UNITED STATES SECURITIES AND EXCHANGE COMMISSIONWashington, D.C. 20549
For the transition period from to
Commission file number 0-3576
COUSINS PROPERTIES INCORPORATED (Exact name of registrant as specified in its charter)
(770) 955-2200(Registrant’s telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
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 (or for such shorter period that the registrant was required to file such reports) and (2) has been subject to such filing requirements for the past 90 days. Yes [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. [ ]
Indicate by check mark whether the registrant is an accelerated filer (as defined in Exchange Act Rule 12b-2). Yes [X] No [ ]
As of June 30, 2003, the aggregate market value of the common stock of Cousins Properties Incorporated held by non-affiliates was $1,008,688,788. As of February 24, 2004, 48,935,790 shares of common stock were outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Registrant’s Annual Report to Stockholders for the year ended December 31, 2003 have been incorporated by reference into Part II of this Form 10-K.
Portions of the Registrant’s proxy statement for the annual stockholders meeting to be held on May 4, 2004 are incorporated by reference into Part III of this Form 10-K.
TABLE OF CONTENTS
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 and its subsidiaries (“CREC”) is a taxable entity consolidated with the Registrant, which owns, develops, and manages its own real estate portfolio and performs certain real estate related services for other parties. The Registrant and CREC combined are hereafter referred to as the “Company.”
Cousins is an Atlanta-based, fully integrated, self administered equity REIT. 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 under the symbol “CUZ.” The Company owns directly and through subsidiaries and joint ventures a portfolio of well-located, high-quality office, medical office, retail and residential 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 leased to quality tenants; the maintenance of high levels of occupancy within owned properties; the development of single-family residential subdivisions; the selective sale and financing of assets; the creation of joint venture arrangements 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 2003 Annual Report to Stockholders, which are incorporated herein by reference. Segment information for the three years ended December 31, 2003 is contained in Note 12 to the Consolidated Financial Statements in the Registrant’s 2003 Annual Report to Stockholders.
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Brief Description of Company Investments
Office. As of December 31, 2003, the Company’s office portfolio included the following thirty-six commercial office buildings:
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The weighted average leased percentage of these office properties (excluding the property currently under construction and in lease-up and One Ninety One Peachtree Tower (“191 Peachtree”), in which the Company owns less than 10%) was approximately 91% as of December 31, 2003, and the leases expire as follows:
[Continued from above table, first column(s) repeated]
The weighted average remaining lease term of the office portfolio (excluding the property currently under construction and 191 Peachtree) was approximately seven years as of December 31, 2003. Most of the Company’s leases in these buildings provide for pass through of operating expenses to its tenants and contractual rents which escalate over time.
Medical Office. As of December 31, 2003, the Company’s medical office portfolio included the following six medical office properties:
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The weighted average leased percentage of these medical office properties was 91% as of December 31, 2003, and the leases expire as follows:
The weighted average remaining lease term of the medical office portfolio was approximately eight years as of December 31, 2003. Most of the Company’s leases in these medical office buildings provide for pass through of operating expenses to its tenants and contractual rents which escalate over time.
Retail. As of December 31, 2003, the Company’s retail portfolio included the following eleven properties:
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The weighted average leased percentage of these retail properties (excluding the properties currently under construction and/or in lease-up) was approximately 93% as of December 31, 2003, and the leases expire as follows:
The weighted average remaining lease term of the retail portfolio (excluding the properties currently under construction and/or in lease-up) was approximately seven years as of December 31, 2003. Most of the Company’s leases in these retail properties provide for pass through of operating expenses to its tenants and contractual rents which escalate over time.
Residential/Land Division. The Company’s other real estate holdings include interests in over 280 acres of strategically located land held for investment or future development at North Point and Wildwood Office Park and the option to acquire the fee simple interest in approximately 7,100 acres of land through its Temco Associates joint venture, among other holdings. See the table of “Residential Lots Under Development” and “Land Held for Investment or Future Development” for further information.
Other. The Company’s joint venture partners include, but are not limited to, either the following companies or their affiliates: IBM, The Coca-Cola Company (“Coca-Cola”), Bank of America Corporation (“Bank of America”), The Prudential Insurance Company of America (“Prudential”), Temple-Inland Inc., Equity Office Properties Trust, CarrAmerica Realty Corporation and Emory University.
A table detailing the Company’s real estate properties is included in Item 2 of this Report.
