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 Company'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 CREC's 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 residential developments and holds several tracts of strategically located undeveloped land. The Company's holdings are concentrated in the southeastern United States, primarily in the Atlanta area. 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 1996 Annual Report to Stockholders. Brief Description of Company Investments Office. As of March 15, 1997, the Company owns, directly and indirectly, equity interests of at least 50% in the following seventeen commercial office buildings:
(a) See Item 2.
Item 2. Properties
Table of Major Properties The following tables set forth certain information relating to major office and retail properties, stand alone retail lease sites, medical office properties 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, 1996, except percentage leased which is as of March 15, 1997. Dollars are stated in thousands.
(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) Chevron USA has the right to terminate its lease during 1998 if notice is given by April 1, 1997. As of March 23, 1997, no notice had been received.
(3) 1,556 square feet expires in 2001.
(4) 115,944 square feet expires in 2001, and the balance expires in 2006.
(5) Actual tenant or venture partner is affiliate of entity shown.
(6) TSW International, Inc., Green Tree Financial and Georgia-Pacific Corporation have the right to terminate their leases in 1998, 2001 and 2007, respectively, upon payment of significant cancellation penalties.
(7) For 3100 Windy Hill Road, the cost shown is the Company's carrying value of the land lease and first mortgage note from which it derives substantially all of the economic benefits of the property.
(8) Tenant has the option to purchase the building on its lease expiration date for a price of $33,750,000.
(9) On January 7, 1997, Wildwood Associates received a commitment for the financing of the 4100 and 4300 Wildwood Parkway Buildings which funded on March 20, 1997. The $30 million non-recourse mortgage note payable has an interest rate of 7.65% and term of fifteen years.
(10) Project was under construction as of December 31, 1996. Lease expiration dates are based upon estimated commencement dates, and square footage is estimated.
(11) See "Major Properties" - "NationsBank Plaza" and "Ten Peachtree Place" where the partnership's preferences are discussed.
(12) Maturity of the Ten Peachtree Place mortgage debt is extendible to December 31, 2008. Rate becomes floating after November 30, 2001.
(13) 615 Peachtree Street was acquired in July 1996. Thus, economic occupancy for 615 Peachtree Street does not include a full year of operations.
(14) One Independence Center was acquired in December 1996. Thus, economic occupancy for One Independence Center does not include a full year of operations.
(15) 101,250 square feet expires in 2000.
(16) 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.
(17) This anchor tenant owns its own space.
(18) North Point MarketCenter includes approximately 4 outparcels which are ground leased to freestanding users.
(19) Includes 82,000 square feet under development as of March 15, 1997 which were excluded from calculation of percentage leased and the average 1996 economic occupancy.
(20) Colonial Plaza MarketCenter became partially operational in March 1996 for financial reporting purposes. Thus, economic occupancy for Colonial Plaza MarketCenter does not include a full year of operations.
(21) Mansell Crossing Phase II became partially operational in March 1996 for financial reporting purposes. Thus, economic occupancy for Mansell Crossing Phase II does not include a full year of operations.
(22) Greenbrier MarketCenter became partially operational in October 1996 for financial reporting purposes. Thus, economic occupancy for Greenbrier MarketCenter does not include a full year of operations.
(23) Los Altos MarketCenter became partially operational in November 1996 for financial reporting purposes. Thus, economic occupancy for Los Altos MarketCenter does not include a full year of operations.
(24) Land was acquired and construction commenced on Abbotts Bridge Station subsequent to December 31, 1996. Lease expiration dates are based upon estimated commencement dates, and square footage is estimated.
(25) Presbyterian Medical Center at University is located on 1 acre which is subject to a ground lease expiring in 2057.
(26) See "Major Properties" - "NationsBank Plaza" where debt on NationsBank Plaza is discussed.
Land Held for Investment and Future Development (excluding Retail Outparcels)
(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 $1,217,000. (3) The North Point property is located both east and west of Georgia Highway 400. Currently, only the land which is located east of Georgia Highway 400 is being developed, but planning has begun for additional development on the west side property. This land 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 11,300 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. Temco Associates has engaged in certain sales of land as to which it simultaneously exercised its purchase option. During 1994 and 1996, approximately 72 and 375 acres, respectively, of the option related to the fee simple interest was exercised and simultaneously sold for gross profits of $243,000 and $1,427,000, respectively. None of the option was exercised in 1995.
