Cousins Properties Reports Second Quarter 2014 Results

Accelerates Earnings Call to July 30 at 1 p.m. ET

ATLANTA--(BUSINESS WIRE)--Cousins Properties Incorporated (NYSE:CUZ):

Highlights

• Funds From Operations for the second quarter was $0.18 per share, or $0.20 per share before non-cash preferred share original issuance charge.
• Cash basis same property net operating income for the second quarter was up 15.0% over the prior year.
• Subsequent to quarter end, entered into an agreement to acquire Fifth Third Center in Charlotte, North Carolina for $215.0 million.

Cousins Properties Incorporated (NYSE:CUZ) today reported its results of operations for the quarter ended June 30, 2014.

“We took advantage of our recovering Sunbelt office markets by signing a significant number of new leases during the second quarter at improving economics to us,” said Larry Gellerstedt, President and Chief Executive Officer of Cousins. “In addition, our pending purchase of Fifth Third Center is an exceptional strategic fit for us. We are purchasing this Class A office tower below replacement cost and with a real value creation opportunity through the lease-up of vacant space.”

Portfolio Activity

• Leased or renewed 416,000 square feet of office and retail space during the second quarter.

Transaction Activity

• Sold all remaining land at the Round Rock, Texas site for $10.0 million and recognized a gain of $1.3 million.
• Subsequent to quarter end, entered into an agreement to acquire Fifth Third Center, a 698,000 square foot Class A office tower located in Uptown Charlotte, North Carolina, for a gross purchase price of $215.0 million. The Company expects Fifth Third Center to be 82% leased upon closing.

Financing Activity

• Recast the credit facility to, among other things, increase the size to $500 million, extend the maturity to May 28, 2019, and reduce the per annum variable interest rate spread and other fees. At current leverage levels, the reduction in the spread and other fees resulted in a savings of 45 basis points.
• Redeemed all outstanding shares of the Company’s Series B Cumulative Redeemable Preferred Stock for $94.8 million, excluding accrued dividends. The Company has no preferred stock outstanding.

Financial Results

FFO was $35.8 million, or $0.18 per share, for the second quarter of 2014, compared with $14.2 million, or $0.12 per share, for the second quarter of 2013. FFO was $72.0 million, or $0.37 per share, for the six months ended June 30, 2014, compared with $25.6 million, or $0.23 per share, for same period in 2013. In connection with the redemption of preferred stock, the Company decreased net income available for common shareholders by $3.5 million (non-cash), or $0.02 per share, which represents the original issuance costs applicable to the shares redeemed. FFO per share before the effect of this reduction was $0.20 and $0.39 for the three and six months ended June 30, 2014, respectively.

Net loss available to common stockholders was $(2.2) million, or $(0.01) per share, for the second quarter of 2014, compared with $(5.6) million, or $(0.05) per share, for the second quarter of 2013. Net income available to common stockholders was $3.0 million, or $0.02 per share, for the six months ended June 30, 2014, compared with $47.6 million, or $0.43 per share, for same period in 2013. The six months ended June 30, 2013 included $56.8 million in gains recognized on the sale of 50% of the Company’s interest in Terminus 100 and on the acquisition of Terminus 200, which was achieved in stages.

The Company customarily provides net operating income guidance for specific assets where historical performance may not exist, or where historical performance may not be a good guidepost for future performance, along with guidance on fee income and general and administrative expenses. No update on previously provided guidance is necessary for this quarter.

Investor Conference Call and Webcast

The Company will conduct a conference call at 1 p.m. (Eastern Time) on Wednesday, July 30, 2014, to discuss the results of the quarter ended June 30, 2014. The number to call for this interactive teleconference is [phone].

A replay of the conference call will be available for 14 days by dialing [phone] and entering the passcode 21728998. The replay can be accessed on the Company’s website, www.cousinsproperties.com, through the “Q2 2014 Cousins Properties Incorporated Earnings Conference Call” link on the Investor Relations page.

Cousins Properties Incorporated is a leading fully-integrated real estate investment trust (REIT) with extensive experience in development, acquisition, financing, management, and leasing. Based in Atlanta, the Company actively invests in top-tier urban office assets and opportunistic mixed-use properties in Sunbelt markets.