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Significant Changes in 2003
Significant changes in the Company’s business and properties during the year ended December 31, 2003 were as follows:
Office Division. The Company sold AT&T Wireless Services Headquarters, a 222,000 rentable square foot office building, and Cerritos Corporate Center - Phase II, a 105,000 rentable square foot office building (collectively called “Cerritos”), in a single transaction in the second quarter of 2003.
In December 2003, the Company purchased the remaining interest in 100 and 200 North Point Center East from CP Venture Two LLC (see Note 5). The purchase price was equal to the outstanding balance of its mortgage note payable at the time of sale, or $22.4 million. The mortgage note payable bears interest at 7.86% and matures August 1, 2007.
Retail Division. CP Venture Three LLC (see Note 5) sold Mira Mesa MarketCenter, a 480,000 square foot retail center in San Diego, California, in the second quarter of 2003.
Presidential MarketCenter (“Presidential”), a 374,000 rentable square foot retail center in Atlanta, Georgia, was sold in the third quarter of 2003. The purchaser assumed the Presidential mortgage note payable in the sale. Also, in the third quarter of 2003, the Company sold Perimeter Expo (“Expo”), a 176,000 square foot retail center in Atlanta, Georgia. The Expo note payable was re-collateralized as corporate, unsecured debt and not repaid.
In October 2003, The Avenue West Cobb, a 205,000 square foot retail center in Atlanta, Georgia, became partially operational for financial reporting purposes. In December 2003, the Company purchased approximately eight acres of land adjacent to The Avenue West Cobb, which could be utilized for future development. Also in December 2003, The Shops of Lake Tuscaloosa, a 62,000 square foot retail center in Tuscaloosa, Alabama, became partially operational for financial reporting purposes.
In October 2003, the Company purchased approximately 58 acres of land in Brevard County, Florida, for the development of The Avenue Viera, a 408,000 square foot retail center, of which the Company owns 333,000 square feet, in Viera, Florida. Construction commenced on this center in December 2003.
Land Division. The Company is developing two residential communities in suburban Atlanta, Georgia and one in Pine Mountain, Georgia. Approximately 1,151 lots are being developed within these three communities, of which 214, 137 and 1 lots were sold in 2003, 2002 and 2001, respectively. In 2002 and 2001, the Company also sold 49 and 120 lots, respectively, at residential developments in which all the lots have been sold. The Company’s share of lots sold at joint ventures was 277, 145 and 117 for 2003, 2002 and 2001, respectively. The Company also entered into new joint venture arrangements in 2003 for the development of residential communities. See the “Residential Lots Under Development” table in Item 2 for more detail.
In September 2003, the Company sold approximately 10.5 acres of Company-owned land in Wildwood Office Park for a net gain of approximately $1,947,000. In December 2003, the Company sold approximately 42 acres of North Point West Side land for a net gain of approximately $5,323,000.
Financings. In May 2003, Crawford Long — CPI, LLC, an entity in which the Company owns a 50% interest, obtained a $55 million mortgage note payable. The note has a maturity date of June 1, 2013 and an interest rate of 5.9%. A distribution of approximately $25.8 million was made to the Company in 2003 for its share of the proceeds from this mortgage.
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Stock Repurchase Plan
In November 2001, the Board of Directors of the Company adopted a stock repurchase plan authorizing the repurchase of up to five million shares of common stock prior to January 1, 2004 (see Note 6). During January 2003, the Company purchased an additional 234,100 shares at an average price of $23.66 per share. As of December 31, 2003, the Company had repurchased a total of 2,691,582 shares for an aggregate price of $64,893,935.
Subsequent Event
The Mirant Corporation (“Mirant”), leased 99% of 1155 Perimeter Center West, which is owned by 285 Venture, LLC. The Company owns 50% of 285 Venture, LLC. Mirant declared bankruptcy during 2003. In January 2004, the Mirant lease was renegotiated and Mirant reduced its amount of leased space, the term of its lease and its rental rate. The Company is actively attempting to re-lease the vacated space, but the impact on income of 285 Venture, LLC in 2004 and beyond is not known at this time.
Environmental Matters
Under various federal, state and local laws, ordinances and regulations, an owner or operator of real estate is generally liable for the costs of removal or remediation of certain hazardous or toxic substances on or in such property. Such laws often impose liability without regard to whether the owner knew of, or was responsible for, the presence of such hazardous or toxic substances. The presence of such substances, or the failure to remediate such substances properly, may subject the owner to substantial liability and may adversely affect the owner’s ability to develop the property or to borrow using such real estate as collateral. The Company is not aware of any environmental liability that the Company’s management believes would have a material adverse effect on the Company’s business, assets or results of operations.