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 289 acre Class A commercial development in suburban Atlanta master planned by I.M. Pei, including 8 office buildings (of which 1 is under construction) containing 2,426,000 rentable square feet. The property is zoned for office, institutional and commercial use. Approximately 109 acres in the park are owned by, or committed to be contributed to, Wildwood Associates (see below), including approximately 36 acres of land held for future development. The Company owns 100% of the 147 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, 1996, the Company's investment in Wildwood Associates and a related partnership was approximately $2.5 million, which included the cost of the land the Company is committed to contribute to Wildwood Associates. 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 (313,000 rentable square feet), the 4100 and 4300 Wildwood Parkway Buildings (250,000 rentable square feet in total) and the 4200 Wildwood Parkway Building (250,000 rentable square feet, which is under construction). At March 15, 1997, these buildings were 97%, 98%, 97%, 100% and 0% leased, respectively. Wildwood Associates also owns 15 acres leased to two banking facilities and five restaurants. On December 16, 1996, Wildwood Associates completed the financing of the 3200 Windy Hill Road Building with a $70 million mortgage note payable at an 8.23% interest rate and maturity of January 1, 2007. Concurrent with the financing, Wildwood Associates paid down its line of credit to $0 and on January 16, 1997, made a cash distribution of $10 million to each partner. On January 7, 1997, Wildwood Associates received a commitment for the financing of the 4100 and 4300 Wildwood Parkway Buildings which funded on March 20, 1997. The $30 million non-recourse mortgage note payable has an interest rate of 7.65% and term of fifteen years. Wildwood Associates has a $10 million bank line of credit (the Company severally guarantees one-half) under which $0 was drawn at December 31, 1996. 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. Commencing January 1994, a single tenant, TSW International, Inc., leased the building for a term of ten years. The lease was initially for 60% of the building with options permitting the tenant to expand its occupancy to the remainder of the building over the next several years. The first such option for an additional 10% of the space was exercised in the fourth quarter of 1994 and the second option for another 10% of the space was exercised effective December 15, 1996, bringing the building to 80% leased as of March 15, 1997. 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 was 100% leased by the partnership to IBM through November 1993. In January 1993, the IBM lease was extended through November 30, 1998. Concurrently with the IBM extension, the mortgage note and related leases were also modified (see Note 3).
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 approximately 167 and 230 acres located on the east and west sides of Georgia Highway 400, respectively. Currently, only the land which is located east of Georgia Highway 400 is being developed, but planning has begun for additional development on the west side property. This 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. Through December 31, 1995, these two retail properties were owned by North Point Market Associates, L.P. ("NPMA") a limited partnership between Cousins (82.3%) and an affiliate of Coca-Cola (17.7%). At December 31, 1995, Cousins also had a 50% interest with an affiliate of Coca-Cola in another partnership, Spring/Haynes Associates, which owned approximately 11 acres of land in midtown Atlanta. Effective January 1, 1996, Cousins and Coca-Cola entered into a transaction to exchange their interests in these two partnerships, which effectively resulted in Coca-Cola receiving 100% of the Spring/Haynes Associates' property and Cousins receiving $1,092,000 in cash and 100% of North Point Market Associates, L.P.'s properties (North Point MarketCenter and Mansell Crossing Phase II). The net amount of Coca-Cola's minority interest of $3,825,000 in North Point Market Associates, L.P. and the Company's investment in Spring/Haynes Associates of $1,688,000 as of December 31, 1995 were credited against the carrying values of North Point Market Associates, L.P.'s properties. North Point MarketCenter, which is 100% leased as of March 15, 1997, is a 514,000 square foot retail power center (of which 398,000 square feet are owned by Cousins) located adjacent to North Point Mall. Mansell Crossing Phase II, which is 100% leased as of March 15, 1997, is an approximately 103,000 square foot expansion of an existing retail power center, previously developed by the Company for a third party, which became partially operational for financial reporting purposes in March 1996. These two centers are located on 49 (Company owned) and 13 acres of land, respectively, at North Point. North Point Center East. The Company owns three office buildings located adjacent to North Point Mall and the Company's retail properties. 