The Consolidated Statements of Operations, Consolidated Balance Sheets, a schedule entitled Funds From Operations, which reconciles Net Income (Loss) Available to FFO and defines net effective rent, and a schedule entitled Same Property Information, which reconciles cash basis same property net operating income to rental property revenues and rental property expenses, are attached to this press release. More detailed information on Net Income (Loss) Available and FFO results is included in the “Net Income and Funds From Operations - Supplemental Detail” schedule, which is included along with other supplemental information in the Company’s Current Report on Form 8-K, which the Company is furnishing to the Securities and Exchange Commission (“SEC”), and which can be viewed through the “Supplemental Information” and “SEC Filings” links on the “Investor Information & Filings” link of the Investor Relations page of the Company’s website at www.cousinsproperties.com. This information may also be obtained by calling the Company’s Investor Relations Department at [phone].

Certain matters discussed in this news release are “forward-looking statements” within the meaning of the federal securities laws and are subject to uncertainties and risk. These include, but are not limited to, the availability and terms of capital and financing; the ability to refinance indebtedness as it matures; the failure of purchase, sale, or other contracts to ultimately close; the failure to achieve anticipated benefits from acquisitions and investments or from dispositions; the potential dilutive effect of common stock offerings; the availability of buyers and adequate pricing with respect to the disposition of assets; risks related to the geographic concentration of our portfolio; risks and uncertainties related to national and local economic conditions, the real estate industry in general, and the commercial real estate markets in particular; changes to the Company’s strategy with regard to land and other non-core holdings that require impairment losses to be recognized; leasing risks, including the ability to obtain new tenants or renew expiring tenants, and the ability to lease newly developed and/or recently acquired space; the financial condition of existing tenants; volatility in interest rates and insurance rates; the availability of sufficient investment opportunities; competition from other developers or investors; the risks associated with real estate developments (such as zoning approval, receipt of required permits, construction delays, cost overruns, and leasing risk); the loss of key personnel; the potential liability for uninsured losses, condemnation, or environmental issues; the potential liability for a failure to meet regulatory requirements; the financial condition and liquidity of, or disputes with, joint venture partners; any failure to comply with debt covenants under credit agreements; any failure to continue to qualify for taxation as a real estate investment trust; and other risks detailed from time to time in the Company’s filings with the Securities and Exchange Commission, including those described in Part I, Item 1A of the Company’s Annual Report on Form 10-K for the year ended December 31, 2013. The words “believes,” “expects,” “anticipates,” “estimates,” “plans,” “may,” “intend,” “will,” or similar expressions are intended to identify forward-looking statements. Although the Company believes that its plans, intentions and expectations reflected in any forward-looking statement 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, except as required under U.S. federal securities laws.

COUSINS PROPERTIES INCORPORATED AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(unaudited; in thousands, except per share amounts)
	Three Months Ended June 30,						Six Months Ended June 30,
	2014			2013			2014			2013
Revenues:
Rental property revenues	$	80,034		$	37,100		$	157,518		$	70,224
Fee income		2,025			2,931			4,363			6,511
Other		2,446			2,490			4,347			4,049
		84,505			42,521			166,228			80,784
Costs and expenses:
Rental property operating expenses		35,959			17,868			70,816			33,079
Reimbursed expenses		988			1,359			1,920			3,268
General and administrative expenses		5,756			4,552			11,366			10,622
Interest expense		6,970			4,241			14,137			9,176
Depreciation and amortization		35,135			14,928			69,274			26,176
Separation expenses		-			-			84			-
Acquisition and related costs		149			333			171			568
Other		877			731			1,370			2,186
		85,834			44,012			169,138			85,075
Loss from continuing operations before taxes, unconsolidated joint ventures, and sale of investment properties		(1,329	)		(1,491	)		(2,910	)		(4,291	)
Benefit (provision) for income taxes from operations		9			(1	)		21			(2	)
Income from unconsolidated joint ventures		2,027			1,132			3,313			2,784
Loss from continuing operations before gain on sale of investment properties		707			(360	)		424			(1,509	)
Gain on sale of investment properties		1,327			406			1,488			57,560
Income (loss) from continuing operations		2,034			46			1,912			56,051
Income from discontinued operations:
Income from discontinued operations		566			687			1,457			1,470
Gain on sale of investment properties		14			86			6,379			204
		580			773			7,836			1,674
Net income		2,614			819			9,748			57,725
Net income attributable to noncontrolling interests		(129	)		(515	)		(284	)		(1,022	)
Net income attributable to controlling interests		2,485			304			9,464			56,703
Preferred share original issuance costs		(3,530	)		(2,656	)		(3,530	)		(2,656	)
Dividends to preferred stockholders		(1,178	)		(3,227	)		(2,955	)		(6,454	)
Net income available to common stockholders	$	(2,223	)	$	(5,579	)	$	2,979		$	47,593
Per common share information — basic and diluted:
Income (loss) from continuing operations attributable to controlling interest	$	(0.01	)	$	(0.06	)	$	(0.02	)	$	0.41
Income from discontinued operations		-			0.01			0.04			0.02
Net income available to common stockholders	$	(0.01	)	$	(0.05	)	$	0.02		$	0.43
Weighted average shares — basic		198,440			118,661			195,108			111,430
Weighted average shares — diluted		198,440			118,661			195,347			111,593
Dividends declared per common share	$	0.075		$	0.045		$	0.150		$	0.090