Certain environmental laws impose liability on a previous owner of property to the extent that hazardous or toxic substances were present during the prior ownership period. A transfer of the property does not relieve an owner of such liability. Thus, although the Company is not aware of any such situation, the Company may be liable in respect of properties previously sold.
In connection with the development or acquisition of certain properties, the Company has obtained Phase One environmental audits (which generally involve inspection without soil sampling or ground water analysis) from independent environmental consultants. The remaining properties (including most of the Company’s land held for investment or future development) have not been so examined. No assurance can be given that environmental liabilities do not exist, that the reports revealed all environmental liabilities, or that no prior owner created any material environmental condition not known to the Company.
The Company believes that it and its properties are in compliance in all material respects with all federal, state and local laws, ordinances and regulations regarding hazardous or toxic substances.
Competition
The Company’s properties compete for tenants with similar properties located in our markets primarily on the basis of location, rental rates, services provided and the design and condition of the facilities. The Company also competes with other real estate companies, financial institutions, pension funds, partnerships, individual investors and others when attempting to acquire and develop properties. The Land Division also competes with other lot developers.
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Forward-Looking Statements
Certain matters contained in this report are forward-looking statements within the meaning of the federal securities laws and are subject to uncertainties and risks. These include, but are not limited to, general and local economic conditions, local real estate conditions, the activity of others developing competitive projects, the cyclical nature of the real estate industry, the financial condition of existing tenants, interest rates, the Company’s ability to obtain favorable financing or zoning, environmental matters, the effects of terrorism, the failure of assets under contract for sale to ultimately close, and other risks detailed from time to time in the Company’s filings with the Securities and Exchange Commission, including the Company’s Current Report on Form 8-K filed on December 10, 2003. The words “believes,” “expects,” “anticipates,” “estimates,” and similar expressions are intended to identify forward-looking statements. Although the Company believes that its plans, intentions and expectations reflected in any forward-looking statements are reasonable, the Company can give no assurance that such plans, intentions or expectations will be achieved. Such forward-looking statements are based on current expectations and speak as of the date of such statements. The Company undertakes no obligation to publicly update or revise any forward-looking statement, whether as a result of future events, new information or otherwise.
Executive Offices; Employees
The Registrant’s executive offices are located at 2500 Windy Ridge Parkway, Suite 1600, Atlanta, Georgia 30339-5683. At December 31, 2003, the Company employed 421 people.
Available Information
The Company makes available free of charge on the “Investor Relations” page of its Web site, www.cousinsproperties.com, its filed and furnished reports on Forms 10-K, 10-Q and 8-K, and all amendments thereto, as soon as reasonably practicable after the reports are filed with or furnished to the Securities and Exchange Commission.
The Company’s Corporate Governance Guidelines, Director Independence Standards, Code of Business Conduct and Ethics, and the Charters of the Audit Committee and the Compensation, Succession, Nominating and Governance Committee of the Board of Directors are also available on the “Investor Relations” page of the Company’s Web site. The information contained on the Company’s Web site is not incorporated herein by reference.
Copies of these documents (without exhibits, when applicable) are also available free of charge upon request to the Company at 2500 Windy Ridge Parkway, Suite 1600, Atlanta, Georgia 30339-5683, Attention: Mark A. Russell, Vice President — Chief Financial Analyst and Director of Investor Relations. Mr. Russell, the Company’s investor relations contact, may also be reached by telephone at (770) 857-2449, by facsimile at (770) 857-2360 or by email at markrussell@cousinsproperties.com.
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Item 2. Properties
Table of Major Office and Retail Properties
The following tables set forth certain information relating to major office, medical office and retail properties, stand alone retail lease sites, and land held for investment and future development in which the Company has a 10% or greater ownership interest. Information presented in Note 5 provides additional information related to its joint ventures. All information presented is as of December 31, 2003. Dollars are stated in thousands.
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[Additional columns below]
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Additional Information Related to Operating Properties
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 (seven years as of January 1, 1997) and the large mortgage note balance ($25.9 million as of January 1, 1997) that would have to be paid off, with interest, in that seven-year period before the limited partnership would receive any significant benefit. Therefore, effective January 1, 1997, the $17,005,000 balance of the mortgage note and land was reclassified to Operating Properties, and revenues and expenses (including depreciation) from that point forward have been recorded as if the building were owned by the Company.