100 North Point Center East and 200 North Point Center East, 128,000 and 129,000 rentable square feet, respectively, became partially operational for financial reporting purposes in April 1996 and November 1996, respectively. Construction commenced in December 1996 on the third office building, 333 North Point Center East, a 128,000 square foot office building, adjacent to 100 and 200 North Point Center East. These three office buildings are located on 22 acres of land at North Point and are 100%, 93% and 0% leased as of March 15, 1997. 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, 1997. The remaining approximately 289 developable acres at North Point are 100% owned by the Company. Approximately 59 acres of this land are located on the east side of Georgia Highway 400 and are zoned for mixed-use development including retail and office space. Approximately 230 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, 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 92% leased at March 15, 1997. An affiliate of NationsBank 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 NationsBank, each as 50% partners. In October 1993, CSC fully repaid all of its debt with equity contributions of $86.7 million made by each partner. On February 6, 1996, CSC issued $80 million of 6.377% collateralized notes and simultaneously loaned the $80 million proceeds to the Company (see Note 4 where discussed). At December 31, 1996, the Company's investment in CSC was approximately $102,904,000. CSC's net income or loss and cash distributions are allocated to the partners based on their percentage interests (50% each), subject to a preference to Cousins, which preference resulted in Cousins recognizing $451,000 and $36,000 in income over what it would have otherwise recognized in the years ended December 31, 1994 and 1995, respectively. No additional preference is due to Cousins. First Union Tower. First Union Tower is a Class A office building containing approximately 319,000 rentable square feet. The property is located on approximately one acre of land in downtown Greensboro, North Carolina. First Union Tower opened in the first quarter of 1990 and at March 15, 1997 was approximately 94% leased. In May 1996, pursuant to the third amendment to the North Greene Associates partnership agreement, Weaver Downtown, L.P., the minority partner, sold its partnership interest to Cousins for $999,000. As a result, Cousins owns 100% of the First Union Tower. 615 Peachtree Street. In August 1996, the Company acquired 615 Peachtree Street, a 147,000 rentable square foot downtown Atlanta office building, located across from NationsBank Plaza. The 12-story office building was purchased for $11.1 million plus a contingent future payment of up to an additional $1 million. 615 Peachtree Street was 89% leased as of March 15, 1997. One Independence Center. In December 1996, the Company acquired One 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 in the central business district of Charlotte, North Carolina for a purchase price of approximately $70.6 million. The Company purchased the office building using approximately $34,612,000 of proceeds from the tax-deferred exchanges of Lawrenceville MarketCenter and an outparcel at North Point, $30,879,000 from the assumption of a mortgage note payable, $18,621,000 from an additional amount drawn down on the mortgage note payable (to bring the mortgage note payable to a total of $49,500,000) (see Note 4) and $2,426,000 of cash. The Company also assumed $1,300,000 of municipal bonds related to the underground parking garage. One Independence Center was 99% leased as of March 15, 1997. 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 2088 with a 99-year renewal option. One Ninety One Peachtree Tower was approximately 92% leased at March 15, 1997. 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 is owned by DIHC Peachtree Associates, an affiliate of DIHC. 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 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 by DIHC Peachtree Associates 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, 1996, the cumulative undistributed preferred return was $10,325,065. The project is subject to long-term debt of $145,000,000 at December 31, 1996. Thereafter, the partners will share in any cash flow distributions in accordance with their percentage interests. At December 31, 1996, the Company had a negative investment of $90,000 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 $20.2 million at December 31, 1996. 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, 1996, the Company had a negative investment in Ten Peachtree Place Associates of $4,000. 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. In April 1996, the venture completed the financing of the building with a $24,675,000, 17 year fully amortizing non-recourse mortgage note at a 7% interest rate.
