-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, BdQgMzMBMSY1d2f5mTPbRs5T5jBniPaVPpMU/0veISy3UE4lHVAAx6gY6jB8NKbp DuC7Nye0VaNQ3DLs82f31w== 0000025232-99-000006.txt : 19990330 0000025232-99-000006.hdr.sgml : 19990330 ACCESSION NUMBER: 0000025232-99-000006 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 7 CONFORMED PERIOD OF REPORT: 19981231 FILED AS OF DATE: 19990329 FILER: COMPANY DATA: COMPANY CONFORMED NAME: COUSINS PROPERTIES INC CENTRAL INDEX KEY: 0000025232 STANDARD INDUSTRIAL CLASSIFICATION: REAL ESTATE INVESTMENT TRUSTS [6798] IRS NUMBER: 580869052 STATE OF INCORPORATION: GA FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K SEC ACT: SEC FILE NUMBER: 000-03576 FILM NUMBER: 99576668 BUSINESS ADDRESS: STREET 1: 2500 WINDY RIDGE PKWY STE 1600 CITY: ATLANTA STATE: GA ZIP: 30339-5683 BUSINESS PHONE: 7709552200 MAIL ADDRESS: STREET 1: 2500 WINDY RIDGE PARKWAY STREET 2: SUITE 1600 CITY: ATLANTA STATE: GA ZIP: 30339-5683 10-K 1 SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-K ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the fiscal year ended December 31, 1998 Commission file number 2-20111 COUSINS PROPERTIES INCORPORATED A GEORGIA CORPORATION I.R.S. EMPLOYER IDENTIFICATION NO. 58-0869052 2500 WINDY RIDGE PARKWAY ATLANTA, GEORGIA 30339 TELEPHONE: 770-955-2200 Name of exchange on which registered: New York Stock Exchange Securities registered pursuant to Section 12(b) of the Act: Common Stock ($1 Par Value) Securities registered pursuant to Section 12(g) of the Act: None 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 Exchange Act of 1934 during the preceding 12 months, and (2) has been subject to such filing requirements for the past 90 days. Yes X No Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. As of March 10, 1999, 32,038,802 common shares were outstanding; and the aggregate market value of the common shares of Cousins Properties Incorporated held by nonaffiliates was $718,485,091. DOCUMENTS INCORPORATED BY REFERENCE Portions of the following documents have been incorporated by reference into the designated Part of this Form 10-K: Registrant's Proxy Statement Part III, Items 10, 11, 12 and 13 dated March 29, 1999 Registrant's Annual Report to Part II, Items 5, 6, 7 and 8 Stockholders for the year ended December 31, 1998 PART I ------ Item 1. Business - -------------------- Corporate Profile Cousins Properties Incorporated (the "Registrant" or "Cousins") is a Georgia corporation, which since 1987 has elected to be taxed as a real estate investment trust ("REIT"). Cousins Real Estate Corporation ("CREC"), a taxable entity consolidated with the Registrant, owns, develops, and manages a portion of the Registrant's real estate portfolio. Cousins MarketCenters, Inc. ("CMC") is a subsidiary of CREC which develops retail shopping centers. The Registrant, together with CREC, CMC and their other consolidated entities, is hereafter referred to as the "Company." Cousins is an Atlanta-based, fully integrated, self administered equity real estate investment trust. The Company has extensive experience in the real estate industry, including the acquisition, financing, development, management and leasing of properties. Cousins has been a public company since 1962, and its common stock trades on the New York Stock Exchange. The Company owns a portfolio of well-located, high-quality retail, office, medical office and land development projects and holds several tracts of strategically located undeveloped land. The strategies employed to achieve the Company's investment goals include the development of properties which are substantially precommitted to quality tenants; maintaining high levels of occupancy within owned properties; the selective sale of assets and the acquisition of quality income-producing properties at attractive prices. The Company also seeks to be opportunistic and take advantage of normal real estate business cycles. Unless otherwise indicated, the notes referenced in the discussion below are the "Notes to Consolidated Financial Statements" included in the financial section of the Registrant's 1998 Annual Report to Stockholders.
Brief Description of Company Investments Office. As of March 15, 1999, the Company owns, directly and indirectly, equity interests of at least 50% (excluding One Ninety One Peachtree Tower) in the following twenty-eight commercial office buildings: Company's Metropolitan Rentable Ownership Percent Property Description Area Square Feet Interest Leased -------------------- ------------ ----------- -------- ------ 101 Independence Center Charlotte, NC 522,000 100% 98% 101 Second Street San Francisco, CA 390,000 100% (b) 62% (a) LA Cellular Headquarters Los Angeles, CA 217,000 100% (b) 100% (a) Lakeshore Park Plaza Birmingham, AL 193,000 100% (b) 100% 3100 Windy Hill Road Atlanta, GA 188,000 100% 100% 333 John Carlyle Washington, D.C. 153,000 100% 68% (a) 555 North Point Center East Atlanta, GA 148,000 100% (a) 615 Peachtree Street Atlanta, GA 145,000 100% 59% 333 North Point Center East Atlanta, GA 129,000 100% 96% 600 University Park Place Birmingham, AL 123,000 100% (b) (a) 3301 Windy Ridge Parkway Atlanta, GA 106,000 100% 100% First Union Tower Greensboro, NC 319,000 59.68% 95% Grandview II Birmingham, AL 149,000 59.68% 97% 200 North Point Center East Atlanta, GA 130,000 59.68% 100% 100 North Point Center East Atlanta, GA 128,000 59.68% 100% NationsBank Plaza Atlanta, GA 1,260,000 50% 98% Gateway Village Charlotte, NC 976,000 50% 100% (a) 3200 Windy Hill Road Atlanta, GA 685,000 50% 91% 2300 Windy Ridge Parkway Atlanta, GA 634,000 50% 100% The Pinnacle Atlanta, GA 424,000 50% 71% (a) 2500 Windy Ridge Parkway Atlanta, GA 314,000 50% 95% Two Live Oak Atlanta, GA 278,000 50% 98% 4200 Wildwood Parkway Atlanta, GA 260,000 50% 100% Ten Peachtree Place Atlanta, GA 259,000 50% 100% John Marshall-II Washington, D.C. 224,000 50% 100% 4300 Wildwood Parkway Atlanta, GA 150,000 50% 100% 4100 Wildwood Parkway Atlanta, GA 100,000 50% 100% One Ninety One Peachtree Tower Atlanta, GA 1,215,000 9.8% 97% --------- 9,819,000 ========= (a) Under construction and/or in lease-up. (b) These projects are actually owned in ventures in which a portion of the upside is shared with the other venturer. See "Major Properties" - "Cousins/Daniel LLC," "101 Second Street" and "CommonWealth/Cousins I, LLC" where discussed.
The weighted average leased percentage of these office buildings (excluding all non-operational properties currently under construction and/or in lease-up and One Ninety One Peachtree Tower, as it is less than 50% owned by the Company) was approximately 96% as of March 15, 1999 and the leases expire as follows: 2008 & 1999 2000 2001 2002 2003 2004 2005 2006 2007 Thereafter Total ---- ---- ---- ---- ---- ---- ---- ---- ---- ---------- ----- OFFICE - ------ Consolidated: - ------------- Square Feet Expiring (d) 26,992 135,293 116,970 28,763 232,476 86,585 114,900 187,955 0 276,620 1,206,554(b) % of Leased Space 2% 11% 10% 2% 19% 7% 10% 16% 0% 23% 100% Annual Base Rent (a) 236,326 1,206,539 1,326,747 303,773 2,784,428 1,165,468 1,524,442 2,947,134 0 5,831,535 17,326,392 Annual Base Rent/Sq. Ft.(a) 8.76 8.92 11.34 10.56 11.98 13.46 13.27 15.68 0 21.08 14.36 Joint Venture: - -------------- Square Feet Expiring (d) 52,207 218,727 564,444 437,557 335,631 193, 778 600,826 403,726 583,058 1,367,422 4,757,376(c) % of Leased Space 1% 5% 12% 9% 7% 4% 13% 8% 12% 29% 100% Annual Base Rent (a) 892,846 3,895,296 7,898,739 8,151,483 5,897,440 3,729,341 11,402,783 7,224,245 15,093,689 31,446,694 95,632,556 Annual Base Rent/Sq. Ft. (a) 17.10 17.81 13.99 18.63 17.57 19.25 18.98 17.89 25.89 23.00 20.10 Total (including only Company's % share of Joint Venture Properties): - --------------------------------------------------------------------- Square Feet Expiring (d) 47,265 192,802 336,051 235,715 397,796 163,302 377,209 381,381 291,529 889,337 3,312,387 % of Leased Space 1% 6% 10% 7% 12% 5% 11% 12% 9% 27% 100% Annual Base Rent (a) 593,935 2,277,195 4,244,468 4,170,953 5,694,797 2,659,094 6,487,264 6,418,530 7,546,845 20,294,572 60,387,653 Annual Base Rent/Sq. Ft. (a) 12.57 11.81 12.63 17.69 14.32 16.28 17.20 16.83 25.89 22.82 18.23 (a)Annual base rent excludes the operating expense reimbursement portion of the rent payable. If the lease does not provide for pass through of such operating expense reimbursements, an estimate of operating expenses is deducted from the rental rate shown. The base rental rate shown is the estimated rate in the year of expiration. Amounts disclosed are in dollars. (b)Rentable square feet leased as of March 15, 1999 out of 1,283,000 total rentable square feet. (c)Rentable square feet leased as of March 15, 1999 out of 5,315,000 total rentable square feet. (d)Where a tenant has the option to cancel its lease without penalty, the lease expiration date used in the table above reflects the cancellation option date rather than the lease expiration date.
The weighted average remaining lease term of these twenty office buildings was approximately 8 years as of March 15, 1999. Most of the Company's leases in these buildings provide for pass through of operating expenses, and base rents which escalate over time. Retail. As of March 15, 1999, the Company's retail portfolio includes the following twelve properties: Rentable Company's Metropolitan Square Feet Ownership Percent Property Description Area (Company Owned) Interest Leased -------------------- ------------ --------------- --------- ------- Colonial Plaza MarketCenter Orlando, FL 489,000 100% 94% The Avenue of the Peninsula Rolling Hills Estates, CA 385,000 100% (a) Presidential MarketCenter Atlanta, GA 354,000 (b) 100% 99% The Avenue East Cobb Atlanta, GA 241,000 100% (a) Perimeter Expo Atlanta, GA 176,000 100% 100% Laguna Niguel Promenade Laguna Niguel, CA 154,000 100% 94% Greenbrier MarketCenter Chesapeake, VA 493,000 59.68% 100% North Point MarketCenter Atlanta, GA 401,000 59.68% 100% Los Altos MarketCenter Long Beach, CA 157,000 59.68% 100% Mansell Crossing Phase II Atlanta, GA 103,000 59.68% 100% Haywood Mall Greenville, SC 330,000 50% 96% The Shops at World Golf Village St. Augustine, FL 80,000 50% (a) --------- 3,363,000 ========= (a) Under construction, redevelopment and/or in lease-up. (b) Includes 14,000 square feet not yet constructed.
The weighted average leased percentage of these retail properties (excluding all non-operational properties currently under construction, redevelopment and/or in lease-up and Haywood Mall) was approximately 98% as of March 15, 1999, and the leases expire as follows: 2008 & 1999 2000 2001 2002 2003 2004 2005 2006 2007 Thereafter Total ---- ---- ---- ---- ---- ---- ---- ---- ---- ---------- ----- RETAIL - ------ Consolidated: - ------------- Square Feet Expiring 18,055 46,215 35,070 66,577 29,743 59,128 12,725 91,345 68,774 679,988 1,107,620(b) % of Leased Space 2% 4% 3% 6% 3% 5% 1% 8% 6% 62% 100% Annual Base Rent (a) 363,052 589,189 650,726 1,094,197 890,500 782,624 237,545 856,354 702,801 9,842,124 16,009,112 Annual Base Rent/Sq. Ft. (a) 20.11 12.75 18.56 16.44 29.94 13.24 18.67 9.37 10.22 14.47 14.45 Joint Venture: - -------------- Square Feet Expiring 32,066 22,711 30,119 40,098 22,800 5,900 35,000 113,000 7,553 851,009 1,160,256(c) % of Leased Space 3% 2% 3% 3% 2% 1% 3% 10% 1% 72% 100% Annual Base Rent (a) 646,227 243,046 397,658 695,754 283,223 75,000 350,000 1,557,092 293,968 11,054,163 15,596,131 Annual Base Rent/Sq. Ft. (a) 20.15 10.70 13.20 17.35 12.42 12.71 10.00 13.78 38.92 12.99 13.44 Total (including only Company's % share of Joint Venture Properties): - ---------------------------------------------------------------------- Square Feet Expiring (d) 21,743 48,827 38,534 71,188 32,365 59,807 16,750 104,340 69,643 777,852 1,241,049 % of Leased Space 2% 4% 3% 6% 3% 5% 1% 8% 6% 62% 100% Annual Base Rent (a) 437,368 617,139 696,457 1,174,209 923,071 791,249 277,795 1,035,420 736,607 11,113,352 17,802,667 Annual Base Rent/Sq. Ft. (a) 20.12 12.64 18.07 16.49 28.52 13.23 16.58 9.92 10.58 14.29 14.34 (a)Annual base rent excludes the operating expense reimbursement portion of the rent payable and any percentage rents due. If the lease does not provide for pass through of such operating expense reimbursements, an estimate of operating expenses is deducted from the rental rate shown. The base rental rate shown is the estimated rate in the year of expiration. Amounts disclosed are in dollars. (b)Gross leasable area leased as of March 15, 1999 out of 1,173,000 total gross leasable area. (c) Gross leasable area leased as of March 15, 1999 out of 1,154,000 total gross leasable area.
The weighted average remaining lease term of these eight retail properties was approximately 16 years as of March 15, 1999. All of the major tenant leases in these retail properties have lease terms of 10 years or more from the date of initial occupancy and provide for pass through of operating expenses and base rents which escalate over time. Medical Office. As of March 15, 1999, the Company owned the following five medical office properties:
Company's Metropolitan Rentable Ownership Percent Property Description Area Square Feet Interest Leased -------------------- ------------ ----------- --------- ------- Northside/Alpharetta II Atlanta, GA 198,000 100% 44% (a) Meridian Mark Plaza Atlanta, GA 159,000 100% 78% (a) Northside/Alpharetta I Atlanta, GA 100,000 100% 100% AtheroGenics Atlanta, GA 50,000 100% 100% (a) Presbyterian Medical Plaza at University Charlotte, NC 69,000 59.68% 100% ------- 576,000 ======= (a) Under construction and/or in lease-up.
The weighted average leased percentage of the medical office buildings (excluding all properties currently under construction and/or in lease-up) was 100% as of March 15, 1999 and the leases expire as follows:
2008 & 1999 2000 2001 2002 2003 2004 2005 2006 2007 Thereafter Total ---- ---- ---- ---- ---- ---- ---- ---- ---- ---------- ----- MEDICAL OFFICE - -------------- Consolidated: - ------------- Square Feet Expiring 20,627 12,154 0 4,290 9,970 15,215 4,677 0 0 33,067 100,000(b) % of Leased Space 21% 12% 0% 4% 10% 15% 5% 0% 0% 33% 100% Annual Base Rent (a) 295,379 190,089 0 68,426 166,898 261,698 81,146 0 0 812,543 1,876,179 Annual Base Rent/Sq. Ft. (a) 14.32 15.64 0 15.95 16.74 17.20 17.35 0 0 24.57 18.76 Joint Venture: - -------------- Square Feet Expiring 0 0 0 1,397 0 0 3,445 0 23,359 40,503 68,704(c) % of Leased Space 0% 0% 0% 2% 0% 0% 5% 0% 34% 59% 100% Annual Base Rent (a) 0 0 0 20,552 0 0 56,498 0 379,817 772,362 1,229,229 Annual Base Rent/Sq. Ft. (a) 0 0 0 14.71 0 0 16.40 0 16.26 19.07 17.89 Total (including only Company's % share of Joint Venture Properties): - --------------------------------------------------------------------- Square Feet Expiring 20,627 12,154 0 4,451 9,970 15,215 5,073 0 2,686 39,903 110,079 % of Leased Space 19% 11% 0% 4% 9% 14% 5% 0% 2% 36% 100% Annual Base Rent (a) 295,379 190,089 0 70,786 166,898 261,698 87,643 0 43,679 901,368 2,017,540 Annual Base Rent/Sq. Ft. (a) 14.32 15.64 0 15.90 16.74 17.20 17.28 0 16.26 22.59 18.33 (a)Annual base rent excludes the operating expense reimbursement portion of the rent payable and any percentage rents due. If the lease does not provide for pass through of such operating expense reimbursements, an estimate of operating expenses is deducted from the rental rate shown. The base rental rate shown is the estimated rate in the year of expiration. Amounts disclosed are in dollars. (b)Rentable square feet leased as of March 15, 1999 out of 100,000 total rentable square feet. (c) Rentable square feet leased as of March 15, 1999 out of 69,000 total rentable square feet.
The weighted average remaining lease term of the two medical office buildings (excluding buildings currently under construction and lease-up) was approximately 9 years as of March 15, 1999. The Company's leases in these buildings provide for pass through of operating expenses and base rents which escalate over time. Other. The Company's other real estate holdings include equity interests in approximately 410 acres of strategically located land held for investment and future development at North Point and Wildwood Office Park, the option to acquire the fee simple interest in approximately 11,000 acres of land through its Temco Associates joint venture, and two mortgage notes for approximately $25 million which are secured by a 250,000 square foot office building in Washington, D.C. The terms of these two notes have some of the characteristics of an equity investment, and should provide a comparable return on investment (see Note 3). The Company's joint venture partners include either the company as named or an affiliate of the company named and are as follows: IBM, The Coca-Cola Company ("Coca-Cola"), Bank of America Corporation ("Bank of America"), The Prudential Insurance Company of America ("Prudential"), Simon Property Group, Temple-Inland Inc., Cornerstone Properties, Inc., American General Corporation, and CarrAmerica Realty Corporation. The success of the Company's operations is dependent upon such unpredictable factors as the availability of satisfactory financing; general and local economic conditions; the activity of others developing competitive projects; the cyclical nature of the real estate industry; and zoning, environmental impact, and other government regulations. Refer to Item 2 hereof for a more detailed description of the Company's real estate properties. Significant Changes in 1998 Significant changes in the Company's business and properties during the year ended December 31, 1998 were as follows: Office Division. In January 1998, the Company purchased the land for, and commenced construction of, 333 John Carlyle, an approximately 153,000 rentable square foot office building in suburban Washington, D.C. In May 1998, the Company commenced construction of 555 North Point Center East, an approximately 148,000 rentable square foot office building in suburban Atlanta, Georgia. This office building is being built on land the Company already owned which is adjacent to the Company's three other office buildings, 100, 200 and 333 North Point Center East. In June 1998, the Company acquired Lakeshore Park Plaza, an approximately 193,000 rentable square foot office building and also purchased the land for, and commenced construction of, 600 University Park Place, an approximately 123,000 rentable square foot office building. Both of these office buildings are located in Birmingham, Alabama. Also in June 1998, 333 North Point Center East, an approximately 129,000 rentable square foot office building in suburban Atlanta, Georgia and 4200 Wildwood Parkway, a 260,000 rentable square foot office building in suburban Atlanta, Georgia owned by Wildwood Associates, became partially operational for financial reporting purposes. In July 1998, Charlotte Gateway Village, LLC commenced construction on Gateway Village, an approximately 976,000 rentable square foot office building in Charlotte, North Carolina (see Note 5). In August 1998, Grandview II, an approximately 149,000 rentable square foot office building in Birmingham, Alabama became partially operational for financial reporting purposes. In August 1998, the Company commenced construction of LA Cellular Headquarters, an approximately 217,000 rentable square foot office building in suburban Los Angeles, California. Retail Division. In January 1998, Abbotts Bridge Station, an approximately 83,000 square foot neighborhood retail center in suburban Atlanta, Georgia became partially operational for financial reporting purposes. In February 1998, Brad Cous Golf Venture, Ltd., purchased the land for, and commenced construction of, The Shops at World Golf Village, an approximately 80,000 square foot retail center located adjacent to the PGA Hall of Fame in St. Augustine, Florida (see Note 5). Also in February 1998, the Company purchased The Shops at Palos Verdes, located in Rolling Hills Estates, California, in the greater Los Angeles metropolitan area. This approximately 355,000 square foot center includes existing retail space and a parking deck. The Company plans to redevelop and remerchandise the project into an approximately 385,000 square foot open-air, high-end specialty center, to be named The Avenue of the Peninsula. In April 1998, the Company purchased the land for, and commenced construction of, The Avenue East Cobb, an approximately 241,000 square foot open-air, high-end speciality center in suburban Atlanta, Georgia. In July 1998, Laguna Niguel Promenade, an approximately 154,000 square foot retail center in Laguna Niguel, California became partially operational for financial reporting purposes. Medical Office Division. In June 1998, the Company acquired Northside/Alpharetta I, an approximately 100,000 rentable square foot medical office building in suburban Atlanta, Georgia. Construction also commenced in June 1998 of Northside/Alpharetta II, an approximately 198,000 rentable square foot medical office building. In July 1998, the Company commenced construction of AtheroGenics, an approximately 50,000 rentable square foot office and laboratory building, located in suburban Atlanta, Georgia, on land the Company already owned. Financings. Effective June 30, 1998, the Company extended the maturity of its $100 million line of credit from June 30, 1998 to June 29, 1999. The line is unsecured and bears interest tied to the Federal Funds rate. Effective in October 1998, the Company increased the line of credit to a maximum of $150 million. The Company had $11,120,000 of borrowings under the line as of December 31, 1998. During 1998 three new financings were completed and one mortgage note payable was assumed. In May 1998, Cousins LORET Venture, L.L.C. completed the $70 million non-recourse financing of The Pinnacle at an interest rate of 7.11% and a term of twelve years. This financing was completely funded on December 30, 1998. In June 1998, Wildwood Associates completed the financing of the 4200 Wildwood Parkway Building with a $44 million non-recourse mortgage note payable at an interest rate of 6.78% and a term of fifteen and three-quarters years. Also in June 1998, the Company assumed a $10.6 million non-recourse mortgage note payable pursuant to the acquisition of the Northside/Alpharetta I medical office building. This mortgage note payable has an interest rate of 7.70% and a remaining term of eight years. In October 1998, the Company completed the financing of Lakeshore Park Plaza with a $10.9 million non-recourse mortgage note payable at an interest rate of 6.78% and a term of ten years. In November 1998, the Company formed a venture with The Prudential Insurance Company of America ("Prudential") whereby the Company contributed four office properties, four retail properties and one medical office property and Prudential contributed cash (see Note 5). Subsequent Events Subsequent to year-end, on February 1, 1999, CREC sold Abbotts Bridge Station, an approximately 83,000 square foot neighborhood retail center in suburban Atlanta, Georgia for $15.7 million, which was approximately $5.0 million over the cost of the center. Including depreciation recapture of approximately $.3 million and net of an income tax provision of approximately $2.2 million, the net gain on the sale was approximately $3.1 million. Executive Offices The Registrant's executive offices are located at 2500 Windy Ridge Parkway, Suite 1600, Atlanta, Georgia 30339-5683. At December 31, 1998, the Company employed approximately 230 people. I-14 Item 2. Properties Table of Major Properties The following tables set forth certain information relating to major office, retail and medical office properties, stand alone retail lease sites, and land held for investment and future development in which the Company has a 50% or greater ownership interest. All information presented is as of December 31, 1998, except leasing information which is as of March 15, 1999. Dollars are stated in thousands.
Percentage Description, Year Rentable Leased Average Major Location Development Company's Square Feet as of 1998 Major Tenants (lease Tenants' and Completed Joint Venture Ownership and Acres March 15, Economic expiration/options Rentable Zip Code or Acquired Partner Interest as Noted 1999 Occupancy expiration) Sq. Feet - ------------ ----------- ------------- --------- ----------- ---------- --------- -------------------- -------- Office - ------ Wildwood Office Park: Suburban Atlanta, GA 2300 Windy Ridge Parkway 30339-5671 1987 IBM 50% 634,000 100% 99% IBM (2002/2012) 240,430 12 Acres Profit Recovery Group 73,626 (2005/2010)(2) Manhattan Associates, LLC 63,296 (2002/2007) Computer Associates 62,445 (2005/2010) Financial Services 56,932 Corporation (2006/2011)(2) Chevron USA (2005)(2) 51,415 2500 Windy Ridge Parkway 30339-5683 1985 IBM 50% 314,000 95% 96% Coca-Cola Enterprises Inc. 165,180 8 Acres (2003/2008) 3200 Windy Hill Road 30339-5609 1991 IBM 50% 685,000 91% 97% IBM (2001/2011)(3) 440,139 15 Acres W.H. Smith Inc. 41,858 (2002/2007) 3301 Windy Ridge Parkway 30339-5685 1984 N/A 100% 106,000 100% 100% Indus International, Inc. 106,000 10 Acres (2003/2008) 3100 Windy Hill Road 30339-5605 1983 N/A 100%(5) 188,000 100% 100% IBM (2006) 188,000 13 Acres
Adjusted Cost and Adjusted Cost Less Debt Description, Depreciation Maturity Location and and and Amortization Debt Interest Zip Code (1) Balance Rate - ------------ ------------- ------- --------- Office - ------ Wildwood Office Park: Suburban Atlanta, GA 2300 Windy Ridge Parkway 30339-5671 $ 77,185 $ 67,885 12/1/05 $ 52,617 7.56% 2500 Windy Ridge Parkway 30339-5683 $ 29,892 $ 24,102 12/15/05 $ 19,072 7.45% 3200 Windy Hill Road 30339-5609 $ 83,879 $ 68,668 1/1/07 $ 62,564 8.23% (2002/2007) 3301 Windy Ridge Parkway 30339-5685 $ 10,546 $ 0 N/A $ 6,249 3100 Windy Hill Road 30339-5605 $ 17,005(5) $ 0 N/A $ 15,645(5)
Percentage Description, Year Rentable Leased Average Major Location Development Company's Square Feet as of 1998 Major Tenants (lease Tenants' and Completed Joint Venture Ownership and Acres March 15, Economic expiration/options Rentable Zip Code or Acquired Partner Interest as Noted 1999 Occupancy expiration) Sq. Feet - ------------ ----------- ------------- --------- ----------- ---------- --------- -------------------- -------- Office (Continued) - ------------------ 4100 and 4300 Wildwood Parkway 30339-8400 1996 IBM 50% 250,000 100% 100% Georgia-Pacific 250,000 13 Acres Corporation (2012/2017) (6)(7) 4200 Wildwood Parkway 30339-8402 1997 IBM 50% 260,000 100% 28%(8) General Electric 260,000 8 Acres (4)(2014/2024) NationsBank Plaza Atlanta, GA 30308-2214 1992 Bank of America (4) 50%(9) 1,260,000 98% 94% Bank of America (4) 572,742 4 Acres (2012/2042) Ernst & Young LLP 211,211 (2007/2017)(10) Troutman Sanders 201,320 (2007/2017) Paul Hastings (2012/2017)(10) 92,224 Hunton & Williams 91,103 (2004/2009) Gateway Village Charlotte, NC 28202-9999 (12) Bank of America (4) 50% 976,000 100% (12) Bank of America 976,000 (12) 8 Acres (2015/2035)(12) First Union Tower Greensboro, NC 27401-2167 1990 Prudential 59.68%(9) 319,000 95% 94% Smith Helms Mullis & 70,360 1 Acre Moore (2010/2015) First Union Bank (4) 62,622 (2009/2019) Halstead Industries 60,253 (2000/2005) Ten Peachtree Place Atlanta, GA 30309-3814 1991 Coca-Cola (4) 50%(9) 259,000 100% 100% Coca-Cola (4)(2001/2006) 259,000 5 Acres John Marshall-II Suburban Washington, D.C. 22102-3802 1996 CarrAmerica Realty 50% 224,000 100% 100% Booz-Allen & Hamilton 224,000 Corporation (4) 3 Acres (2011/2016)
Adjusted Cost and Adjusted Cost Less Debt Description, Depreciation Maturity Location and and and Amortization Debt Interest Zip Code (1) Balance Rate - ------------ ------------- ------- --------- Office (Continued) - ------------------ 4100 and 4300 Wildwood Parkway 30339-8400 $ 29,914 $ 29,258 4/1/12 $ 27,454 7.65% 4200 Wildwood Parkway 30339-8402 $ 33,222 $ 44,000 3/31/14 $ 32,971 6.78% NationsBank Plaza Atlanta, GA 30308-2214 $222,665 $ 0(11) N/A (11) $178,663 Gateway Village Charlotte, NC 28202-9999 (12) $ 0 N/A First Union Tower Greensboro, NC 27401-2167 $ 53,000 (13) $ 0 N/A $ 52,223 Ten Peachtree Place Atlanta, GA 30309-3814 $ 23,474 $ 18,444 11/30/01(14) $ 19,180 8.00% John Marshall-II Suburban Washington, D.C. 22102-3802 $ 29,194 $ 23,014 4/1/13 $ 25,885 7.00%
Percentage Description, Year Rentable Leased Average Major Location Development Company's Square Feet as of 1998 Major Tenants (lease Tenants' and Completed Joint Venture Ownership and Acres March 15, Economic expiration/options Rentable Zip Code or Acquired Partner Interest as Noted 1999 Occupancy expiration) Sq. Feet - ------------ ----------- ------------- --------- ----------- ---------- --------- -------------------- -------- Office (Continued) - ------------------ 100 North Point Center East Suburban Atlanta, GA 30022-4885 1995 Prudential 59.68%(9) 128,000 100% 100% Schweitzer-Mauduit 39,739 7 Acres International, Inc. (2001/2007) Green Tree Financial 21,914 (2006/2011)(6) 200 North Point Center East Suburban Atlanta, GA 30022-4885 1996 Prudential 59.68%(9) 130,000 100% 100% Alltel Telecom Information 60,029 9 Acres Services, Inc. (2000/2001) Motorola, Inc. (2001/2011) 26,897 APAC Teleservices, Inc. 22,409 (2004/2009) 333 North Point Center East Suburban Atlanta, GA 30022-8274 1998 N/A 100% 129,000 96% 80%(16) Alltel Telecom (2003) 48,559 9 Acres J.C. Bradford (2005/2010) 22,222 555 North Point Center East Suburban Atlanta, GA 30022-8274 (12) N/A 100% 148,000 (12) (12) (12) (12) 10 Acres 615 Peachtree Street Atlanta, GA 30308-2312 1996 N/A 100% 145,000 59% 75% Wachovia (4)(2001/2007) 51,561 2 Acres 101 Independence Center Charlotte, NC 28246-1000 1996 N/A 100% 522,000 98% 94% Bank of America (4) 359,796 2 Acres (2008/2028)(17) Robinson Bradshaw & Hinson, 82,218 P.A. (2004/2009) Ernst & Young LLP (2001/2006) 45,060 333 John Carlyle Suburban Washington, D.C. 22314-9999 (12) N/A 100% 153,000 68%(12) (12) A.T. Kearney 87,455 1 Acre (2009/2019)(12) 101 Second Street San Francisco, CA 94105-3601 (12) Myers Second 100%(9) 390,000 62%(12) (12) Arthur Andersen LLP 129,480 Street Company .63 Acres (2009/2014)(12) LLC Thelen, Reid & Priest 115,000 (2012/2022)(12)
Adjusted Cost and Adjusted Cost Less Debt Description, Depreciation Maturity Location and and and Amortization Debt Interest Zip Code (1) Balance Rate - ------------ ------------- ------- --------- Office (Continued) - ------------------ 100 North Point Center East Suburban Atlanta, GA 30022-4885 $ 24,332 (13) $ 12,259 (15) 8/1/07 $ 23,933 7.86% 200 North Point Center East Suburban Atlanta, GA 30022-4885 $ 21,718 (13) $ 12,259 (15) 8/1/07 $ 21,412 7.86% 333 North Point Center East Suburban Atlanta, GA 30022-8274 $ 13,163 $ 0 N/A $ 12,630 555 North Point Center East Suburban Atlanta, GA 30022-8274 $ 0 N/A 615 Peachtree Street Atlanta, GA 30308-2312 $ 11,969 $ 0 N/A $ 10,817 101 Independence Center Charlotte, NC 28246-1000 $ 73,920 $ 48,254 11/1/07 $ 68,065 8.22% 333 John Carlyle Suburban Washington, D.C. 22314-9999 $ 21,632 $ 0 N/A (12) 101 Second Street San Francisco, CA 94105-3601 $ 31,606 $ 0 N/A (12)
Percentage Description, Year Rentable Leased Average Major Location Development Company's Square Feet as of 1998 Major Tenants (lease Tenants' and Completed Joint Venture Ownership and Acres March 15, Economic expiration/options Rentable Zip Code or Acquired Partner Interest as Noted 1999 Occupancy expiration) Sq. Feet - ------------ ----------- ------------- --------- ----------- ---------- --------- -------------------- -------- Office (Continued) - ------------------ Two Live Oak Atlanta, GA 30326-1234 1997 LORET 50% 278,000 98% 92% IMS Health Incorporated 75,484 Holdings, L.L.L.P. 2 Acres (2007/2017) Chubb & Son, Inc. (4) 48,520 (2007/2017) The Pinnacle Atlanta, GA 30326-1234 (12) LORET 50% 424,000 71%(12) (12) Merrill Lynch (2008/2013) 54,283 Holdings, L.L.L.P. 4 Acres PaineWebber (2013/2018)(6) 47,631 A.T. Kearney (2009/2019) 47,566 Lakeshore Park Plaza Birmingham, AL 35209-6719 1998 Daniel Realty 100%(9) 193,000 100% 100% Infinity Insurance (2005) 91,302 Company 12 Acres TCI Southeast (2003) 20,625 600 University Park Place Birmingham, AL 35209-9999 (12) Daniel Realty 100%(9) 123,000 (12) (12) (12) (12) Company 10 Acres Grandview II Birmingham, AL 35243-1930 1998 Prudential 59.68%(9) 149,000 97% 33%(18) Protective Life 65,164 8 Acres (2005/2011)(19) Daniel Realty Company (2008) 23,440 LA Cellular Headquarters Suburban Los Angeles, CA 90703-9998 (12) CommonWealth 100%(9) 217,000 100%(12) (12) LA Cellular (2015/2030)(12) 217,000 Pacific, LLC 9 Acres (20) Retail Centers and Malls Haywood Mall Greenville, SC 29607-2749 1977/1995 Simon 50% 1,256,000 99% 94% Sears (22) N/A Property 86 acres overall of J.C. Penney (22) N/A Group of which 6% of owned Rich's (22) N/A 330,000 and owned Belk (22) N/A 21 acres are Dillard's (22) N/A owned (21)
Adjusted Cost and Adjusted Cost Less Debt Description, Depreciation Maturity Location and and and Amortization Debt Interest Zip Code (1) Balance Rate - ------------ ------------- ------- --------- Office (Continued) - ------------------ Two Live Oak Atlanta, GA 30326-1234 $ 48,235 $ 29,766 12/31/09 $ 45,244 7.9% The Pinnacle Atlanta, GA 30326-1234 $ 73,959 $ 70,000 12/31/09 (12) 7.11% Lakeshore Park Plaza Birmingham, AL 35209-6719 $ 15,623 $ 10,856 11/1/08 $ 15,425 6.78% 600 University Park Place Birmingham, AL 35209-9999 N/A $ 0 N/A Grandview II Birmingham, AL 35243-1930 $ 23,000 (13) $ 0 N/A $ 22,879 LA Cellular Headquarters Suburban Los Angeles, CA 90703-9998 (12) $ 0 N/A Retail Centers and Malls - ------------------------ Haywood Mall Greenville, SC 29607-2749 $ 51,027 $ 0 N/A $ 34,608
Percentage Description, Year Rentable Leased Average Major Location Development Company's Square Feet as of 1998 Major Tenants (lease Tenants' and Completed Joint Venture Ownership and Acres March 15, Economic expiration/options Rentable Zip Code or Acquired Partner Interest as Noted 1999 Occupancy expiration) Sq. Feet - ------------ ----------- ------------- --------- ----------- ---------- --------- -------------------- -------- Retail Centers and Malls (Continued) - ------------------------------------ Perimeter Expo Atlanta, GA 30338-1519 1993 N/A 100% 291,000 100% 100% The Home Depot Expo (22) N/A 19 acres overall of Marshalls (2014/2029) 36,598 of which 100% of Company Best Buy (2014/2029) 36,000 176,000 and Company owned Linens `N Things (2014/2024) 30,351 10 acres are owned Office Max (2013/2033) 23,500 owned by The Sport Shoe (2004/2014) 14,348 the Company Gap's Old Navy Store 13,939 (2002/2012) North Point MarketCenter Suburban Atlanta, GA 30202-4889 1994/1995 Prudential 59.68%(9) 517,000 100% 100% Target (22) N/A 60 Acres (23) Babies "R" Us (2011/2031) 50,275 of which Media Play (2010/2025) 48,884 401,000 and Marshalls (2010/2025) 40,000 49 acres are Rhodes (2011/2021) 40,000 owned by Linens `N Things 35,000 the Venture (2005/2025) United Artists (2014/2034) 34,733 Circuit City (2015/2030) 33,420 PETsMART (2009/2029) 25,465 Gap's Old Navy Store 20,000 (2000/2010) Presidential MarketCenter Suburban Atlanta, GA 30278-2149 1994/1996 N/A 100% 471,000 (24) 99% (24) 97% (24) Target (22) N/A 66 acres overall of Publix Super Market 56,146 of which 99% (24) Company (2019/2044) 354,000 (24) of Company owned Carmike Cinemas (4) 44,565 and 49 acres owned (2023/2033) are owned MJDesigns (4 (24)(2011/2026) 37,957 by the Bed, Bath & Beyond 35,127 Company (2008/2024) T.J. Maxx (2004/2014) 32,000 Office Depot, Inc. 31,628 (2011/2026) Marshalls (2010/2025) 30,000
Adjusted Cost and Adjusted Cost Less Debt Description, Depreciation Maturity Location and and and Amortization Debt Interest Zip Code (1) Balance Rate - ------------ ------------- ------- --------- Retail Centers and Malls (Continued) - ------------------------------------ Perimeter Expo Atlanta, GA 30338-1519 $ 19,435 $ 20,846 8/15/05 $ 17,333 8.04% North Point MarketCenter Suburban Atlanta, GA 30202-4889 $ 56,750 (13) $ 28,623 7/15/05 $ 56,570 8.50% Presidential MarketCenter Suburban Atlanta, GA 30278-2149 $ 23,719 $ 0 N/A $ 21,441
Percentage Description, Year Rentable Leased Average Major Location Development Company's Square Feet as of 1998 Major Tenants (lease Tenants' and Completed Joint Venture Ownership and Acres March 15, Economic expiration/options Rentable Zip Code or Acquired Partner Interest as Noted 1999 Occupancy expiration) Sq. Feet - ------------ ----------- ------------- --------- ----------- ---------- --------- -------------------- -------- Retail Centers and Malls (Continued) - ------------------------------------ Colonial Plaza MarketCenter Orlando, FL 32803-5029 1996 N/A 100% 489,000 94% 89% Circuit City (2016/2036) 43,936 49 Acres Rhodes (2012/2027) 42,376 Baby Superstore, Inc. 40,000 (2006/2021) Stein Mart, Inc.(2006/2026) 36,000 Barnes & Noble Superstores, 35,131 Inc.(2012/2022) Linens `N Things 35,000 (2012/2027) Marshalls (2012/2027) 30,400 Ross Stores (2007/2022) 28,000 Just For Feet, Inc. 26,667 (2012/2027) Walgreen Co. (2012)(26) 18,614 Gap's Old Navy Store 17,920 (2002/2012) Mansell Crossing Phase II Suburban Atlanta, GA 30202-4822 1996 Prudential 59.68%(9) 103,000 100% 100% Bed Bath & Beyond 40,787 13 Acres (2012/2027) Goody's Family Clothing, 32,144 Inc. (2009/2027) Rooms To Go (2016/2036) 21,000 Greenbrier MarketCenter Chesapeake, VA 23327-2840 1996 Prudential 59.68%(9) 493,000 100% 100% Target (2016/2046) 117,220 44 Acres Harris Teeter, Inc. 51,806 (2016/2036) Best Buy (2014/2029) 45,106 Bed Bath & Beyond 40,484 (2012/2027) Baby Superstore, Inc. 40,000 (2006/2021) Stein Mart, Inc. (2006/2026) 36,000 Barnes & Noble Superstores, 29,974 Inc. (2011/2026) PETsMART (2011/2031) 26,052 Office Max (2011/2026) 23,484 Gap's Old Navy Store 14,000 (2001/2011)
Adjusted Cost and Adjusted Cost Less Debt Description, Depreciation Maturity Location and and and Amortization Debt Interest Zip Code (1) Balance Rate - ------------ ------------- ------- --------- Retail Centers and Malls (Continued) - ------------------------------------ Colonial Plaza MarketCenter Orlando, FL 32803-5029 $ 41,670 $ 0 N/A $ 38,288 Mansell Crossing Phase II Suburban Atlanta, GA 30202-4822 $ 12,350 (13) $ 0 N/A $ 12,309 Greenbrier MarketCenter Chesapeake, VA 23327-2840 $ 51,200 (13) $ 0 N/A $ 51,052
