performance. Depreciation and amortization are also excluded from Net Operating Income. Same Property Net Operating Income includes those office properties that have been fully operational in each of the comparable reporting periods. A fully operational property is one that has achieved 90% economic occupancy for each of the two periods presented or has been substantially complete and owned by us for each of the two periods presented and the preceding year. Same Property Net Operating Income allows analysts, investors and management to analyze continuing operations and evaluate the growth trend of our portfolio.
 
Three Months Ended June 30,
 
Six Months Ended June 30,
 
2015
 
2014
 
2015
 
2014
Net Operating Income - Consolidated Properties
 
 
 
 
 
 
 
Rental property revenues
$
96,177

 
$
80,034

 
$
186,216

 
$
157,518

Rental property expenses
(41,387
)
 
(35,959
)
 
(79,340
)
 
(70,816
)
 
54,790

 
44,075

 
106,876

 
86,702

Net Operating Income - Discontinued Operations
 
 
 
 
 
 
 
Rental property revenues

 
967

 
4

 
2,323

Rental property expenses

 
(402
)
 
(18
)
 
(866
)
 

 
565

 
(14
)
 
1,457

Net Operating Income - Unconsolidated Joint Ventures
5,984


6,648

 
11,972

13,147

Total Net Operating Income
$
60,774

 
$
51,288

 
$
118,834

 
$
101,306

 
 
 
 
 
 
 
 
Net Operating Income
 
 
 
 
 
 
 
Same Property
$
43,867


$
43,156

 
$
87,196

 
$
84,318

Non-Same Property
16,907


8,132

 
31,638

 
16,988


$
60,774

 
$
51,288

 
$
118,834

 
$
101,306

Change year over year in Net Operating Income - Same Property
1.6
%
 
 
 
3.4
%
 
 
Same Property Net Operating Income increased 1.6% and 3.4% between the three and six month 2015 and 2014 periods, respectively. The increases are primarily related to changes in bad debt reserves, occupancy increases at Promenade and Points at Waterview, and increased rental rates at Post Oak.
Net Rental Rates
Average net rental rates for new and renewal tenants for the office portfolio were $20.12 per square foot for the six months ended June 30, 2015 compared to $18.73 per square foot for the same period in 2014.  For the six months ended June 30, 2015, average net rental rates increased 39% over the prior rent.  For the six months ended June 30, 2014, average net rental rates increased 31% over the prior rent.  Net rental rates represent average rent pe