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 is owned by the Company and Bellwether Properties of South Carolina, L.P. ("Bellwether"), an affiliate of Corporate Properties Investors. Expansion of the mall from 956,000 gross leasable square feet ("GLA") (of which ownership is approximately 272,000 GLA) to 1,256,000 GLA (of which ownership is approximately 330,000) was substantially completed in 1995. 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 Bellwether 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 Bellwether was approximately 84% leased as of March 15, 1997. The Company has a 50% interest in Haywood Mall. The Company contributed $5.8 million during 1995 to fund its share of the expansion of the mall. At December 31, 1996, the Company's investment was $20,743,000. Other Fully Operational Retail Properties. In addition to North Point MarketCenter and Mansell Crossing Phase II which are discussed above, the Company owns four other retail centers which were fully operational for financial reporting purposes as of December 31, 1996. Perimeter Expo is a 291,000 square foot retail power center (of which the Company owns 171,000 square feet) which is located in Atlanta, Georgia and was 100% leased (Company owned) as of March 15, 1997. Presidential MarketCenter is a 478,000 square foot retail power center (of which the Company owns 362,000 square feet) which is located in suburban Atlanta, Georgia and was 99% leased (Company owned) as of March 15, 1997. Lovejoy Station is a 77,000 square foot neighborhood retail center which is located in suburban Atlanta and was 95% leased as of March 15, 1997. Greenbrier MarketCenter is a 479,000 square foot retail power center which is located in Chesapeake, Virginia and was 99% leased as of March 15, 1997. Partially Operational Retail Properties. The Company owns two retail properties which were partially operational for financial reporting purposes as of December 31, 1996. Colonial Plaza MarketCenter is a 493,000 square foot retail power center which is located in Orlando, Florida and was 97% leased as of March 15, 1997. Los Altos MarketCenter is a 258,000 square foot retail power center (of which the Company owns 157,000 square feet) which is located in Long Beach, California and was 100% leased as of March 15, 1997. Retail Projects Under Construction. The Company owns two neighborhood retail centers one of which was under construction as of December 31, 1996; the land was purchased and construction commenced in January 1997 for the other center. Rivermont Station is a 90,000 square foot neighborhood retail center which is located in suburban Atlanta, 100% leased as of March 15, 1997, and expected to be completed in early 1997 at a total cost of approximately $10 million. The Company purchased the land for and commenced construction on Abbotts Bridge Station, an 85,000 square foot neighborhood retail center which is located in suburban Atlanta and is expected to be completed in early 1998 at a total cost of approximately $11 million. Abbotts Bridge Station was 62% leased as of March 15, 1997.
Medical Properties - ------------------ In July 1996, Cousins acquired the medical office building development and management operations of The Lea Richmond Company and The Richmond Development Company. The purchase price for the acquisition was $1.8 million plus contingent future payments of up to an additional $1 million (of which $200,000 was paid through December 31, 1996), subject to commencement of development of certain medical office projects. This new division of the Company commenced construction in July 1996 on the Presbyterian Medical Center at University, a 67,000 rentable square foot medical office building in Charlotte, North Carolina, which was 73% leased as of March 15, 1997.
Residential Lot Developments
As of December 31, 1996, CREC owned the following parcels of land which are being developed into residential communities ($ in thousands):
(1) Includes lots sold to date. Additional lots may be developed on adjacent land on which CREC holds purchase options.
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 present themselves 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 11,300 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 $780 per acre at January 1, 1997, escalating at 6% on January 1 of each succeeding year during the term of the option. The Temco Associates property has the potential for future residential, industrial and commercial development. Temco Associates has to date sold parcels of land as to which it simultaneously exercised its purchase option. During 1994 and 1996, approximately 72 and 375 acres, respectively, of the option related to the fee simple interest was exercised and simultaneously sold for gross profits of $243,000 and $1,427,000, respectively. None of the option was exercised in 1995.
Other Real Property Investments - ------------------------------- Omni Norfolk Hotel. Norfolk Hotel Associates ("NHA") is 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. At December 31, 1996, the Company had an investment of $2,091,000 in NHA. The Company has also guaranteed a $2.1 million line of credit to NHA under which $2.0 million had been drawn at December 31, 1996 and its partner has guaranteed an equal line of credit under which $2.0 million had been drawn at December 31, 1996. On February 14, 1997, the mortgage note with a balance of $8,325,000 was repaid in full. A portion of the proceeds from the repayment were used to pay off the partnership's lines of credit, with the balance distributed to the partners. It is anticipated that this partnership will be liquidated in 1997. Dusseldorf Joint Venture. In 1992, Cousins 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. Cousins' 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 $777,000 of development income was received and recognized in 1996. Kennesaw Crossings. The Company owns Kennesaw Crossings, a 116,000 square foot shopping center in suburban Atlanta, Georgia. The center was constructed in 1974 on 14 acres of land leased from an unrelated party through 2068. The Company's net carrying value in Kennesaw Crossings as of December 31, 1996 was $993,000. 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 $0.
Supplemental Financial and Leasing Information
Depreciation and amortization expense include the following components for the years ended December 31, 1995 and 1996 ($ in thousands):
Exclusive of new developments and purchases of furniture, fixtures and equipment, the Company had the following capital expenditures for the years ended December 31, 1995 and 1996, including its share of unconsolidated joint ventures ($ in thousands):
Item 3.
Item 3. Legal Proceedings
No material legal proceedings are presently pending by or against the Company. Item 4.