Percentage Description, Year Rentable Leased Average Major Location Development Company's Square Feet as of 1998 Major Tenants (lease Tenants' and Completed Joint Venture Ownership and Acres March 15, Economic expiration/options Rentable Zip Code or Acquired Partner Interest as Noted 1999 Occupancy expiration) Sq. Feet - ------------ ----------- ------------- --------- ----------- ---------- --------- -------------------- -------- Retail Centers and Malls (Continued) - ------------------------------------ Los Altos MarketCenter Long Beach, CA 90815-3126 1996 Prudential 59.68%(9) 258,000 100% 100% Sears (22) N/A 19 Acres of Circuit City (4)(2017/2037) 38,541 which 157,000 Borders, Inc. (2017/2037) 30,000 and 17 Acres Bristol Farms (4)(2012/2032) 28,200 are owned by CompUSA, Inc. (2011/2021) 25,620 the Venture Sav-on Drugs (4)(2016/2026) 16,914 Laguna Niguel Promenade Laguna Niguel, CA 92677-3920 1998 N/A 100% 154,000 94% 69%(26) Orchard's Supply Hardware (4)63,811 13 Acres (2018/2033) Ralph's Grocery Company 51,028 (2018/2043) The Avenue of the Peninsula Rolling Hills Estates, CA 90274-3664 (12) N/A 100% 385,000 (12) (12) Regal Cinema (2013/2028)(12) 60,000 14 Acres (12) Saks & Company 42,217 (2019/2049)(12) (12) The Avenue East Cobb Suburban Atlanta, GA 30062-9999 (12) N/A 100% 241,000 (12) (12) Borders, Inc.(2014/2029)(12) 25,000 30 Acres The Shops at World Golf Village St. Augustine, FL 32092-9999 (12) W.C. Bradley Co. 50% 80,000 (12) (12) Bradley Specialty Retailing, 31,044 3 Acres Inc. (2013/2023) Medical Office - -------------- Northside/Alpharetta I Atlanta, GA 30005-3707 1998 N/A 100% 100,000 100% 100% Northside Hospital (4)(2013) 37,387 1 Acre (28) Presbyterian Medical Plaza at University Charlotte, NC 28233-3549 1997 Prudential 59.68%(9) 69,000 100% 100% Presbyterian Health Services 63,862 1 Acre (29) Corporation (2012/2027)(30)
Adjusted Cost and Adjusted Cost Less Debt Description, Depreciation Maturity Location and and and Amortization Debt Interest Zip Code (1) Balance Rate - ------------ ------------- ------- --------- Retail Centers and Malls (Continued) - ------------------------------------ Los Altos MarketCenter Long Beach, CA 90815-3126 $ 32,800 (13) $ 0 N/A $ 32,704 Laguna Niguel Promenade Laguna Niguel, CA 92677-3920 $ 18,572 $ 0 N/A $ 18,423 The Avenue of the Peninsula Rolling Hills Estates, CA 90274-3664 $ 25,104 $ 0 N/A (12) The Avenue East Cobb Suburban Atlanta, GA 30062-9999 (12) $ 0 N/A The Shops at World Golf Village St. Augustine, FL 32092-9999 (12) $ 0 N/A Medical Office - -------------- Northside/Alpharetta I Atlanta, GA 30005-3707 $ 15,587 $ 10,543 1/1/06 $ 15,400 7.70% Presbyterian Medical Plaza at University Charlotte, NC 28233-3549 $ 8,600 (13) $ 0 N/A $ 8,545
Percentage Description, Year Rentable Leased Average Major Location Development Company's Square Feet as of 1998 Major Tenants (lease Tenants' and Completed Joint Venture Ownership and Acres March 15, Economic expiration/options Rentable Zip Code or Acquired Partner Interest as Noted 1999 Occupancy expiration) Sq. Feet - ------------ ----------- ------------- --------- ----------- ---------- --------- -------------------- -------- Medical Office (Continued) - -------------------------- Meridian Mark Plaza Atlanta, GA 30342-1613 (12) N/A 100% 159,000 78%(12) (12) Northside Hospital (4) 40,675 3 Acres (2013/2023)(12) Scottish Rite Hospital for 22,000 Crippled Children, Inc. (2003/2008)(12) AtheroGenics Suburban Atlanta, GA 30004-2148 (12) N/A 100% 50,000 100% (12) AtheroGenics (2019/2029)(12) 50,000 4 Acres Northside/Alpharetta II Atlanta, GA 30005-3707 (12) N/A 100% 198,000 44%(12) (12) Northside Hospital (4) 63,321 2 Acres (28) (2019)(12) Stand Alone Retail Sites Adjacent to Company's Office and Retail Projects - ------------------------------------------------------------------------- Wildwood Office Park Suburban Atlanta, GA 30339-5671 1985-1993 IBM 50% 14 Acres 100% 100% N/A N/A North Point Suburban Atlanta, GA 30202-4885 1993 N/A 100% 24 Acres 100% 100% N/A N/A
Adjusted Cost and Adjusted Cost Less Debt Description, Depreciation Maturity Location and and and Amortization Debt Interest Zip Code (1) Balance Rate - ------------ ------------- ------- --------- Medical Office (Continued) - -------------------------- Meridian Mark Plaza Atlanta, GA 30342-1613 $ 17,918 $ 0 N/A (12) AtheroGenics Suburban Atlanta, GA 30004-2148 (12) $ 0 N/A Northside/Alpharetta II Atlanta, GA 30005-3707 (12) $ 0 N/A Stand Alone Retail Sites Adjacent to Company's Office and Retail Projects - ------------------------------------------------------------------------- Wildwood Office Park Suburban Atlanta, GA 30339-5671 $ 8,718 $ 0 N/A $ 7,093 North Point Suburban Atlanta, GA 30202-4885 $ 3,716 $ 0 N/A $ 3,616
(1) Cost as shown in the accompanying table includes deferred leasing and financing costs and other related assets. For each of the following projects: 2300 and 2500 Windy Ridge Parkway, 3200 Windy Hill Road, 4100 and 4300 Wildwood Parkway, 4200 Wildwood Parkway and Wildwood Stand Alone Retail Lease Sites, the cost shown is what the cost would be if the venture's land cost were adjusted downward to the Company's lower basis in the land it contributed to the venture. (2) 11,050 square feet of the Profit Recovery Group lease of 2300 Windy Ridge Parkway expires in 2002, 1,556 square feet of the Financial Services Corporation lease of 2300 Windy Ridge Parkway expires in 2001 and Chevron USA has a lease cancellation right in 2001 at 2300 Windy Ridge Parkway if notice is received in 2000. (3) 119,544 square feet of this lease of 3200 Windy Hill Road expires in 2001, and the balance expires in 2006. (4) Actual tenant or venture partner is affiliate of entity shown. (5) See "Major Properties" - "Wildwood Office Park" where the accounting for the 3100 Windy Hill Road Building is discussed. (6) Green Tree Financial, Georgia-Pacific Corporation and PaineWebber have the right to terminate their leases in 2001, 2007 and 2008, respectively, upon payment of significant cancellation penalties. (7) Tenant has the option to purchase the building on its lease expiration date for a price of $33,750,000. (8) A lease for 100% of the building was signed in March 1998 whereby the tenant began partial occupancy in June 1998 with 100% occupancy by April 1999. Thus, economic occupancy for 4200 Wildwood Parkway does not include a full year of operations. (9) See "Major Properties" - "NationsBank Plaza," "Ten Peachtree Place," "Cousins/Daniel, LLC," "CommonWealth/Cousins I, LLC ," "CP Venture Two LLC," and "101 Second Street" where these ventures' preferences and terms are discussed. (10) Ernst & Young LLP has a cancellation right on 20,753 square feet of this lease at NationsBank Plaza in 2003, if notice is received in 2002, and Paul Hastings has a cancellation right on 12,812 square feet and 20,574 square feet in 2005 and 2006, respectively. (11) See "Major Properties" - "NationsBank Plaza" where debt on NationsBank Plaza is discussed. (12) Project was under construction as of December 31, 1998. Lease expiration dates are based upon estimated commencement dates, and square footage is estimated. (13) See Note 5 for a discussion of the properties contributed to the Prudential venture. (14) Maturity of the Ten Peachtree Place mortgage debt is extendible to December 31, 2008. Rate becomes floating after November 30, 2001. (15) 100 North Point Center East and 200 North Point Center East were financed together with one non-recourse mortgage note payable. For purposes of this schedule the total debt has been allocated 50% to each building. (16) 333 North Point Center East became partially operational in June 1998. Thus, economic occupancy for 333 North Point Center East does not include a full year of operations. (17) 103,656 square feet of this lease of 101 Independence Center expires in 2000. (18) Grandview II became partially operational in August 1998. Thus, economic occupancy for Grandview II does not include a full year of occupancy. (19) This tenant has the right to cancel 13,052 square feet of this lease of Grandview II in 2003. (20) LA Cellular Headquarters is located on 9 acres which are subject to a ground lease expiring in 2034, with an option to renew through 2087. (21) A portion of the Haywood Mall parking lot (3 acres) is subject to a long- term ground lease expiring in 2017, with five 10-year renewal options. (22) This anchor tenant owns its own space. (23) North Point MarketCenter includes approximately 4 outparcels which are ground leased to freestanding users. (24) Includes 14,000 square feet not yet constructed as of March 15, 1999 which was excluded from the calculation of percentage leased and average 1998 economic occupancy. (25) This tenant declared Chapter 11 bankruptcy subsequent to December 31, 1998. (26) The Company is under contract to sell an outparcel site and building to Walgreens which is under construction and is expected to be completed in 1999. The tenant will vacate its space in the center and the lease will terminate upon completion and purchase of the building and outparcel site. (27) Laguna Niguel Promenade became operational in July 1998. Thus, economic occupancy of Laguna Niguel Promenade does not include a full year of operations. (28) Northside/Alpharetta I and II are located on 1 acre and 2 acres subject to ground leases, which expire in 2058 and 2060, respectively. (29) Presbyterian Medical Plaza at University is located on 1 acre which is subject to a ground lease expiring in 2057. (30) Tenant has the option to renew 23,359 rentable square feet through 2027 of this lease of Presbyterian Medical Plaza at University, with the option to renew the balance through 2022.
Land Held for Investment and Future Development (excluding Retail Outparcels) Adjusted Cost Less Developable Company's Depreciation Land Area Joint Venture Ownership and Debt Description, Location and Zoned Use Year Acquired (Acres)(1) Partner Interest Amortization Balances - ----------------------------------- ------------- ----------- ------------- --------- ------------ -------- Wildwood Office Park Suburban Atlanta, Georgia Office and Commercial 1971-1987 146 N/A 100% $ 7,005 $ 0 Office and Commercial 1971-1982 34 IBM 50% $ 8,930(2) $ 0 North Point Land (Georgia Highway 400 & Haynes Bridge Road)(3) Suburban Atlanta, Georgia Office and Commercial - East 1970-1985 13 N/A 100% $ 1,020 $ 0 Office and Commercial - West 1970-1985 217 N/A 100% $ 4,450 $ 0 Midtown Atlanta Office and Commercial 1984 1 N/A 100% $ 1,398 $ 0 Temco Associates (Paulding County) Suburban Atlanta, Georgia 1991 --(5) Temple-Inland 50% --(5) $ 0 Inc. (4)
- ---------------------- (1) Based upon management's estimates. (2) For the portion of the Wildwood Office Park land owned by a joint venture, the cost shown is what the cost would be if the venture's land cost were adjusted downward to the Company's lower basis in the land it contributed to the venture. The adjusted cost excludes building predevelopment costs of $1,148,000. (3) The North Point property is located both east and west of Georgia Highway 400. Development had been mainly concentrated on the land located east of Georgia Highway 400, until July 1998 when the Company commenced construction of the first building on the west side. The land located east of Georgia Highway 400 surrounds North Point Mall, a 1.3 million square foot regional mall on a 100 acre site which the Company sold in 1988. (4) Joint venture partner is an affiliate of the entity shown. (5) Temco Associates has an option through March 2006, with no carrying costs, to acquire the fee simple interest in approximately 11,000 acres in Paulding County, Georgia (northwest of Atlanta, Georgia). The partnership also has an option to acquire interests in a timber rights only lease covering approximately 22,000 acres. The lease expires in March 2006. The options may be exercised in whole or in part over the option period. Temco Associates has engaged in certain sales of land as to which it simultaneously exercised its purchase option. During 1998, approximately 328 acres of the option related to the fee simple interest was exercised. Approximately 83 acres were simultaneously sold for gross profits of approximately $192,000. The Cobb County, Georgia YMCA has a three year option to purchase approximately 38 acres out of the 1998 options exercised. The remaining acreage (approximately 207) was deeded in early 1999 to a golf course developer who is developing the golf course within the Bentwater residential community on which Temco Associates commenced development in November 1998. During 1996, approximately 375 acres of the option related to the fee simple interest was exercised and simultaneously sold for gross profits of $1,427,000. None of the option was exercised in 1997. Major Properties - ---------------- General - ------- This section describes the major operating properties in which the Company has an interest either directly or indirectly through joint venture arrangements. A "negative investment" in a joint venture results from distributions of capital to the Company, if any, exceeding the sum of (i) the Company's contributions of capital and (ii) reported earnings (losses) of the joint venture allocated to the Company. "Investment" in a joint venture means the book value of the Company's investment in the joint venture. Wildwood Office Park - -------------------- Wildwood Office Park is a 285 acre Class A commercial development in suburban Atlanta master planned by I.M. Pei, including 8 office buildings containing 2,437,000 rentable square feet. The property is zoned for office, institutional and commercial use. Approximately 105 acres in the park are owned by, or committed to be contributed to, Wildwood Associates (see below), including approximately 34 acres of land held for future development. The Company owns 100% of the 146 acre balance of the land available for future development. Located in Atlanta's northwest commercial district, just north of the Interstate 285/Interstate 75 intersection, Wildwood features convenient access to all of Atlanta's major office, commercial and residential districts. The Wildwood complex overlooks the Chattahoochee River and borders 1,200 acres of national forest, thus providing an urban office facility in a forest setting. Wildwood Associates. Wildwood Associates is a joint venture formed in 1985 between the Company and IBM. The Company and IBM each have a 50% interest in Wildwood Associates. At December 31, 1998, the Company's investment in Wildwood Associates and a related partnership, which included the cost of the land the Company is committed to contribute to Wildwood Associates, was reduced to a negative investment of approximately $36,364,000 due to partnership distributions in excess of net income made during 1998 and prior years. Wildwood Associates owns the 3200 Windy Hill Road Building (685,000 rentable square feet), the 2300 Windy Ridge Parkway Building (634,000 rentable square feet), the 2500 Windy Ridge Parkway Building (314,000 rentable square feet), the 4100 and 4300 Wildwood Parkway Buildings (250,000 rentable square feet in total) and the 4200 Wildwood Parkway Building (260,000 rentable square feet). At March 15, 1999, these buildings were 91%, 100%, 95%, 100% and 100% leased, respectively. Wildwood Associates also owns 14 acres leased to two banking facilities and five restaurants. On June 30, 1998, Wildwood Associates completed the $44 million financing of the 4200 Wildwood Parkway Building (see Note 4). In conjunction with this financing, Wildwood Associates made non-operating cash distributions of approximately $22.6 million to each partner during 1998. Wildwood Associates has a $10 million bank line of credit(the Company severally guarantees one-half) under which $0 was drawn as of December 31, 1998. Other Buildings in Wildwood Office Park. Wildwood Office Park also contains the 3301 Windy Ridge Parkway Building, a 106,000 rentable square foot office building located on approximately 10 acres which is wholly owned by the Company. The 3301 Windy Ridge Parkway Building was 100% leased as of March 15, 1999. In addition, the 3100 Windy Hill Road Building, a 188,000 rentable square foot corporate training facility occupies a 13-acre parcel of land which is wholly owned by the Company. The training facility improvements were sold in 1983 to a limited partnership of private investors, at which time the Company received a leasehold mortgage note. The training facility land was simultaneously leased to the partnership for thirty years, along with certain equipment for varying periods. The training facility had been leased by the partnership to IBM through November 30, 1998. Effective January 1, 1997, the IBM lease was extended eight years beyond its previous expiration, to November 30, 2006. Based on the economics of the lease, the Company will receive substantially all of the economic risks and rewards from the property through the term of the IBM lease. In addition, the Company will receive substantially all of the future economic risks and rewards from the property beyond the IBM lease because of the short term remaining on the land lease (7 years) and the large mortgage note balance ($25.9 million) that would have to be paid off, with interest, in that 7 year period before the limited partnership would receive any significant benefit. Therefore, effective January 1, 1997, the $17,005,000 balance of the mortgage note and land was reclassified to Operating Properties, and revenues and expenses (including depreciation) from that point forward have been recorded as if the building were owned by the Company. North Point - ----------- North Point is a mixed-use commercial development located in north central suburban Atlanta, Georgia, off of Georgia Highway 400, a six lane state highway that runs from downtown Atlanta to the northern Atlanta suburbs. The Company owns either directly or through a joint venture approximately 134 and 221 acres located on the east and west sides of Georgia Highway 400, respectively. Development had been mainly concentrated on the land located east of Georgia Highway 400 until July 1998 when the Company commenced construction of the first building on the west side. Planning and infrastructure work has also begun for additional development on the west side property. The east side land surrounds North Point Mall, a 1.3 million square foot regional mall on a 100-acre site which the Company sold in 1988. The following describes the various components of North Point. North Point MarketCenter and Mansell Crossing Phase II. North Point MarketCenter, which is 100% leased as of March 15, 1999, is a 514,000 square foot retail power center (of which 401,000 square feet are owned by Cousins) located adjacent to North Point Mall. Mansell Crossing Phase II, which was 100% leased as of March 15, 1999, is an approximately 103,000 square foot expansion of an existing retail power center, previously developed by the Company for a third party. These two centers are located on 49 and 13 acres of land, respectively, at North Point. Both of these properties were contributed to the Prudential venture in November 1998 (see Note 5). North Point Center East. The Company owns either directly or indirectly through a joint venture four office buildings located adjacent to North Point Mall and the retail properties discussed above. 100 North Point Center East and 200 North Point Center East, which were completed in 1995 and 1996, are 128,000 and 130,000 rentable square feet, respectively. The third office building, 333 North Point Center East, a 129,000 rentable square foot office building, adjacent to 100 and 200 North Point Center East became partially operational for financial reporting purposes in June 1998. Construction commenced in May 1998 on the fourth office building, 555 North Point Center East, a 148,000 rentable square foot building also adjacent to the other buildings. These four office buildings are located on 35 acres of land at North Point and 100, 200 and 333 North Point Center East were 100%, 100% and 96% leased, respectively, as of March 15, 1999. 100 and 200 North Point Center East were contributed to the Prudential venture in November 1998 (see Note 5). AtheroGenics. In July 1998, the Company commenced construction of AtheroGenics, an approximately 50,000 rentable square foot office and laboratory building. This building is located on a 4 acre site on the west side of Georgia Highway 400. Other North Point Property. Approximately 24 acres of the North Point land are ground leased in 1 to 5 acre sites to freestanding users. These 24 acres were 100% leased as of March 15, 1999. The remaining approximately 230 developable acres at North Point are 100% owned by the Company. Approximately 13 acres of this land are located on the east side of Georgia Highway 400 and are zoned for office use. Approximately 217 acres of the land are located on the west side of Georgia Highway 400 and are zoned for office, institutional and light industrial use. Other Office Properties - ----------------------- NationsBank Plaza. NationsBank Plaza is a Class A, 55-story, approximately 1.3 million rentable square foot office tower designed by Kevin Roche and is located on approximately 4 acres of land between the midtown and downtown districts of Atlanta, Georgia. The building, which was completed in 1992, was approximately 98% leased as of March 15, 1999. An affiliate of Bank of America leases 46% of the rentable square feet. NationsBank Plaza was developed by CSC, a joint venture formed by the Company and a wholly owned subsidiary of Bank of America, each as 50% partners. CSC's net income or loss and cash distributions are allocated to the partners based on their percentage interests (50% each). At December 31, 1998, the Company's investment in CSC was approximately $97,685,000. Cousins LORET Venture, L.L.C.("Cousins LORET"). Effective July 31, 1997, Cousins LORET was formed between the Company and LORET Holdings, L.L.L.P. ("LORET"), each as 50% members. LORET contributed Two Live Oak, a 278,000 rentable square foot office building located in Atlanta, Georgia, which was renovated in 1997. Two Live Oak became partially operational for financial reporting purposes in October 1997. Two Live Oak was contributed subject to a 7.90% $30 million non-recourse ten year mortgage note payable. LORET also contributed an adjacent 4 acre site on which construction commenced in August 1997 of The Pinnacle, a 424,000 rentable square foot office building. In May 1998, Cousins LORET completed the $70 million non-recourse financing of The Pinnacle at an interest rate of 7.11% and a term of twelve years (see Note 4) which was completely funded on December 30, 1998. The Company contributed $25 million of cash to Cousins LORET to match the value of LORET's agreed-upon equity. At December 31, 1998, the Company had an investment in Cousins LORET of approximately $25,202,000. 101 Independence Center. In December 1996, the Company acquired 101 Independence Center, a 522,000 rentable square foot office building (including an underground parking garage and an adjacent parking deck) located at the intersection of Trade and Tryon Streets in the central business district of Charlotte, North Carolina. 101 Independence Center was 98% leased as of March 15, 1999. 615 Peachtree Street. In August 1996, the Company acquired 615 Peachtree Street, a 145,000 rentable square foot 12-story downtown Atlanta office building, located across from NationsBank Plaza. 615 Peachtree Street was 59% leased as of March 15, 1999. CP Venture LLC. On November 12, 1998, the Company entered into a venture agreement with Prudential. On such date the Company contributed its interest in nine properties to the venture and Prudential contributed cash (see Note 5). The nine properties contributed included four office properties, 100 and 200 North Point Center East as discussed above, First Union Tower and Grandview II. First Union Tower is a Class A office building containing approximately 319,000 rentable square feet, located on approximately one acre of land in downtown Greensboro, North Carolina. First Union Tower was approximately 95% leased as of March 15, 1999. In August 1998, Grandview II, an approximately 149,000 rentable square foot office building in Birmingham, Alabama, which was owned by Cousins/Daniel, LLC, became partially operational for financial reporting purposes. Grandview II was approximately 97% leased as of March 15, 1999. See the retail and medical office sections where retail and medical office properties contributed to the Prudential venture are discussed. One Ninety One Peachtree Tower. One Ninety One Peachtree Tower is a 50-story, Class A office tower located in downtown Atlanta, Georgia that was completed in December 1990. One Ninety One Peachtree Tower, which contains 1.2 million rentable square feet, was designed by John Burgee Architects, with Phillip Johnson as design consultant. One Ninety One Peachtree Tower was developed on approximately 2 acres of land, of which approximately 1.5 acres is owned and approximately one-half acre under the parking facility is leased for a 99-year term expiring in 2087 with a 99-year renewal option. One Ninety One Peachtree Tower was approximately 97% leased at March 15, 1999. C-H Associates, Ltd. ("C-H Associates"), a partnership formed in 1988 between CREC (49%), Hines Peachtree Associates Limited Partnership (49%) and Peachtree Palace Hotel, Ltd. (2%), owns a 20% interest in the partnership that owns One Ninety One Peachtree Tower. C-H Associates' 20% ownership of One Ninety One Peachtree Tower results in an effective 9.8% ownership interest by CREC, subject to a preference in favor of the majority partner, in the One Ninety One Peachtree Tower project. The balance of the One Ninety One Peachtree Tower project was owned by DIHC Peachtree Associates, which was an affiliate of Dutch Institutional Holding Company, but was acquired by Cornerstone Properties, Inc. in October 1997. Through C-H Associates, CREC received 50% of the development fees from the One Ninety One Peachtree Tower project. In addition, CREC owns a 50% interest in two general partnerships which receive fees from leasing and managing the One Ninety One Peachtree Tower project. The One Ninety One Peachtree Tower project was funded substantially by debt until March 1993, at which time DIHC Peachtree Associates (now Cornerstone Properties, Inc. as discussed above) contributed equity in the amount of $145,000,000 which repaid approximately one-half of the debt. Subsequent to the equity contribution, C-H Associates is entitled to a priority distribution of $250,000 per year (of which the Company is entitled to receive $112,500) for seven years beginning in 1993. The equity contributed is entitled to a preferred return at a rate increasing over the first 14 years from 5.5% to 11.5% (payable after the Company's priority return); at December 31, 1998, the cumulative undistributed preferred return was $17,892,295. After Cornerstone Properties, Inc. recovers its preferred return, the partners share in any operating cash flow distributions in accordance with their percentage interests. The project is subject to long-term debt of approximately $144,320,000 at December 31, 1998. At December 31, 1998, the Company had a negative investment of approximately $63,000 in the One Ninety One Peachtree Tower project. Ten Peachtree Place. Ten Peachtree Place is a 20-story, 259,000 rentable square foot Class A office building located in midtown Atlanta, Georgia. Completed in 1991, this structure was designed by Michael Graves and is currently 100% leased to Coca-Cola. Approximately four acres of adjacent land, currently used for surface parking, are available for future development. Ten Peachtree Place is owned by Ten Peachtree Place Associates, a general partnership between the Company (50%) and a wholly owned subsidiary of Coca-Cola (50%). The partnership acquired the property in 1991 for a nominal cash investment, subject to a ten-year purchase money note. This 8% purchase money note had an outstanding balance of $18.4 million at December 31, 1998. If the purchase money note is paid in accordance with its terms, it will amortize to approximately $15.3 million ($59 per rentable square foot) over the ten-year term of the Coca-Cola lease, at which time Coca-Cola is entitled to receive the preferred return described below, and the property may be sold, released, or returned to the lender under the purchase money note for $1.00 without penalty or any further liability to the Company for the indebtedness. At December 31, 1998, the Company had an investment in Ten Peachtree Place Associates of approximately $104,000. The Company anticipates that Ten Peachtree Place Associates will generate approximately $400,000 per year of cash flows from operating activities net of note principal amortization during the ten-year lease. The partnership agreement generally provides that each of the partners is entitled to receive 50% of cash flows from operating activities net of note principal amortization (excluding any sale proceeds) for ten years, after which time the Company is entitled to 15% of cash flows (including any sale proceeds) and its partner is entitled to receive 85% of cash flows (including any sale proceeds), until the two partners have received a combined distribution of $15.3 million, after which time each partner is entitled to receive 50% of cash flows (including any sale proceeds). CC-JM II Associates. This joint venture was formed in 1994 between the Company and an affiliate of CarrAmerica Realty Corporation, each as 50% general partners, to develop and own a 224,000 square foot office building in suburban Washington, D.C. The building is 100% leased for 15 years to Booz-Allen & Hamilton, an international consulting firm, as a part of its corporate headquarters campus. Rent commenced on January 21, 1996. At December 31, 1998, the Company had an investment in CC-JM II Associates of approximately $2,660,000. Cousins/Daniel, LLC. Cousins/Daniel, LLC ("Cousins/Daniel") was formed in 1997 between Cousins, Inc. (a wholly owned subsidiary of Cousins) and Daniel Realty Company ("Daniel"). The purpose of this venture is to develop certain projects proposed by Daniel and selected by the Company. Daniel's economic rights are limited to development fees, leasing fees, management fees and certain incentive interests. These incentive interests include a residual interest in the cash flow and a residual interest in capital proceeds. All projects undertaken within the venture are pooled for purposes of calculating the aforementioned residuals. This venture is treated as a consolidated entity in the Company's financial statements. In June 1998, Cousins/Daniel acquired Lakeshore Park Plaza, an approximately 193,000 rentable square foot office building and also purchased the land for, and commenced construction of, 600 University Park Place, an approximately 123,000 rentable square foot office building. Both of these office buildings are located in Birmingham, Alabama. Lakeshore Park Plaza was 100% leased as of March 15, 1999. Office Properties Under Development - ----------------------------------- 101 Second Street. Cousins/Myers Second Street Partners, L.L.C., a venture formed in 1997 between the Company and Myers Second Street Company LLC ("Myers"), purchased .63 acres of undeveloped land in downtown San Francisco, California upon which 101 Second Street, an approximately 390,000 rentable square foot office building, is being constructed. Myers' economic rights are limited to development fees and certain incentive interests, which include a residual interest in the cash flow and a residual interest in capital proceeds. This venture is treated as a consolidated entity in the Company's financial statements. 101 Second Street was 62% leased as of March 15, 1999. 333 John Carlyle. In January 1998, the Company purchased the land for, and commenced construction of, 333 John Carlyle, an approximately 153,000 rentable square foot office building in suburban Washington, D.C. 333 John Carlyle is expected to be completed during the second quarter of 1999 and was 68% leased as of March 15, 1999. Charlotte Gateway Village, LLC ("Gateway"). On December 14, 1998, the Company and a wholly owned subsidiary of Bank of America Corporation formed Gateway for the purpose of developing and owning Gateway Village, a 976,000 rentable square foot office building and parking deck in downtown Charlotte, North Carolina (see Note 5). Construction of Gateway Village commenced in July 1998, and the project is 100% leased to Bank of America Corporation. At December 31, 1998 the Company had an investment in Gateway of approximately $11,781,000. Gateway's net income or loss and cash distributions are allocated to the members as follows: first to the Company so that it receives a cumulative compound return equal to 11.46% on its capital contributions, second to a wholly owned subsidiary of Bank of America Corporation until it has received an amount equal to the aggregate amount distributed to the Company and then to each member, 50%. CommonWealth/Cousins I, LLC. On November 18, 1998, the Company entered into Commonwealth/Cousins I, LLC (the "Venture") with CommonWealth Pacific, LLC ("CommonWealth") for the purposes of developing a 217,000 square foot office building in suburban Los Angeles, California. The building will be 100% occupied by, and the corporate headquarters for, LA Cellular. The Venture is treated as a consolidated entity in the Company's financial statements. CommonWealth transferred all rights in the project and in exchange received an initial credit to its capital account of $4,980,039, which is equal to a 49.9% interest in the Venture. The Company is unconditionally obligated to contribute $5,000,000 as its capital contribution to the Venture upon the occurrence of certain events for a 50.1% interest in the Venture. The Venture entered into a put and call agreement which the Company intends to exercise to buy out CommonWealth's interest in the Venture for approximately $7.5 million. Other Retail Properties - ----------------------- Haywood Mall. Haywood Mall is an enclosed regional shopping center located 5 miles southeast of downtown Greenville, South Carolina, which was developed and opened in 1980, and was originally owned by the Company and Bellwether Properties of South Carolina, L.P., an affiliate of Corporate Property Investors. Simon Property Group purchased Corporate Property Investors' interest in Haywood Mall in October 1998. The mall has 1,256,000 gross leaseable square feet ("GLA") of which approximately 330,000 GLA is owned by the Company and Simon Property Group. The balance of the mall is owned by the mall's five major department stores. The portion of Haywood Mall owned by the Company and Simon Property Group was developed on approximately 21 acres of land, of which approximately 18 acres is owned and approximately 3 acres (of parking area) is leased under a ground lease expiring in 2017, with five 10-year renewal options. The portion of Haywood Mall owned by the Company and Simon Property Group was approximately 96% leased as of March 15, 1999. The Company has a 50% interest in Haywood Mall. At December 31, 1998, the Company's investment was approximately $19,656,000. Other Fully Operational Retail Properties. The Company owns three other retail centers which were fully operational for financial reporting purposes as of December 31, 1998. Perimeter Expo is a 291,000 square foot retail power center (of which the Company owns 176,000 square feet) which is located in Atlanta, Georgia and was 100% leased (Company owned) as of March 15, 1999. Presidential MarketCenter is a 471,000 square foot retail power center (of which the Company owns 354,000 square feet) which is located in suburban Atlanta, Georgia and was 99% leased (Company owned) as of March 15, 1999. Colonial Plaza MarketCenter is a 489,000 square foot retail power center which is located in Orlando, Florida and was 94% leased as of March 15, 1999. CP Venture LLC. In November 1998, the Company contributed both Greenbrier MarketCenter and Los Altos MarketCenter in addition to North Point MarketCenter and Mansell Crossing II (see North Point discussion) to the aforementioned Prudential venture (see Note 5). Greenbrier MarketCenter is a 493,000 square foot retail power center which is located in Chesapeake, Virginia and was 100% leased as of March 15, 1999. Los Altos MarketCenter is a 258,000 square foot retail power center (of which the Prudential venture owns 157,000 square feet) which is located in Long Beach, California and was 100% leased as of March 15, 1999. Brad Cous Golf Venture, Ltd. Effective January 31, 1998, the Compan formed the Brad Cous Golf Venture, Ltd. with the W.C. Bradley Co., each as 50% partners, for the purpose of developing and owning The Shops at World Golf Village, an approximately 80,000 square foot retail center located adjacent to the PGA Hall of Fame in St. Augustine, Florida. The Shops at World Golf Village is currently under construction and lease-up. At December 31, 1998, the Company had an investment in Brad Cous Golf Venture, Ltd. of approximately $4,962,000. Other Retail Properties Under Development. In February 1998, the Company purchased The Shops at Palos Verdes, located in Rolling Hills Estates, California, in the greater Los Angeles metropolitan area. This 355,000 square foot center includes existing retail space and a parking deck. The Company plans to redevelop and remerchandise the project into an approximately 385,000 square foot open-air, high-end specialty center, to be named The Avenue of the Peninsula. In April 1998, the Company purchased the land for, and commenced construction of, The Avenue East Cobb, an approximately 241,000 square foot open-air, high-end speciality center in suburban Atlanta, Georgia. Retail Properties Sold. Subsequent to year-end, on February 1, 1999, CREC sold Abbotts Bridge Station, an approximately 83,000 square foot neighborhood retail center in suburban Atlanta, Georgia for $15.7 million, which was approximately $5.0 million over the cost of the center. Including depreciation recapture of approximately $.3 million and net of an income tax provision of approximately $2.2 million, the net gain on the sale was approximately $3.1 million. Medical Office Properties - ------------------------- Operational Medical Office Properties. In June 1998, the Company acquired Northside/Alpharetta I, an approximately 100,000 rentable square foot medical office building in suburban Atlanta, Georgia. Northside/Alpharetta I was approximately 100% leased as of March 15, 1999. Medical Office Properties Under Development. Construction commenced in June 1998 on Northside/Alpharetta II, an approximately 198,000 rentable square foot medical office building. Additionally, Meridian Mark Plaza, a 159,000 rentable square foot medical office building, is under construction and lease-up. Meridian Mark Plaza was 78% leased at March 15, 1999. CP Venture LLC. In November 1998, the Company contributed Presbyterian Medical Plaza at University, an approximately 69,000 rentable square foot medical office building in Charlotte, North Carolina, to the Prudential venture (see Note 5). Presbyterian Medical Plaza at University was approximately 100% leased as of March 15, 1999. Residential Lots Under Development - ----------------------------------