Residential Lots Under Development
As of December 31, 2003, CREC, Temco Associates and CL Realty, L.L.C. owned the following parcels of land which are being developed into residential communities. Information in the table represents total amounts for the development as a whole, not the Company’s share ($ in thousands):
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(Table Continued)
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Land Held for Investment or Future Development
As of December 31, 2003, the Company owned or controlled the following significant land holdings either directly or indirectly through venture arrangements. The holdings were not subject to any debt. The Company evaluates its land holdings on a regular basis and may convert these land holdings to income-producing assets or may sell portions of the land holdings if opportunities arise at favorable prices before development is feasible. See Note 5 for further information related to investments in unconsolidated joint ventures.
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In addition, the Company owned, directly or indirectly, the following land parcels located adjacent to operating properties discussed above. The basis of each of these building pads is included in the basis of the operating properties in the Company’s consolidated financial statements or the applicable joint venture’s financial statements.
(1) Owned by Ten Peachtree Place Associates(2) Owned by CPI/FSP I, L.P.
Other Investments
One Ninety One Peachtree Tower. One Ninety One Peachtree Tower is a 50-story office tower located in downtown Atlanta, Georgia, which contains 1.2 million rentable square feet.
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. In December 2002, CREC contributed its interest in C-H Associates to Cousins Texas LLC, an entity which is 76% owned by the Company and 24% owned by CREC. C-H Associates’ 20% ownership of One Ninety One Peachtree Tower results in an effective 9.8% ownership interest by Cousins Texas LLC, subject to a preference in favor of the majority partner, in the One Ninety One Peachtree Tower project. C-H Associates is accounted for under the equity method of accounting for investments in unconsolidated joint ventures. The balance of the One Ninety One Peachtree Tower project is currently owned by Equity Office Properties Trust (“EOP”).
The equity contributed is entitled to a preferred return, with EOP receiving a significant preferred return. After EOP recovers its preferred return, the partners share in any operating cash flow distributions in accordance with their percentage interests. The Company has not recognized any income from its share of the operations of One Ninety One Peachtree Tower to date.
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 interest is $0.
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Supplemental Financial and Leasing Information
Depreciation and amortization include the following components for the years ended December 31, 2003 and 2002 ($ in thousands):
The Company and its share of unconsolidated joint ventures had the following capital expenditures for the years ended December 31, 2003 and 2002 ($ in thousands):
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Item 3. Legal Proceedings
The Company is subject to various legal proceedings, claims and administrative proceedings arising in the ordinary course of business, some of which are expected to be covered by liability insurance and all of which collectively are not expected to have a material adverse effect on the liquidity, results of operations, business or financial condition of the Company.
Item 4. Submission of Matters to a Vote of Security Holders
No matter was submitted for a vote of the security holders during the fourth quarter of the Registrant’s fiscal year ended December 31, 2003.
Item X. Executive Officers of the Registrant
The Executive Officers of the Registrant as of the date hereof are as follows:
Family Relationships:
Lillian C. Giornelli, Mr. Cousins’ daughter, is a director of the Company. Hugh L. McColl, Jr., John S. McColl’s father, is a director of the Company. There are no other family relationships among the Executive Officers or Directors.
Term of Office:
The term of office for all officers expires at the annual stockholders’ meeting. The Board retains the power to remove any officer at any time.
Business Experience:
Mr. Cousins has served as Chairman of the Board of the Company since inception. He was also the Chief Executive Officer of the Company from inception until January 2002. Mr. Cousins is also Director Emeritus of Total System Services, Inc.; Trustee Emeritus of Emory University; Trustee of the High Museum of Art; Member of the Board of Georgia Research Alliance and Chairman and Trustee of the CF Foundation.
Mr. Bell has served as the President and Chief Executive Officer of the Company since January 2002. He is also Vice Chairman of the Board and Chairman of the Executive Committee, having served in these capacities since June 2000. He was a Special Limited Partner with Forstmann Little & Co. from January 2001 until January 2002. He was Worldwide Chairman and
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Chief Executive Officer of Young & Rubicam, Inc. from January 2000 to November 2000; President and Chief Operating Officer of Young & Rubicam, Inc. from August 1999 to December 1999; and Chairman and Chief Executive Officer of Young & Rubicam Advertising from September 1998 to August 1999. He was President and Chief Executive Officer of Burson-Marsteller from May 1995 to September 1998. Mr. Bell is also a director of Lincoln National Corporation, Credit Suisse Group, Regal Entertainment Group, AGL Resources, Inc. and the United States Chamber of Commerce.
Mr. DuPree rejoined the Company in March 2003 as Vice Chairman of the Company. During his previous tenure with the Company from October 1992 until March 2001, he became Senior Vice President in April 1993, Senior Executive Vice President in April 1995 and President and Chief Operating Officer in November 1995. From September 2002 until February 2003, Mr. DuPree was Chief Executive Officer of Barry Real Estate Companies, a privately held development firm.