COUSINS PROPERTIES INCORPORATED AND SUBSIDIARIES
FUNDS FROM OPERATIONS
(unaudited; in thousands, except per share amounts)
	Three Months Ended June 30,						Six Months Ended June 30,
	2014			2013			2014			2013
Net Income Available to Common Stockholders	$	(2,223	)	$	(5,579	)	$	2,979		$	47,593
Depreciation and amortization of real estate assets:
Consolidated properties		34,934			14,739			68,888			25,804
Discontinued properties		—			1,047			—			2,098
Share of unconsolidated joint ventures		3,088			4,167			6,086			7,371
(Gain) loss on sale of depreciated properties:
Consolidated properties		(1	)		(130	)		(1	)		(57,043	)
Discontinued properties		(14	)		(86	)		(6,373	)		(204	)
Share of unconsolidated joint ventures		—			—			387			—
Funds From Operations Available to Common Stockholders	$	35,784		$	14,158		$	71,966		$	25,619
Per Common Share — Basic and Diluted:
Net Income Available	$	(0.01	)	$	(0.05	)	$	0.02		$	0.43
Funds From Operations	$	0.18		$	0.12		$	0.37		$	0.23
Weighted Average Shares — Basic		198,440			118,661			195,108			111,430
Weighted Average Shares — Diluted		198,702			118,845			195,347			111,593
The table above shows Funds From Operations Available to Common Stockholders (“FFO”) and the related reconciliation to Net Income Available to Common Stockholders for Cousins Properties Incorporated and Subsidiaries. The Company calculated FFO in accordance with the National Association of Real Estate Investment Trusts’ (“NAREIT”) definition, which is net income (loss) available to common stockholders (computed in accordance with accounting principles generally accepted in the United States (“GAAP”)), excluding extraordinary items, cumulative effect of change in accounting principle and gains or losses from sales of depreciable property, plus depreciation and amortization of real estate assets, impairment losses on depreciable investment property and after adjustments for unconsolidated partnerships and joint ventures to reflect FFO on the same basis.
FFO is used by industry analysts and investors as a supplemental measure of an equity REIT’s operating performance. Historical cost accounting for real estate assets implicitly assumes that the value of real estate assets diminishes predictably over time. Since real estate values instead have historically risen or fallen with market conditions, many industry investors and analysts have considered presentation of operating results for real estate companies that use historical cost accounting to be insufficient by themselves. Thus, NAREIT created FFO as a supplemental measure of REIT operating performance that excludes historical cost depreciation, among other items, from GAAP net income. Management believes that the use of FFO, combined with the required primary GAAP presentations, has been fundamentally beneficial, improving the understanding of operating results of REITs among the investing public and making comparisons of REIT operating results more meaningful. Company management evaluates operating performance in part based on FFO. Additionally, the Company uses FFO along with other measures, to assess performance in connection with evaluating and granting incentive compensation to its officers and other key employees.
Net effective rent represents base rent less operating expense reimbursements and leasing costs. Second generation leases exclude leases executed for spaces that were vacant upon acquisition, new leases in a development property, and leases for spaces that have been vacant for one year or more.