As of December 31, 1998, CREC and Temco Associates owned the following parcels of land which are being developed into residential communities ($ in thousands): Estimated Total Lots Purchase Initial on Land Money Year Currently Lots Remaining Carrying Debt Description Acquired Owned (1) Sold to Date Lots Value Balances ----------- -------- --------- ------------- ---------- -------- -------- CREC ---- Brown's Farm 1993 213 175 38 $ 972 $ 0 West Cobb County Suburban Atlanta, GA Apalachee River Club 1994 186 114 72 2,167 0 Gwinnett County Suburban Atlanta, GA Echo Mill 1994 539 274 265 3,680 0 West Cobb County Suburban Atlanta, GA Barrett Downs 1994 144 143 1 0 0 Forsyth County Suburban Atlanta, GA Bradshaw Farm 1994 529 384 145 205 0 Cherokee County Suburban Atlanta, GA Alcovy Woods Gwinnett County Suburban Atlanta, GA 1996 164 40 124 1,747 530 ----- ----- --- ------ ----- Total 1,775 1,130 645 $8,771 $ 530 ===== ===== === ====== ===== Temco Associates Bentwater Paulding County Suburban Atlanta, GA 1998 1,250(2) 0 1,250 $1,288 $ 0 ======== ===== ===== ====== =====
(1) Includes lots sold to date. Additional lots may be developed on adjacent land on which CREC holds purchase options. (2) See discussion of Temco Associates below. Land Held for Investment and Future Development - ----------------------------------------------- In addition to the various land parcels located adjacent to operating properties or projects under construction discussed above, the Company owns the following significant land holdings either directly or indirectly through joint venture arrangements. The Company intends to convert its land holdings to income-producing usage or to sell portions of land holdings as opportunities arise over time. Temco Associates. Temco Associates was formed in March 1991 as a partnership between CREC (50%) and a subsidiary of Temple-Inland Inc. (50%). Temco Associates has an option through March 2006, with no carrying costs, to acquire the fee simple interest in approximately 11,000 acres in Paulding County, Georgia (northwest of Atlanta, Georgia). The partnership also has an option to acquire interests in a timber rights only lease covering approximately 22,000 acres. The lease expires in March 2006. The options may be exercised in whole or in part over the option period and the option price of the fee simple land was $877 per acre at January 1, 1999, escalating at 6% on January 1 of each succeeding year during the term of the option. During 1998, approximately 328 acres of the option related to the fee simple interest was exercised. Approximately 83 acres were simultaneously sold for gross profits of approximately $192,000. The Cobb County YMCA has a three year option to purchase approximately 38 acres out of the total acres of the options exercised in 1998. The remaining approximately 207 acres were deeded in early 1999 to a golf course developer who is developing the golf course within the Bentwater residential community on which Temco Associates commenced development in November 1998. Approximately 1,250 lots will be developed within Bentwater on approximately 838 acres which will be acquired as needed through exercises of the option related to the fee simple interest. During 1996, approximately 375 acres of the option related to the fee simple interest was exercised and simultaneously sold for gross profits of $1,427,000. None of the option was exercised in 1997. Other Real Property Investments - ------------------------------- Omni Norfolk Hotel. Norfolk Hotel Associates ("NHA") was a general partnership formed in 1978 between the Company and an affiliate of Odyssey Partners, L.P. (an investment partnership), each as 50% partners, which held a mortgage note on and owned the land under the 442-room Omni International Hotel in downtown Norfolk, Virginia. In January 1992, NHA terminated the land lease and became the owner of the hotel and a long-term parking agreement with an adjacent building owner. In April 1993, the partnership sold the hotel, but retained its interest in the parking agreement. The partnership received a $8,325,000 mortgage note for a portion of the sales proceeds. In July 1994, NHA distributed to each partner a 50% interest in the parking agreement held by NHA, and in July 1996 the Company sold its 50% interest for $2 million, resulting in a profit to the Company of approximately $408,000 which is included in Gain on Sale of Investment Properties in the 1996 Consolidated Statement of Income. On February 14, 1997, the mortgage note receivable due to NHA with a balance of $8,325,000 was repaid in full. A portion of the proceeds from the repayment was used to pay off the partnership's lines of credit, with the balance of the partnership's assets ($2.2 million of cash for each partner) distributed to the partners in 1997. The partnership was dissolved in 1997. Dusseldorf Joint Venture. In 1992, the Company entered into a joint venture agreement for the development of a 133,000 rentable square foot office building in Dusseldorf, Germany which is 34% leased to IBM. The Company's venture partners are IBM and Multi Development Corporation International B.V. ("Multi"), a Dutch real estate development company. In December 1993, the building was presold to an affiliate of Deutsche Bank. CREC and Multi jointly developed the building. Due to the release of certain completion guarantees related to the building, approximately $2.6 million of development income was recognized in September 1995 ($931,000 of which had been deferred as of December 31, 1994). An additional $115,000, $235,000 and $777,000 of development income was received and recognized in 1998, 1997 and 1996, respectively. Air Rights Near the CNN Center. The Company owns a leasehold interest in the air rights over the approximately 365,000 square foot CNN Center parking facility in Atlanta, Georgia, adjoining the headquarters of Turner Broadcasting System, Inc. and Cable News Network. The air rights are developable for additional parking or office use. The Company's net carrying value of this property is $0.
Supplemental Financial and Leasing Information - ---------------------------------------------- Depreciation and amortization expense include the following components for the years ended December 31, 1998 and 1997 ($ in thousands): 1998 1997 -------------------------------------- -------------------------------------- Share of Share of Unconsolidated Unconsolidated Consolidated Joint Ventures Total Consolidated Joint Ventures Total ------------ -------------- ------- ------------ --------------- ------ Furniture, fixtures and equipment $ 505 $ 2 $ 507 $ 435 $ 7 $ 442 Deferred financing costs -- 17 17 -- 10 10 Goodwill and related business acquisition costs 342 228 570 486 35 521 Building (including tenant first generation) 5,300 6,330 11,630 12,351 9,056 21,407 Tenant second generation 9,026 7,159 16,186 774 1,243 2,017 ------- ------- ------- ------- ------- ------- $15,173 $13,736 $28,910 $14,046 $10,351 $24,397 ======= ======= ======= ======= ======= =======
Exclusive of new developments and purchases of furniture, fixtures and equipment, the Company had the following capital expenditures for the years ended December 31, 1998 and 1997, including its share of unconsolidated joint ventures ($ in thousands):
1998 1997 Office Retail Total Office Retail Total ------ ------ ----- ------ ------ ----- Second generation related costs $1,442 $ 47 $1,488 $ 978 $ -- $ 978 Building improvements -- 1 1 14 -- 14 ------ ---- ------ ----- ----- ----- Total $1,442 $ 48 $1,489 $ 992 $ -- $ 992 ====== ==== ====== ===== ===== =====
Item 3. Legal Proceedings - --------------------------- No material legal proceedings are presently pending by or against the Company. Item 4. Submission of Matters to a Vote of Security Holders No matter was submitted to a vote of security holders during the fourth quarter of the Registrant's fiscal year ended December 31, 1998. Item X. Executive Officers of the Registrant - ---------------------------------------------- The Executive Officers of the Registrant as of the date hereof are as follows: Name Age Office Held ---- --- ----------- Thomas G. Cousins 67 Chairman of the Board of Directors and Chief Executive Officer Daniel M. DuPree 52 President and Chief Operating Officer Kelly H. Barrett 34 Senior Vice President - Finance George J. Berry 61 Senior Vice President Tom G. Charlesworth 49 Senior Vice President, Secretary and General Counsel Craig B. Jones 48 Senior Vice President and President of the Office Division Joel T. Murphy 40 Senior Vice President and President of the Retail Division (Cousins MarketCenters, Inc.) John L. Murphy 53 Senior Vice President W. James Overton 52 Senior Vice President - Development Lea Richmond III 51 Senior Vice President and President of the Medical Office Division (Cousins/Richmond) Relationships: - -------------- There are no family relationships among the current Executive Officers or Directors. Lillian C. Giornelli, Mr. Cousins' daughter, is a nominee for director at the Company's Annual Meeting of Stockholders on May 4, 1999. Term of Office: - --------------- The term of office for all officers expires at the annual directors' meeting, but the Board has the power to remove any officer at any time. Business Experience: Mr. Cousins has been the Chief Executive Officer of the Company since its inception. Mr. DuPree joined the Company in October 1992, became Senior Vice President in April 1993, Senior Executive Vice President in April 1995 and President and Chief Operating Officer in November 1995. Prior to that he was President of New Market Companies, Inc. and affiliates since 1984. Ms. Barrett joined the Company in October 1992 as Vice President and Controller and became Senior Vice President - Finance of the Company in August 1997. Prior to that she was employed by Arthur Andersen LLP as an Audit Manager. Mr. Berry has been Senior Vice President since joining the Company in September 1990. Prior to that he was Commissioner of the State of Georgia's Department of Industry, Trade and Tourism from 1983 to 1990. Mr. Charlesworth joined the Company in October 1992 and became Senior Vice President, Secretary and General Counsel in November 1992. Prior to that he worked for certain affiliates of Thomas G. Cousins as Chief Financial Officer and Legal Counsel. Mr. Jones joined the Company in October 1992 and became Senior Vice President in November 1995 and President of the Office Division in September 1998. From 1987 until joining the Company, he was Executive Vice President of New Market Companies, Inc. and affiliates. Mr. Joel Murphy joined the Company in October 1992 and became Senior Vice President of the Company and President of the Retail Division in November 1995. From 1988 until joining the Company, he was Senior Vice President of New Market Companies, Inc. and affiliates. Mr. John Murphy has been Senior Vice President since joining the Company in December 1987. Mr. Overton has been Senior Vice President since joining the Company in September 1989. Prior to that he was employed by Hardin Construction Group, Inc. from 1972 to 1989, where he served as President from 1985 to 1989. Mr. Richmond has been Senior Vice President and President of the Medical Office Division since he joined the Company in July 1996. Prior to that he was President of The Lea Richmond Company and The Richmond Development Company from 1975 to 1996. PART II Item 5. Market for Registrant's Common Stock and Related Security Holder - ---------------------------------------------------------------------------- Matters ------- The information concerning the market prices for the Registrant's common stock and related stockholder matters appearing under the caption "Market and Dividend Information" on page 54 of the Registrant's 1998 Annual Report to Stockholders is incorporated herein by reference. Item 6. Selected Financial Data - ----------------------------------- The information appearing under the caption "Five Year Summary of Selected Financial Data" on page 46 of the Registrant's 1998 Annual Report to Stockholders is incorporated herein by reference. Item 7. Management's Discussion and Analysis of Financial Condition and - ---------------------------------------------------------------------------- Results of Operations --------------------- Management's Discussion and Analysis of Financial Condition and Results of Operations which appears on pages 47 through 53 of the Registrant's 1998 Annual Report to Stockholders is incorporated herein by reference. Item 7a Quantitative and Qualitative Disclosure about Market Risk Quantitative and Qualitative Disclosures about Market Risk, which appears on page 53 of the Registrant's 1998 Annual Report to Stockholders, is incorporated herein by reference. Item 8. Financial Statements and Supplementary Data - ------------------------------------------------------- The Consolidated Financial Statements and Notes to Consolidated Financial Statements of the Registrant and Report of Independent Public Accountants which appear on pages 25 through 46 of the Registrant's 1998 Annual Report to Stockholders are incorporated herein by reference. The information appearing under the caption "Selected Quarterly Financial Information (Unaudited)" on page 55 of the Registrant's 1998 Annual Report to Stockholders is incorporated herein by reference. Other financial statements and financial statement schedules required under Regulation S-X are filed pursuant to Item 14 of Part IV of this report. Item 9. Changes in and Disagreements with Accountants on Accounting and - ---------------------------------------------------------------------------- Financial Disclosure -------------------- Not applicable. PART III -------- Item 10. Directors and Executive Officers of the Registrant - -------------------------------------------------------------- The information concerning the Directors and Executive Officers of the Registrant that is required by this Item 10, except that which is presented in Item X in Part I above, is included under the captions "Directors and E xecutive Officers of the Company" on pages 2 through 5 and "Compliance with Section 16(a) of the Securities Exchange Act of 1934" on page 13 of the Proxy Statement dated March 29, 1999 relating to the 1998 Annual Meeting of the Registrant's Stockholders, and is incorporated herein by reference. Item 11. Executive Compensation - ---------------------------------- The information appearing under the caption "Executive Compensation" on pages 7 through 9 and "Compensation of Directors" on page 12 of the Proxy Statement dated March 29, 1999 relating to the 1998 Annual Meeting of the Registrant's Stockholders is incorporated herein by reference. Item 12. Security Ownership of Certain Beneficial Owners and Management - ----------------------------------------------------------------------- The information concerning security ownership of certain beneficial owners and management required by this Item 12 is included under the captions "Directors and Executive Officers of the Company" on pages 2 through 7 and "Principal Stockholders" on pages 22 and 23 of the Proxy Statement dated March 29, 1999 relating to the 1998 Annual Meeting of the Registrant's Stockholders, and is incorporated herein by reference. Item 13. Certain Relationships and Related Transactions - ---------------------------------------------------------- The information concerning certain transactions required by this Item 13 is included under the caption "Certain Transactions" on pages 13 and 14 of the Proxy Statement dated March 29, 1999 relating to the 1998 Annual Meeting of the Registrant's Stockholders, and is incorporated herein by reference. S-7 PART IV ------- Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K - ---------------------------------------------------------------------------- (a) 1. Financial Statements -------------------------- A. The following Consolidated Financial Statements of the Registrant, together with the applicable Report of Independent Public Accountants, are contained on pages 25 through 46 of the Registrant's 1998 Annual Report to Stockholders and are incorporated herein by reference: Page Number in Annual Report ------------- Consolidated Balance Sheets - December 31, 1998 and 1997 25 Consolidated Statements of Income for the Years Ended December 31, 1998, 1997 and 1996 26 Consolidated Statements of Stockholders' Investment for the Years Ended December 31, 1998, 1997 and 1996 27 Consolidated Statements of Cash Flows for the Years Ended December 31, 1998, 1997 and 1996 28 Notes to Consolidated Financial Statements December 31, 1998, 1997 and 1996 29 through 45 Report of Independent Public Accountants 46 B. The following Combined Financial Statements, together with the applicable Report of Independent Public Accountants, of Wildwood Associates and Green Valley Associates II, joint ventures of the Registrant meeting the criteria for significant subsidiaries under the rules and regulations of the Securities and Exchange Commission, are filed as a part of this report. Page Number in Form l0-K ------------ Report of Independent Public Accountants F-1 Combined Balance Sheets - December 31, 1998 and 1997 F-2 Combined Statements of Income for the Years Ended December 31, 1998, 1997 and 1996 F-3 Combined Statements of Partners' Capital for the Years Ended December 31, 1998, 1997 and 1996 F-4 Combined Statements of Cash Flows for the Years EndedDecember 31, 1998, 1997 and 1996 F-5 Notes to Combined Financial Statements December 31, 1998, 1997 and 1996 F-6 through F-11 Item 14. Continued - --------------------- C. The following Financial Statements, together with the applicable Report of Independent Auditors, of CSC Associates, L.P., a joint venture of the Registrant meeting the criteria for a significant subsidiary under the rules and regulations of the Securities and Exchange Commission, are filed as a part of this report. Page Number in Form l0-K ------------ Report of Independent Auditors G-1 Balance Sheets - December 31, 1998 and 1997 G-2 Statements of Operations for the Years Ended December 31, 1998, 1997 and 1996 G-3 Statements of Partners' Capital for the Years EndedDecember 31, 1998, 1997 and 1996 G-4 Statements of Cash Flows for the Years Ended December 31, 1998, 1997 and 1996 G-5 Notes to Financial Statements G-6 through December 31, 1998, 1997 and 1996 G-9 2. Financial Statement Schedules ----------------------------------- The following financial statement schedules, together with the applicable report of independent public accountants are filed as a part of this report. Page Number in Form l0-K A. Cousins Properties Incorporated and Consolidated Entities: Report of Independent Public Accountants on Schedule S-7 Schedule III- Real Estate and Accumulated Depreciation - December 31, 1998 S-8 through S-12 B. Wildwood Associates and Green Valley Associates II Schedule III - Real Estate and Accumulated Depreciation - December 31, 1998 F-12 C. CSC Associates, L.P. Schedule III- Real Estate and Accumulated Depreciation - December 31, 1998 G-10 NOTE: Other schedules are omitted because of the absence of conditions under which they are required or because the required information is given in the financial statements or notes thereto. Item 14. Continued - --------------------- 3. Exhibits -------------- 3(a)(i) Articles of Incorporation of Registrant, as approved by the Stockholders on April 29, 1997, filed as Exhibit B to the Registrant's Proxy Statement dated April 29, 1997, and as amended by the Stockholders on April 21, 1998 as filed in the Registrant's Proxy Statement dated March 27, 1998, and incorporated herein by reference. 3(b) By-laws of Registrant, as approved by the Stockholders on April 30, 1990, and as further amended by the Stockholders on April 29, 1993, filed as Exhibit 4(b) to the Registrant's Form S-3 dated September 28, 1993, and incorporated herein by reference. 4(a) Dividend Reinvestment Plan as restated as of March 27, 1995, filed in the Registrant's Form S-3 dated March 27, 1995, and incorporated herein by reference. 10(a)(i) Cousins Properties Incorporated 1989 Stock Option Plan, as renamed the 1995 Stock Incentive Plan and approved by the Stockholders on May 6, 1996, filed as Exhibit A to the Registrant's Proxy Statement dated May 6, 1996, and as amended by the Stockholders on April 21, 1998, as filed in the Registrant's Proxy Statement dated March 27, 1998, and incorporated herein by reference. 10(a)(ii) Cousins Real Estate Corporation Stock Appreciation Right Plan, amended and restated as of March 15, 1993, filed as Exhibit 10(a)(ii) to the Registrant's Form 10-K for the year ended December 31, 1992, and incorporated herein by reference. 10(a)(iii) Cousins Properties Incorporated Stock Appreciation Right Plan, dated as of March 15, 1993, filed as Exhibit 10(a)(iii) to the Registrant's Form 10-K for the year ended December 31, 1992, and incorporated herein by reference. 10(b)(i) Cousins Properties Incorporated Profit Sharing Plan as amended and restated effective as of January 1, 1996. 10(b)(ii) Cousins Properties Incorporated Profit Sharing Trust Agreement as effective as of January 1, 1991, filed as Exhibit 10(b)(ii) to the Registrant's Form 10-K for the year ended December 31, 1991, and incorporated herein by reference. 10(c) Land lease (Kennesaw) dated December 17, 1969, and an amendment thereto dated December 15, 1977, filed as Exhibit l0(d) to the Registrant's Form 10-K for the year ended December 31, 1980, and incorporated herein by reference. Item 14. Continued - --------------------- 10(d) Cousins Properties Incorporated Stock Plan for Outside Directors, as approved by the Stockholders on April 29, 1997, filed as Exhibit B to the Registrant's Proxy Statement dated April 29, 1997, and incorporated herein by reference. 11 Schedule showing computation of net income per share for each of the five years ended December 31 1998. 13 Annual Report to Stockholders for the year ended December 31, 1998. 21 Subsidiaries of the Registrant. 23(a) Consent of Independent Public Accountants (Arthur Andersen LLP). 23(b) Consent of Independent Auditors (Ernst & Young LLP). 27 Financial Data Schedule. (b) Reports on Form 8-K. -------------------------- On November 16, 1998, the Registrant filed a current report on Form 8-K to report the formation of a venture with The Prudential Insurance Company of America. SIGNATURES ---------- Pursuant to the requirements of Section 13 or 15 (d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. Cousins Properties Incorporated (Registrant) Dated: March 19, 1999 BY: /s/ Kelly H. Barret --------------------------------- Kelly H. Barrett Senior Vice President - Finance (Authorized Officer) Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the Registrant and in the capacities and on the date indicated. Signature Capacity Date - --------- -------- ---- Principal Executive Officer: Chairman of the Board, March 19, 1999 Chief Executive Officer /s/ T.G. Cousins and Director - --------------------------- T. G. Cousins Principal Financial and Accounting Officer: Senior Vice President March 19, 1999 /s/ Kelly H. Barrett - Finance - --------------------------- Kelly H. Barrett Additional Directors: /s/ Richard W. Courts Director March 19, 1999 - --------------------------- Richard W. Courts, II /s/ Boone A. Knox Director March 19, 1999 - --------------------------- Boone A. Knox /s/ William Porter Payne Director March 19, 1999 - --------------------------- William Porter Payne REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS ON SCHEDULE ---------------------------------------------------- To Cousins Properties Incorporated: We have audited in accordance with generally accepted auditing standards, the financial statements included in the Cousins Properties Incorporated annual report to stockholders incorporated by reference in this Form l0-K, and have issued our report thereon dated February 11, 1999. Our audit was made for the purpose of forming an opinion on those statements taken as a whole. The schedule listed in Item 14, Part (a) 2.A. is the responsibility of the Company's management and is presented for purposes of complying with the Securities and Exchange Commission's rules and is not part of the basic financial statements. This schedule has been subjected to the auditing procedures applied in the audit of the basic financial statements and, in our opinion, fairly states in all material respects the financial data required to be set forth therein in relation to the basic financial statements taken as a whole. ARTHUR ANDERSEN LLP Atlanta, Georgia February 11, 1999
SCHEDULE III (Page 1 of 5) COUSINS PROPERTIES INCORPORATED AND CONSOLIDATED ENTITIES REAL ESTATE AND ACCUMULATED DEPRECIATION DECEMBER 31, 1998 ($ in thousands) Column A Column B Column C Column D Column E -------- -------- -------- -------- -------- Costs Capitalized Gross Amount at Which Initial Cost Subsequent Carried at to Company to Acquisition December 31, 1998 ------------------- -------------------- ----------------------------------- Carrying Costs Buildings Less Cost Land Buildings and Improve- of Sales and Land and Total Description Encumbrances Land Improvements ments and Other Improvements Improvements (a),(b) - ----------- ------------ ---- ------------ -------- --------- ------------ ------------ ------- LAND HELD FOR INVESTMENT OR FUTURE DEVELOPMENT - ---------------------------------------------- Wildwood - Atlanta, GA $ -- $ 11,156 $ -- $ 4,737 $ (8,888) $ 7,005 $ -- $ 7,005 North Point Property - Fulton Co., GA -- 10,294 -- 12,213 (17,037) 5,470 -- 5,470 Midtown - Atlanta, GA -- 2,949 -- 56 (1,607) 1,398 -- 1,398 McMurray - Cobb Co., GA. -- 1,105 -- 172 (1,245) 32 -- 32 Lawrenceville - Gwinnett Co., GA -- 5,543 -- 706 (5,863) 386 -- 386 Colonial Plaza MarketCenter Outparcels - Orlando, FL -- 1,649 -- 335 (1,544) 440 -- 440 Greenbrier MarketCenter Outparcels - Chesapeake, VA -- 3,191 -- 204 (2,985) 410 -- 410 Abbotts Bridge Station Outparcels - Alpharetta, GA -- 902 -- -- (451) 451 -- 451 ---------------------------------------------------------------------------------------------- -- 36,789 -- 18,423 (39,620) 15,592 -- 15,592 ----------------------------------------------------------------------------------------------
Column F Column G Column H Column I -------- -------- -------- -------- Life on Which De- preciation Accumu- In 1998 lated Date of Income Deprecia- Construc- Date Statement Description tion (a) tion Acquired Is Computed - ----------- -------- --------- -------- ----------- LAND HELD FOR INVESTMENT OR FUTURE DEVELOPMENT - ---------------------------------------------- Wildwood - Atlanta, GA $ -- -- 1971-1982,1989 -- North Point Property - Fulton Co., GA -- -- 1970-1985 -- Midtown - Atlanta, GA -- -- 1984 -- McMurray - Cobb Co., GA. -- -- 1981 -- Lawrenceville - Gwinnett Co., GA -- -- 1994 -- Colonial Plaza MarketCenter Outparcels - Orlando, FL -- -- 1995 -- Greenbrier MarketCenter Outparcels - Chesapeake, VA -- -- 1995 -- Abbotts Bridge Station Outparcels - Alpharetta, GA -- -- 1998 -- ------- -- -------
SCHEDULE III (Page 2 of 5) COUSINS PROPERTIES INCORPORATED AND CONSOLIDATED ENTITIES REAL ESTATE AND ACCUMULATED DEPRECIATION DECEMBER 31, 1998 ($ in thousands) Column A Column B Column C Column D Column E -------- -------- -------- -------- -------- Costs Capitalized Gross Amount at Which Initial Cost Subsequent Carried at to Company to Acquisition December 31, 1998 ------------------- -------------------- ----------------------------------- Carrying Costs Buildings Less Cost Land Buildings and Improve- of Sales and Land and Total Description Encumbrances Land Improvements ments and Other Improvements Improvements (a),(b) - ----------- ------------ ---- ------------ -------- --------- ------------ ------------ ------- OPERATING PROPERTIES - -------------------- Wildwood - 3301 Windy Ridge - Atlanta, GA $ -- $ 20 $ -- $ 9,007 $ 1,519 $ 1,237 $ 9,309 $ 10,546 Wildwood - 3100 Windy Hill Road - Atlanta, GA -- -- 17,005 -- -- -- 17,005 17,005 Kennesaw - Cobb Co., GA -- -- -- 2,351 -- -- 2,351 2,351 615 Peachtree Street - Atlanta, GA -- 4,740 7,229 -- -- 4,740 7,229 11,969 333 North Point Center East - Fulton Co., GA -- 551 -- 11,803 809 551 12,612 13,163 Lakeshore Park Plaza - Birmingham, AL 10,856 3,362 12,261 -- -- 3,362 12,261 15,623 101 Independence Center - Charlotte, NC 48,254 11,096 62,824 -- -- 11,096 62,824 73,920 Perimeter Expo - Atlanta, GA 20,846 8,564 -- 10,800 71 8,564 10,871 19,435 North Point Stand Alone Retail Sites - Fulton Co., GA -- 4,559 -- 451 (1,294) 3,716 -- 3,716 Northside/Alpharetta I - Fulton Co., GA 10,543 -- 15,587 -- -- -- 15,587 15,587 Presidential MarketCenter - Gwinnett Co., GA -- 3,956 -- 18,946 817 3,956 19,763 23,719
Column F Column G Column H Column I -------- -------- -------- -------- Life on Which De- preciation Accumu- In 1998 lated Date of Income Deprecia- Construc- Date Statement Description tion (a) tion Acquired Is Computed - ----------- -------- --------- -------- ----------- OPERATING PROPERTIES - -------------------- Wildwood - 3301 Windy Ridge - Atlanta, GA $ 4,297 1984 1984 30 Years Wildwood - 3100 Windy Hill Road - Atlanta, GA 1,360 1997 1997 25 Years Kennesaw - Cobb Co., GA 1,543 1974 1973 30 Years 615 Peachtree Street - Atlanta, GA 1,152 -- 1996 15 Years 333 North Point Center East - Fulton Co., GA 533 1996 1996 30 Years Lakeshore Park Plaza - Birmingham, AL 198 -- 1998 30 Years 101 Independence Center - Charlotte, NC 5,855 -- 1996 25 Years Perimeter Expo - Atlanta, GA 2,102 1993 1993 30 Years North Point Stand Alone Retail Sites - Fulton Co., GA 100 -- 1970-1985 Various Northside/Alpharetta I - Fulton Co., GA 187 -- 1998 25 Years Presidential MarketCenter - Gwinnett Co., GA 2,278 1993-1995 1993 30 Years
SCHEDULE III (Page 3 of 5) COUSINS PROPERTIES INCORPORATED AND CONSOLIDATED ENTITIES REAL ESTATE AND ACCUMULATED DEPRECIATION DECEMBER 31, 1998 ($ in thousands) Column A Column B Column C Column D Column E -------- -------- -------- -------- -------- Costs Capitalized Gross Amount at Which Initial Cost Subsequent Carried at to Company to Acquisition December 31, 1998 ------------------- -------------------- ----------------------------------- Carrying Costs Buildings Less Cost Land Buildings and Improve- of Sales and Land and Total Description Encumbrances Land Improvements ments and Other Improvements Improvements (a),(b) - ----------- ------------ ---- ------------ -------- --------- ------------ ------------ ------- OPERATING PROPERTIES (Continued) - -------------------------------- Abbotts Bridge Station - Fulton Co., GA $ -- $ 1,954 $ -- $ 7,674 $ 531 $ 1,954 $ 8,205 $ 10,159 Colonial Plaza MarketCenter - Orlando, FL -- 8,500 -- 31,265 1,905 8,500 33,170 41,670 Miscellaneous -- 398 145 77 (474) -- 146 146 90,499 47,700 115,051 92,374 3,884 47,676 211,333 259,009 PROJECTS UNDER CONSTRUCTION 101 Second Street - San Francisco, CA $ -- $ 11,698 $ -- $ 18,616 $ 1,292 $ 11,698 $ 19,908 $ 31,606 AtheroGenics - Fulton Co., GA -- 200 -- 2,715 44 200 2,759 2,959 The Avenue East Cobb - Atlanta, GA -- 7,205 -- 9,891 520 7,205 10,411 17,616 333 John Carlyle - Washington, D.C. -- 5,373 -- 15,554 705 5,373 16,259 21,632 Carlyle II - Washington, D.C. -- 490 -- -- -- 490 -- 490 Laguna Niguel Promenade - Laguna Niguel, CA -- 5,578 -- 12,106 739 5,578 12,845 18,423 Meridian Mark Plaza - Atlanta, GA -- 2,200 -- 14,619 1,099 2,200 15,718 17,918 600 University Park Place - Birmingham, AL -- 1,899 -- 8,707 212 1,899 8,919 10,818 555 North Point Center East Fulton Co., GA -- 368 -- 8,303 175 368 8,478 8,846
Column F Column G Column H Column I -------- -------- -------- -------- Life on Which De- preciation Accumu- In 1998 lated Date of Income Deprecia- Construc- Date Statement Description tion (a) tion Acquired Is Computed - ----------- -------- --------- -------- ----------- OPERATING PROPERTIES (Continued) - -------------------------------- Abbotts Bridge Station - Fulton Co., GA $ 312 1997 1997 30 Years Colonial Plaza MarketCenter - Orlando, FL 3,382 1995 1995 30 Years Miscellaneous 120 -- 1977-1984 Various ------- 23,419 ------- PROJECTS UNDER CONSTRUCTION - --------------------------- 101 Second Street - San Francisco, CA $ -- 1998 1997 -- AtheroGenics - Fulton Co., GA -- 1998 1998 -- The Avenue East Cobb - Atlanta, GA -- 1998 1998 -- 333 John Carlyle - Washington, D.C. -- 1998 1998 -- Carlyle II - Washington, D.C. -- 1998 1998 -- Laguna Niguel Promenade - Laguna Niguel, CA -- 1997 1997 -- Meridian Mark Plaza - Atlanta, GA -- 1997 1997 -- 600 University Park Place - Birmingham, AL -- 1998 1998 -- 555 North Point Center East Fulton Co., GA -- 1998 1998 --
SCHEDULE III (Page 4 of 5) COUSINS PROPERTIES INCORPORATED AND CONSOLIDATED ENTITIES REAL ESTATE AND ACCUMULATED DEPRECIATION DECEMBER 31, 1998 ($ in thousands) Column A Column B Column C Column D Column E -------- -------- -------- -------- -------- Costs Capitalized Gross Amount at Which Initial Cost Subsequent Carried at to Company to Acquisition December 31, 1998 ------------------- -------------------- ----------------------------------- Carrying Costs Buildings Less Cost Land Buildings and Improve- of Sales and Land and Total Description Encumbrances Land Improvements ments and Other Improvements Improvements (a),(b) - ----------- ------------ ---- ------------ -------- --------- ------------ ------------ ------- PROJECTS UNDER CONSTRUCTION (continued) - --------------------------------------- Avenue of the Peninsula - Los Angeles, CA $ -- $ 4,338 $ 17,152 $ 2,262 $ 1,352 $ 4,338 $ 20,766 $ 25,104 Northside/Alpharetta II Fulton Co., GA -- -- -- 7,067 67 -- 7,134 7,134 LA Cellular Headquarters - Los Angeles, CA -- -- -- 16,124 66 -- 16,190 16,190 ---------------------------------------------------------------------------------------------- -- 39,349 17,152 115,964 6,271 39,349 139,387 178,736 ---------------------------------------------------------------------------------------------- RESIDENTIAL LOTS UNDER DEVELOPMENT - ---------------------------------- Browns Farm - Cobb Co., GA $ -- $ 3,154 $ -- $ 5,416 $ (7,598) $ 972 $ -- $ 972 Apalachee River Club - Gwinnett Co., GA -- 1,820 -- 4,173 (3,826) 2,167 -- 2,167 Echo Mill - Cobb Co., GA -- 5,298 -- 6,900 (8,518) 3,680 -- 3,680 Bradshaw Farm - Cherokee Co., GA -- 5,100 -- 11,480 (16,375) 205 -- 205 Alcovy Woods - Gwinnett Co., GA 530 1,142 -- 1,423 (818) 1,747 -- 1,747 530 16,514 -- 29,392 (37,135) 8,771 -- 8,771 ---------------------------------------------------------------------------------------------- $ 91,029 $ 140,352 $132,203 $256,153 $(66,600) $111,388 $350,720 $462,108 ==============================================================================================
Column F Column G Column H Column I -------- -------- -------- -------- Life on Which De- preciation Accumu- In 1998 lated Date of Income Deprecia- Construc- Date Statement Description tion (a) tion Acquired Is Computed - ----------- -------- --------- -------- ----------- PROJECTS UNDER CONSTRUCTION (continued) - --------------------------------------- Avenue of the Peninsula - Los Angeles, CA $ -- 1998 1998 -- Northside/Alpharetta II Fulton Co., GA -- 1998 -- -- LA Cellular Headquarters - Los Angeles, CA -- 1998 1998 -- ------- -- ------- RESIDENTIAL LOTS UNDER DEVELOPMENT - ---------------------------------- Browns Farm - Cobb Co., GA $ -- 1993-1994 1993-1994 -- Apalachee River Club - Gwinnett Co., GA -- 1994 1994 -- Echo Mill - Cobb Co., GA -- 1994 1994 -- Bradshaw Farm - Cherokee Co., GA -- 1994 1994 -- Alcovy Woods - Gwinnett Co., GA -- 1996 1996 -- ------- -- ------- $23,419 =======
SCHEDULE III (Page 5 of 5) COUSINS PROPERTIES INCORPORATED AND CONSOLIDATED ENTITIES REAL ESTATE AND ACCUMULATED DEPRECIATION DECEMBER 31, 1998 ($ in thousands) NOTES: (a) Reconciliations of total real estate carrying value and accumulated depreciation for the three years ended December 31, 1998 are as follows: Real Estate Accumulated Depreciation ------------------------------ -------------------------- 1998 1997 1996 1998 1997 1996 ---- ---- ---- ---- ---- ---- Balance at beginning of period $449,619 $377,663 $235,344 $33,617 $20,339 $15,483 Additions during the period: Improvements and other capitalized costs 213,556 100,395 181,682 -- -- -- Provision for depreciation -- -- -- 13,645 13,278 5,571 ------------------------------ --------------------------- 213,446 100,395 181,682 13,645 13,278 5,571 ------------------------------ --------------------------- Deductions during the period: Cost of real estate contributed (185,044) -- -- (23,843) -- -- Cost of real estate sold (16,023) (28,439) (39,363) -- -- (715) ------------------------------ --------------------------- (201,067) (28,439) (39,363) (23,843) -- (715) ------------------------------ --------------------------- Balance at close of period $462,108 $449,619 $377,663 $23,419 $33,617 $20,339 ============================== =========================== (b) Initial cost for Kennesaw was previously adjusted to reflect a write-down of $1,430 to state the property at the then realizable value.