Mr. Stone joined the Company in June 1999 as President of Cousins Stone LP, a venture in which the Company purchased a 50% interest in June 1999. In July 2000, the Company purchased an additional 25% interest in Cousins Stone LP and in February 2001, the Company purchased the remaining 25% interest. The name Cousins Stone LP was changed to Cousins Properties Services LP in August 2001. Mr. Stone was President and Chief Operating Officer of the Company from February 2001 to January 2002 and has been a Director of the Company since 2001. Effective January 2002, he relinquished the positions of President and Chief Operating Officer and assumed the position of President — Texas. In February 2003, he became Vice Chairman of the Company. Since at least January 1999, he was founder and President of the predecessor to Cousins Stone LP, Faison-Stone.
Mr. Charlesworth joined the Company in October 1992 and became Senior Vice President, Secretary and General Counsel in November 1992 and Executive Vice President and Chief Investment Officer in January 2001. He became Chief Financial Officer in February 2003. Prior to 1992, he worked for certain affiliates of Thomas G. Cousins as Chief Financial Officer and Legal Counsel.
Mr. Fleming joined the Company in July 2001 as Senior Vice President, General Counsel and Secretary. He was a partner in the Atlanta law firm of Fleming & Ray from October 1994 until July 2001. Prior to that he was a partner at Long, Aldridge & Norman, where he served as Managing Partner from 1991 through 1993.
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. McColl joined the Company in April 1996 as Vice President of the Office Division. He was promoted in May 1997 to Senior Vice President. Prior to that, he was President of Hutchinson Capital Group, Inc. and an officer of Quest Capital Corp.
Mr. 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 to 1990 he was Vice President of New Market Companies, Inc. and affiliates and from 1990 to 1992 he was Senior Vice President of New Market Companies, Inc. and affiliates.
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PART II
Item 5. Market for Registrant’s Common Stock and Related Stockholder 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” and “About Your Dividends” in the Registrant’s 2003 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” in the Registrant’s 2003 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 in the Registrant’s 2003 Annual Report to Stockholders, is incorporated herein by reference.
Item 7A. Quantitative and Qualitative Disclosure about Market Risk
“Quantitative and Qualitative Disclosure about Market Risk,” which appears in the Registrant’s 2003 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 Independent Auditors’ Report which appear in the Registrant’s 2003 Annual Report to Stockholders are incorporated herein by reference.
The information appearing under the caption “Selected Quarterly Financial Information (Unaudited)” in the Registrant’s 2003 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 15 of Part IV of this report.
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
Not applicable.
Item 9A. Controls and Procedures
We maintain disclosure controls and procedures that are designed to ensure that information required to be disclosed in our Exchange Act reports is recorded, processed, summarized and reported within the time periods specific in the SEC’s rules and forms, and that such information is accumulated and communicated to the management, including the Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure. Management necessarily applied its judgment in assessing the costs and benefits of such controls and procedures, which, by their nature, can provide only reasonable assurance regarding management’s control objectives. We also have investments in certain unconsolidated entities. As we do not always control or manage these entities, our disclosure controls and procedures with respect to such entities are necessarily more limited than those we maintain with respect to our consolidated subsidiaries.
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The Company’s management, including the Chief Executive Officer and Chief Financial Officer, does not expect that our disclosure controls can prevent all errors and all fraud. A control system, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are met. There are inherent limitations in all control systems, including the realities that judgments in decision-making can be faulty, and that breakdowns can occur because of simple error or mistake. Additionally, controls can be circumvented by the individual acts of one or more persons. The design of any system of controls also is based in part upon certain assumptions about the likelihood of future events, and, while our disclosure controls and procedures are designed to be effective under circumstances where they should reasonably be expected to operate effectively, there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions. Because of the inherent limitations in any control system, misstatements due to error or fraud may occur and not be detected.
As of the end of the period covered by this annual report, the Company, under the supervision of the Chief Executive Officer and Chief Financial Officer and with the participation of the Company’s management, carried out an evaluation of the effectiveness of the design and operation of the Company’s disclosure controls and procedures pursuant to the rules and regulations of the Exchange Act. Based upon that evaluation, the Chief Executive Officer and Chief Financial Officer concluded that the Company’s disclosure controls and procedures were effective, in all material respects, in timely alerting them to material information relating to the Company required to be included in the Company’s periodic SEC filings. No changes were made in the Company’s internal controls over financial reporting that occurred during the last fiscal quarter that has materially affected, or is reasonably likely to materially affect, the Company’s internal controls over financial reporting.