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, 1996. 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 65 Chairman of the Board of Directors and Chief Executive Officer Daniel M. DuPree 50 President and Chief Operating Officer George J. Berry 59 Senior Vice President Tom G. Charlesworth 47 Senior Vice President, Secretary and General Counsel Craig B. Jones 46 Senior Vice President Joel T. Murphy 38 Senior Vice President and President of the Retail Division (Cousins MarketCenters, Inc.) John L. Murphy 51 Senior Vice President - Marketing W. James Overton 50 Senior Vice President - Development Lea Richmond III 49 Senior Vice President and President of the Medical Office Division (Cousins/ Richmond) Peter A. Tartikoff 55 Senior Vice President and Chief Financial Officer Relationships: - --------------
There are no family relationships among the Executive Officers or Directors. 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.
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. 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.
Mr. Tartikoff has been Senior Vice President and Chief Financial Officer of the Company since February 1986.
PART II
Item 5.
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 44 of the Registrant's 1996 Annual Report to Stockholders is incorporated herein by reference.
Item 6.
Item 6. Selected Financial Data - -------------------------------
The information appearing under the caption "Five Year Summary of Selected Financial Data" on page 38 of the Registrant's 1996 Annual Report to Stockholders is incorporated herein by reference.
Item 7.
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 39 through 43 of the Registrant's 1996 Annual Report to Stockholders is incorporated herein by reference.
Item 8.
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 19 through 38 of the Registrant's 1996 Annual Report to Stockholders are incorporated herein by reference.
The information appearing under the caption "Selected Quarterly Financial Information (Unaudited)" on page 45 of the Registrant's 1996 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.
Item 9. Changes in and Disagreements with Accountants on Accounting and - -------------------------------------------------------------------------------- Financial Disclosure --------------------
Not applicable.
PART III
Item 10.
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 Executive Officers of the Company" on pages 2 through 4 and "Compliance with Section 16(a) of the Securities Exchange Act of 1934" on page 13 of the Proxy Statement dated March 28, 1997 relating to the 1997 Annual Meeting of the Registrant's Stockholders, and is incorporated herein by reference.
Item 11.
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 28, 1997 relating to the 1997 Annual Meeting of the Registrant's Stockholders is incorporated herein by reference.
Item 12.
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 6 and "Principal Stockholders" on pages 16 and 17 of the Proxy Statement dated March 28, 1997 relating to the 1997 Annual Meeting of the Registrant's Stockholders, and is incorporated herein by reference.
Item 13.
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 28, 1997 relating to the 1997 Annual Meeting of the Registrant's Stockholders, and is incorporated herein by reference.
PART IV
Item 14.
Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K - ----------------------------------------------------------------------------
Item 14. Continued - ---------------------
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 restated as of April 29, 1993, filed as Exhibit 4(a) to the Registrant's Form S-3 dated September 28, 1993, and incorporated herein by reference.
3(b) By-laws of Registrant, as amended and restated as of November 30, 1989, as further amended 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 amended on April 26, 1994, filed as Exhibit 99.1 to the Registrant's Form S-8 dated December 8, 1994, and incorporated herein by reference, as further amended by the Stockholders on May 6, 1996, filed as Exhibit A to the Registrant's Proxy Statement dated May 6, 1996, 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.
10(d) Cousins Properties Incorporated Stock Plan for Outside Directors, as amended by the Stockholders on May 6, 1996, filed on page 24 of the Registrant's Proxy Statement dated May 6, 1996, and incorporated herein by reference.
Item 14. Continued - ---------------------
11 Schedule showing computations of weighted average number of shares of common stock outstanding as used to compute primary and fully diluted income per share for each of the five years ended December 31, 1996.
13 Annual Report to Stockholders for the year ended December 31, 1996.
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. --------------------------
A Form 8-K was filed on December 20, 1996 and a Form 8-K/A was filed on February 18, 1997.