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS ---------------------------------------- To Wildwood Associates and Green Valley Associates II: We have audited the accompanying combined balance sheets of WILDWOOD ASSOCIATES (a Georgia general partnership) and GREEN VALLEY ASSOCIATES II (a North Carolina general partnership) as of December 31, 1998 and 1997, and the related combined statements of income, partners' capital and cash flows for each of the three years in the period ended December 31, 1998. These financial statements are the responsibility of the management of the partnerships. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Wildwood Associates and Green Valley Associates II as of December 31, 1998 and 1997, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 1998 in conformity with generally accepted accounting principles. Our audit was made for the purpose of forming an opinion on the basic financial statements taken as a whole. The schedule listed in Item 14 is presented for purposes of complying with the Securities and Exchange Commission's rules and is not part of the basic financial statements. This schedule has been subjected to the auditing procedures applied in the audit of the basic financial statements and, in our opinion, fairly states in all material respects the financial data required to be set forth therein in relation to the basic financial statements taken as a whole. ARTHUR ANDERSEN LLP Atlanta, Georgia February 11, 1999
WILDWOOD ASSOCIATES AND GREEN VALLEY ASSOCIATES II -------------------------------------------------- COMBINED BALANCE SHEETS ----------------------- DECEMBER 31, 1998 AND 1997 -------------------------- ($ in thousands) 1998 1997 -------- -------- ASSETS - ------ REAL ESTATE ASSETS: Income producing properties, including land of $49,457 in 1998 and $48,713 in 1997 (Note 7) $276,137 $271,227 Accumulated depreciation and amortization (64,254) (56,354) -------------------- 211,883 214,873 Land committed to be contributed (Note 3) 8,301 9,405 Land and property predevelopment costs 11,794 11,828 -------------------- Total real estate assets 231,978 236,106 -------------------- CASH AND CASH EQUIVALENTS 3,945 9,413 -------------------- OTHER ASSETS: Deferred expenses, net of accumulated amortization of $7,896 and $7,091 in 1998 and 1997, respectively 8,867 6,636 Receivables (Note 6) 7,805 11,451 Allowance for possible losses (Note 1) (2,250) (2,550) Furniture, fixtures and equipment, net of accumulated depreciation of $426 and $364 in 1998 and 1997, respectively 1,192 733 Other 8 39 15,622 16,309 -------------------- $251,545 $261,828 ==================== LIABILITIES AND PARTNERS' CAPITAL NOTES PAYABLE (Note 7) $233,914 $193,861 RETAINAGE, ACCOUNTS PAYABLE AND ACCRUED LIABILITIES 7,445 7,503 -------------------- Total liabilities 241,359 201,364 -------------------- PARTNERS' CAPITAL (Notes 3 and 4): International Business Machines Corporation 5,093 30,232 Cousins Properties Incorporated 5,093 30,232 -------------------- Total partners' capital 10,186 60,464 -------------------- $251,545 $261,828 ==================== The accompanying notes are an integral part of these combined balance sheets.
WILDWOOD ASSOCIATES AND GREEN VALLEY ASSOCIATES II -------------------------------------------------- COMBINED STATEMENTS OF INCOME ----------------------------- FOR THE YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996 ---------------------------------------------------- ($ in thousands) 1998 1997 1996 ------- ------- ------- REVENUES: Rental income and recovery of expenses charged directly to specific tenants $41,897 $38,507 $40,351 Interest 208 474 39 Other 179 134 115 --------------------------- Total revenues 42,284 39,115 40,505 --------------------------- EXPENSES: Real estate taxes 3,317 3,471 3,579 Cleaning, maintenance and repairs 3,069 2,791 2,622 Utilities 2,409 2,031 2,182 Management and personnel costs 2,522 2,262 2,217 Contract security 1,183 1,051 1,094 Grounds maintenance 888 823 776 Expenses charged directly to specific tenants 375 444 417 Insurance 95 93 93 Interest expense 15,215 12,972 9,712 Depreciation and amortization 9,161 8,798 8,372 Ground lease expense (Note 8) -- -- 295 Real estate taxes on undeveloped land (Note 3) 87 143 208 Other expense 27 430 448 --------------------------- Total expenses 38,348 35,309 32,015 --------------------------- INCOME BEFORE GAIN ON CONDEMNATION AWARD 3,936 3,806 8,490 Gain on condemnation award 220 -- -- --------------------------- NET INCOME $ 4,156 $ 3,806 $ 8,490 =========================== The accompanying notes are an integral part of these combined statements.
WILDWOOD ASSOCIATES AND GREEN VALLEY ASSOCIATES II COMBINED STATEMENTS OF PARTNERS' CAPITAL FOR THE YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996 ($ in thousands) International Business Cousins Machines Properties Corporation Incorporated Total ------------- ------------ ------- BALANCE, December 31, 1995 $45,084 $45,084 $90,168 Distributions (4,000) (4,000) (8,000) Net income 4,245 4,245 8,490 -------------------------------------- BALANCE, December 31, 1996 45,329 45,329 90,658 Distributions (17,000) (17,000) (34,000) Net income 1,903 1,903 3,806 -------------------------------------- BALANCE, December 31, 1997 30,232 30,232 60,464 Distributions (27,217) (27,217) (54,434) Net income 2,078 2,078 4,156 -------------------------------------- BALANCE, December 31, 1998 $ 5,093 $ 5,093 $10,186 ====================================== The accompanying notes are an integral part of these combined statements.
WILDWOOD ASSOCIATES AND GREEN VALLEY ASSOCIATES II -------------------------------------------------- COMBINED STATEMENTS OF CASH FLOWS (Note 9) ------------------------------------------ FOR THE YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996 ---------------------------------------------------- ($ in thousands) 1998 1997 1996 ------- ------- ------- CASH FLOWS FROM OPERATING ACTIVITIES: Net income $ 4,156 $ 3,806 $ 8,490 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization 9,161 8,798 8,372 Effect of recognizing rental revenues on a straight-line basis 3,780 3,311 421 Change in tenant rental receivables (434) 297 (562) Change in accounts payable and accrued liabilities related to operations 2 (423) 3,557 ---------------------------- Net cash provided by operating activities 16,665 15,789 20,278 ---------------------------- CASH FLOWS FROM INVESTING ACTIVITIES: Proceeds from condemnation 2,246 -- -- Property acquisition and development expenditures (6,112) (15,501) (34,871) Payment for deferred expenses, furniture, fixtures and equipment, and other assets (3,886) (757) (2,978) ---------------------------- Net cash used in investing activities (7,752) (16,258) (37,849) ---------------------------- CASH FLOWS FROM FINANCING ACTIVITIES: Repayment of notes payable (3,947) (2,629) (1,610) Proceeds from long term financing 44,000 30,000 70,000 Proceeds from line of credit -- -- 75,733 Repayments under line of credit -- -- (102,041) Partnership distributions (54,434) (34,000) (8,000) ---------------------------- Net cash (used in) provided by financing activities (14,381) (6,629) 34,082 ---------------------------- NET (DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS (5,468) (7,098) 16,511 CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR 9,413 16,511 -- ---------------------------- CASH AND CASH EQUIVALENTS AT END OF YEAR $ 3,945 $ 9,413 $ 16,511 ============================ The accompanying notes are an integral part of these combined statements.
WILDWOOD ASSOCIATES AND GREEN VALLEY ASSOCIATES II -------------------------------------------------- NOTES TO COMBINED FINANCIAL STATEMENTS -------------------------------------- DECEMBER 31, 1998, 1997 AND 1996 -------------------------------- 1. SIGNIFICANT ACCOUNTING POLICIES Basis of Presentation: The Combined Financial Statements include the accounts of Wildwood Associates ("WWA") and Green Valley Associates II ("GVA II"), both of which are general partnerships. Cousins Properties Incorporated (together with its other consolidated entities hereinafter referred to as "Cousins") and International Business Machines Corporation ("IBM") each have a 50% general partnership interest in both partnerships. The financial statements of the partnerships have been combined because of the common ownership. The combined entities are hereinafter referred to as the "Partnerships." All transactions between WWA and GVA II have been eliminated in the Combined Financial Statements. Cost of Property Contributed by Cousins: The cost of property contributed or committed to be contributed by Cousins was recorded by WWA based upon the procedure described in Note 3. Such cost was, in the opinion of the partners, at or below estimated fair market value at the time of such contribution or commitment, but was in excess of Cousins' historical cost basis. Cost Capitalization: All costs related to planning, development and construction of buildings, and expenses of buildings prior to the date they become operational for financial statement purposes, are capitalized. Interest and real estate taxes are also capitalized to property under development. Depreciation and Amortization: Real estate assets are stated at depreciated cost. Buildings are depreciated over 25 to 40 years. Furniture, fixtures, and equipment are depreciated over 3 to 5 years. Leasehold improvements and tenant improvements are amortized over the life of the leases or useful life of the assets, whichever is shorter. Deferred expenses - which include certain marketing and leasing costs and loan acquisition costs - are amortized over the period of estimated benefit. The straight-line method is used for all depreciation and amortization. Allowance for Possible Losses: The allowance for possible losses provides for potential writeoffs of certain tenant receivables and other tenant related assets on WWA's books. The allowance reflects management's evaluation of the exposure to WWA based on a specific review of its properties and the impact of current economic conditions on those properties. Allocation of Operating Expenses: In accordance with certain lease agreements, certain management and maintenance costs incurred by WWA are allocated to individual buildings or tenants, including buildings not owned by WWA. Income Taxes: No provision has been made for federal or state income taxes because each partner's proportionate share of income or loss from the Partnerships is passed through to be included on each partner's separate tax return. Cash and Cash Equivalents: Cash and Cash Equivalents includes all cash and highly liquid money market instruments. Highly liquid money market instruments include securities and repurchase agreements with original maturities of three months or less, money market mutual funds, and securities on which the interest rate is adjusted to market rate at least every three months. Rental Income: In accordance with Statement of Financial Accounting Standards ("SFAS") No. 13, income on leases which include scheduled increases in rental rates over the lease term (other than scheduled increases based on the Consumer Price Index) is recognized on a straight-line basis. Use of Estimates: The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Actual results could differ from those estimates. 2. FORMATION AND PURPOSE OF THE PARTNERSHIPS WWA and GVA II were formed under the terms of partnership agreements effective May 30, 1985 and March 31, 1988, respectively. The purpose of the Partnerships is, among other things, to develop and operate selected property within Wildwood Office Park ("Wildwood"), located in Atlanta, Georgia and the Summit Green project located in Greensboro, North Carolina. Wildwood is an office park containing a total of approximately 285 acres, of which approximately 92 acres are owned by WWA, and an estimated 13 acres are committed to be contributed to WWA by Cousins (see Note 3). Cousins owns the balance of the developable acreage in the park. At December 31, 1998, WWA's income producing real estate assets in Wildwood consisted of: six office buildings totaling 2,132,000 rentable square feet (including land under such buildings totaling approximately 56 acres); land parcels totaling approximately 14 acres leased to two banking facilities and five restaurants; and a 2 acre site on which a child care facility is constructed. In addition, WWA's assets include 34 acres of land held for future development, which is composed of a 4 acre site with approximately 58,000 square feet of office space which was purchased in 1986 for future development (classified with income producing properties in the accompanying financial statements), and 30 acres of other land to be developed (including additional land committed to be contributed by Cousins) (see Note 3). See Note 8 where the disposition of the Summit Green property is discussed. 3. CONTRIBUTIONS TO THE PARTNERSHIPS IBM and Cousins have each contributed or committed to contribute $62,857,000 in cash or properties to the Partnerships. The value of property contributed by IBM was agreed to by the partners at the time of formation of WWA and was recorded at the cash amount IBM paid for the property just prior to contributing it to the Partnership. The value of the property contributed and to be contributed by Cousins was recorded on the Partnership's books at an amount equal to the cash and property contributed by IBM for an equal (50%) partnership interest. The status of contributions at December 31, 1998, was as follows ($ in thousands): IBM COUSINS TOTAL ------- ------- ------- Cash contributed $46,590 $ 84 $ 46,674 Property contributed 16,267 54,472 70,739 Land committed to be contributed -- 8,301 8,301 -------------------------------- Total $62,857 $62,857 $125,714 ================================ WWA has elected not to take title to the remaining land committed to be contributed by Cousins until such land is needed for development. However, Cousins' capital account was previously credited with the amount originally required to bring it equal to IBM's, and a like amount, plus preacquisition costs paid by WWA, were set up as an asset entitled "Land Committed To Be Contributed." This asset account subsequently has been reduced as land actually has been contributed, or as land yet to be contributed became associated with a particular building. At December 31, 1998, Cousins was committed to contribute land on which an additional 598,493 GSF are developable, provided that regardless of planned use or density, 38,333 GSF shall be the minimum GSF attributed to each developable acre contributed. Cousins has also agreed to contribute infrastructure land in Wildwood, as defined, at no cost to WWA, in order to provide the necessary land for development of roads and utilities. The ultimate acreage remaining to be contributed by Cousins will depend upon the actual density achieved, but would be approximately 13 acres if the density were similar to that achieved on land contributed to date. WWA pays all of the expenses related to the Land Committed to be Contributed which were approximately $87,000, $143,000 and $208,000 in 1998, 1997 and 1996, respectively. 4. OTHER PROVISIONS OF THE PARTNERSHIP AGREEMENTS Net income or loss and net cash flow, as defined, shall be allocated to the partners based on their percentage interests (50% each, subject to adjustment as provided in the partnership agreements). In the event of dissolution of the Partnerships, the assets will be distributed as follows: o First, to repay all debts to third parties, including any secured loans with the partners. o Second, to each partner until each capital account is reduced to zero. o The balance to each partner in accordance with its percentage interest. 5. FEES TO RELATED PARTIES The Partnerships engaged Cousins to manage, develop and lease the Partnerships' property. Fees to Cousins incurred by the Partnerships during 1998, 1997 and 1996 were as follows ($ in thousands): 1998 1997 1996 ------ ------ ------ Development and tenant construction fees $ 123 $ 406 $ 604 Management fees 1,139 1,047 1,032 Leasing and procurement fees 1,224 223 1,105 ---------------------------- $2,486 $1,676 $2,741 ============================ 6. RENTAL REVENUES WWA leases property to the partners, as well as to unrelated third parties. The leases with partners are at rates comparable to those quoted to third parties. The leases typically contain escalation provisions and provisions requiring tenants to pay a pro rata share of operating expenses. The leases typically include renewal options and all are classified and accounted for as operating leases. At December 31, 1998, future minimum rentals to be received under existing non-cancelable leases, including tenants' current pro rata share of operating expenses are as follows ($ in thousands): Leases Leases With With Third Partners Parties Total -------- -------- -------- 1999 $ 10,068 $ 24,677 $ 34,745 2000 9,839 23,334 33,173 2001 7,728 23,344 31,072 2002 8,555 20,322 28,877 2003 5,771 18,127 23,898 Thereafter 17,312 100,772 118,084 ------------------------------------- $ 59,273 $210,576 $269,849 ===================================== At December 31, 1998 and 1997, receivables which related to the cumulative excess of revenues recognized in accordance with SFAS No. 13 over revenues which accrued in accordance with the actual lease agreements totaled $7,240,000 and $11,020,000, respectively. Of the 1998 amount, 72% was related to leases with IBM.
7. NOTES PAYABLE At December 31, 1998, notes payable included the following ($ in thousands): Term/ Amortization Balance at Period Final December 31, Description Rate (Years) Maturity 1998 ----------- ---------------- ------------ --------- ------------ Line of credit ($10 million maximum) Fed Funds + .75% 1/ N/A 9/1/99 $ -- 2300 Windy Ridge Parkway Building mortgage note 7.56% 10/25 12/1/05 67,886 3200 Windy Hill Road Building mortgage note 8.23% 10/28 1/1/07 68,668 4200 Wildwood Parkway Building mortgage note 6.78% 15.75/18 3/31/14 44,000 4100/4300 Wildwood Parkway Buildings mortgage note 7.65% 15/25 4/1/12 29,258 2500 Windy Ridge Parkway Building mortgage note 7.45% 10/20 12/15/05 24,102 -------- $233,914 ========
On June 30, 1998, Wildwood Associates completed the financing of the 4200 Wildwood Parkway office building. The $44 million non-recourse mortgage note payable has an interest rate of 6.78% and a term of 15-3/4 years. In conjunction with this financing WWA made non-operating cash distributions of $22.6 million to each partner. The $4.6 million operating distribution for 1998 was made to each partner at the same time. The 2300 Windy Ridge Parkway Building, the 3200 Windy Hill Road Building, the 4100/4300 Wildwood Parkway Buildings, and 4200 Wildwood Parkway mortgage notes provide for additional amortization in the later years of the notes (over that required by the amortization periods shown above) concurrent with scheduled rent increases. The line of credit matures September 1, 1999, but will automatically be renewed from year to year unless the lender provides a notice of non-renewal at least three months in advance of the annual renewal date. The line generally prohibits new borrowings other than those under the line, or the pledging of any assets not pledged as of August 1, 1990, without the Lender's prior approval. The line bears a floating interest rate equal to the daily federal funds rate plus 3/4%, and there are no fees or compensating balance arrangements required under the line. Cousins and IBM have each severally guaranteed one-half of the line of credit. Assets with net carrying values of approximately $194,678,000 were pledged as security on the Partnerships' debt. The aggregate maturities of the indebtedness at December 31, 1998 summarized above are as follows ($ in thousands): 1999 $ 4,730 2000 5,352 2001 6,037 2002 6,746 Thereafter 211,049 -------- $233,914 ======== The Partnerships capitalize interest expense to property under development as required by SFAS No. 34. In the years ended December 31, 1998 and 1997, the Partnerships capitalized interest totaling $1,463,000 and $1,998,000, respectively. The estimated fair value of the notes payable at December 31, 1998 was approximately $258 million, which was calculated by discounting future cash flows under the notes at estimated rates at which similar notes would be made currently. 8. DISPOSITION OF SUMMIT GREEN Effective December 1, 1996, WWA disposed of its interest in a 144,000 GSF office building at Summit Green in exchange for cancellation of the related mortgage debt. In connection with this disposition, the Partnerships also may dispose of their leasehold interest in land adjacent to the office building. The Partnerships anticipate no material gain or loss will result from their disposition of the Summit Green project. The land adjacent to the formerly owned office building is subject to a non-subordinated ground lease expiring October 31, 2084. Lease payments effective December 1, 1996 are approximately $256,000 per year, and escalate at ten year intervals based on the cumulative increase in the Index over the prior ten year period (subject to a 5% annual cap on the increase in such Index in any one year). The next escalation date is December 1, 2006. 9. COMBINED STATEMENTS OF CASH FLOWS-SUPPLEMENTAL INFORMATION Interest paid (net of amounts capitalized) was as follows ($ in thousands): 1998 1997 1996 ------- ------- ------ Interest paid $14,987 $12,700 $9,096 Significant non-cash financing and investing activities included the following: In 1996, land parcels with a cost of $4,498,000 were transferred from Land Committed To Be Contributed to Land and Property Predevelopment Cost. In 1996, the Partnerships recorded the disposition of the Summit Green project (including the office building and the anticipated disposition of the leasehold interest in the adjacent land) having a total cost of $10,447,000, and the cancellation of $10,447,000 of related debt (see Note 8). In 1996, two buildings with a total cost of $29,368,000 were transferred from Projects Under Construction to Income Producing Properties. In 1997, one building with a total cost of $29,807,000 was transferred from Projects Under Construction to Income Producing Properties.
SCHEDULE III WILDWOOD ASSOCIATES AND GREEN VALLEY ASSOCIATES II REAL ESTATE AND ACCUMULATED DEPRECIATION DECEMBER 31, 1998 ($ in thousands) Column A Column B Column C Column D Column E -------- -------- -------- -------- -------- Costs Capitalized Gross Amount at Which Initial Cost Subsequent Carried at to Company to Acquisition December 31, 1998 ------------------- -------------------- ----------------------------------- Carrying Costs Buildings Less Cost Land Buildings and Improve- of Sales and Land and Total Description Encumbrances Land Improvements ments and Other Improvements Improvements (a),(b) - ----------- ------------ ---- ------------ -------- --------- ------------ ------------ ------- Wildwood Office Park - Cobb Co., GA 2500 Windy Ridge $ 24,102 $ 4,414 $ 14,814 $ 10,523 $ 141 $ 4,414 $ 25,478 $ 29,892 2300 Windy Ridge 67,886 8,927 -- 62,829 5,429 8,927 68,258 77,185 Parkside -- 3,161 2,553 (626) (45) 2,440 2,603 5,043 3200 Windy Hill 68,668 10,503 -- 67,906 5,470 10,503 73,376 83,879 4100/4300 Wildwood Parkway 29,258 6,689 -- 22,975 251 6,689 23,226 29,915 4200 Wildwood Parkway 44,000 4,347 -- 28,500 375 4,347 28,875 33,222 Stand Alone Retail Sites -- 8,752 1,234 2,372 123 9,344 3,137 12,481 Land committed to be contributed -- 7,919 -- -- 382 8,301 -- 8,301 Other land and property -- 11,547 -- 4,524 243 13,415 2,899 16,314 -------------------------------------------------------------------------------------------- $233,914 $66,259 $ 18,601 $199,003 $ 12,369 $68,380 $227,852 $296,232 ============================================================================================
Column F Column G Column H Column I -------- -------- -------- -------- Life on Which De- preciation Accumu- In 1998 lated Date of Income Deprecia- Construc- Date Statement Description tion (a) tion Acquired Is Computed - ----------- -------- --------- -------- ----------- Wildwood Office Park - Cobb Co., GA 2500 Windy Ridge $10,820 1985 1985 40 Years 2300 Windy Ridge 24,567 1986 1986 40 Years Parkside 2,603 1980 1986 25 Years 3200 Windy Hill 21,314 1989 1989 40 Years 4100/4300 Wildwood Parkway 2,461 1995 1986 30 Years 4200 Wildwood Parkway 250 1996 1986 30 Years Stand Alone Retail Sites 1,333 Various 1985-1995 Various Land committed to be contributed -- -- 1985-1986 -- Other land and property 906 Various 1985-1986 Various ------- $64,254 =======
NOTE: (a) Reconciliations of total real estate carrying value and accumulated depreciation for the three years ended December 31, 1998 are as follows: Real Estate Accumulated Depreciation ---------------------------------- ------------------------------- 1998 1997 1996 1998 1997 1996 -------- -------- -------- ------- ------- ------- Balance at beginning of period $292,460 $280,584 $259,428 $56,354 $48,699 $44,900 Additions during the period: Improvements, and other capitalized costs 5,834 11,876 32,361 -- -- -- Provisions for depreciation -- -- -- 7,936 7,655 7,296 Deductions during the period: Condemnation of land (2,026) -- -- -- -- -- Retirement of fully depreciated assets and writeoffs (36) -- -- (36) (16) -- Disposition of Summit Green Office Building -- -- (11,205) -- -- (3,481) ---------------------------------- ------------------------------- Balance at close of period $296,232 $292,460 $280,584 $64,254 $56,354 $48,699 ================================== ===============================
REPORT OF INDEPENDENT AUDITORS To the Partners of CSC Associates, L.P. (A Limited Partnership) We have audited the accompanying balance sheets of CSC Associates, L.P. (the Partnership) as of December 31, 1998 and 1997, and the related statements of operations, partners' capital, and cash flows for each of the three years in the period ended December 31, 1998. Our audits also included the financial statement schedule of CSC Associates, L.P. listed in the Index at Item 14(a). These financial statements and schedule are the responsibility of the Partnership's management. Our responsibility is to express an opinion on these financial statements and schedule based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of CSC Associates, L.P. as of December 31, 1998 and 1997, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 1998, in conformity with generally accepted accounting principles. Also, in our opinion, the related financial statement schedule, when considered in relation to the basic financial statements taken as a whole, presents fairly in all material respects the information set forth therein. ERNST & YOUNG LLP Atlanta, Georgia February 5, 1999
CSC ASSOCIATES, L.P. -------------------- BALANCE SHEETS -------------- DECEMBER 31, 1998 AND 1997 -------------------------- ($ in thousands) ASSETS ------ 1998 1997 -------- -------- REAL ESTATE ASSETS: Building and improvements, including land and land improvements of $22,818 in 1998 and 1997 $212,334 $209,120 Accumulated depreciation (40,033) (33,621) ------------------- 172,301 175,499 ------------------- CASH 1,741 487 ------------------- NOTE RECEIVABLE (Note 4) 73,849 76,147 ------------------- OTHER ASSETS: Deferred expenses, net of accumulated amortization of $3,929 and $3,292 in 1998 and 1997, respectively 6,306 6,485 Other receivables (Note 3) 11,518 11,243 Furniture, fixtures and equipment, net of accumulated depreciation of $40 and $22 in 1998 and 1997, respectively 56 59 Other, net of accumulated amortization of $449 and $338 in 1998 and 1997, respectively (Note 6) 1,410 1,425 ------------------- Total other assets 19,290 19,212 ------------------- $267,181 $271,345 =================== LIABILITIES AND PARTNERS' CAPITAL --------------------------------- NOTE PAYABLE (Note 4) $ 73,849 $ 76,147 ACCOUNTS PAYABLE AND ACCRUED LIABILITIES 3,122 1,482 ------------------- Total liabilities 76,971 77,629 ------------------- PARTNERS' CAPITAL (Note 1) 190,210 193,716 ------------------- $267,181 $271,345 =================== The accompanying notes are an integral part of these balance sheets.
CSC ASSOCIATES, L.P. -------------------- STATEMENTS OF OPERATIONS ------------------------ FOR THE YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996 ---------------------------------------------------- ($ in thousands) 1998 1997 1996 ------- ------- ------- REVENUES: Rental income and recovery of expenses charged directly to specific tenants $36,956 $35,159 $33,312 Interest income (Note 4) 4,790 4,931 4,561 --------------------------- Total revenues 41,746 40,090 37,873 --------------------------- EXPENSES: Real estate taxes 3,407 3,349 3,578 Utilities 811 887 967 Management and personnel costs 1,686 1,546 1,523 Cleaning 1,352 1,253 1,152 Contract security 485 474 640 Repairs and maintenance 512 461 408 Elevator 309 325 330 Parking 299 260 245 Insurance 106 106 112 Grounds maintenance 164 129 135 Interest expense (Note 4) 4,790 4,931 4,561 Depreciation and amortization 7,444 7,535 7,968 Marketing and other expenses 114 37 64 General and administrative expenses 73 77 82 --------------------------- Total expenses 21,552 21,370 21,765 --------------------------- NET INCOME $20,194 $18,720 $16,108 =========================== The accompanying notes are an integral part of these statements.
CSC ASSOCIATES, L.P. -------------------- STATEMENTS OF PARTNERS' CAPITAL ------------------------------- FOR THE YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996 ---------------------------------------------------- ($ in thousands) BALANCE, December 31, 1995 $203,938 Net income 16,108 Distributions (19,700) -------- BALANCE, December 31, 1996 200,346 Net income 18,720 Distributions (25,350) -------- BALANCE, December 31, 1997 193,716 -------- Net income 20,194 Distributions (23,700) -------- BALANCE, December 31, 1998 $190,210 ======== The accompanying notes are an integral part of these statements.