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PART III
Item 10. Directors and Executive Officers of the Registrant
The information required by Items 401 and 405 of Regulation S-K is presented in Item X in Part I above and is included under the captions “Election of Directors” and “Section 16(A) Beneficial Ownership Reporting Compliance” in the Proxy Statement relating to the 2004 Annual Meeting of the Registrant’s Stockholders, and is incorporated herein by reference. The Company adopted a Code of Business Conduct and Ethics (the “Code”) applicable to its Board of Directors and all of its employees. The Code is publicly available on the “Investor Relations” page of its Web site at www.cousinsproperties.com. Section 1 of the Code applies to the Company’s senior executive and financial officers and is a “code of ethics” as defined by applicable SEC rules and regulations. If the Company makes any amendments to the Code other than technical, administrative, or other non-substantive amendments, or grants any waivers, including implicit waivers, from a provision of the Code to the Company’s senior executive or financial officers, the Company will disclose on its Web site the nature of the amendment or waiver, its effective date and to whom it applies.
Item 11. Executive Compensation
The information under the captions “Executive Compensation” (other than the Committee Report on Compensation) and “Compensation of Directors” in the Proxy Statement relating to the 2004 Annual Meeting of the Registrant’s Stockholders is incorporated herein by reference.
Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
The information under the captions “Beneficial Ownership of Common Stock” and “Equity Compensation Plan Information” in the Proxy Statement relating to the 2004 Annual Meeting of the Registrant’s Stockholders is incorporated herein by reference.
Item 13. Certain Relationships and Related Transactions
The information under the caption “Certain Transactions” in the Proxy Statement relating to the 2004 Annual Meeting of the Registrant’s Stockholders is incorporated herein by reference.
Item 14. Principal Accountant Fees and Services
The information under the caption “Summary of Fees to Independent Public Accountants for Fiscal 2003 and 2002” in the Proxy Statement relating to the 2004 Annual Meeting of the Registrant’s Stockholders is incorporated herein by reference.
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PART IV
Item 15. Exhibits, Financial Statement Schedules, and Reports on Form 8-K
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Item 15. Continued
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.
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(b) Reports on Form 8-K.
The Company filed a Current Report on Form 8-K dated October 27, 2003, pursuant to Item 12 of Form 8-K, “Results of Operations and Financial Condition,” for the quarter ended September 30, 2003. The Company filed a Current Report on Form 8-K dated December 10, 2003, pursuant to Item 5 of Form 8-K, “Other Events and Required FD Disclosure,” related to the Company’s risk factors. There were no other reports filed on Form 8-K in the quarter ended December 31, 2003.
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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.
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.
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INDEPENDENT AUDITORS’ REPORT ON SUPPLEMENTAL SCHEDULE
To Cousins Properties Incorporated:
We have audited the consolidated financial statements of Cousins Properties Incorporated and consolidated entities as of December 31, 2003 and 2002, and for each of the three years in the period ended December 31, 2003, and have issued our report thereon dated February 25, 2004 (which report expresses an unqualified opinion and includes an explanatory paragraph relating to the impact of the adoption in 2002 of Statement of Financial Accounting Standards No. 144); such consolidated financial statements and report are included in your 2003 Annual Report to Stockholders and are incorporated herein by reference. Our audit also included the consolidated financial statement schedule of Cousins Properties Incorporated and consolidated entities listed in Item 15. This consolidated financial statement schedule is the responsibility of the Company’s management. Our responsibility is to express an opinion based on our audit. In our opinion, such consolidated financial statement schedule, when considered in relation to the basic consolidated financial statements taken as a whole, presents fairly in all material respects the information set forth therein.
/s/ DELOITTE & TOUCHE LLP
Atlanta, GeorgiaFebruary 25, 2004
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SCHEDULE III(Page 1 of 6)
COUSINS PROPERTIES INCORPORATED AND CONSOLIDATED ENTITIESREAL ESTATE AND ACCUMULATED DEPRECIATIONDECEMBER 31, 2003($ in thousands)
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SCHEDULE III(Page 2 of 6)
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SCHEDULE III(Page 3 of 6)
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SCHEDULE III(Page 4 of 6)
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SCHEDULE III(Page 5 of 6)
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SCHEDULE III(Page 6 of 6)
NOTES:
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INDEPENDENT AUDITORS’ REPORT
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, 2003 and 2002, and the related statements of income, partners’ capital and cash flows for each of the three years in the period ended December 31, 2003. Our audits also include the financial statement schedule of CSC Associates, L.P. listed in the Index at Item 15(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 auditing standards generally accepted in the United States of America. 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, such financial statements present fairly, in all material respects, the financial position of CSC Associates, L.P. as of December 31, 2003 and 2002, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2003, in conformity with accounting principles generally accepted in the United States of America. 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.