COUSINS PROPERTIES INCORPORATED AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(in thousands, except share and per share amounts)
	June 30, 2014			December 31, 2013
	(unaudited)
Assets:
Real estate assets:
Operating properties, net of accumulated depreciation of $283,119 and $235,707 in 2014 and 2013, respectively	$	1,817,439		$	1,828,437
Projects under development		56,760			21,681
Land		26,790			35,053
		1,900,989			1,885,171
Operating properties and related assets held for sale, net of accumulated depreciation of $12,001 and $21,444 in 2014 and 2013, respectively		11,396			24,554
Cash and cash equivalents		6,257			975
Restricted cash		3,912			2,810
Notes and accounts receivable, net of allowance for doubtful accounts of $1,335 and $1,827 in 2014 and 2013, respectively		10,733			11,778
Deferred rents receivable		51,555			39,969
Investment in unconsolidated joint ventures		111,164			107,082
Intangible assets, net of accumulated amortization of $60,591 and $37,544 in 2014 and 2013, respectively		147,721			170,973
Other assets		35,773			29,894
Total assets	$	2,279,500		$	2,273,206
Liabilities:
Notes payable	$	665,852		$	630,094
Accounts payable and accrued expenses		72,577			76,668
Deferred income		23,681			25,754
Intangible liabilities, net of accumulated amortization of $11,993 and $6,323 in 2014 and 2013, respectively		60,806			66,476
Other liabilities		15,704			15,242
Total liabilities		838,620			814,234
Commitments and contingencies		-			-
Equity:
Stockholders’ investment:
Preferred stock, 7.50% Series B cumulative redeemable preferred stock, $1 par value, $25 liquidation preference, 20,000,000 shares authorized, -0- and 3,791,000 shares issued and outstanding in 2014 and 2013, respectively		-			94,775
Common stock, $1 par value, 350,000,000 and 250,000,000 shares authorized, 202,043,854 and 193,236,454 shares issued in 2014 and 2013, respectively		202,044			193,236
Additional paid-in capital		1,514,959			1,420,951
Treasury stock at cost, 3,570,082 shares in 2014 and 2013		(86,840	)		(86,840	)
Distributions in excess of cumulative net income		(190,857	)		(164,721	)
Total stockholders’ investment		1,439,306			1,457,401
Nonredeemable noncontrolling interests		1,574			1,571
Total equity		1,440,880			1,458,972
Total liabilities and equity	$	2,279,500		$	2,273,206

COUSINS PROPERTIES INCORPORATED AND SUBSIDIARIES
SAME PROPERTY INFORMATION
(unaudited, in thousands)
	Three Months Ended June 30,						Six Months Ended June 30,
	2014			2013			2014			2013
Net Operating Income - Consolidated Properties
Rental property revenues	$	80,034		$	37,100		$	157,518		$	70,224
Rental property expenses		(35,959	)		(17,868	)		(70,816	)		(33,079	)
		44,075			19,232			86,702			37,145
Net Operating Income - Discontinued Operations
Rental property revenues		967			2,940			2,323			5,940
Rental property expenses		(402	)		(1,182	)		(866	)		(2,373	)
		565			1,758			1,457			3,567
Net Operating Income - Unconsolidated Joint Ventures		6,648			7,576			13,147			14,030
Total Net Operating Income	$	51,288		$	28,566		$	101,306		$	54,742
Net Operating Income
Same Property	$	15,751		$	14,629		$	30,998		$	29,491
Non-Same Property		35,537			13,937			70,308			25,251
	$	51,288		$	28,566		$	101,306		$	54,742
Non-Cash Items
Straight-line rent	$	4,904		$	2,203		$	12,649		$	4,765
Other		1,622			262			3,207			149
		6,526			2,465			15,856			4,914
Cash Basis Property Net Operating Income
Same Property		15,706			13,663			30,256			26,962
Non-Same Property		29,056			12,438			55,194			22,866
	$	44,762		$	26,101		$	85,450		$	49,828
This schedule shows same property net operating income and the related reconciliation to rental property revenues and rental property expenses. Net Operating Income is used by industry analysts, investors and Company management to measure operating performance of the Company’s properties. Net Operating Income, which is rental property revenues less rental property operating expenses, excludes certain components from net income in order to provide results that are more closely related to a property’s results of operations. Certain items, such as interest expense, while included in FFO and net income, do not affect the operating performance of a real estate asset and are often incurred at the corporate level as opposed to the property level. As a result, management uses only those income and expense items that are incurred at the property level to evaluate a property’s performance. Depreciation and amortization are also excluded from Net Operating Income. Same Property Net Operating Income includes those office properties that have been fully operational in each of the comparable reporting periods. A fully operational property is one that has achieved 90% economic occupancy for each of the two periods presented or has been substantially complete and owned by the Company for each of the two periods presented and the preceding year. Same Property Net Operating Income allows analysts, investors and management to analyze continuing operations and evaluate the growth trend of the Company’s portfolio.
Cash Basis Same Property Net Operating Income represents Net Operating Income excluding straight-line rents, amortization of lease inducements, and amortization of acquired above and below market rents.