CSC ASSOCIATES, L.P. -------------------- STATEMENTS OF CASH FLOWS ------------------------ FOR THE YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996 ---------------------------------------------------- ($ in thousands) 1998 1997 1996 ------- ------- ------- CASH FLOWS FROM OPERATING ACTIVITIES: Net income $20,194 $18,720 $16,108 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization 7,444 7,535 7,968 Rental revenue recognized on straight-line basis in excess of rental revenue specified in the lease agreements (164) (238) (748) Change in other receivables and other assets (207) (90) (997) Change in accounts payable and accrued liabilities related to operations 1,640 454 (1,937) ------------------------- Net cash provided by operating activities 28,907 26,381 20,394 ------------------------- CASH FLOWS FROM INVESTING ACTIVITIES: Additions to building and improvements (3,480) (433) (571) Payments for deferred expenses (458) (112) (143) Investment in note receivable -- -- (80,000) Collection of note receivable 2,298 2,157 1,696 (Payments for) proceeds from furniture, fixtures and equipment (15) (30) (46) ------------------------- Net cash (used in) provided by investing activities (1,655) 1,582 (79,064) ------------------------- CASH FLOWS FROM FINANCING ACTIVITIES: Proceeds from note payable -- -- 80,000 Repayment of note payable (2,298) (2,157) (1,696) Partnership distributions (23,700) (25,350) (19,700) ------------------------- Net cash (used in) provided by financing activities (25,998) (27,507) 58,604 NET INCREASE (DECREASE) IN CASH 1,254 456 (66) CASH AT BEGINNING OF YEAR 487 31 97 ------------------------- CASH AT END OF YEAR $ 1,741 $ 487 $ 31 ========================= SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION: Cash paid during the year for interest $ 4,802 $ 4,937 $ 4,339 ========================= The accompanying notes are an integral part of these statements.
CSC ASSOCIATES, L.P. -------------------- NOTES TO FINANCIAL STATEMENTS ----------------------------- DECEMBER 31, 1998, 1997 AND 1996 -------------------------------- 1. FORMATION OF THE PARTNERSHIP AND TERMS OF THE PARTNERSHIP AGREEMENT ------------------------------------------------------------------- CSC Associates, L.P. ("CSC," or the "Partnership") was formed under the terms of a Limited Partnership Agreement dated September 29, 1989 and by the filing of its Certificate of Limited Partnership on October 27, 1989. C&S Premises, Inc. ("Premises") and Cousins Properties Incorporated ("CPI") each own a 1% general partnership and a 49% limited partnership interest in the Partnership. Premises is a wholly owned subsidiary of NB Holdings Corporation which is a wholly owned subsidiary of Bank of America. The Partnership was formed for the purpose of developing and owning a 1.4 million gross square foot office tower in downtown Atlanta, Georgia (the "Building"), which is the Atlanta headquarters of Bank of America Corporation. The Partnership Agreement and related documents (the "Agreements") contain among other provisions, the following: a. CPI is the Managing Partner. b. CPI is obligated to contribute a total of $18.2 million cash to the Partnership, all of which has been contributed. Premises is obligated to contribute land parcels to the Partnership having an aggregate agreed upon value of $18.2 million, all of which has been contributed, which property value, in the opinion of the partners, was equal to the estimated fair market value of the land at the time of formation of the Partnership. The value of the property contributed by Premises was recorded on the Partnership's books at an amount equal to the cash contributed by CPI for an equal (50%) partnership interest. In October 1993, the partners each contributed an additional $86.7 million. c. No interest is earned on partnership capital. d. Net income or loss and cash distributions are allocated to the partners based on their percentage interests (50% each), subject to a preference to CPI. The CPI preference was $2.5 million, and accrued to CPI, with interest at 9% to the extent unpaid, over the period February 1, 1992 through January 31, 1995. During the year ended December 31, 1994, CPI received distributions of the preference and accrued interest of approximately $2.65 million. The remaining preference amount of $71,000 was distributed to CPI in January 1995. Amounts above the preference amount are allocated based on the partners' percentage interests. 2. SIGNIFICANT ACCOUNTING POLICIES ------------------------------- Capitalization Policies - ----------------------- All costs related to planning, development and construction of the Building, and expenditures for the Building prior to the date it became operational for financial statement purposes, have been capitalized. Interest expense, amortization of financing costs, and real estate taxes were also capitalized while the Building was under development. Depreciation and Amortization - ----------------------------- Real estate assets are carried at cost. Depreciation of the Building commenced the date the Building became operational for financial statement purposes and the Building is being depreciated over 40 years. Leasehold and tenant improvements are amortized over the life of the leases or useful life of the assets, whichever is shorter. Furniture, fixtures, and equipment are depreciated over 5 years. Deferred expenses which include certain marketing and leasing costs, and loan acquisition costs are amortized over the period of estimated benefit. The straight line method is used for all depreciation and amortization. Income Taxes - ------------ No provision has been made for federal or state income taxes because each partner's proportionate share of income or loss from the Partnership will be passed through to be included on each partner's separate tax return. Rental Income - ------------- In accordance with Statement of Financial Accounting Standards No. 13 ("SFAS No. 13"), income on leases which include increases in rental rates over the lease term (other than scheduled increases based on the Consumer Price Index) is recognized on a straight-line basis. Allowance for Doubtful Accounts - ------------------------------- From time to time, the Partnership evaluates the need to establish an allowance for doubtful accounts based on a review of specific receivables. As of December 31, 1998 and 1997, there is no allowance for doubtful accounts included in the accompanying balance sheets. Use of Estimates - ---------------- The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Actual results could differ from these estimates. 3. LEASES ------ The Partnership has leased office space to NB Holdings Corporation, as well as to unrelated third parties. The lease with NB Holdings Corporation was at rates comparable to those quoted to third parties. The leases contain escalation provisions and provisions requiring tenants to pay a pro rata share of operating expenses. The leases typically include renewal options and all are classified and accounted for as operating leases.
At December 31, 1998, future minimum rentals to be received under existing non-cancelable leases, including tenants' current pro rata share of operating expenses, are as follows ($ in thousands): Lease Leases With With NB Holdings Third Corporation Parties Total ----------- ------- ----- 1999 $ 16,762 $ 19,666 $ 36,428 2000 16,762 19,679 36,441 2001 16,762 19,997 36,759 2002 16,785 20,017 36,802 2003 16,788 20,377 37,165 Subsequent to 2003 136,450 75,341 211,791 ------------------------------------- $220,309 $175,077 $395,386 =====================================
In the years ended December 31, 1998 and 1997, income recognized on a straight-line basis exceeded income which would have accrued in accordance with the lease terms by approximately $164,000 and $238,000, respectively. At December 31, 1998 and 1997, receivables which related to the cumulative excess of revenues recognized in accordance with SFAS No. 13 over revenues which accrued in accordance with the actual lease agreements totaled approximately $10,834,000 and $10,670,000, respectively. Of that amount, 17% was related to leases with NB Holdings Corporation and approximately 36% and 33% was related to each of two professional services firms, respectively. At December 31, 1998 NB Holdings Corporation leased approximately 46% and two professional services firms leased approximately 16% and 15%, respectively, of the net rentable space of the Building. 4. NOTE PAYABLE AND NOTE RECEIVABLE -------------------------------- On February 6, 1996, the Partnership issued $80 million of 6.377% collateralized notes (the "Notes"). The Notes amortize in equal monthly installments of $590,680 based on a 20 year amortization schedule, and mature February 15, 2011. The Notes are non-recourse obligations of the Partnership and are secured by a Deed to Secure Debt, Assignment of Rents and Security Agreement covering the Partnership's interest in the Building. In conjunction with this financing, Premises transferred its 1% general partnership interest in the partnership to C&S Premises-SPE, Inc., a wholly owned subsidiary of Premises. The Partnership has loaned the $80 million proceeds of the Notes to CPI under a non-recourse loan (the "CPI Loan") secured by CPI's Partnership interests under the same payment terms as those of the Notes. CPI paid all costs of issuing the Notes and the CPI Loan, including a $400,000 fee to an affiliate of NationsBank Corporation. In addition, CPI pays a monthly fee to an affiliate of NationsBank Corporation of .025% of the outstanding principal balance of the Notes which totaled approximately $225,000 and $232,000 in 1998 and 1997, respectively. The estimated fair value of both the note payable and related note receivable at December 31, 1998 was $74 million which was calculated by discounting future cash flows under the notes at estimated rates at which similar notes would be made currently. The Partnership also has an unsecured $3 million line of credit provided by an affiliate of Premises. Interest on the line is paid at a floating rate (5.53% weighted average rate in December 1998) and interest only is payable quarterly through July 31, 1999, at which time the entire outstanding balance will be due. There were no borrowings under the line as of December 31, 1998 and 1997. The maturities of the Notes at December 31, 1998 are as follows (in thousands): 1999 $ 2,450 2000 2,610 2001 2,782 2002 2,965 2003 3,159 Subsequent to 2003 59,883 ------- $73,849 ======= 5. RELATED PARTIES --------------- The Partnership engaged CPI and an affiliate of CPI to manage, develop and lease the Building. During 1998, 1997 and 1996, fees to CPI and its affiliate incurred by the Partnership were as follows ($ in thousands): 1998 1997 1996 ------ ---- ---- Development and tenant construction fees $ 38 $ 17 $ 13 Leasing and procurement fees 399 32 101 Management fees 917 870 815 -------------------------- $1,354 $919 $929 ========================== 6. PARKING AGREEMENT ----------------- On February 7, 1996, CSC entered into a 25 year Cross Parking License Agreement ("Parking Agreement") with the North Avenue Presbyterian Church ("NAPC") which allows CSC the use of 200 parking spaces in NAPC's parking deck which is located adjacent to NAPC. The agreement commenced on October 1, 1996. CSC paid a $1,000,000 contribution toward the construction cost of the parking deck as consideration for the Parking Agreement. The $1,000,000 contribution is included in Other Assets and is being amortized over the 25 year life of the Parking Agreement. NAPC may reduce the number of parking spaces available to the Partnership or may terminate the Parking Agreement under certain conditions after the sixth year, at which time a partial refund of the $1,000,000 would be due to CSC. In addition, CSC is responsible for the maintenance of the parking deck and the payment of the related operating expenses.
SCHEDULE III CSC ASSOCIATES, L.P. REAL ESTATE AND ACCUMULATED DEPRECIATION DECEMBER 31, 1998 ($ in thousands) Column A Column B Column C Column D Column E -------- -------- -------- -------- -------- Costs Capitalized Gross Amount at Which Initial Cost Subsequent Carried at to Company to Acquisition December 31, 1998 ------------------- -------------------- ----------------------------------- Carrying Costs Buildings Less Cost Land Buildings and Improve- of Sales and Land and Total Description Encumbrances Land Improvements ments and Other Improvements Improvements (a),(b) - ----------- ------------ ---- ------------ -------- --------- ------------ ------------ ------- NationsBank Plaza Atlanta, Georgia $ -- $ 18,200 $ -- $183,685 $ 10,449 $ 22,818 $189,516 $212,334
Column F Column G Column H Column I -------- -------- -------- -------- Life on Which De- preciation Accumu- In 1998 lated Date of Income Deprecia- Construc- Date Statement Description tion (a) tion Acquired Is Computed - ----------- -------- --------- -------- ----------- NationsBank Plaza Atlanta, Georgia $40,033 1990-1992 1990 5-40
NOTE: (a) Reconciliations of total real estate carrying value and accumulated depreciation for the three years ended December 31, 1998 are as follows: Real Estate Accumulated Depreciation ---------------------------------- ------------------------------- 1998 1997 1996 1998 1997 1996 -------- -------- -------- ------- ------- ------- Balance at beginning of period $209,120 $209,141 $208,676 $33,621 $27,621 $21,232 Improvements and other capitalized costs 3,480 420 465 -- -- -- Write offs of improvements and other capitalized costs (266) (441) -- (266) (441) -- Provision for depreciation -- -- -- 6,678 6,441 6,389 ---------------------------------- ------------------------------- Balance at close of period $212,334 $209,120 $209,141 $40,033 $33,621 $27,621 ================================== ===============================
EX-11 2
EXHIBIT 11 COUSINS PROPERTIES INCORPORATED AND CONSOLIDATED ENTITIES COMPUTATION OF NET INCOME PER SHARE FOR THE FIVE YEARS ENDED DECEMBER 31, 1998 ($ in thousands, except share and per share amounts) 1998 1997 1996 1995 1994 ---------- ---------- ---------- ---------- ---------- BASIC: Net income $45,299 $37,277 $41,016 $26,342 $26,895 Weighted average shares 31,602,226 29,267,239 28,520,178 27,983,180 27,844,341 Basic net income per share $ 1.43 $ 1.27 $ 1.44 $ .94 $ .97 DILUTED: Net income $45,299 $37,277 $41,016 $26,342 $26,895 Dilutive potential common shares 438,387 425,504 218,194 163,413 103,604 Adjusted weighted average shares 32,040,613 29,692,743 28,738,372 28,146,593 27,947,945 Diluted net income per share $ 1.41 $ 1.26 $ 1.43 $ .94 $ .96
EX-13 3 Cousins Properties Incorporated and Consolidated Entities FUNDS FROM OPERATIONS - -------------------------------------------------------------------------------- The table below shows Funds From Operations ("FFO") for Cousins Properties Incorporated and Consolidated Entities and its unconsolidated joint ventures. On a consolidated basis, FFO includes the Company's FFO and the Company's share of FFO of its unconsolidated joint ventures, but excludes the Company's share of distributions from such ventures. The Company calculates its FFO using the National Association of Real Estate Investment Trusts ("NAREIT") definition of FFO adjusted to (i) eliminate the recognition of rental revenues on a straight-line basis, (ii) reflect stock appreciation right expense on a cash basis and (iii) recognize certain fee income as cash is received rather than when recognized in the financial statements. The Company believes its FFO presentation more properly reflects its operating results. Management believes the Company's FFO is not directly comparable to other REITs which own a portfolio of mature income-producing properties because the Company develops projects through a development and lease-up phase before they reach their targeted cash flow returns. Furthermore, the Company eliminates in consolidation fee income for developing and leasing projects owned by consolidated entities, while capitalizing related internal costs. In addition, unlike many REITs, the Company has considerable land holdings which provide a strong base for future FFO growth as land is developed or sold in future years. Property taxes on the land, which are expensed currently, reduce current FFO. As indicated above, the Company does not include straight-lined rents in its FFO, as it could under the NAREIT definition of FFO. Furthermore, most of the Company's leases are also escalated periodically based on the Consumer Price Index, which unlike fixed escalations, do not require rent to be straight-lined; under NAREIT's definition straight-lining of rents produces higher FFO in the early years of a lease and lower FFO in the later years of a lease. FFO is used by industry analysts as a supplemental measure of an equity REIT's performance. FFO should not be considered an alternative to net income or other measurements under generally accepted accounting principles as an indicator of operating performance, or to cash flows from operating, investing, or financing activities as a measure of liquidity.
- --------------------------------------------------------------------------------------------------------------- ($ in thousands, except per share amounts) Years Ended December 31, ------------------------------- 1998 1997 1996 ------- ------- ------- Income before gain on sale of investment properties $41,355 $31,305 $28,212 Depreciation and amortization 28,910 24,397 17,256 Amortization of deferred financing costs and depreciation of furniture, fixtures and equipment (524) (452) (362) Elimination of the recognition of rental revenues on a straight-line basis 1,119 998 (311) Adjustment to reflect stock appreciation right expense on a cash basis (8) (702) (567) ------------------------------- Consolidated Funds From Operations $70,852 $55,546 $44,228 =============================== Weighted Average Shares 31,602 29,267 28,520 =============================== Consolidated Funds From Operations Per Share - Basic $ 2.24 $ 1.90 $ 1.55 =============================== Adjusted Weighted Average Shares 32,040 29,693 28,738 =============================== Consolidated Funds From Operations Per Share - Diluted $ 2.21 $ 1.87 $ 1.54 =============================== - ---------------------------------------------------------------------------------------------------------------
Cousins Properties Incorporated and Consolidated Entities CONSOLIDATED BALANCE SHEETS - -------------------------------------------------------------------------------- ($ in thousands, except share and per share amounts) December 31, -------------------- 1998 1997 -------- -------- ASSETS - ------ PROPERTIES (Notes 4 and 8): Operating properties, net of accumulated depreciation of $23,419 in 1998 and $33,617 in 1997 $235,590 $318,334 Land held for investment or future development 15,592 27,948 Projects under construction 178,736 54,778 Residential lots under development 8,771 14,942 -------------------- Total properties 438,689 416,002 CASH AND CASH EQUIVALENTS, at cost, which approximates market 1,347 32,694 NOTES AND OTHER RECEIVABLES (Note 3) 39,470 38,464 INVESTMENT IN UNCONSOLIDATED JOINT VENTURES (Notes 4 and 5) 264,648 120,198 OTHER ASSETS 8,704 10,381 -------------------- TOTAL ASSETS $752,858 $617,739 ==================== LIABILITIES AND STOCKHOLDERS' INVESTMENT - ---------------------------------------- NOTES PAYABLE (Note 4) $198,858 $226,348 ACCOUNTS PAYABLE AND ACCRUED LIABILITIES 36,104 20,332 DEPOSITS AND DEFERRED INCOME (Note 5) 138,031 385 -------------------- TOTAL LIABILITIES 372,993 247,065 -------------------- COMMITMENTS AND CONTINGENT LIABILITIES (Note 4) STOCKHOLDERS' INVESTMENT (Note 6): Common stock, $1 par value; authorized 50,000,000 shares, issued 31,887,298 in 1998; and 31,472,178 in 1997 31,887 31,472 Additional paid-in capital 244,778 234,237 Cumulative undistributed net income 103,200 104,965 -------------------- TOTAL STOCKHOLDERS' INVESTMENT 379,865 370,674 -------------------- TOTAL LIABILITIES AND STOCKHOLDERS' INVESTMENT $752,858 $617,739 ==================== The accompanying notes are an integral part of these consolidated balance sheets.
Cousins Properties Incorporated and Consolidated Entities CONSOLIDATED STATEMENTS OF INCOME - -------------------------------------------------------------------------------- ($ in thousands, except per share amounts) Years Ended December 31, --------------------------- 1998 1997 1996 ------- ------- ------- REVENUES: Rental property revenues (Note 10) $67,726 $62,252 $33,112 Development income 3,007 3,123 1,660 Management fees 3,761 3,448 2,801 Leasing and other fees 2,810 720 1,558 Residential lot and outparcel sales 16,732 12,847 14,145 Interest and other 4,275 3,609 5,256 --------------------------- 98,311 85,999 58,532 --------------------------- INCOME FROM UNCONSOLIDATED JOINT VENTURES (Note 5) 18,423 15,461 17,204 --------------------------- COSTS AND EXPENSES: Rental property operating expenses 17,702 15,371 7,616 General and administrative expenses 13,087 12,717 9,148 Depreciation and amortization 15,173 14,046 7,219 Stock appreciation right expense (Note 6) 330 204 2,154 Residential lot and outparcel cost of sales 15,514 11,917 13,676 Interest expense (Note 4) 11,558 14,126 6,546 Property taxes on undeveloped land 900 606 1,301 Other 1,263 2,695 1,567 --------------------------- 75,527 71,682 49,227 --------------------------- INCOME FROM OPERATIONS BEFORE INCOME TAXES AND GAIN ON SALE OF INVESTMENT PROPERTIES 41,207 29,778 26,509 BENEFIT FOR INCOME TAXES FROM OPERATIONS (Note 7) (148) (1,527) (1,703) --------------------------- INCOME BEFORE GAIN ON SALE OF INVESTMENT PROPERTIES 41,355 31,305 28,212 --------------------------- GAIN ON SALE OF INVESTMENT PROPERTIES, NET OF APPLICABLE INCOME TAX PROVISION (Note 7) 3,944 5,972 12,804 --------------------------- NET INCOME $45,299 $37,277 $41,016 =========================== WEIGHTED AVERAGE SHARES 31,602 29,267 28,520 =========================== BASIC NET INCOME PER SHARE $ 1.43 $ 1.27 $ 1.44 =========================== ADJUSTED WEIGHTED AVERAGE SHARES 32,040 29,693 28,738 =========================== DILUTED NET INCOME PER SHARE $ 1.41 $ 1.26 $ 1.43 =========================== CASH DIVIDENDS DECLARED PER SHARE (Note 6) $ 1.49 $ 1.29 $ 1.12 =========================== The accompanying notes are an integral part of these consolidated statements.
Cousins Properties Incorporated and Consolidated Entities - -------------------------------------------------------------------------------- CONSOLIDATED STATEMENTS OF STOCKHOLDERS' INVESTMENT Years Ended December 31, 1998, 1997 and 1996 ($ in thousands) Additional Cumulative Common Paid-In Undistributed Stock Capital Net Income Total ------- ---------- ------------- -------- BALANCE, December 31, 1995 $28,223 $153,265 $ 96,190 $277,678 Net income, 1996 -- -- 41,016 41,016 Common stock issued pursuant to: Exercise of options and director stock plan 307 4,344 -- 4,651 Dividend reinvestment plan 390 7,361 -- 7,751 Dividends declared -- -- (31,912) (31,912) ------------------------------------------ BALANCE, December 31, 1996 28,920 164,970 105,294 299,184 ------------------------------------------ Net income, 1997 -- -- 37,277 37,277 Common stock issued pursuant to: 2,150,000 share stock offering, net of expenses 2,150 61,993 -- 64,143 Exercise of options and director stock plan 223 2,946 -- 3,169 Dividend reinvestment plan 179 4,328 -- 4,507 Dividends declared -- -- (37,606) (37,606) ------------------------------------------ BALANCE, December 31, 1997 31,472 234,237 104,965 370,674 ------------------------------------------ Net income, 1998 -- -- 45,299 45,299 Common stock issued pursuant to: Exercise of options and director stock plan 43 506 -- 549 Dividend reinvestment plan 372 10,035 -- 10,407 Dividends declared -- -- (47,064) (47,064) ------------------------------------------ BALANCE, December 31, 1998 $31,887 $244,778 $103,200 $379,865 ========================================== The accompanying notes are an integral part of these consolidated statements.
Cousins Properties Incorporated and Consolidated Entities CONSOLIDATED STATEMENTS OF CASH FLOWS (Note 9) - ----------------------------------------------------------------------------------------------------------------------- ($ in thousands) Years Ended December 31, ------------------------------ 1998 1997 1996 -------- ------- --------- CASH FLOWS FROM OPERATING ACTIVITIES: Income before gain on sale of investment properties $ 41,355 $ 31,305 $ 28,212 Adjustments to reconcile income before gain on sale of investment properties to net cash provided by operating activities: Depreciation and amortization 15,173 14,046 7,219 Stock appreciation right expense 330 204 2,154 Cash charges to expense accrual for stock appreciation rights (338) (906) (2,721) Effect of recognizing rental revenues on a straight-line basis (347) (440) (4) Income from unconsolidated joint ventures (18,423) (15,461) (17,204) Operating distributions from unconsolidated joint ventures 23,612 21,707 19,382 Residential lot and outparcel cost of sales 14,759 11,398 13,111 Changes in other operating assets and liabilities: Change in other receivables (1,986) 2,592 (3,420) Change in accounts payable and accrued liabilities 15,403 (6,492) 10,375 ------------------------------ Net cash provided by operating activities 89,538 57,953 57,104 ------------------------------ CASH FLOWS FROM INVESTING ACTIVITIES: Gain on sale of investment properties, net of applicable income tax provision 3,944 5,972 12,804 Adjustments to reconcile gain on sale of investment properties to net cash provided by sales activities: Cost of sales 1,264 17,041 26,252 Note received as sales consideration -- -- (365) Property acquisition and development expenditures (194,255) (80,628) (162,154) Non-operating distributions from unconsolidated joint ventures 22,617 14,681 1,408 Investment in unconsolidated joint ventures, including interest capitalized to equity investments (34,712) (8,863) (268) Investment in notes receivable (33,345) (5,593) (27,115) Collection of notes receivable 30,528 3,472 27,703 Change in other assets, net 976 (1,645) (4,095) Net cash received in formation of venture 103,025 -- -- Cash portion of exchange transaction -- -- 1,092 ------------------------------ Net cash used in investing activities (99,958) (55,563) (124,738) ------------------------------ CASH FLOWS FROM FINANCING ACTIVITIES: Repayment of line of credit (231,115) (138,430) (87,627) Proceeds from line of credit 242,235 114,631 47,677 Common stock sold, net of expenses 10,956 71,795 12,074 Dividends paid (47,064) (37,606) (31,912) Proceeds from other notes payable 10,870 25,000 131,844 Repayment of other notes payable (6,809) (6,684) (4,376) ------------------------------ Net cash (used in) provided by financing activities (20,927) 28,706 67,680 ------------------------------ NET (DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS (31,347) 31,096 46 CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR 32,694 1,598 1,552 ------------------------------ CASH AND CASH EQUIVALENTS AT END OF YEAR $ 1,347 $ 32,694 $ 1,598 ============================== The accompanying notes are an integral part of these consolidated statements.
Cousins Properties Incorporated and Consolidated Entities NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - -------------------------------------------------------------------------------- December 31, 1998, 1997 and 1996 1. SIGNIFICANT ACCOUNTING POLICIES Consolidation and Presentation: The Consolidated Financial Statements include the accounts of Cousins Properties Incorporated ("Cousins"), its majority owned partnerships and wholly owned subsidiary, as well as Cousins Real Estate Corporation ("CREC") and its subsidiaries. All of the entities included in the Consolidated Financial Statements are hereinafter referred to collectively as the "Company." The Company's investments in its non-majority owned joint ventures are recorded using the equity method of accounting. However, the recognition of losses is limited to the amount of direct or implied financial support. Information regarding the non-majority owned joint ventures is included in Note 5. Income Taxes: Since 1987, Cousins has elected to be taxed as a real estate investment trust ("REIT"). As a REIT, Cousins is not subject to corporate federal income taxes to the extent that it distributes 100% of its taxable income (excluding CREC's and its wholly owned subsidiaries' consolidated taxable income) to stockholders, which is Cousins' current intention. The Company computes taxable income on a basis different from that used for financial reporting purposes (see Note 7). CREC and its wholly owned subsidiaries file a consolidated federal income tax return. Depreciation and Amortization: Real estate assets are stated at depreciated cost. Buildings are depreciated over 30 to 40 years. Buildings that were acquired are depreciated over 15, 25 and 30 years. Furniture, fixtures and equipment are depreciated over 3 to 15 years. Leasehold improvements and tenant improvements are amortized over the life of the applicable leases or the estimated useful life of the assets, whichever is shorter. Deferred expenses are amortized over the period of estimated benefit. The straight-line method is used for all depreciation and amortization. Fee Income and Cost Capitalization: Development, construction, management and leasing fees received from unconsolidated joint ventures are recognized as earned. A portion of these fees may be capitalized by the joint ventures; however, the Company expenses salaries and other direct costs related to this income. The Company classifies its share of fee income earned by unconsolidated joint ventures as fee income rather than joint venture income for those ventures where the related expense is borne primarily by the Company rather than the venture. Development, construction, and leasing fees between consolidated entities are eliminated in consolidation. These fees totaled $3,104,000, $1,510,000 and $3,400,000 in 1998, 1997 and 1996, respectively. Management fees received from consolidated entities are shown as a reduction in rental property operating expenses. Costs related to planning, development, leasing and construction of properties (including related general and administrative expenses) are capitalized. Interest, real estate taxes, and rental property revenues and expenses of properties prior to the date they become operational for financial reporting purposes are also capitalized. Interest is capitalized to investments accounted for by the equity method when the investee has property under development with a carrying value in excess of the investee's borrowings. Deferred leasing and other capitalized costs associated with a particular property are classified with Properties in the Consolidated Balance Sheets. Cash and Cash Equivalents: Cash and cash equivalents include cash and highly liquid money market instruments. Highly liquid money market instruments include securities and repurchase agreements with original maturities of three months or less, money market mutual funds, and securities on which the interest or dividend rate is adjusted to market rate at least every three months. At December 31, 1998, cash and cash equivalents included $813,000 which is restricted under a municipal bond indenture and $301,000 held in escrow. Rental Property Revenues: In accordance with Statement of Financial Accounting Standards ("SFAS") No. 13, income on leases which include scheduled increases in rental rates over the lease term (other than scheduled increases based on the Consumer Price Index) is recognized on a straight-line basis. Use of Estimates: The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Actual results could differ from those estimates. Disclosure About Segments: In June 1997, the Financial Accounting Standards Board ("FASB") issued SFAS No. 131, "Disclosure About Segments of an Enterprise and Related Information." This statement requires companies to identify segments based on how management makes decisions about allocating resources to segments and measuring their performance. The Company adopted SFAS No. 131 in 1998 (see Note 11). Derivative Instruments and Hedging Activities: In June 1998, the FASB issued SFAS No. 133, "Accounting for Derivative Instruments and Hedging Activities," effective for fiscal years beginning after June 15, 1999. The Statement requires companies to record derivatives on the balance sheet as assets and liabilities at fair value. The Statement also requires that changes in the derivative's fair value be recognized currently in earnings unless specific hedge accounting criteria are met. The Company does not expect the adoption of this statement will have a material impact on the financial statements or results of operations of the Company. Comprehensive Income: In June 1997, the FASB issued SFAS No. 130, "Reporting Comprehensive Income," which establishes standards for reporting and display of comprehensive income and its components in a full set of general purpose financial statements. Comprehensive income is the total of net income and all other non-owner changes in equity. The Company currently does not have any components of comprehensive income other than net income and, therefore, SFAS No. 130 has no effect on the Company. Reporting on the Costs of Start-Up Activities: The Company adopted Statement of Position 98-5, "Reporting on the Costs of Start-up Activities," in 1998 which requires entities to expense costs of start-up activities as incurred. The statement did not have a material effect on the financial statements or results of operations of the Company. Reclassifications: Certain 1997 amounts have been reclassified to conform with the 1998 presentation. 2. RELATIONSHIP WITH DEVELOPMENT AND LEASING ENTITY CREC conducts certain development and leasing activities for real estate projects. A wholly owned subsidiary of CREC, Cousins MarketCenters, Inc. ("CMC"), develops and leases retail centers for the Company. CREC also manages a joint venture property in which it has an ownership interest. At December 31, 1998, 1997 and 1996, Cousins owned 100% of CREC's $5,025,000 par value 8% cumulative preferred stock and 100% of CREC's nonvoting common stock, which is entitled to 95% of any dividends of CREC after preferred dividend requirements. Thomas G. Cousins, Chairman of the Board of Cousins, owns 100% of the voting common stock of CREC, which voting common stock is entitled to 5% of any dividends of CREC after preferred dividend requirements. CREC is included in the Company's Consolidated Financial Statements, but is taxed as a regular corporation. CREC has paid no common dividends to date, and for financial reporting purposes, none of CREC's income is attributable to Mr. Cousins' minority interest because the face amount of CREC's preferred stock plus accumulated dividends thereon ($9,447,000 in aggregate) exceeds CREC's $1,364,169 of equity.
- -------------------------------------------------------------------------------- 3. NOTES AND OTHER RECEIVABLES At December 31, 1998 and 1997, notes and other receivables included the following ($ in thousands): 1998 1997 ------- ------- 650 Massachusetts Avenue Mortgage Notes $25,053 $25,961 Daniel Realty Company Note Receivable 3,336 4,000 Miscellaneous Notes 608 776 Cumulative rental revenue recognized on a straight- line basis in excess of revenue accrued in accordance with lease terms (see Note 1) 1,071 4,496 Other Receivables 9,402 3,231 ------------------ Total Notes and Other Receivables $39,470 $38,464 ================== - --------------------------------------------------------------------------------
650 Massachusetts Avenue Mortgage Notes - On March 10, 1994, the Company purchased from the Resolution Trust Corporation ("RTC") two notes aggregating $37 million at a total cost of approximately $28 million. The two notes, which resulted from the RTC's restructuring in December 1993 of a $53 million note, are secured by a first deed of trust on an office building containing approximately 250,000 square feet located at 650 Massachusetts Avenue, NW, in Washington, D.C. The notes mature December 31, 2003, at which time their unamortized balance will be a maximum of approximately $29.6 million. The notes require minimum monthly payments totaling $2,818,000 annually, which, through the year 2000, are supported by a U.S. government agency lease. For financial reporting purposes, the discounted notes are treated as non-amortizing notes to the extent of the minimum required payments, with the minimum required payments treated as interest income. Amounts in excess of the minimum required payments ($908,000 and $825,000 in 1998 and 1997, respectively) are treated as a reduction of principal. Daniel Realty Company Note Receivable - On December 27, 1996, the Company entered into a venture with Daniel Realty Company ("Daniel"), a privately-held real estate company headquartered in Birmingham, Alabama, which focuses on the development and acquisition of commercial office properties. The arrangement with Daniel included a loan to Daniel of up to $9.5 million which had an interest rate of 11%, required semiannual principal payments commencing February 1, 1998 and matured on December 31, 2003. The Company also obtained an option to acquire certain segments of Daniel's business. On December 31, 1997, upon paydown of the outstanding balance of the note receivable to $4 million, the Company amended the note, which reduced the interest rate to 9% and requires quarterly payments of principal and interest, which commenced April 1, 1998, in the amount of $250,568. The loan will fully amortize over 5 years. Fair Value - The estimated fair value of the Company's $29.0 million and $30.7 million of notes receivable at December 31, 1998 and 1997, respectively, is $35.9 million and $37.7 million, respectively, calculated by discounting future cash flows from the notes receivable at estimated rates at which similar loans would be made currently.