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CSC ASSOCIATES, L.P.BALANCE SHEETSDECEMBER 31, 2003 AND 2002($ in thousands)
See notes to financial statements
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CSC ASSOCIATES, L.P.STATEMENTS OF INCOMEFOR THE YEARS ENDED DECEMBER 31, 2003, 2002 AND 2001($ in thousands)
See notes to financial statements.
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CSC ASSOCIATES, L.P.STATEMENTS OF PARTNERS’ CAPITAL (NOTE 1)FOR THE YEARS ENDED DECEMBER 31, 2003, 2002 AND 2001($ in thousands)
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CSC ASSOCIATES, L.P.STATEMENTS OF CASH FLOWSFOR THE YEARS ENDED DECEMBER 31, 2003, 2002 AND 2001($ in thousands)
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CSC ASSOCIATES, L.P.NOTES TO FINANCIAL STATEMENTSDECEMBER 31, 2003, 2002 AND 2001
1. ORGANIZATION
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 Corporation. In 1996 Premises transferred its 1% general partnership interest in the partnership to C&S Premises-SPE, Inc., a wholly-owned subsidiary of Premises. The Partnership was formed for the purpose of developing and owning a 1.3 million gross square foot office tower in midtown 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:
In the event of dissolution of the Partnership, the assets will be distributed as follows:
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Cost Capitalization—All costs related to planning, developing and constructing the Building, and expenses of the Building prior to the date it become operational for financial reporting purposes were capitalized. Interest and real estate taxes were also capitalized to the Building when it was
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under development. Costs related to improvements and additions made to the Building which add to the future benefits of the Building or prolong the useful life of the Building, are capitalized upon completion of the improvement or addition.
Depreciation and Amortization - Real estate assets are stated at depreciated cost, and the Building is being depreciated over 40 years. Furniture, fixtures, and equipment are depreciated over three to five years. Leasehold improvements and tenant improvements are amortized over the life of the related leases or the useful life of the assets, whichever is shorter. Deferred expenses, which benefit the tenants for more than one year and are specified as amortizable in the tenants’ leases, are amortized over the period of estimated benefit. The straight-line method is used for all depreciation and amortization.
Long-Lived Assets - Long-lived assets include property, equipment and other assets which are held and used by the Partnership. These assets are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Impairment losses, if any, are recognized when the expected undiscounted future operating cash flows derived from such assets are less than their carrying value. Management believes no such impairments have occurred during the periods presented.
Cash and Cash Equivalents - Cash and cash equivalents include 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 or money market mutual funds.
Restricted Cash - Restricted cash includes reserve funds established under the debt agreement, as described in Note 4.
Rental Revenues - In accordance with Statement of Financial Accounting Standards (“SFAS”) No. 13, Accounting for Leases, income on leases which include scheduled increases in rental rates over the lease term (other than scheduled increases based on the Consumer Price Index) and/or periods of free rent are recognized on a straight-line basis.
The Partnership also recognizes revenues for recoveries from tenants of operating expenses the Partnership paid on the tenants’ behalf. These operating expenses include items such as real estate taxes, insurance and other property operating costs.
Allowance for Doubtful Accounts - The Partnership makes valuation adjustments to all tenant-related revenue based upon the tenant’s credit and business risk. The Partnership generally suspends the accrual of income on specific tenants where rental payments or reimbursements are delinquent 90 days or more. As of December 31, 2003 and 2002, the allowance for doubtful accounts was $1,000 and $0, respectively.
Income Taxes - The Partnership has elected to be treated as a partnership for income tax purposes. Taxable income or loss of the Partnership is reported in the income tax returns of the Partners. Accordingly, these financial statements do not reflect a provision for income taxes.
Fair Value of Financial Instruments - The estimated fair value of financial instruments is determined by the Partnership using available market information and appropriate valuation methods. The carrying amounts of cash and cash equivalents and other current assets and liabilities are reasonable estimates of fair value. The fair value of the note payable and related note receivable was estimated using borrowing rates currently available to the Partnership for
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similar terms and was approximately $162 million and $148 million at December 31, 2003 and 2002, respectively.
Use of Estimates—The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America 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.