- --------------------------------------------------------------------------------------------------------------------- 4. NOTES PAYABLE, COMMITMENTS, AND CONTINGENT LIABILITIES At December 31, 1998 and 1997, notes payable included the following ($ in thousands): December 31, 1998 December 31, 1997 ---------------------------------- ------------------------------------ Share of Share of Unconsolidated Unconsolidated Company Joint Ventures Total Company Joint Ventures Total -------- -------------- -------- -------- -------------- -------- Floating Rate Lines of Credit $ 11,120 $ -- $ 11,120 $ -- $ -- $ -- Other Debt (primarily non-recourse fixed rate mortgages) 187,738 221,498 409,236 226,348 133,446 359,794 ---------------------------------------------------------------------------- $198,858 $221,498 $420,356 $226,348 $133,446 $359,794 ============================================================================
The following table summarizes the terms of the debt outstanding at December 31, 1998 ($ in thousands): Term/ Amortization Balance at Period Final December 31, Description Rate (Years) Maturity 1998 ----------- ---------------- ------------ -------- ----------- Company Debt: Line of credit ($150 million maximum) unsecured Fed Funds + .88% 1/ N/A 6/29/99 $ 11,120 Note secured by Company's interest in CSC Associates, L.P. 6.677% 15/20 2/15/11 73,849 Perimeter Expo mortgage note 8.04% 10/30 8/15/05 20,846 Note secured by Company's interest in 650 Massachusetts Avenue mortgage notes (see Note 3) 6.53% 5/ N/A 10/01/00 22,055 101 Independence Center mortgage note 8.22% 11/25 11/01/07 48,254 Lakeshore Park Plaza mortgage note 6.78% 10/30 11/01/08 10,856 Northside/Alpharetta I mortgage note 7.70% 8/28 1/01/06 10,543 Other miscellaneous notes 0% to 9.4% Various Various 1,335 -------- 198,858 -------- Share of Unconsolidated Joint Venture Debt: Wildwood Associates: Line of credit ($5 million maximum) Fed Funds + .75% 1/N/A 9/1/99 -- 2300 Windy Ridge mortgage note 7.56% 10/25 12/01/05 33,943 2500 Windy Ridge mortgage note 7.45% 10/20 12/15/05 12,051 3200 Windy Hill mortgage note 8.23% 10/28 1/01/07 34,334 4100/4300 Wildwood Parkway mortgage note 7.65% 15/25 4/01/12 14,629 4200 Wildwood Parkway mortgage note 6.78% 15.75/18 3/31/14 22,000 Cousins LORET Venture, L.L.C.: Two Live Oak mortgage note 7.90% 12/30 12/31/09 14,883 The Pinnacle mortgage note 7.11% 12/30 12/31/09 35,000 Other miscellaneous note 6.86% N/A N/A 2,215 CP Venture Two LLC: North Point MarketCenter mortgage note 8.50% 10/25 7/15/05 17,082 100/200 North Point Center East mortgage note 7.86% 10/25 8/01/07 14,633 Ten Peachtree Place Associates mortgage note 8.00% 10/18 11/30/01 9,222 CC-JM II Associates mortgage note 7.00% 17/17 4/01/13 11,507 -------- 221,498 -------- $420,356 ======== - --------------------------------------------------------------------------------------------------------------------
In 1996, CSC Associates, L.P. ("CSC") issued $80 million of 6.377% collateralized non-recourse mortgage notes (the "Notes") secured by CSC's interest in the NationsBank Plaza building and related leases and agreements. CSC loaned the $80 million proceeds of the Notes to the Company under a non-recourse loan (the "Cousins Loan") secured by the Company's interest in CSC under the same payment terms as those of the Notes. The Company paid all costs of issuing the Notes and the Cousins Loan, including a $400,000 fee to an affiliate of Bank of America Corporation. In addition, the Company pays a fee to an affiliate of Bank of America Corporation of .3% per annum of the outstanding principal balance of the Notes. Because CSC has loaned the $80 million proceeds of the Notes to the Company, the Notes and their related interest expense and maturities are disclosed as an obligation of the Company and are not included in the unconsolidated joint venture balances disclosed in the above table or in Note 5. (The related note receivable and interest income are also not included in Note 5.) Effective June 30, 1998, the Company extended the maturity of its $100 million line of credit from June 30, 1998 to June 29, 1999. The line is unsecured and bears interest tied to the Federal Funds rate. Effective in October 1998, the Company increased the line of credit to a maximum of $150 million. The Company had $11,120,000 outstanding under the line as of December 31, 1998. During 1998 three new financings were completed and one mortgage note payable was assumed. In May 1998, Cousins LORET Venture, L.L.C. completed the $70 million non-recourse financing of The Pinnacle at an interest rate of 7.11% and a term of twelve years. This financing was completely funded on December 30, 1998. In June 1998, Wildwood Associates completed the financing of the 4200 Wildwood Parkway Building with a $44 million non-recourse mortgage note payable at an interest rate of 6.78% and a term of fifteen and three-quarters years. Also in June 1998, the Company assumed a $10.6 million non-recourse mortgage note payable pursuant to the acquisition of the Northside/Alpharetta I medical office building. This mortgage note payable has an interest rate of 7.70% and a remaining term of eight years. In October 1998, the Company completed the financing of Lakeshore Park Plaza with a $10.9 million non-recourse mortgage note payable at an interest rate of 6.78% and a term of ten years. The Wildwood Associates 2300 Windy Ridge, 3200 Windy Hill, 4100/4300 Wildwood Parkway and 4200 Wildwood Parkway mortgage notes and the CC-JM II Associates mortgage note provide for additional amortization in the later years of the notes (over that required by the amortization periods disclosed in the table) concurrent with scheduled rent increases. The Company has entered into an interest rate swap in order to hedge its exposure to fluctuations in the interest rate on the note secured by the Company's interest in the 650 Massachusetts Avenue mortgage notes. The note actually floats at LIBOR + 1%, but as of January 10, 1996 was effectively fixed at the 6.53% rate disclosed in the table. The difference between fixed and variable interest amounts calculated by reference to the principal notional amount (which was $21,500,000 at December 31, 1998) is recognized as an adjustment to interest expense over the life of the swap. If the Company settled the swap as of December 31, 1998, it would receive $178,000. At December 31, 1998, the Company had outstanding letters of credit totaling $7,335,000, and assets with carrying values of $248,850,000 were pledged as security on the Company's and its unconsolidated joint ventures' debt. The fixed rate long-term mortgage debt of the Company and its unconsolidated joint ventures is non-recourse to the Company. As of December 31, 1998, the weighted average maturity of the Company's debt, including its share of unconsolidated joint ventures, was 10 years.
- -------------------------------------------------------------------------------- The aggregate maturities of the indebtedness at December 31, 1998 summarized above are as follows ($ in thousands): Share of Unconsolidated Company Joint Ventures Total -------- -------------- -------- 1999 $ 17,900 $ 6,075 $ 23,975 2000 24,109 4,699 28,808 2001 4,298 12,855 17,153 2002 4,605 5,614 10,219 2003 4,937 5,650 10,587 Thereafter 143,009 186,605 329,614 ------------------------------------------ $198,858 $221,498 $420,356 ==========================================
For each of the years ended December 31, 1998, 1997 and 1996, interest expense was recorded as follows ($ in thousands): Share of Unconsolidated Company Joint Ventures Total ------------------------------- ------------------------------- ------------------------------- Year Expensed Capitalized Total Expensed Capitalized Total Expensed Capitalized Total - ---- -------- ----------- ------- -------- ----------- ------- -------- ----------- ------- 1998 $11,558 $7,470 $19,028 $9,902 $2,173 $12,075 $21,460 $9,643 $31,103 1997 14,126 3,167 17,293 8,281 1,123 9,404 22,407 4,290 26,697 1996 6,546 5,648 12,194 6,599 557 7,156 13,145 6,205 19,350 - -------------------------------------------------------------------------------------------------------------------
The Company has future lease commitments under a land lease aggregating $7.2 million over its remaining term of 70 years. Current annual lease payments are approximately $63,000. The Company has entered into construction and design contracts for real estate projects, of which approximately $125 million remains committed at December 31, 1998. At December 31, 1998 and 1997, the fair value of the Company's notes payable, including its share of unconsolidated joint ventures, was $445 million and $382 million, respectively.
5. INVESTMENT IN UNCONSOLIDATED JOINT VENTURES The following information summarizes financial data and principal activities of unconsolidated joint ventures in which the Company had ownership interests ($ in thousands). Audited financial statements for Wildwood Associates and CSC Associates, L.P. are included in the Company's Form 10-K. Company's Total Assets Total Debt Total Equity Investment --------------------- ------------------- ------------------- -------------------- 1998 1997 1998 1997 1998 1997 1998 1997 ---------- -------- -------- -------- -------- -------- -------- -------- SUMMARY OF FINANCIAL POSITION: Wildwood Associates $ 251,545 $261,828 $233,914 $193,861 $ 10,186 $ 60,464 $(36,364) $(12,622) CSC Associates, L.P. 193,129 194,982 -- -- 190,210 193,716 97,685 99,513 Ten Peachtree Place Associates 19,718 20,225 18,444 19,354 936 533 104 44 Haywood Mall 39,792 40,546 -- -- 37,937 39,643 19,656 20,626 CC-JM II Associates 29,231 29,510 23,014 23,674 4,841 4,878 2,660 2,771 Cousins LORET Venture, L.L.C. 163,320 68,820 104,196 30,000 50,374 50,214 25,202 8,770 Brad Cous Golf Venture, Ltd. 10,687 -- -- -- 9,924 -- 4,962 -- Charlotte Gateway Village, LLC 15,433 -- -- -- 15,000 -- 11,781 -- CP Venture LLC -- -- -- -- -- -- 135,519 -- CP Venture Two LLC 285,372 -- 53,141 -- 230,468 -- 2,308 -- Other 2,560 2,433 -- -- 2,315 2,302 1,135 1,096 ---------------------- -------------------- ------------------- -------------------- $ 1,010,787 $ 618,344 $ 432,709 $ 266,889 $552,191 $351,750 $264,648 $120,198 ====================== ==================== =================== ====================
Company's Share Total Revenues Net Income of Net Income -------------------------- ------------------------- ------------------------- 1998 1997 1996 1998 1997 1996 1998 1997 1996 -------- ------- ------- ------- ------- ------- ------- ------- ------- SUMMARY OF OPERATIONS: Wildwood Associates $ 42,284 $39,115 $40,505 $ 4,156 $ 3,806 $ 8,490 $ 1,968 $ 1,903 $ 4,245 CSC Associates, L.P. 36,956 35,159 33,312 20,194 18,720 16,108 10,021 9,284 7,978 Ten Peachtree Place Associates 4,396 4,295 4,284 803 718 632 261 248 235 Haywood Mall 17,049 13,820 13,527 9,465 7,382 7,120 4,614 3,648 3,538 CC-JM II Associates 4,070 3,860 3,489 469 261 316 213 113 141 Cousins LORET Venture, L.L.C. 6,810 1,885 -- 1,747 135 -- 672 68 -- CP Venture LLC -- -- -- -- -- -- 280 -- -- CP Venture Two LLC 4,384 -- -- 335 -- -- 4 -- -- Other 1,174 543 2,838 783 395 2,138 390 197 1,067 -------------------------- ------------------------- ------------------------- $117,123 $98,677 $97,955 $37,952 $31,417 $34,804 $18,423 $15,461 $17,204 ========================== ========================= =========================
Company's Share Of ------------------------------------------------------- Cash Flows From Cash Flows From Operating Operating Activities Operating Activities Cash Distributions ------------------------- ------------------------- ------------------------- 1998 1997 1996 1998 1997 1996 1998 1997 1996 ------- ------- ------- ------- ------- ------- ------- ------- ------- SUMMARY OF OPERATING CASH FLOWS: Wildwood Associates $16,665 $15,789 $20,278 $ 8,333 $ 7,894 $10,139 $ 4,600 $ 4,500 $ 4,000 CSC Associates, L.P. 28,907 26,381 20,394 14,454 13,191 10,197 11,850 12,675 9,850 Ten Peachtree Place Associates 1,358 1,205 1,360 343 321 344 200 200 200 Haywood Mall 11,571 9,795 7,877 5,786 4,897 3,939 5,585 3,895 4,990 CC-JM II Associates 1,551 1,222 (1,655) 775 611 (828) 324 324 162 Cousins LORET Venture, L.L.C. 3,968 768 -- 1,984 384 -- 703 -- -- CP Venture Two LLC 2,576 -- -- 2,154 -- -- -- -- -- Other 783 367 1,806 391 184 903 350 113 180 ------------------------- ------------------------- ------------------------- $67,379 $55,527 $50,060 $34,220 $27,482 $24,694 $23,612 $21,707 $19,382 ========================= ========================= =========================
Wildwood Associates - Wildwood Associates was formed in 1985 between the Company and IBM, each as 50% partners. The partnership owns six office buildings totaling 2.1 million rentable square feet, other income-producing commercial properties, and additional developable land in Wildwood Office Park ("Wildwood") in Atlanta, Georgia. Wildwood is an office park containing a total of approximately 285 acres, of which approximately 92 acres are owned by Wildwood Associates and an estimated 13 acres are committed to be contributed to Wildwood Associates by the Company; the Company owns the balance of the developable acreage in the office park. The 13 acres of land which are committed to be contributed to Wildwood Associates by the Company are included in Wildwood Associates' financial statements under the caption "Land Committed to be Contributed" and are not included in "Land Held for Investment or Future Development" in the Company's financial statements. All costs associated with the land are borne by Wildwood Associates. Effective December 1, 1996, Wildwood Associates disposed of its interest in an office building at Summit Green in exchange for cancellation of the related mortgage debt. Summit Green is an office project situated on 21 acres of leased land in Greensboro, North Carolina and includes sites for two additional buildings. In connection with the office building disposition, Wildwood Associates and a related partnership also may dispose of a leasehold interest in the sites for the two additional buildings. No material gain or loss is anticipated to result from the disposition of the Summit Green project. On June 30, 1998, Wildwood Associates completed the $44 million financing of the 4200 Wildwood Parkway Building (see Note 4). In conjunction with this financing, Wildwood Associates made non-operating cash distributions of approximately $22.6 million to each partner during 1998. Through December 31, 1998, IBM had contributed $46.6 million in cash plus properties having an agreed value of $16.3 million for its one-half interest in Wildwood Associates. The Company has contributed $84,000 in cash plus properties having an agreed value of $49.3 million for its one-half interest in the partnership, and is obligated to contribute the aforesaid estimated 13 acres of additional land with an agreed value of $8.3 million. The Company and IBM each lease office space from the partnership at rates comparable to those charged to third parties. The Company's investment as recorded in the Consolidated Balance Sheets, which was a negative investment of $36.4 million at December 31, 1998 due to the aforementioned partnership distributions and other partnership distributions made prior to 1998, is based upon the Company's historical cost of the properties at the time they were contributed or committed to be contributed to the partnership, whereas its investment as recorded on Wildwood Associates' books ($5.1 million at December 31, 1998) is based on the agreed-upon values at the time the partnership was formed. CSC Associates, L.P. ("CSC") - CSC was formed in 1989 between the Company and a wholly owned subsidiary of Bank of America Corporation, each as 50% partners. CSC owns the 1.3 million rentable square foot NationsBank Plaza in Atlanta, Georgia. CSC's net income or loss and cash distributions are allocated to the partners based on their percentage interests (50% each). See Note 4 for a discussion of the presentation of certain CSC assets, liabilities and revenues. Ten Peachtree Place Associates ("TPPA") - TPPA is a general partnership between the Company (50%) and a wholly owned subsidiary of The Coca-Cola Company ("Coca-Cola") (50%). The venture owns Ten Peachtree Place, a 259,000 rentable square foot building located in midtown Atlanta, Georgia. The building is 100% leased to Coca-Cola through November 30, 2001. The TPPA partnership agreement generally provides that each of the partners is entitled to receive 50% of cash flows from operating activities net of note principal amortization through the term of the Coca-Cola lease, after which the Company and its partner are entitled to receive 15% and 85% of the cash flows (including any sales proceeds), respectively, until the two partners have received a combined distribution of $15.3 million. Thereafter, each partner is entitled to receive 50% of cash flows. Haywood Mall - Haywood Mall, a regional shopping center on 86 acres 5 miles southeast of downtown Greenville, South Carolina, was originally owned by the Company and an affiliate of Corporate Property Investors. In October 1998, Simon Property Group purchased Corporate Property Investors' interest in Haywood Mall. The mall has 1,256,000 gross leaseable square feet ("GLA") (of which approximately 330,000 GLA is owned). The balance of the mall is owned by the mall's five major department stores. Cousins LORET Venture, L.L.C. ("Cousins LORET") - Effective July 31, 1997, Cousins LORET was formed between the Company and LORET Holdings, L.L.L.P. ("LORET"), each as 50% members. LORET contributed Two Live Oak, a 278,000 rentable square foot office building located in Atlanta, Georgia, which was renovated in 1997. Two Live Oak became partially operational for financial reporting purposes in October 1997. Two Live Oak was contributed subject to a 7.90% $30 million non-recourse ten year mortgage note payable (see Note 4). LORET also contributed an adjacent 4 acre site on which construction commenced in August 1997 of The Pinnacle, a 424,000 rentable square foot office building. In May 1998, Cousins LORET completed the $70 million non-recourse financing of The Pinnacle at an interest rate of 7.11% and a term of twelve years (see Note 4) which was completely funded on December 30, 1998. The Company contributed $25 million of cash to Cousins LORET to match the value of LORET's agreed-upon equity. CC-JM II Associates - This joint venture was formed in 1994 between the Company and an affiliate of CarrAmerica Realty Corporation, each as 50% general partners, to develop and own a 224,000 rentable square foot office building in suburban Washington, D.C. The building is 100% leased until January 2011 to Booz-Allen & Hamilton, an international consulting firm, as a part of its corporate headquarters campus. Brad Cous Golf Venture, Ltd. - Effective January 31, 1998, the Company formed the Brad Cous Golf Venture, Ltd. with the W.C. Bradley Co., each as 50% partners, for the purpose of developing and owning The Shops at World Golf Village, an approximately 80,000 square foot retail center located adjacent to the PGA Hall of Fame in St. Augustine, Florida. Charlotte Gateway Village, LLC ("Gateway") - On December 14, 1998, the Company and a wholly owned subsidiary of Bank of America Corporation formed Gateway for the purpose of developing and owning Gateway Village, a 976,000 rentable square foot office building and parking deck in downtown Charlotte, North Carolina. Construction of Gateway Village commenced in July 1998. The project is 100% leased to Bank of America Corporation. Gateway's net income or loss and cash distributions are allocated to the members as follows: first to the Company so that it receives a cumulative compounded return equal to 11.46% on its capital contributions, second to a wholly owned subsidiary of Bank of America Corporation until it has received an amount equal to the aggregate amount distributed to the Company and then to each member, 50%. CP Venture LLC, CP Venture Two LLC and CP Venture Three LLC - On November 12, 1998 (the "Closing Date"), the Company entered into a venture arrangement (the "Venture") with The Prudential Insurance Company of America ("Prudential"). On such date the Company contributed its interests in nine properties (the "Properties") to the Venture. At the time of contribution, the Properties were valued by the Company and Prudential based on arms' length negotiations at a total gross value of $283,750,000, subject to mortgages in the principal amount of $53,281,219. The following table details the values allocated to each of the Properties and the mortgages to which certain properties were subject.
Allocated Value Mortgage Net Value --------------- ----------- ------------ First Union Tower $53,000,000 $ - $ 53,000,000 Grandview II 23,000,000 - 23,000,000 100 North Point Center East and 200 North Point Center East 46,050,000 24,581,670 21,468,330 Presbyterian Medical Plaza 8,600,000 - 8,600,000 NorthPoint MarketCenter 56,750,000 28,699,549 28,050,451 Mansell Crossing II 12,350,000 - 12,350,000 Greenbrier MarketCenter 51,200,000 - 51,200,000 Los Altos MarketCenter 32,800,000 - 32,800,000 ------------ ----------- ------------ $283,750,000 $53,281,219 $230,468,781 ============ =========== ============
Under the Venture arrangements, Prudential is contributing cash to the Venture equal to the agreed-upon net value of the Properties ($230,468,781). The dates at which such amounts are to be contributed are shown in the following table, although Prudential may accelerate such funding if the Company so requests. Also shown are the percentages (including both direct and indirect interests) the Company and Prudential will have, respectively, in the economics of the Properties following the cash contributions on the indicated dates. The total cumulative cash contribution made by Prudential as of December 31, 1998 was $105 million.
Total Cumulative Cousins Prudential Date Cash Contribution Percentage Percentage - ------------ ----------------- ---------- ---------- Closing Date $ 40 million 84.64% 15.36% 12/30/98 $105 million 59.68% 40.32% 3/30/99 $155 million 40.48% 59.52% 6/29/99 $205 million 21.28% 78.72% 9/29/99 $230.469 million 11.50% 88.50%
The structure of the Venture is as follows: CP Venture LLC ("Parent"), the parent entity, owns a 99% interest in each of CP Venture Two LLC ("Property Activity LLC") and CP Venture Three LLC ("Development Activity LLC"). The Company owns a 1% direct interest in Property Activity LLC and Prudential owns a 1% direct interest in Development Activity LLC. The contributed properties are owned and operated by Property Activity LLC. The Company has a 10.6061% interest in the Parent's 99% interest in Property Activity LLC, which, combined with its 1% direct interest, gives it a net interest of 11.5% in the economics of Property Activity LLC. Unless both parties agree otherwise, Property Activity LLC may not sell the contributed properties until the end of lock-out periods (generally three years for retail properties and four years for office and medical office properties). The cash contributed by Prudential is contributed to Development Activity LLC. To the extent such funds are not yet needed for development activity, Development Activity LLC can temporarily invest such funds; such potential investments may include temporary loans to the Company. As of December 31, 1998, the Company had a note payable to Development Activity LLC of approximately $105 million which was eliminated in consolidation. Prudential is entitled to 10.6061% of the Parent's 99% share of the economics of Development Activity LLC, which combined with its 1% direct interest entitles it to an overall net interest of 11.5% in the economics of Development Activity LLC. In addition, Prudential receives a priority current return of 9.5% per annum on its share (11.5%) of the initial capital ($230.469 million) ("Initial Capital") of Development Activity LLC. Prudential also receives a liquidation preference whereby it is first entitled to, subject to capital account limitations, sufficient proceeds to allow it to achieve an overall 11.5% internal rate of return on its share of the Initial Capital of Development Activity LLC. After these preferences to Prudential, the Company has certain preferences, with the residual interests in the development activity being shared according to the interests of the parties. Parent has appointed the Company to serve as Development Manager and in such capacity to act for it in connection with its ownership of Development Activity LLC. Parent has also appointed Prudential to serve as Property Manager and in such capacity to act for it in connection with its ownership of Property Activity LLC. Prudential appointed the Company to serve as property manager of the Properties for Property Activity LLC. The Company also serves as Administrative Manager of Parent. Property Activity LLC is expected to continue to operate the contributed Properties. Development Activity LLC is expected to develop commercial real estate projects over time, as selected by the Development Manager. Development Activity LLC may also make acquisitions, which are anticipated to be redevelopment or value-added opportunities. The parties anticipate that some of the projects currently under consideration by the Company will be undertaken by Development Activity LLC, although the Company has no obligation to make any particular opportunity available to Development Activity LLC. For financial reporting purposes, the Properties were deconsolidated and contributed to Property Activity LLC. Both Property Activity LLC and Parent are being treated as unconsolidated joint ventures. Development Activity LLC is treated as a consolidated entity in the Company's financial statements. The Company has deferred the net gain on the contributed Properties and is recognizing this net gain as Gain on Sale of Investment Properties, Net of Applicable Income Tax Provision in the accompanying Consolidated Statements of Income as capital distributions of cash are made from Development Activity LLC to the Company or when the Properties initially contributed to Property Activity LLC are liquidated by Property Activity LLC. The liquidation of the Properties may be in the form of actual sales of the Properties or in the form of the depreciation of the Properties which have an average remaining life of 30 years. The total net deferred gain on the contributed Properties was approximately $96.8 million over the cost of the Properties. Including depreciation recapture of $23.8 million, the total net deferred gain was approximately $120.6 million which is included in Deposits and Deferred Income in the accompanying Consolidated Balance Sheets. The Company recognized approximately $536,000 of the total net deferred gain in 1998. Other - This category consists of several other joint ventures including: Norfolk Hotel Associates ("NHA") - NHA was a partnership between the Company and an affiliate of Odyssey Partners, L.P., each as 50% partners, which held a mortgage note on and owned the land under the Omni International Hotel in Norfolk, Virginia. In January 1992, NHA terminated the land lease and became the owner of the hotel and a long-term parking agreement with an adjacent building owner. In April 1993, the partnership sold the hotel, but retained its interest in the parking agreement. The partnership received a mortgage note receivable for a portion of the sales proceeds. In July 1994, NHA distributed to each partner a 50% interest in the parking agreement held by NHA, and in July 1996 the Company sold its 50% interest for $2 million, resulting in a profit to the Company of approximately $408,000 which is included in Gain on Sale of Investment Properties in the accompanying Consolidated Statements of Income. On February 14, 1997, the mortgage note receivable due to NHA with a balance of $8,325,000 was repaid in full. A portion of the proceeds from the repayment was used to pay off the partnership's lines of credit, with substantially all of the balance of the partnership's assets ($2.2 million of cash for each partner) distributed to the partners in 1997. The partnership was dissolved in 1997. Cousins-Hines Partnerships - Through the Cousins-Hines partnerships, CREC effectively owns 9.8% of the One Ninety One Peachtree Tower in Atlanta, Georgia, subject to a preference in favor of the majority partner. This 1.2 million rentable square foot office building, which opened in December 1990, was developed in partnership with the Hines Interests Limited Partnership and the Dutch Institutional Holding Company ("DIHC"). In October 1997, Cornerstone Properties, Inc. purchased DIHC's interest in the partnership. Because CREC's effective ownership of this building is less than 20%, the Company accounts for its investment using the cost method of accounting, and therefore the above tables do not include the Company's share of One Ninety One Peachtree Tower. Temco Associates - Temco Associates was formed in 1991 as a partnership between the Company (50%) and a subsidiary of Temple-Inland Inc. (50%). Temco Associates has an option through March 2006, with no carrying costs, to acquire the fee simple interest in approximately 11,000 acres in Paulding County, Georgia (northwest of Atlanta, Georgia). The partnership also has an option to acquire a timber rights interest only in approximately 22,000 acres. The options may be exercised in whole or in part over the option period, and the option price of the fee simple land was $877 per acre at January 1, 1999, escalating at 6% on January 1 of each succeeding year during the term of the option. During 1998, approximately 328 acres of the option related to the fee simple interest was exercised. Approximately 83 acres were simultaneously sold for gross profits of approximately $192,000. The Cobb County YMCA has a three year option to purchase approximately 38 acres out of the total acres of the options exercised in 1998. The remaining approximately 207 acres were deeded in early 1999 to a golf course developer who is developing the golf course within the Bentwater residential community on which Temco Associates commenced development in November 1998. Approximately 1,250 lots will be developed within Bentwater on approximately 838 acres which will be acquired as needed through exercises of the option related to the fee simple interest. During 1996, approximately 375 acres of the option related to the fee simple interest was exercised and simultaneously sold for gross profits of approximately $1,427,000. None of the option was exercised in 1997. Dusseldorf Joint Venture - In 1992, the Company entered into a joint venture agreement for the development of a 133,000 rentable square foot office building in Dusseldorf, Germany which is 34% leased to IBM. The Company's venture partners are IBM and Multi Development Corporation International B.V. ("Multi"), a Dutch real estate development company. In December 1993, the building was presold to an affiliate of Deutsche Bank. CREC and Multi jointly developed the building. Due to the release of certain completion guarantees related to the building, approximately $115,000, $235,000 and $777,000 of development income was received and recognized in 1998, 1997 and 1996, respectively. Additional Information - The Company recognized $7,426,000, $4,398,000 and $4,926,000 of development, construction, leasing, and management fees from unconsolidated joint ventures in 1998, 1997 and 1996, respectively. 6. STOCKHOLDERS' INVESTMENT General: The Company has elected to account for its stock-based compensation plans under Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued to Employees," which requires the recording of compensation expense for some, but not all, stock-based compensation, rather than the alternative accounting permitted by SFAS No. 123, "Accounting for Stock-Based Compensation". Had compensation cost for stock-based compensation plans been determined consistent with SFAS No. 123, the Company's earnings and earnings per share would have been as disclosed below. Options and Stock Appreciation Rights: The Company has a key employee stock incentive plan and an outside director stock plan which provide for the granting of both stock and stock option awards (see also "Stock Grants" below). Under both plans, stock options have been granted for a term of 10 years, and the vesting period for all options outstanding is 5 years and 1 year under the key employee and outside director plans, respectively. At December 31, 1998, 2,418,530 stock options to key employees and outside directors were outstanding, and the Company is authorized to award an additional 895,525 stock options or shares of stock. Separately from the stock incentive plan, the Company has issued stock appreciation rights ("SARs") to certain employees under two plans. At December 31, 1998, 97,550 SARs were outstanding, and the Company is authorized to award an additional 1,110,354 SARs. The Company accounts for stock options which have a cash payment election option as SARs. Accordingly, included in the Consolidated Statements of Income under the heading "stock appreciation right expense" are increases or reductions in accrued compensation expense to reflect the issuance of new SARs, vesting, changes in the market value of the common stock between periods, and forfeiture of non-vested SARs of terminated employees.
The following is a summary of stock option activity under the stock option plans and SAR plans (in thousands, except per share amounts): Number of Weighted Average Shares Exercise Price Per Share --------------------------- -------------------------------- 1998 1997 1996 1998 1997 1996 ----- ----- ----- ------ ------ ------ Stock Option Plans - ------------------ Outstanding, beginning of year 1,841 1,507 1,413 $22.23 $17.95 $15.42 Granted 678 580 436 $30.31 $30.15 $22.75 Exercised (52) (231) (340) $17.12 $14.67 $13.61 Forfeited (48) (15) (2) $24.26 $19.01 $16.77 --------------------------- Outstanding, end of year 2,419 1,841 1,507 $24.56 $22.23 $17.95 --------------------------- Shares exercisable at end of year 918 630 601 $19.20 $17.04 $15.29 --------------------------- SARs Outstanding, beginning of year 121 184 344 $15.05 $14.74 $13.21 Exercised (23) (62) (159) $15.81 $14.09 $11.44 Forfeited -- (1) (1) $ -- $16.88 $13.59 --------------------------- Outstanding, end of year 98 121 184 $14.88 $15.05 $14.74 =========================== Shares exercisable at end of year 98 103 145 $14.88 $14.74 $14.21 ===========================
The following table provides a breakdown by exercise price range of the number of shares, weighted average exercise price, and remaining contractual lives for all stock options and SARs outstanding at December 31, 1998 (in thousands, except per share amounts and option life): For Outstanding Options/SARs ------------------------------- Exercise Weighted Weighted Average Price Average Contractual Life Range Outstanding Exercisable Exercise Price (in years) -------- ----------- ----------- -------------- ---------------- Stock Option Plans - ------------------ $13.25 to $16.30 504 463 $15.59 4.6 $16.31 to $23.00 676 333 $20.84 7.5 $23.01 to $30.375 1,239 122 $30.24 9.4 ------------------------------------------------ Total 2,419 918 $24.56 7.9 ------------------------------------------------ SARs - ---- $10.78 to $13.75 41 41 $12.80 2.4 $13.76 to $16.875 57 57 $16.35 4.0 ---------------------------------------------- Total 98 98 $14.88 3.4 ----------------------------------------------
At December 31, 1998 and 1997, the total amount accrued for stock options, SARs, and Deferred Payment Agreements was $1,738,000 and $1,746,000, respectively. Stock Grants: As indicated above the key employee stock incentive plan and the outside director stock plan provide for stock awards in addition to stock option awards. The stock awards may be subject to specified performance and vesting requirements. Under the outside director stock plan, since April 1995 a director could elect to receive any portion of his director fees in stock, and since May 1996 the amount of stock received has been based on 95% of the market price. As of December 31, 1998, 110,400 shares of common stock have been awarded under the key employee stock incentive plan, of which 10,400 shares were awarded in lieu of 1995 cash bonuses, and 100,000 shares were awarded in 1995 subject to specified performance and vesting requirements. The estimated cost of the 100,000 shares, which will not be issued until all requirements have been met, is being accrued over the five year performance and vesting period, and at December 31, 1998 and 1997, $1,914,000 and $1,242,000 was accrued, respectively. Outside directors elected to receive 3,882, 4,638 and 2,260 shares of stock in lieu of cash for director fees in 1998, 1997 and 1996, respectively. SFAS No. 123 Pro Forma Disclosures: For purposes of the pro forma disclosures required by SFAS No. 123, the Company has computed the value of all stock and stock option awards granted during 1998, 1997 and 1996 using the Black-Scholes option pricing model with the following weighted-average assumptions and results: 1998 1997 1996 ---- ---- ---- Assumptions - ----------- Risk-free interest rate 4.96% 5.93% 6.26% Assumed dividend yield 5.36% 4.80% 5.34% Assumed lives of option awards 8 years 8 years 8 years Assumed volatility 0.191 0.202 0.171 Results - ------- Weighted average fair value of options granted $ 3.75 $ 5.12 $ 3.08 The Black-Scholes option valuation model was developed for use in estimating the fair value of traded options which have no vesting restrictions and are fully transferable. In addition, option valuation models require the input of highly subjective assumptions. In the Company's opinion, because the Company's stock-based compensation awards have characteristics significantly different from traded options, and because changes in the subjective assumptions can materially affect the fair value estimate, the results obtained from the valuation model do not necessarily provide a reliable single measure of the value of its stock-based compensation awards. If the Company had accounted for its stock-based compensation awards in 1998, 1997 and 1996 in accordance with SFAS No. 123, pro forma results would have been as follows ($ in thousands, except per share amounts): 1998 1997 1996 ---- ---- ---- Pro forma net income $43,834 $36,769 $40,978 Pro forma basic net income per share $ 1.39 $ 1.26 $ 1.44 Pro forma diluted net income per share $ 1.37 $ 1.24 $ 1.43 Because the SFAS No. 123 method of accounting has not been applied to awards granted prior to January 1, 1995, the pro forma compensation adjustments used to derive the above results are not likely to be representative of the pro forma compensation adjustments to be reported in future years. Per Share Data: 1998 1997 1996 ---- ---- ---- Weighted average shares 31,602 29,267 28,520 Dilutive potential common shares 438 426 218 Adjusted weighted average shares 32,040 29,693 28,738 Anti-dilutive options not included 1,207 565 -- Ownership Limitations: In order to maintain Cousins' qualification as a REIT, Cousins' Articles of Incorporation include certain restrictions on the ownership of more than 3.9% of the Company's common stock.
Distribution of REIT Taxable Income: The following is a reconciliation between dividends declared and dividends applied in 1997 and 1996 and estimated to be applied in 1998 to meet REIT distribution requirements ($ in thousands): 1998 1997 1996 ------- ------- ------- Dividends declared $47,064 $37,606 $31,912 Additional dividends paid deduction due to 5% discount on dividends reinvested 548 257 408 That portion of dividends declared in current year, and paid in current year, which was applied to the prior year distribution requirements (7,644) (4,816) (2,197) That portion of dividends declared in subsequent year, and paid in subsequent year, which will apply to current year 11,779 7,644 4,816 ------------------------------- Dividends applied to meet current year REIT distribution requirements $51,747 $40,691 $34,939 ===============================
Tax Status of Dividends: Dividends applied to meet REIT distribution requirements were equal to Cousins' taxable income (see Note 7). Since electing to qualify as a REIT in 1987, Cousins has had no accumulated undistributed taxable income. In 1998, the Company designated as 20% capital gain dividends 5% of the dividend paid December 22, 1998. In 1997, the Company designated as 28% capital gain dividends 49% of the dividend paid February 10, 1997. In 1996, the Company designated as capital gain dividends 16.778% of the dividend paid February 22, 1996 and 30.6774% of the dividend paid December 23, 1996. All other dividends paid in 1998, 1997 and 1996 were taxable as ordinary income dividends. In addition, in 1998, 1997 and 1996 an amount calculated as 1.74%, 1.91% and 1.95% of total dividends, respectively, was an "adjustment attributed to depreciation of tangible property placed in service after 1986" for alternative minimum tax purposes. This amount was passed through to stockholders and must be used as an item of adjustment in determining each stockholder's alternative minimum taxable income.
7. INCOME TAXES In 1998, 1997 and 1996, because Cousins qualified as a REIT and distributed all of its taxable income (see Note 6), it incurred no federal income tax liability. The differences between taxable income as reported on Cousins' tax return (estimated 1998 and actual 1997 and 1996) and Consolidated Net Income as reported herein are as follows ($ in thousands): 1998 1997 1996 ------- ------- ------- Consolidated net income $45,299 $37,277 $41,016 Consolidating adjustments (2,759) (1,218) (3,868) Less CREC net loss (income) 540 (482) 2,937 ------------------------------ Cousins net income for financial reporting purposes 43,080 35,577 40,085 Adjustments arising from: Sales of investment properties (7,471) 1,606 (8,844) Income from unconsolidated joint ventures (principally depreciation, revenue recognition, and operational timing differences) 2,227 1,112 (489) Rental income recognition 344 438 73 Interest income recognition 429 566 448 Wildwood Training Facility differences -- -- 411 Interest expense 5,052 1,401 2,356 Compensation expense under stock option and SAR plans 19 (2,578) (2,893) Depreciation 5,946 4,809 1,170 Other 2,121 (2,240) 2,622 ------------------------------ Cousins taxable income $51,747 $40,691 $34,939 ============================== The consolidated benefit for income taxes is composed of the following ($ in thousands): 1998 1997 1996 ------- ------- ------ CREC and its wholly owned subsidiaries: Currently payable: Federal $ 33 $ 46 $ -- ------------------------------ 33 46 -- ------------------------------ Adjustments arising from: Income from unconsolidated joint ventures 356 304 298 Operating loss carryforward 574 751 (1,133) Stock appreciation right expense (132) 119 (185) Other (1,347) (922) (776) ------------------------------ (549) 252 (1,796) ------------------------------ CREC (benefit) provision for income taxes (516) 298 (1,796) Cousins provision for state income taxes 379 72 680 Less provision applicable to gain on sale of investment properties (11) (1,897) (587) ------------------------------ Consolidated benefit applicable to income from operations $ (148) $(1,527) $ (1,703) ==============================
The net income tax provision (benefit) differs from the amount computed by applying the statutory federal income tax rate to CREC's income (loss) before taxes as follows ($ in thousands): 1998 1997 1996 --------------- ---------------- ---------------- Amount Rate Amount Rate Amount Rate ------ ---- ------- ---- ------- ---- Federal income tax (benefit) provision $(359) 34% $ 265 34% $(1,609) 34% State income tax (benefit) provision, net of federal income tax effect (42) 4 31 4 (189) 4 Other (115) 11 2 -- 2 -- ------------------------------------------------------ CREC (benefit) provision for income taxes (516) 49% 298 38% (1,796) 38% === === Cousins provision for state income taxes 379 72 680 Less provision applicable to gain on sale of investment properties (11) (1,897) (587) ------ ------- ------- Consolidated benefit applicable to income from operations $ (148) $(1,527) $(1,703) ====== ======= =======
The components of CREC's net deferred tax liability are as follows ($ in thousands): 1998 1997 ---- ---- Deferred tax assets $ 5,726 $ 4,735 Deferred tax liabilities (5,907) (5,452) ------------------ Net deferred tax liability $ (181) $ (717) ================== The tax effect of significant temporary differences representing CREC's deferred tax assets and liabilities are as follows ($ in thousands): 1998 1997 ---- ---- Operating loss carryforward $ 1,736 $ 2,277 Income from unconsolidated joint ventures (4,272) (3,916) Stock appreciation right expense 952 821 Residential lot sales, net 1,890 776 Interest capitalization (1,323) (1,228) Other 836 553 ------------------ $ (181) $ (717) ================== 8. PROPERTY TRANSACTIONS Office Division In January 1998, the Company purchased the land for, and commenced construction of, 333 John Carlyle, an approximately 150,000 rentable square foot office building in suburban Washington, D.C. In May 1998, the Company commenced construction of 555 North Point Center East, an approximately 148,000 rentable square foot office building in suburban Atlanta, Georgia. This office building is being built on land the Company already owned which is adjacent to the Company's three other office buildings, 100, 200 and 333 North Point Center East. In June 1998, the Company acquired Lakeshore Park Plaza, an approximately 193,000 rentable square foot office building and also purchased the land for, and commenced construction of, 600 University Park Place, an approximately 123,000 rentable square foot office building. Both of these office buildings are located in Birmingham, Alabama. Also in June 1998, 333 North Point Center East, an approximately 129,000 rentable square foot office building in suburban Atlanta, Georgia and 4200 Wildwood Parkway, a 260,000 rentable square foot office building in suburban Atlanta, Georgia owned by Wildwood Associates, became partially operational for financial reporting purposes. In July 1998, Gateway commenced construction on Gateway Village, an approximately 976,000 rentable square foot office building in Charlotte, North Carolina (see Note 5). In August 1998, Grandview II, an approximately 150,000 square foot office building in Birmingham, Alabama became partially operational for financial reporting purposes. In August 1998, the Company commenced construction on LA Cellular Headquarters, an approximately 217,000 rentable square foot office building in suburban Los Angeles, California. Retail Division In January 1998, Abbotts Bridge Station, an approximately 83,000 square foot neighborhood retail center in suburban Atlanta, Georgia became partially operational for financial reporting purposes. In February 1998, Brad Cous Golf Venture, Ltd., purchased the land for and commenced construction of The Shops at World Golf Village, an approximately 80,000 square foot retail center located adjacent to the PGA Hall of Fame in St. Augustine, Florida (see Note 5). Also in February 1998, the Company purchased The Shops at Palos Verdes, located in Rolling Hills Estates, California, in the greater Los Angeles metropolitan area. This 355,000 square foot center includes existing retail space and a parking deck. The Company plans to reposition and remerchandise the project into an approximately 385,000 square foot open-air, high-end specialty center, to be named The Avenue of the Peninsula. In April 1998, the Company purchased the land for, and commenced construction of, The Avenue East Cobb, an approximately 241,000 square foot retail center in suburban Atlanta, Georgia. In July 1998, Laguna Niguel Promenade, an approximately 154,000 square foot retail center in Laguna Niguel, California became partially operational for financial reporting purposes. Subsequent to year-end, on February 1, 1999, CREC sold Abbotts Bridge Station, an approximately 83,000 square foot neighborhood retail center in suburban Atlanta, Georgia for $15.7 million, which was approximately $5.0 million over the cost of the center. Including depreciation recapture of approximately $.3 million and net of an income tax provision of approximately $2.2 million, the net gain on the sale was approximately $3.1 million. Medical Office Division In June 1998, the Company acquired Northside/Alpharetta I, an approximately 100,000 rentable square foot medical office building in suburban Atlanta, Georgia. Construction also commenced in June 1998 on Northside/Alpharetta II, an approximately 198,000 rentable square foot medical office building. In July 1998, the Company commenced construction on AtheroGenics, an approximately 50,000 rentable square foot office and laboratory building, located in suburban Atlanta, Georgia, on land the Company already owned. Land Division The Company is currently developing six residential communities in suburban Atlanta, Georgia, including four in which development commenced in 1994, one in 1995 and one in 1996. These developments currently include land on which approximately 1,775 lots are being developed (with additional lots developable on adjacent land under option), of which 344, 260 and 227 lots were sold in 1998, 1997 and 1996, respectively. In November 1998, Temco Associates began development of the Bentwater residential community, which will consist of approximately 1,250 lots on approximately 838 acres (see Note 5). 9. CONSOLIDATED STATEMENTS OF CASH FLOWS - SUPPLEMENTAL INFORMATION Interest (net of amounts capitalized) (see Note 4) and income taxes paid (net of refunds) were as follows ($ in thousands): 1998 1997 1996 ------- ------- ------ Interest paid $11,258 $14,118 $5,753 Income taxes paid, net of $5 and $511 refunded in 1998 and 1996, respectively $ 110 $ 46 $ 54 Significant non-cash financing and investing activities included the following: a. In 1998, 1997 and 1996, approximately $29,939,000, $87,658,000 and $78,169,000, respectively, were transferred from Projects Under Construction to Operating Properties. b. In 1998, 1997 and 1996, approximately $1,229,000, $1,553,000 and $3,246,000, respectively, were transferred from Land Held for Investment or Future Development to Operating Properties. In 1998 approximately $14,115,000 was transferred from Land Held for Investment or Future Development to Projects Under Construction. c. In January 1997, approximately $17,005,000 was transferred from Notes and Other Receivables to Operating Properties. d. In June 1998, in conjunction with the acquisition of Northside/Alpharetta I, a mortgage note payable of approximately $10,610,000 was assumed (see Note 4). In December 1996, in conjunction with the acquisition of 101 Independence Center, a mortgage note payable of approximately $30,879,000 was assumed. e. In January 1996, in conjunction with the exchange of certain partnership interests, approximately $3,825,000 was transferred from Minority Interests in Consolidated Entities to Operating Properties ($3,283,000) and Projects Under Construction ($542,000); and approximately $1,688,000 was transferred from Investment in Unconsolidated Joint Ventures to Operating Properties. f. In November 1998, in conjunction with the formation of the Venture with Prudential (see Note 5), the Company contributed nine properties, certain of which were subject to mortgages, and received net cash in the amount of approximately $103,025,000. The non-cash activities related to the formation of the Venture are as follows: Decrease in: Operating properties, net $137,746,000 Projects under construction 19,684,000 Notes and other receivables 3,771,000 Notes payable (53,281,000) Increase in: Investment in unconsolidated joint ventures (137,544,000) Deposits and deferred income 132,649,000 ------------ Net cash received in formation of venture $103,025,000 ============ 10. RENTAL PROPERTY REVENUES The Company's leases typically contain escalation provisions and provisions requiring tenants to pay a pro rata share of operating expenses. The leases typically include renewal options and are classified and accounted for as operating leases. At December 31, 1998, future minimum rentals to be received by consolidated entities under existing non-cancelable leases, excluding tenants' current pro rata share of operating expenses, are as follows ($ in thousands): Office and Medical Retail Office Total -------- -------- -------- 1999 $ 15,694 $ 27,673 $ 43,367 2000 17,868 42,591 60,459 2001 17,697 40,312 58,009 2002 16,961 39,706 56,667 2003 16,850 38,849 55,699 Subsequent to 2003 152,585 248,447 401,032 --------------------------------- $237,655 $437,578 $675,233 =================================
11. REPORTABLE SEGMENTS The Company has four reportable segments: Office Division, Retail Division, Medical Office Division and Land Division. The Office Division, Retail Division and Medical Office Division develop, lease and manage office buildings, retail centers and medical office buildings, respectively. The Land Division owns various tracts of strategically located land which are being held for future development. The Land Division also develops single-family residential communities which are parceled into lots and sold to various home builders. The accounting policies of the segments are the same as those described in Significant Accounting Policies (see Note 1). The management of the Company evaluates performance of its reportable segments based on Funds From Operations. The Company's reportable segments are broken down based on what type of product the division provides. The divisions are managed separately because each product they provide has separate and distinct development issues, leasing and/or sales strategies and management issues. The notations (100%) and (JV) used in the following tables indicate wholly-owned and unconsolidated joint ventures, respectively, and all amounts are in thousands. Office Retail Medical Land Unallocated 1998 Division Division Office Division Division and Other Total - ---- -------- -------- --------------- -------- ----------- -------- Rental property revenues (100%) $ 33,011 $ 31,315 $ 2,579 $ -- $ 473 $ 67,378 Rental property revenues (JV) 49,129 10,168 149 -- -- 59,446 Development income, management fees and leasing and other fees 7,867 692 1,019 -- -- 9,578 Other income (100%) -- -- -- 16,732 4,275 21,007 Other income (JV) -- -- -- 181 294 475 ------------------------------------------------------------------------ Total revenues 90,007 42,175 3,747 16,913 5,042 157,884 ------------------------------------------------------------------------ Rental property operating expenses (100%) 10,319 6,308 913 -- 162 17,702 Rental property operating expenses (JV) 14,111 2,933 52 -- -- 17,096 Other expenses (100%) -- -- -- 16,414 26,602 43,016 Other expenses (JV) -- -- -- 80 9,138 9,218 ------------------------------------------------------------------------ Total expenses 24,430 9,241 965 16,494 35,902 87,032 ------------------------------------------------------------------------ Consolidated funds from operations 65,577 32,934 2,782 419 (30,860) 70,852 ------------------------------------------------------------------------ Depreciation and amortization (100%) (8,040) (5,742) (457) -- (430) (14,669) Depreciation and amortization (JV) (12,000) (1,670) (47) -- -- (13,717) Effect of the recognition of rental revenues on a straight-line basis (100%) 348 -- -- -- -- 348 Effect of the recognition of rental revenues on a straight-line basis (JV) (1,578) 111 -- -- -- (1,467) Adjustment to reflect stock appreciation right expense on a cash basis -- -- -- -- 8 8 Gain on sale of investment properties, net of applicable income tax provision -- -- -- -- 3,944 3,944 ------------------------------------------------------------------------ Net income 44,307 25,633 2,278 419 (27,338) 45,299 Benefit for income taxes from operations -- -- -- -- (148) (148) ------------------------------------------------------------------------ Income from operations before taxes $ 44,307 $ 25,633 $ 2,278 $ 419 $(27,486) $ 45,151 ======================================================================== Total assets $386,414 $255,207 $49,437 $ 9,912 $ 51,888 $752,858 ======================================================================== Investment in unconsolidated joint ventures $158,720 $ 99,661 $ 5,183 $ 1,082 $ 2 $264,648 ======================================================================== Capital expenditures $104,266 $ 55,161 $25,811 $ 9,017 $ -- $194,255 ========================================================================
Reconciliation to Consolidated Revenues 1998 1997 1996 ------- ------- ------- Rental property revenues (100%) $67,378 $61,812 $33,108 Effect of the recognition of rental revenues on a straight-line basis (100%) 348 440 4 Development income, management fees and leasing and other fees 9,578 7,291 6,019 Residential lot and outparcel sales 16,732 12,847 14,145 Interest and other 4,275 3,609 5,256 ----------------------------- Total consolidated revenues $98,311 $85,999 $58,532 =============================
Office Retail Medical Land Unallocated 1997 Division Division Office Division Division and Other Total - ---- -------- -------- --------------- -------- ----------- -------- Rental property revenues (100%) $ 30,353 $ 30,514 $ 476 $ -- $ 469 $ 61,812 Rental property revenues (JV) 44,318 6,892 -- -- -- 51,210 Development income, management fees and leasing and other fees 5,081 1,310 887 -- 13 7,291 Other income (100%) -- -- -- 12,847 3,609 16,456 Other income (JV) -- -- -- 52 217 269 ------------------------------------------------------------------------ Total revenues 79,752 38,716 1,363 12,899 4,308 137,038 ------------------------------------------------------------------------ Rental property operating expenses (100%) 9,286 5,766 145 -- 174 15,371 Rental property operating expenses (JV) 12,143 2,103 -- -- -- 14,246 Other expenses (100%) -- -- -- 12,523 29,352 41,875 Other expenses (JV) -- -- -- 41 9,959 10,000 ------------------------------------------------------------------------ Total expenses 21,429 7,869 145 12,564 39,485 81,492 ------------------------------------------------------------------------ Consolidated funds from operations 58,323 30,847 1,218 335 (35,177) 55,546 ------------------------------------------------------------------------ Depreciation and amortization (100%) (7,465) (5,456) (104) -- (586) (13,611) Depreciation and amortization (JV) (9,168) (1,159) -- -- (7) (10,334) Effect of the recognition of rental revenues on a straight-line basis (100%) 440 -- -- -- -- 440 Effect of the recognition of rental revenues on a straight-line basis (JV) (1,438) -- -- -- -- (1,438) Adjustment to reflect stock appreciation right expense on a cash basis -- -- -- -- 702 702 Gain on sale of investment properties, net of applicable income tax provision -- -- -- -- 5,972 5,972 ------------------------------------------------------------------------ Net income 40,692 24,232 1,114 335 (29,096) 37,277 ------------------------------------------------------------------------ Benefit for income taxes from operations -- -- -- -- (1,527) (1,527) ------------------------------------------------------------------------ Income from operations before taxes $ 40,692 $ 24,232 $ 1,114 $ 335 $(30,623) $ 35,750 ======================================================================== Total assets $294,306 $212,876 $13,143 $16,407 $ 81,007 $617,739 ======================================================================== Investment in unconsolidated joint ventures $ 98,425 $ 20,784 $ -- $ 985 $ 4 $120,198 ======================================================================== Capital expenditures $ 34,395 $ 29,635 $ 7,516 $ 9,068 $ 14 $ 80,628 ======================================================================== Office Retail Medical Land Unallocated 1996 Division Division Office Division Division and Other Total - ---- -------- -------- --------------- -------- ----------- -------- Rental property revenues (100%) $ 11,435 $ 21,007 $ -- $ -- $ 666 $ 33,108 Rental property revenues (JV) 41,442 6,740 -- -- -- 48,182 Development income, management fees and leasing and other fees 5,160 451 404 -- 4 6,019 Other income (100%) -- -- -- 14,145 5,256 19,401 Other income (JV) -- -- -- 897 452 1,349 ------------------------------------------------------------------------ Total revenues 58,037 28,198 404 15,042 6,378 108,059 ------------------------------------------------------------------------ Rental property operating expenses (100%) 3,411 4,017 -- -- 188 7,616 Rental property operating expenses (JV) 12,308 2,118 -- 192 -- 14,618 Other expenses (100%) -- 68 -- 14,977 18,516 33,561 Other expenses (JV) -- -- -- -- 8,036 8,036 ------------------------------------------------------------------------ Total expenses 15,719 6,203 -- 15,169 26,740 63,831 ------------------------------------------------------------------------ Consolidated funds from operations 42,318 21,995 404 (127) (20,362) 44,228 ------------------------------------------------------------------------ Depreciation and amortization (100%) (2,807) (3,637) -- -- (470) (6,914) Depreciation and amortization (JV) (8,854) (1,086) -- (5) (35) (9,980) Effect of the recognition of rental revenues on a straight-line basis (100%) 4 -- -- -- -- 4 Effect of the recognition of rental revenues on a straight-line basis (JV) 307 -- -- -- -- 307 Adjustment to reflect stock appreciation right expense on a cash basis -- -- -- -- 567 567 Gain on sale of investment properties, net of applicable income tax provision -- -- -- -- 12,804 12,804 ------------------------------------------------------------------------ Net income 30,968 17,272 404 (132) (7,496) 41,016 ------------------------------------------------------------------------ Benefit for income taxes from operations -- -- -- -- (1,703) (1,703) ------------------------------------------------------------------------ Income from operations before taxes $ 30,968 $ 17,272 $ 404 $ (132) $ (9,199) $ 39,313 ======================================================================== Total assets $258,699 $208,793 $ 4,656 $17,361 $ 67,135 $556,644 ======================================================================== Investment in unconsolidated joint ventures $108,305 $ 20,880 $ -- $ 974 $ 2,103 $132,262 ======================================================================== Capital expenditures $ 66,354 $ 76,737 $ 4,281 $13,656 $ 1,126 $162,154 ========================================================================
Cousins Properties Incorporated and Consolidated Entities - --------------------------------------------------------------------------------------------------------------------- FIVE YEAR SUMMARY OF SELECTED FINANCIAL DATA ($ in thousands, except per share amounts) 1998 1997 1996 1995 1994 -------- -------- -------- -------- -------- Rental property revenues $ 67,726 $ 62,252 $ 33,112 $ 19,348 $ 13,150 Fees 9,578 7,291 6,019 7,884 5,023 Residential lot and outparcel sales 16,732 12,847 14,145 9,040 6,132 Interest and other 4,275 3,609 5,256 4,764 6,801 --------------------------------------------------------------------- Total revenues 98,311 85,999 58,532 41,036 31,106 --------------------------------------------------------------------- Income from unconsolidated joint ventures 18,423 15,461 17,204 14,113 12,580 --------------------------------------------------------------------- Rental property operating expenses 17,702 15,371 7,616 4,681 3,338 Depreciation and amortization 15,173 14,046 7,219 4,516 3,742 Stock appreciation right expense 330 204 2,154 1,298 433 Residential lot and outparcel cost of sales 15,514 11,917 13,676 8,407 5,762 Interest expense 11,558 14,126 6,546 687 411 General, administrative, and other expenses 15,250 16,018 12,016 10,333 9,627 --------------------------------------------------------------------- Total expenses 75,527 71,682 49,227 29,922 23,313 (Benefit) provision for income taxes from operations (148) (1,527) (1,703) 747 (166) Gain on sale of investment properties, net of applicable income tax provision 3,944 5,972 12,804 1,862 6,356 --------------------------------------------------------------------- Net income $ 45,299 $ 37,277 $ 41,016 $ 26,342 $ 26,895 ===================================================================== Basic net income per share $ 1.43 $ 1.27 $ 1.44 $ .94 $ .97 ===================================================================== Diluted net income per share $ 1.41 $ 1.26 $ 1.43 $ .94 $ .96 ===================================================================== Cash dividends declared per share $ 1.49 $ 1.29 $ 1.12 $ .99 $ .90 ===================================================================== Total assets $752,858 $617,739 $556,644 $418,006 $330,817 Notes payable 198,858 226,348 231,831 113,434 41,799 Stockholders' investment 379,865 370,674 299,184 277,678 272,898 Shares outstanding at year-end 31,887 31,472 28,920 28,223 27,864
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS - -------------------------------------------------------------------------------- To Cousins Properties Incorporated: We have audited the accompanying consolidated balance sheets of Cousins Properties Incorporated (a Georgia corporation) and consolidated entities as of December 31, 1998 and 1997, and the related consolidated statements of income, stockholders' investment and cash flows for each of the three years in the period ended December 31, 1998. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We did not audit the financial statements of CSC Associates, L.P. and Haywood Mall which statements combined reflect assets of 23% and 38% of the joint ventures totals as of December 31, 1998 and 1997 and revenues of 46%, 50% and 48% of the 1998, 1997 and 1996 joint ventures totals, respectively. Those statements were audited by other auditors whose reports have been furnished to us and our opinion, insofar as it relates to the amounts included for those entities as of December 31, 1998 and 1997 and for each of the three years in the period ended December 31, 1998, is based solely on the reports of the other auditors. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits and the reports of other auditors provide a reasonable basis for our opinion. In our opinion, based on our audits and the reports of other auditors, the financial statements referred to above present fairly, in all material respects, the financial position of Cousins Properties Incorporated and consolidated entities as of December 31, 1998 and 1997 and the results of their operations and their cash flows for each of the three years in the period ended December 31, 1998 in conformity with generally accepted accounting principles. ARTHUR ANDERSEN LLP Atlanta, Georgia February 11, 1999 Cousins Properties Incorporated and Consolidated Entities MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Results of Operations For The Three Years Ended December 31, 1998 - -------------------------------------------------------------------------------- General. Historically, the Company's financial results have been significantly affected by sale transactions and the fees generated by, and start-up operations of, major real estate developments, which transactions and developments do not necessarily recur. Accordingly, the Company's historical financial statements may not be indicative of future operating results. The notes referenced in the discussion below are the "Notes to Consolidated Financial Statements" included in this annual report. Rental Property Revenues and Operating Expenses. Rental property revenues increased from $33,112,000 in 1996 to $62,252,000 and $67,726,000 in 1997 and 1998, respectively. Rental property revenues from the Company's office division increased approximately $2,566,000 in 1998 due primarily to the acquisition of one office building and the addition of two new office buildings which became partially operational for financial reporting purposes during 1998. The June 1998 acquisition of Lakeshore Park Plaza increased rental property revenues approximately $1,354,000. Two office buildings, 333 North Point Center East and Grandview II, became partially operational for financial reporting purposes in June 1998 and August 1998, respectively, which contributed $1,499,000 and $499,000, respectively, to the increase. The increase from Grandview II would have been higher by $296,000 but this property was contributed to CP Venture Two LLC in November 1998, which revenue is recorded as Income from Unconsolidated Joint Ventures from the date of contribution (see Note 5). Additionally, rental property revenues decreased $935,000, $266,000 and $97,000 in 1998 from the contribution of three other office properties, First Union Tower, 100 North Point Center East and 200 North Point Center East, respectively, to CP Venture Two LLC in November 1998, which revenue is also recorded as Income from Unconsolidated Joint Ventures from the date of contribution (see Note 5). Rental property revenues also increased by $242,000 due to increased occupancy during the year at 101 Independence Center, which was 94% leased at December 31, 1997 and 98% leased at December 31, 1998. Rental property revenues from the Company's retail division increased approximately $801,000 in 1998. Two retail centers, Abbotts Bridge Station and Laguna Niguel Promenade, which became partially operational for financial reporting purposes in January 1998 and July 1998, respectively, increased rental property revenues in 1998 approximately $1,462,000 and $788,000, respectively. Rental property revenues increased approximately $362,000 from Presidential MarketCenter in 1998 due to the second expansion of the center in April 1997. The increase in rental property revenues from the retail division was partially offset (a decrease of $990,000) by the contribution of four retail properties to CP Venture Two LLC in November 1998, which revenue is recorded as Income from Unconsolidated Joint Ventures from the date of contribution (see Note 5). The increase in rental property revenues was also partially offset by decreases in rental property revenues of approximately $644,000 and $449,000 from Rivermont Station and Lovejoy Station, respectively, both of which were sold in July 1997. Rental property revenues from the Company's medical office division increased approximately $2,103,000 in 1998 due to the June 1998 acquisition of Northside/Alpharetta I ($1,438,000) and to Presbyterian Medical Plaza at University ($665,000), which became partially operational in August 1997. The increase from Presbyterian Medical Plaza at University would have been higher by $178,000 but the property was contributed to CP Venture Two LLC in November 1998, which revenue is recorded as Income from Unconsolidated Joint Ventures from the date of contribution (see Note 5). Rental property revenues from the Company's office division increased approximately $19,354,000 in 1997 due primarily to the acquisition of two office buildings in 1996 and the addition of two new office buildings which became operational for financial reporting purposes during 1996. Rental property revenues from 101 Independence Center and 615 Peachtree Street, two office buildings which were acquired in December 1996 and August 1996, respectively, contributed to the increase in 1997 by $10,844,000 and $1,578,000, respectively. Two office buildings, 100 and 200 North Point Center East, which became operational for financial reporting purposes in April 1996 and November 1996, respectively, increased rental property revenues in 1997 approximately $1,186,000 and $2,354,000, respectively. The Wildwood Training Facility also favorably impacted the rental property revenues recognized from the Company's office division by approximately $3,319,000 in 1997. Effective January 1, 1997, the Wildwood Training Facility is being accounted for as a property owned by the Company. Rental property revenues from the Company's retail division increased approximately $9,507,000 in 1997. The increase was due primarily to new retail centers or expansions of existing retail centers which became operational for financial reporting purposes during 1996 as follows (1997 increase): Colonial Plaza MarketCenter in March 1996 ($3,041,000), Greenbrier MarketCenter in October 1996 ($4,059,000), Los Altos MarketCenter in November 1996 ($2,746,000), the first expansion of Presidential MarketCenter in June 1996 ($956,000), the expansion of North Point MarketCenter in December 1996 ($524,000) and Mansell Crossing Phase II in March 1996 ($619,000). (The Company does not own Mansell Crossing Phase I.) Rivermont Station, which became operational for financial reporting purposes in February 1997 but was subsequently sold on July 1, 1997, increased rental property revenues approximately $644,000. The tax-deferred exchange of Lawrenceville MarketCenter in November 1996 partially offset the foregoing increases in rental property revenues by $3,027,000 in 1997. Also the sale of Lovejoy Station on July 1, 1997 negatively impacted rental property revenues by approximately $297,000. Presbyterian Medical Plaza at University contributed approximately $476,000 to the increase in rental property revenues in 1997. Rental property operating expenses increased from $7,616,000 in 1996 to $15,371,000 and $17,702,000 in 1997 and 1998, respectively. The increase in 1998 was primarily related to the aforementioned retail centers and office buildings becoming operational, as well as the acquisitions of Lakeshore Park Plaza and Northside/Alpharetta I. The increase in 1998 was partially offset by the contribution of nine properties to CP Venture Two LLC in November 1998, which rental property operating expenses from these nine properties would be recognized by the Company through Income from Unconsolidated Joint Ventures from the date of contribution (see Note 5). The increase in rental property operating expenses in 1997 was primarily due to the occupancy of the retail centers, the 100 and 200 North Point Center East office buildings and Presbyterian Medical Plaza at University becoming operational, as well as the acquisition of the 615 Peachtree Street and 101 Independence Center office buildings. Development Income. Development income increased from $1,660,000 in 1996 to $3,123,000 in 1997 and then decreased in 1998 to $3,007,000. Development income recognized by the Company's retail division from third party retail developments increased approximately $1,324,000 in 1997. Development income was also favorably impacted in 1997 by $622,000 from the fee development of Total Systems' corporate headquarters in Columbus, Georgia. Partially offsetting the foregoing increases in development income in 1997 was a decrease in development income received from the Dusseldorf project of approximately $542,000 (see Note 5). Management Fees. Management fees increased from $2,801,000 in 1996 to $3,448,000 and $3,761,000 in 1997 and 1998, respectively. Management fees increased in both 1997 and 1998 due to lease-up of certain properties and formation of certain ventures from which management fees are received (see Note 5). The increase in 1997 was also due to the acquisition of the management contracts of The Lea Richmond Company in July 1996 (increase of approximately $491,000). Leasing and Other Fees. Leasing and other fees decreased from $1,558,000 in 1996 to $720,000 in 1997 and then increased to $2,810,000 in 1998. The increase in 1998 is partially due to an increase of approximately $1,065,000 of leasing fees related to Wildwood Office Park, primarily due to the lease-up of the 4200 Wildwood Parkway Building. Leasing fees from Cousins LORET increased $560,000 in 1998, primarily due to the lease-up of The Pinnacle, which was under development and in the early stages of lease-up in 1998. Leasing fees from CSC Associates increased approximately $367,000 primarily due to increased occupancy at NationsBank Plaza. The decrease in leasing and other fees in 1997 was due in part to a decrease of approximately $843,000 from leasing fees related to Wildwood Office Park, primarily related to fees received from the leasing of the 4100 and 4300 Wildwood Parkway Buildings. Leasing and other fees recognized by the Company's retail division from third party developments also decreased approximately $305,000 in 1997. The decrease in 1997 was partially offset by the recognition of approximately $411,000 of leasing fees from Cousins LORET, which was a newly formed venture in 1997 (see Note 5). Residential Lot and Outparcel Sales and Cost of Sales. Residential lot and outparcel sales decreased from $14,145,000 in 1996 to $12,847,000 in 1997 and then increased to $16,732,000 in 1998. Residential lot sales increased in 1998 to $15,932,000 from $10,228,000 in 1997 due to an increase in the number of residential lots sold to 344 lots in 1998 from 260 lots in 1997. The increase was partially offset by a decrease in outparcel sales by CREC and one of its subsidiaries to $800,000 in 1998 from $2,619,000 in 1997, resulting from the sale of two outparcels in 1998 and five outparcels in 1997. The decrease in residential lot and outparcel sales in 1997 is due primarily to a decrease in outparcel sales by CREC and one of its subsidiaries to $2,619,000 in 1997 from $3,951,000 in 1996 resulting from the sale of five outparcels in 1997 and eight outparcels in 1996. The decrease was partially offset by an increase in residential lot sales to $10,228,000 in 1997 from $10,194,000 in 1996. The number of residential lots sold increased to 260 lots in 1997 from 227 lots in 1996. Residential lot and outparcel cost of sales decreased from $13,676,000 in 1996 to $11,917,000 in 1997 and then increased to $15,514,000 in 1998. The decrease in 1997 and the increase in 1998 were due to the aforementioned decreases and increases in the number of residential lot and outparcel sales. The increase in 1998 was also due to a $500,000 writedown of one of the residential developments due to a change in lot sales price assumptions. Interest and Other Income. Interest and other income decreased from $5,256,000 in 1996 to $3,609,000 in 1997 and increased to $4,275,000 in 1998. The increase in 1998 is due to interest income of approximately $714,000 recognized from a note receivable from Cousins LORET. The Company lent funds beginning in June 1998 to Cousins LORET at a slightly higher rate than its borrowing costs, until December 1998 when Cousins LORET drew down funds from its $70 million financing of The Pinnacle. The decrease in interest and other income in 1997 was due primarily to the reclassification of the Wildwood Training Facility Mortgage Note Receivable to Operating Properties, which caused a decrease of approximately $1,591,000 in interest income. Also contributing to the decrease in 1997 was a decrease of approximately $351,000 in interest income recognized from temporary investments. Partially offsetting the aforementioned decreases was an increase in interest income of approximately $369,000 recognized from the Daniel Realty Company Note Receivable (see Note 3). Income From Unconsolidated Joint Ventures. (All amounts reflect the Company's share of joint venture income.) Income from unconsolidated joint ventures decreased from $17,204,000 in 1996 to $15,461,000 in 1997 and then increased to $18,423,000 in 1998. Income from CSC Associates, L.P. increased from $7,978,000 in 1996 to $9,284,000 and $10,021,000 in 1997 and 1998, respectively. The increases in both 1997 and 1998 were due to the continued lease-up of NationsBank Plaza. The increase in 1998 was also due to the increase in rental income from a tenant whose increase in rental rate did not require straight-lining under Statement of Financial Accounting Standards No. 13. Also favorably impacting 1997 results was a decrease in depreciation and amortization in 1997 of approximately $217,000 due to certain deferred leasing and marketing costs and furniture and equipment becoming fully amortized during 1997. Income from Wildwood Associates decreased from $4,245,000 in 1996 to $1,903,000 in 1997 and then increased to $1,968,000 in 1998. Income before depreciation, amortization and interest expense from the 2300 and 2500 Windy Ridge Parkway Buildings favorably impacted results in 1998 by $215,000 and $184,000, respectively, due to increased average economic occupancy of both properties in 1998. Income before depreciation, amortization and interest expense from the 4200 Wildwood Parkway Building increased $581,000 due to the building becoming partially operational in June 1998. Also favorably impacting 1998 results was the October 1998 condemnation gain of $110,000 related to the proceeds received due to certain of Wildwood Associates' land being condemned for the widening of a road. Results in 1998 were negatively impacted by an increase in interest expense of approximately $1,121,000. The increase was primarily due to the June 1998 financing of the 4200 Wildwood Parkway Building with a $44 million non-recourse mortgage note payable at an interest rate of 6.78% and a term of fifteen and three-quarters years. This financing increased interest expense approximately $756,000 in 1998. Interest expense on the 4100 and 4300 Wildwood Parkway Buildings increased approximately $230,000 as the financing of these buildings was completed in March 1997. Interest capitalized decreased approximately $258,000 