Recent Accounting Pronouncements—In April 2002, SFAS No. 145, “Rescission of SFAS Nos. 4, 44 and 64, Amendment of SFAS No. 13, and Technical Corrections,” was issued. SFAS No. 145, among other things, eliminated the requirement that all gains and losses from the extinguishment of debt be aggregated and, if material, classified as an extraordinary item. However, a gain or loss arising from such an event or transaction would continue to be classified as an extraordinary item if the event or transaction is both unusual in nature and infrequent in occurrence per the criteria in APB No. 30, “Reporting the Results of Operations – Reporting the Effects of Disposal of a Segment of a Business, and Extraordinary, Unusual and Infrequently Occurring Events and Transactions.” Adoption of SFAS No. 145, by the Partnership on January 1, 2003 did not have an effect on the operations or financial condition of the Partnership.
3. RENTAL REVENUES
The Partnership leases property to Bank of America, N.A., as well as to unrelated third parties. The lease with Bank of America, N.A. is at a rate 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, 2003, future minimum rentals to be received under existing non-cancelable leases, excluding tenants’ current pro rata share of operating expenses, are as follows (dollars in thousands):
At December 31, 2003, Bank of America, N.A. leased approximately 46% and two professional services firms leased approximately 18% and 17% of the net rental space of the Building. At December 31, 2003 and 2002, 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 $7,749,000 and $8,989,000, respectively. Of that
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amount, 15% was related to leases with Bank of America, N.A. and approximately 39% and 30% was related to each of two professional service firms.
4. NOTE PAYABLE AND NOTE RECEIVABLE
On February 6, 1996, the Partnership issued $80 million of 6.377% collateralized notes (the “Prior Notes”). The Prior Notes amortized in equal monthly installments of $590,680 based on a 20-year amortization schedule and were to mature February 15, 2011. The Prior Notes were non-recourse obligations of the Partnership and were secured by a Deed to Secure Debt, Assignment of Rents and Security Agreement covering the Partnership’s interest in the Building.
The Partnership then loaned the $80 million proceeds of the Prior Notes to CPI under a non-recourse loan (the “Prior CPI Loan”) secured by CPI’s interest in CSC under the same payment terms as those of the Prior Notes. CPI paid all costs of issuing the Prior Notes and the Prior CPI Loan, including a $400,000 fee to an affiliate of Bank of America Corporation. In addition, CPI paid a monthly fee to an affiliate of Bank of America Corporation of .025% of the outstanding principal balance of the Prior Notes. These fees totaled approximately $203,000 in 2001.
On February 22, 2002, CSC refinanced the Prior Notes, completing a $150 million non-recourse mortgage note payable (the “New Loan”) with an interest rate of 6.958% and a maturity of March 1, 2012. The New Loan is secured by CSC’s interest in the Building and related leases and agreements. CSC loaned the $150 million proceeds of the New Loan to CPI under a non-recourse loan (the “New CPI Loan”) secured by CPI’s interest in CSC under the same payment terms as those of the New Loan. CPI paid all costs of issuing the New Loan and the New CPI Loan, including a $750,000 fee to an affiliate of Bank of America Corporation.
The New Loan requires establishment of Reserve Funds for capital replacements and repairs for the Building and costs and expenses incurred with respect to leases. These funds are increased by $76,677 per month throughout the life of the loan. At December 31, 2003 and 2002, these Reserve Funds totaled approximately $1,611,000 and $690,000, respectively.
On March 15, 2002, $65,873,925 of the proceeds from the New Loan was used to pay off in full the Prior Notes. The $65,873,925 included $65,525,710 for the payoff of the principal balance as of February 15, 2002 (the last payment date of the Prior Notes) and $348,215 for accrued interest from February 15, 2002 through March 14, 2002. The Prior CPI Loan to CSC was also repaid in full.
The aggregate maturities of the New Loan and amounts to be received under the New CPI Loan at December 31, 2003 are as follows (dollars in thousands):
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Interest income and interest expense related to the note payable and note receivable net to zero and therefore are not shown on the accompanying Statements of Income.
5. RELATED PARTIES
The Partnership engaged CPI to manage, develop and lease the Building. Fees to CPI incurred by the Partnership during 2003 and 2002 were as follows (dollars in thousands):
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 plus additional costs of approximately $23,000 are included in Other Assets and are 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 $1,000,000 would be due to CSC. In addition, CSC is responsible for the maintenance of the parking deck and the payment of the related operating expenses.
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SCHEDULE III
CSC ASSOCIATES, L.P.REAL ESTATE AND ACCUMULATED DEPRECIATIONDECEMBER 31, 2003($ in thousands)
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