due to interest no longer being capitalized to the 4200 Wildwood Parkway Building effective October 1998. Results in 1997 were negatively impacted by an increase in interest expense of approximately $1,630,000. This increase was primarily due to the financing of the 3200 Windy Hill Road Building which contributed approximately $2,773,000 to the increase in interest expense in 1997. On December 16, 1996, Wildwood Associates completed the financing of this building with a $70 million non-recourse mortgage note payable at an 8.23% interest rate and a term of ten years. Concurrent with the financing, Wildwood Associates paid down its line of credit to $0 which partially offset the increase in interest expense by approximately $846,000. Interest expense also increased due to the financing of the 4100 and 4300 Wildwood Parkway Buildings which increased interest expense $901,000. On March 20, 1997, Wildwood Associates completed the financing of these two buildings with a $30 million non-recourse mortgage note payable at a 7.65% interest rate and a term of fifteen years. Partially offsetting the increase in interest expense in 1997 was a decrease of approximately $475,000 in interest expense related to the Summit Green Building. Effective December 1, 1996, Wildwood Associates disposed of its interest in this building in exchange for cancellation of the related mortgage debt. In addition, an increase in interest capitalization also partially offset the increase in interest expense by $473,000. Income before depreciation, amortization and interest expense from the 4100 and 4300 Wildwood Parkway Buildings favorably impacted results in 1997 by approximately $840,000. The 4100 and 4300 Wildwood Parkway Buildings became partially operational for financial reporting purposes in March 1996. Lease-up of the 2300 and 2500 Windy Ridge Parkway Buildings also increased income before depreciation, amortization and interest expense by $152,000 and $319,000, respectively. Income before depreciation, amortization and interest expense from the 3200 Windy Hill Road Building decreased approximately $1,222,000 due primarily to the effect of the straight-lining of rental revenues in accordance with Statement of Financial Accounting Standards No. 13, which decreased rental revenues by approximately $1,386,000. The disposition of the Summit Green Building, as discussed above, decreased income before depreciation, amortization and interest expense by approximately $896,000. Income from Haywood Mall increased from $3,538,000 in 1996 to $3,648,000 and $4,614,000 in 1997 and 1998, respectively. The increases in both 1998 and 1997 were due to the lease-up of the expansion of Haywood Mall. Income from Cousins LORET increased from $68,000 in 1997 to $672,000 in 1998. Cousins LORET was formed on July 31, 1997 between the Company and LORET Holdings, L.L.L.P. (see Note 5). The increases in both 1998 and 1997 were due to the Two Live Oak office building, which became partially operational in October 1997. Income from CP Venture LLC and CP Venture Two LLC was $284,000 in 1998. These two ventures were formed on November 12, 1998 between the Company and Prudential (see Note 5). The Company contributed nine of its operating properties to CP Venture Two LLC. From the date of formation of these two ventures forward, the Company's share of income from these nine properties is recorded as Income from Unconsolidated Joint Ventures. Income from Temco Associates decreased from $700,000 in 1996 to $11,000 in 1997 and increased to $97,000 in 1998. During 1998, approximately 83 acres of the option related to the fee simple interest was exercised and simultaneously sold. CREC's share of the gain on these sales was approximately $96,000. During 1996, Temco Associates exercised portions of the option related to the fee simple interest to purchase 375 acres of land which it simultaneously sold. CREC's share of the gain on these sales was approximately $713,000. There was no similar sale in 1997. Income from Hickory Hollow Associates decreased from $11,000 in 1996 to a loss of $8,000 in 1997 and then increased to income of $185,000 in 1998. The increase in 1998 was due to an outparcel sale, from which CREC's share of the gain was approximately $192,000. There were no outparcel sales in 1996 or 1997. General and Administrative Expenses. General and administrative expenses increased from $9,148,000 in 1996 to $12,717,000 and $13,087,000 in 1997 and 1998, respectively. General and administrative expenses of the Company increased approximately $2,000,000 in 1998 due to the Company's expansion. The increase was partially offset by an increase in costs capitalized to projects under construction of approximately $1,700,000, as the number of projects under construction increased in 1998. The increase in 1997 was primarily related to the Company's expansion and the acquisition of The Lea Richmond Company and The Richmond Development Company in July 1996. The increase in 1997 was also due to approximately $397,000 of additional expense being accrued in 1997 for higher than anticipated estimates of runoff and other expenses associated with the termination of the Company's partially self-insured medical plan in December 1996. Depreciation and Amortization. Depreciation and amortization increased from $7,219,000 in 1996 to $14,046,000 and $15,173,000 in 1997 and 1998, respectively. The increase in 1998 was mainly due to the aforementioned retail centers and office buildings becoming operational and the acquisition of Lakeshore Park Plaza and Northside/Alpharetta I. The increase was partially offset by decreases in depreciation and amortization due to the contribution of nine properties in November 1998 to CP Venture Two LLC, an unconsolidated joint venture (see Note 5). The 1997 increase was due primarily to the aforementioned retail centers becoming operational, the 100 and 200 North Point Center East office buildings becoming operational and the acquisitions of the 101 Independence Center and 615 Peachtree Street office buildings. Additionally, both the reclassification of the Wildwood Training Facility Mortgage Note Receivable to Operating Properties, as well as Presbyterian Medical Plaza at University becoming partially operational in August 1997, increased depreciation and amortization in 1997. Stock Appreciation Right Expense. Stock appreciation right expense decreased from $2,154,000 in 1996 to $204,000 in 1997 and increased to $330,000 in 1998. This non-cash item is primarily related to the number of stock appreciation rights outstanding and the Company's stock price. A reduction in the number of stock appreciation rights outstanding due to exercises which occurred since the first quarter of 1996 contributed to the decrease in the stock appreciation right expense in 1997. The Company's stock price was $32.25, $29.3125 and $28.125 per share at December 31, 1998, 1997 and 1996, respectively. Interest Expense. Interest expense increased from $6,546,000 in 1996 to $14,126,000 in 1997 and then decreased to $11,558,000 in 1998. Interest expense before capitalization increased from $12,194,000 in 1996 to $17,293,000 and $19,028,000 in 1997 and 1998, respectively, due to higher debt levels. Specifically, the Company assumed the mortgage note payable of Northside/Alpharetta I when it acquired the property in June 1998 and in October 1998, the Company completed the financing of Lakeshore Park Plaza (see Note 4). The amount of interest capitalization (a reduction of interest expense), which changes parallel to the amount of projects under development, decreased from $5,648,000 in 1996 to $3,167,000 in 1997, which contributed to the increase in interest expense in 1997. Interest capitalized in 1998 increased to $7,470,000 which more than offset the increase in interest expense and resulted in a net decrease in interest expense in 1998. Property Taxes on Undeveloped Land. Property taxes on undeveloped land decreased from $1,301,000 in 1996 to $606,000 in 1997 and increased to $900,000 in 1998. The increase in 1998 and the decrease in 1997 were primarily due to favorable settlements of property taxes in 1997 on the Company's land related to 1994, 1995 and 1996 tax years, which had been under appeal. Other Expenses. Other expenses increased from $1,567,000 in 1996 to $2,695,000 in 1997 and decreased to $1,263,000 in 1998. The increase in 1997 and decrease in 1998 were due to an increase and decrease, respectively, in predevelopment expense. Benefit for Income Taxes From Operations. The benefit for income taxes from operations decreased from a benefit of $1,703,000 in 1996 to a benefit of $1,527,000 in 1997, which benefit further decreased to $148,000 in 1998. The decrease in the benefit for income taxes from operations in 1998 was due to a decrease of $3,148,000 in CREC and its subsidiaries' loss before income taxes and gain on sale of investment properties, which decrease was due to the aforementioned increase in leasing fees and residential lot sales and the decrease in predevelopment expense. The decrease in the benefit for income taxes from operations in 1997 was due to a decrease of $463,000 in CREC and its subsidiaries' loss before income taxes and gain on sale of investment properties, which decrease was due to the aforementioned increase in development income recognized by CREC and its subsidiaries. Partially offsetting the increase in development income was an increase in predevelopment expenses and a decrease in intercompany development and leasing fees recognized in 1997. Certain development and leasing fees recorded on CREC and its subsidiaries' books are intercompany fee income which is eliminated in consolidation, but the tax effect is not. Gain on Sale of Investment Properties. Gain on sale of investment properties, net of applicable income tax provision was $12,804,000, $5,972,000 and $3,944,000 in 1996, 1997 and 1998, respectively. The 1998 gain included the March 1998 sale of 6 acres of North Point land ($.6 million), the April 1998 sale of 23 acres of North Point land ($1.0 million), the October 1998 condemnation of land at Wildwood Office Park ($1.5 million), the December 1998 sale of 4.9 acres of McMurray land ($.2 million) and the amortization of the net deferred gain from the Prudential transaction ($.5 million) (see Note 5). The 1997 gain included the January 1997 sale of 28 acres of North Point land ($2.4 million), the July 1997 sale of Lovejoy Station and Rivermont Station ($3.0 million), and the December 1997 sale of 30 acres of land adjacent to Lawrenceville MarketCenter (a retail center formerly owned by the Company) ($.6 million). Liquidity and Capital Resources: Financial Condition. The Company's debt (including its pro rata share of unconsolidated joint venture debt) was 29% of total market capitalization at December 31, 1998. As discussed in Note 4, the Company amended and extended the maturity date of its line of credit to June 29, 1999 and increased the amount available to $150 million. Also as discussed in Note 4, the Company and certain of its unconsolidated joint ventures completed three new financings in 1998: the $44 million non-recourse financing of the 4200 Wildwood Parkway Building, the $70 million non-recourse financing of The Pinnacle and the $10.9 million non-recourse financing of Lakeshore Park Plaza. The Company also assumed a $10.6 million non-recourse mortgage note payable when it acquired Northside/Alpharetta I in June 1998. As discussed in Note 5, the Company entered into a venture with Prudential where the Company contributed nine properties and Prudential is obligated to contribute $230.5 million of cash, of which it had contributed $105 million as of December 31, 1998. As a result of these transactions, the Company had only $11.1 million drawn on its $150 million line of credit as of December 31, 1998. The Company has development and acquisition projects in various planning stages. The Company currently intends to finance these projects and projects currently under construction discussed in Note 8, by using the aforementioned $125.5 million of additional cash Prudential is obligated to contribute, its existing lines of credit (increasing those lines of credit as required), and long-term non-recourse financing on the Company's unleveraged projects and other financings as market conditions warrant. In September 1996, the Company filed a shelf registration statement with the Securities and Exchange Commission ("SEC") for the offering from time to time of up to $200 million of common stock, warrants to purchase common stock and debt securities, of which approximately $132 million remains available at December 31, 1998. The executive branch of the U.S. Government has proposed certain changes to the Internal Revenue Code which in their current form may affect the ability of taxable REIT subsidiaries to deduct interest paid to or guaranteed by the REIT. Also, the proposed legislation would change the REIT 10% asset test. At this time, it is uncertain whether the proposed legislation will be passed by Congress, and if passed, what its final form and impact will be on the Company. Cash Flows. Net cash provided by operating activities increased from $57.1 million in 1996 to $58.0 million and $89.5 million in 1997 and 1998, respectively. The increases resulted primarily from an improvement in income before gain on sale of investment properties of $3.1 million and $10.1 million in 1997 and 1998, respectively. Additionally, depreciation and amortization increased $6.8 million and $1.1 million in 1997 and 1998, respectively. Residential lot and outparcel cost of sales, which contributed approximately $3.4 million of the increase in 1998, partially offset the increase in 1997 by decreasing approximately $1.7 million. Operating distributions from unconsolidated joint ventures also favorably impacted 1997 and 1998 with increases of $2.3 million and $1.9 million, respectively. Changes in other operating assets and liabilities, which decreased net cash provided by operating activities in 1997 by approximately $10.9 million, increased approximately $17.3 million in 1998, which increase contributed to the increase in net cash provided by operating activities in 1998. Income from unconsolidated joint ventures decreased $1.7 million which contributed to the increase in net cash provided by operating activities in 1997. An increase in income from unconsolidated joint ventures of approximately $3.0 million partially offset the increase in net cash provided by operating activities in 1998. Net cash used in investing activities decreased from $124.7 million in 1996 to $55.6 million in 1997 and then increased to $100.0 million in 1998. The increase in property acquisition and development expenditures of $113.6 million in 1998 is due to the Company having a higher level of projects under construction in 1998. Investment in unconsolidated joint ventures increased by $25.8 million due to the formation of several new ventures (see Note 5), which contributed to the increase in cash used in investing activities. Net cash provided by sales activities decreased $17.8 million in 1998. The 1997 net cash provided by sales activities was due to the 1997 sales of Rivermont Station and Lovejoy Station. There were no such significant sales in 1998. Partially offsetting the 1998 increase in net cash used in investing activities was the net cash received of $103 million in the formation of the venture with Prudential (see Note 5). Additionally, non-operating distributions from unconsolidated joint ventures increased $7.9 million in 1998, primarily due to Wildwood Associates distributing $22.6 million to each partner from the proceeds of its $44 million financing of the 4200 Wildwood Parkway Building (see Notes 4 and 5). In 1997, Wildwood Associates made non-operating distributions to the partners from the proceeds of the 3200 Wildwood Plaza and the 4100 and 4300 Wildwood Parkway Buildings financings, which totaled $12.5 million. An increase in the change in other assets of $2.6 million in 1998 also partially offset the increase in the net cash used in investing activities. The decrease in property acquisition and development expenditures of approximately $81.5 million in 1997, as a result of the Company having a lower level of projects under construction, was the primary component of the decrease in net cash used in investing activities in 1997. Also contributing to the decrease was a decrease in investment in notes receivable of approximately $21.5 million in 1997. The Company temporarily invested approximately $18 million of proceeds from the $80 million CSC Associates, L.P. financing completed in 1996 in a note receivable due from Wildwood Associates. No similar investment occurred in 1997. Non-operating distributions from unconsolidated joint ventures increased $13.3 million due primarily to distributions from Wildwood Associates of $10 million in January 1997 from the proceeds of the financing of the 3200 Wildwood Plaza Building completed in December 1996 and $2.5 million from the proceeds of the financing of the 4100 and 4300 Wildwood Parkway Buildings in March 1997. The Company also received $2.2 million of distributions from Norfolk Hotel Associates (see Note 5). The decrease in collection of notes receivable of approximately $24.2 million in 1997, also partially offset the above decreases in net cash used in investing activities. Net cash provided by sales activities decreased approximately $15.7 million which was due to a decrease in net proceeds received from the sale of Rivermont Station and Lovejoy Station in 1997 as compared to the sale of Lawrenceville MarketCenter in 1996. Investment in unconsolidated joint ventures increased approximately $8.6 million in 1997 which offset the decrease in net cash used in investing activities. The Company contributed approximately $8.5 million to Cousins LORET (see Note 5). Net cash provided by financing activities decreased from $67.7 million in 1996 to $28.7 million in 1997 and then decreased further in 1998 to $20.9 million net cash used in financing activities. The decrease in net cash used in financing activities was mainly due to common stock sold, net of expenses, decreasing by $60.8 million in 1998. The Company sold 2,150,000 shares of stock which raised net proceeds of approximately $64.1 million in 1997. Further contributing to the decrease was $14.1 million less proceeds from other notes payable due to the Company completing one financing for $10.9 million in 1998, as compared to one financing for $25 million in 1997. Dividends paid increased $9.5 million due to an increase in dividends paid per share from $1.29 in 1997 to $1.49 in 1998 and an increase in the number of shares outstanding. Partially offsetting this increase was an increase in the net amount drawn on the Company's line of credit of approximately $34.9 million. The decrease in 1997 was primarily attributable to a decrease of $106.8 million in proceeds from other notes payable. During 1996, the Company completed the $80 million CSC Associates, L.P. financing and the assumption of the 101 Independence Center mortgage note payable, which included additional cash financing of $18.6 million, as compared to one financing in 1997 for approximately $25 million of the 100 and 200 North Point Center East office buildings. An increase in the total dividends paid per share from $1.12 in 1996 to $1.29 in 1997 and an increase in the number of shares outstanding also contributed to the decrease in net cash provided by financing activities as dividends paid increased $5.7 million in 1997. Partially offsetting the above decreases was an increase in common stock sold of approximately $59.7 million due to the aforementioned December 1997 sale of 2,150,000 shares of common stock which raised net proceeds of approximately $64.1 million. The net repayment of the line of credit decreased approximately $16.2 million which also increased the cash flows provided by financing activities. Effects of Inflation The Company attempts to minimize the effect of inflation on income from operating properties by the use of rents tied to tenants' sales, periodic fixed-rent increases and increases based on cost-of-living adjustments, and/or pass-through of operating cost increases to tenants. Year 2000 The "Year 2000 issue" is the result of certain computer systems, software, electronic equipment or embedded chips (collectively known as "computer systems") being written using two digits rather than four to define the applicable year. Therefore, certain computer systems may not distinguish between a year that begins with a "20" rather than a "19." This could result in system failures which could cause disruptions of operations. The Company has completed its initial assessment of the impact of the Year 2000 issue on its business and operations and has identified the areas which rely on computer systems and may be potentially impacted, which mainly include the systems utilized in the operations of its real estate properties and in the processing of its accounting data. The Company has substantially completed an inventory of the material computer systems being utilized in its existing operating real estate properties which may be adversely affected by the Year 2000 issue. Such systems include, but are not limited to, building control systems, heating and air conditioning controls, elevator controls, fire alarms and security devices. Certain of these systems are being replaced, upgraded or modified as deemed necessary, the cost of which is not expected to be material. The Company is currently in the process of upgrading its accounting software to a version that its software vendor has represented to be Year 2000 compliant, as they define it. The Company expects to have the installation of the upgrade completed by the second quarter of 1999. The hardware and operating system used to run the accounting software has been represented to be Year 2000 compliant. The Company has also assessed its non-financial computer systems, and is replacing, upgrading or modifying such systems as needed. The cost of the upgrades to the accounting software and non-financial computer systems is not expected to be material. The Company has significantly completed its survey of all material third party vendors to determine their Year 2000 compliance status and has received certificates, where possible, as to their compliancy. No estimates can be made as to any potential adverse impact resulting from the failure of any third party vendor or service provider to be Year 2000 compliant. To the extent the Year 2000 issue has a material adverse effect on the business operations or financial condition of third parties with which the Company has material relationships, such as vendors, suppliers, tenants and financial institutions, the Year 2000 issue could also have a material adverse effect on the Company's business, results of operations and financial condition. To date, the cost to analyze and prepare for the Year 2000 issue has not been material. There can be no assurance that the Company will be able to identify and correct all aspects of the effect of the Year 2000 issue on the Company. However, the Company does not currently expect the Year 2000 issue will have a material impact on the Company's business, operations or financial condition. The Company is currently developing contingency plans on a property by property basis. This involves assessing critical tenants, systems and vendors. Certain servicing arrangements have been contracted with particular vendors to provide immediate response if the need arises and the Company is arranging for specific employees to staff certain properties in case of need. The preceding "Year 2000" discussion contains various forward-looking statements, within the meaning of the federal securities laws, which represent the Company's beliefs or expectations regarding future events. When used in this discussion, the words "expects" and "anticipates" and similar expressions are intended to identify forward-looking statements. Forward-looking statements include, without limitation, the Company's expectations as to when it will complete its Year 2000 evaluation, the estimated costs of achieving Year 2000 readiness and the Company's expectation that Year 2000 issues will not have a material impact on the Company's business, operations or financial condition. All forward-looking statements involve a number of risks and uncertainties that could cause the actual results to differ materially from the projected results. Factors that may cause these differences include, but are not limited to, the availability of qualified personnel, technology resources, any actions of third parties with respect to Year 2000 problems and other risks detailed from time to time in the Company's filings with the Securities and Exchange Commission. Quantitative and Qualitative Disclosure about Market Risk The Company has one mortgage note payable which has a floating interest rate. The Company mitigates this exposure through the use of an interest rate swap which effectively fixes the interest rate on this debt. This mortgage note payable is included in the fixed rate category for purposes of the following table. The variable rate debt is from the Company's short-term line of credit, which is drawn on as needed and renewed and/or amended on a yearly basis, and from a variable rate municipal bond indenture. Since these rates are floating, the Company is exposed to the impact of interest rate changes. None of the Company's notes receivable have variable interest rates. The Company does not enter into contracts for trading purposes and does not use leveraged instruments. The following table summarizes the Company's market risk associated with notes payable and notes receivable as of December 31, 1998. The information presented below should be read in conjunction with Notes 3 and 4. The table presents principal cash flows and related weighted average interest rates by expected year of maturity. Variable rate represents the floating interest rate calculated at December 31, 1998. For the interest rate swap, the table presents the notional amount and related interest rate by year of maturity.
Expected Year of Maturity -------------------------------------------------------------------------------- Fair 1999 2000 2001 2002 2003 Thereafter Total Value -------------------------------------------------------------------------------- ($ in thousands) Notes Payable (including share of unconsolidated joint ventures): Fixed Rate $12,480 $28,633 $17,153 $10,219 $10,587 $329,614 $408,686 $433,330 Average Interest Rate 6.84% 6.79% 7.66% 7.39% 7.39% 7.52% 7.44% -- Variable Rate $11,495 $ 175 $ -- $ -- $ -- $ -- $ 11,670 $ 11,670 Average Interest Rate 5.54% 5.04% -- -- -- -- 5.53% -- Interest Rate Swaps: Notional Amount $ 2,225 $19,275 $ -- $ -- $ -- $ -- $ 21,500 $ 178 Average Interest Rate 6.53% 6.53% -- -- -- -- 6.53% -- Notes Receivable: Fixed Rate $ 1,847 $ 1,478 $ 1,462 $ 1,172 $ 23,038 $ -- $ 28,997 $ 35,854 Average Interest Rate 8.72% 9.47% 9.44% 9.04% 10.00% -- 9.43% --
Cousins Properties Incorporated and Consolidated Entities MARKET AND DIVIDEND INFORMATION - --------------------------------------------------------------------------------------------------------------- The high and low sales prices for the Company's common stock and cash dividends declared per share were as follows: 1998 Quarters 1997 Quarters ------------------------------------------ --------------------------------------- First Second Third Fourth First Second Third Fourth -------- -------- -------- -------- -------- ------- ------- -------- High $30-7/8 $31-3/4 $32-3/16 $32-9/16 $28-1/4 $29-1/8 $30 $33-3/4 Low 28-3/16 28-11/16 26 24-5/16 24-5/16 24-1/4 26-3/8 27-1/4 Dividends Declared .36 .36 .36 .41 .31 .31 .31 .36 Payment Date 2/23/98 5/29/98 8/26/98 12/22/98 2/24/97 5/30/97 8/26/97 12/22/97
The Company's stock trades on the New York Stock Exchange (ticker symbol CUZ). At December 31, 1998, there were 1,305 stockholders of record. ABOUT YOUR DIVIDENDS - -------------------------------------------------------------------------------- Timing of Dividends - Cousins normally pays regular dividends four times each year in February, May, August and December. Differences Between Net Income and Cash Dividends Declared - Cousins' current intention is to distribute 100% of its taxable income and thus incur no corporate income taxes. However, Consolidated Net Income for financial reporting purposes and Cash Dividends Declared will generally not be equal for the following reasons: a. There will continue to be considerable differences between Consolidated Net Income as reported to stockholders (which includes the income of a consolidated non-REIT entity that pays corporate income taxes) and Cousins' taxable income. The differences are enumerated in Note 7 of "Notes to Consolidated Financial Statements." b. For purposes of meeting REIT distribution requirements, dividends may be applied to the calendar year before or after the one in which they are declared. The differences between dividends declared in the current year and dividends applied to meet current year REIT distribution requirements are enumerated in Note 6 of "Notes to Consolidated Financial Statements." Capital Gains Dividends - In some years, as it did in 1998, 1997 and 1996, Cousins will have taxable capital gains, and Cousins currently intends to distribute 100% of such gains to stockholders. The Form 1099-DIV sent by Cousins to stockholders of record each January shows total dividends paid (including the capital gains dividends) as well as that which should be reported as a capital gain (see Note 6 of "Notes to Consolidated Financial Statements"). For individuals, the capital gain portion of the dividends is subtracted from total dividends on Schedule B of IRS Form 1040 and reported separately on Schedule D, line 13, column (g) of IRS Form 1040 as a capital gain. Tax Preference Items and "Differently Treated Items" - Internal Revenue Code Section 59(d) requires that certain corporate tax preference items and "differently treated items" be passed through to a REIT's stockholders and treated as tax preference items and items of adjustment in determining the stockholder's alternative minimum taxable income. The amount of this adjustment is included in Note 6 of "Notes to Consolidated Financial Statements." Tax preference items and adjustments are includable in a stockholder's income only for purposes of computing the alternative minimum tax. These adjustments will not affect a stockholder's tax filing unless that stockholder's alternative minimum tax is higher than that stockholder's regular tax. Stockholders should consult their tax advisors to determine if the adjustment reported by Cousins affects their tax filing. Many stockholders will find that the adjustment reported by Cousins will have no effect on their tax filing unless they have other large sources of alternative minimum tax adjustments or tax preference items.
Cousins Properties Incorporated and Consolidated Entities - ----------------------------------------------------------------------------------------------------------- SELECTED QUARTERLY FINANCIAL INFORMATION (UNAUDITED) Selected quarterly information for the two years ended December 31, 1998 ($ in thousands, except per share amounts): Quarters First Second Third Fourth ------- ------- ------- ------ 1998: Revenues $23,854 $24,214 $27,663 $22,580 Income from unconsolidated joint ventures 4,581 4,547 4,406 4,889 Gain on sale of investment properties, net of applicable income tax provision 771 886 -- 2,287 Net income 11,294 11,777 10,737 11,491 Basic net income per share .36 .37 .34 .36 Diluted net income per share .35 .37 .33 .36 1997: Revenues $20,291 $21,141 $22,233 $22,334 Income from unconsolidated joint ventures 3,582 3,467 3,737 4,675 Gain on sale of investment properties, net of applicable income tax provision 2,396 -- 2,974 602 Net income 9,624 7,455 10,874 9,324 Basic net income per share .33 .26 .37 .31 Diluted net income per share .33 .25 .37 .31
INDEPENDENT PUBLIC ACCOUNTANTS Arthur Andersen LLP COUNSEL King & Spalding Troutman Sanders TRANSFER AGENT AND REGISTRAR First Union National Bank Corporate Trust Client Services NC-1153 1525 West W. T. Harris Boulevard 3C3 Charlotte, North Carolina 28288-1153 Telephone Number: 1-800-829-8432 FAX Number: 1-704-590-7598 DIVIDEND REINVESTMENT PLAN The Company offers its stockholders the opportunity to purchase additional shares of common stock through the Dividend Reinvestment Plan with purchases at 95% of current market value. A copy of the Plan prospectus and an enrollment card may also be obtained by calling or writing to the Company. FORM 10-K AVAILABLE The Company's annual report on Form 10-K and interim reports on Form 10-Q are filed with the Securities and Exchange Commission. Copies are available without exhibits free of charge to any person who is a record or beneficial owner of common stock upon written request to the Company at 2500 Windy Ridge Parkway, Suite 1600, Atlanta, Georgia 30339-5683. INVESTOR RELATIONS CONTACT George T. Olmstead, Director of Investment Services Cousins Properties Incorporated and Consolidated Entities DIRECTORS T. G. Cousins Chairman of the Board and Chief Executive Officer Richard W. Courts, II Chairman Atlantic Investment Company Lillian C. Giornelli + Chairman and Chief Executive Officer The Cousins Foundation, Inc. Terence C. Golden President, Chief Executive Officer and Director Host Marriott Corporation Boone A. Knox Chairman Regions Bank of Central Georgia William Porter Payne Vice Chairman and Director Premiere Technologies, Inc. Richard E. Salomon President and Managing Director Spears, Benzak, Salomon & Farrell, Inc. D. W. Brooks Director Emeritus Henry C. Goodrich Director Emeritus CORPORATE* T. G. Cousins Chairman of the Board and Chief Executive Officer Daniel M. DuPree President and Chief Operating Officer Kelly H. Barrett Senior Vice President - Finance George J. Berry Senior Vice President Tom G. Charlesworth Senior Vice President, General Counsel and Secretary Lisa R. Simmons Director of Corporate Communications OFFICE DIVISION* Craig B. Jones President John L. Murphy Senior Vice President W. Henry Atkins Senior Vice President - Charlotte Jack A. LaHue Senior Vice President - Asset Management C. David Atkins Vice President - Charlotte John S. Durham Vice President - Leasing Walter L. Fish Vice President - Leasing Dara J. Nicholson Vice President - Office Property Management Ronald C. Sturgis Vice President - Office Property Management MEDICAL OFFICE DIVISION*** (Cousins/Richmond) Lea Richmond III President John S. McColl Senior Vice President David J. Rubenstein Senior Vice President Thomas H. Sawyer Senior Vice President S. Rox Green Vice President - Asset Management Michael J. Lant Vice President - Development RETAIL DIVISION** (Cousins MarketCenters, Inc.) Joel T. Murphy* President John D. Hopkins Senior Vice President - Western Region Craig N. Kaser Senior Vice President - Leasing Robert A. Manarino Senior Vice President - Western Region Robert S. Wordes Senior Vice President William I. Bassett Vice President - Development Michael I. Cohn Vice President - Development Keven D. Doherty Vice President - Development Western Region Terry M. Hampel Vice President - Asset Management Michael J. Quinley Vice President - Development DEVELOPMENT AND CONSTRUCTION DIVISION** W. James Overton* Senior Vice President - Development James D. Dean Vice President - Development James F. George Vice President - Development John N. Goff Vice President - Development Lloyd P. Thompson, Jr. Vice President - Development William D. Varner Vice President - Development LAND DIVISION** (Cousins Neighborhoods) Bruce E. Smith President + Nominee for election at the May 4, 1999 Annual Stockholders' Meeting. * Officers of Cousins Properties Incorporated, as well as Cousins Real Estate Corporation and/or Cousins MarketCenters, Inc. ** Officers of Cousins Real Estate Corporation and/or Cousins MarketCenters, Inc. *** Officers of Cousins Properties Incorporated EX-21 4 EXHIBIT 21 COUSINS PROPERTIES INCORPORATED AND CONSOLIDATED ENTITIES SUBSIDIARIES OF THE REGISTRANT DECEMBER 31, 1998 At December 31, 1998, the Registrant had the following 100% owned subsidiary: Cousins, Inc.; subsidiary includes Cousins/Daniel, LLC* At December 31, 1998, the financial statements of the following entities were consolidated with those of the Registrant in the Consolidated Financial Statements incorporated herein: Cousins Real Estate Corporation and subsidiaries (100% of non-voting common stock and 100% of preferred stock owned by Registrant); subsidiaries include Cousins MarketCenters, Inc. (100% owned by Cousins Real Estate Corporation) Rocky Creek Properties, Inc. & MT&E - Macon-Harris (75% owned y Registrant) Perimeter Expo Associates, L.P. (90% owned by Registrant and 10% owned by Cousins MarketCenters, Inc.) Cousins/Myers Second Street Partners, L.L.C.* CommonWealth/Cousins I, LLC (50.1% owned by Registrant and 49.9% owned by CommonWealth Pacific, LLC) CP Venture Three LLC (59.68% owned by Registrant and 40.32% owned by Prudential) At December 31, 1998, the Registrant and its consolidated entities had the following significant unconsolidated subsidiaries which were not 100% owned: Brad Cous Golf Venture, Ltd. (50% owned by Registrant) CC-JM II Associates (50% owned by Registrant) Charlotte Gateway Village, LLC (50% owned by Registrant) C-H Associates, Ltd. (49% owned by Cousins Real Estate Corporation) C-H Leasing Associates (50% owned by Cousins Real Estate Corporation) C-H Management Associates (50% owned by Cousins Real Estate Corporation) CP Venture LLC (50% owned by Registrant) CP Venture Two LLC (59.68% owned by Registrant) CSC Associates, L.P. (50% owned by Registrant) Cousins LORET Venture, L.L.C.(50% owned by Registrant) Green Valley Associates II (50% owned by Registrant) Haywood Mall (50% owned by Registrant) Hickory Hollow (50% owned by Cousins Real Estate Corporation) MC Dusseldorf Holding B.V. (10% voting interest owned by Registrant and 40% voting interest owned by Cousins Real Estate Corporation) Ten Peachtree Place Associates (50% owned by Registrant) Temco Associates (50% owned by Cousins Real Estate Corporation) Wildwood Associates (50% owned by Registrant) * Minority member receives a portion of residual cash flow and capital proceeds after a preferred return to Registrant. EX-23 5 EXHIBIT 23(a) CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS As independent public accountants, we hereby consent to the incorporation of our reports included in and incorporated by reference in this Form 10-K, into Cousins Properties Incorporated's previously filed Registration Statements File No. 33-41927, 33-56787, 33-60350, 333-12031 and 333-67887. ARTHUR ANDERSEN LLP Atlanta, Georgia March 29, 1999 EX-23 6 EXHIBIT 23(b) CONSENT OF INDEPENDENT AUDITORS We consent to the incorporation by reference in Amendment No. 1 to the Registration Statement (Form S-3 No. 333-12031) and related Prospectus of Cousins Properties Incorporated, in Amendment No. 1 to the Registration Statement (Form S-3 No. 33-60350) and related Prospectus pertaining to the Dividend Reinvestment Plan of Cousins Properties Incorporated, in the Registration Statement (Form S-8 No. 33-56787) and related Prospectus pertaining to the 1989 Stock Option Plan of Cousins Properties Incorporated, in the Registration Statement (Form S-8 No. 33-41927) and related Prospectus pertaining to the 1989 Stock Option Plan, 1987 Restricted Stock Plan for Outside Directors and Incentive Stock Option Plan of Cousins Properties Incorporated, and in the Registration Statement (Form S-8 No. 333-67887) and related Prospectus pertaining to the 1995 Stock Incentive Plan of Cousins Properties Incorporated of our report dated February 5, 1999, with respect to the financial statements and schedule of CSC Associates, L.P., included in the Form 10-K of Cousins Properties Incorporated for the year ended December 31, 1998. ERNST & YOUNG LLP Atlanta, Georgia March 29, 1999 EX-27 7
5 YEAR DEC-31-1998 DEC-31-1998 1,347 0 39,470 0 0 8,704 462,108 23,419 752,858 36,104 198,104 0 0 31,887 347,978 752,858 0 98,311 0 75,527 0 0 11,558 41,207 (148) 41,355 0 0 0 45,299 1.43 1.41
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