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 21, 1997
BY: /s/ Kelly H. Barret Kelly H. Barrett Vice President and Controller (Authorized Officer) (Principal Accounting 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 21, 1997 Chief Executive Officer /s/ T.G. Cousins and Director - ---------------------------- T. G. Cousins
Principal Financial and Accounting Officer:
Senior Vice President and March 21, 1997 /s/ Peter A. Tartikoff Chief Financial Officer - ---------------------------- Peter A. Tartikoff
Additional Directors:
/s/ Richard W. Courts Director March 21, 1997 - ---------------------------- Richard W. Courts, II
/s/ Boone A. Knox Director March 21, 1997 - ---------------------------- Boone A. Knox
/s/ William Porter Payne Director March 21, 1997 - ---------------------------- William Porter Payne
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS ON SCHEDULE
To the Stockholders of 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 14, 1997. 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 14, 1997
SCHEDULE III (Page 1 of 5) COUSINS PROPERTIES INCORPORATED AND CONSOLIDATED ENTITIES REAL ESTATE AND ACCUMULATED DEPRECIATION DECEMBER 31, 1996 ($ in thousands)
Column G Column G Column H Column I -------- -------- -------- --------
SCHEDULE III (Page 2 of 5) COUSINS PROPERTIES INCORPORATED AND CONSOLIDATED ENTITIES REAL ESTATE AND ACCUMULATED DEPRECIATION DECEMBER 31, 1996 ($ in thousands)
SCHEDULE III (Page 3 of 5) COUSINS PROPERTIES INCORPORATED AND CONSOLIDATED ENTITIES REAL ESTATE AND ACCUMULATED DEPRECIATION DECEMBER 31, 1996 ($ in thousands)
SCHEDULE III (Page 4 of 5) COUSINS PROPERTIES INCORPORATED AND CONSOLIDATED ENTITIES REAL ESTATE AND ACCUMULATED DEPRECIATION DECEMBER 31, 1996 ($ in thousands)
SCHEDULE III (Page 5 of 5) COUSINS PROPERTIES INCORPORATED AND CONSOLIDATED ENTITIES REAL ESTATE AND ACCUMULATED DEPRECIATION DECEMBER 31, 1996 ($ in thousands)
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Partners of 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, 1995 and 1996, and the related combined statements of income, partners' capital and cash flows for each of the three years in the period ended December 31, 1996. 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, 1995 and 1996, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 1996 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 14, 1997
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, 1994, 1995 and 1996
($ in thousand)
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, 1994, 1995 AND 1996 ----------------------------------------------------
($ in thousands)
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, 1994, 1995 AND 1996 ----------------------------------------------------
($ in thousands)
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, 1994, 1995 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:
Buildings are depreciated over 25 to 40 years. Furniture, fixtures, and equipment are depreciated over 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 organizational costs, 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.
Impairment of Long-Lived Assets:
The Partnerships have adopted SFAS No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed of" which requires impairment losses to be recorded on long-lived assets used in operations when indicators of impairment are present and the undiscounted cash flows estimated to be generated by those assets are less than the assets' carrying amount. SFAS No. 121 also addresses the accounting for long-lived assets that are expected to be disposed of. The adoption of SFAS No. 121 had no effect on the financial results of the Partnerships and the Partnerships have recognized no provision for real estate losses for any period presented.
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 289 acres, of which approximately 94 acres are owned by WWA, and an estimated 15 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, 1996, WWA's income producing real estate assets in Wildwood consisted of: five office buildings totaling 1,882,000 rentable square feet, one office building of 250,000 rentable square feet which is under construction (including land under such buildings totaling approximately 46 acres); land parcels totaling approximately 15 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 36 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 32 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 $62,857,000 in cash or properties to the Partnerships. The value of property contributed by IBM was agreed to by the partners at the time of formation of WWA and was recorded at the cash amount IBM paid for the property just prior to contributing it to the Partnership. The value of the property contributed and to be contributed by Cousins was recorded on the Partnership's books at an amount equal to the cash and property contributed by IBM for an equal (50%) partnership interest.
The status of contributions at December 31, 1996, was as follows ($ in thousands):
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, 1996, Cousins was committed to contribute land on which an additional 678,051 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 15 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 $182,000, $163,000 and $208,000 in 1994, 1995 and 1996, respectively.
4. OTHER PROVISIONS OF THE PARTNERSHIP AGREEMENTS
Net income or loss and net cash flow, as defined, shall be allocated to the partners based on their percentage interests (50% each, subject to adjustment as provided in the partnership agreements).
In the event of dissolution of the Partnerships, the assets will be distributed as follows:
First, to repay all debts to third parties, including any secured loans with the partners.
Second, to each partner until each capital account is reduced to zero.
The balance to each partner in accordance with its percentage interest.
5. FEES TO RELATED PARTIES
The Partnerships engaged Cousins to manage, develop and lease the Partnerships' property. Fees to Cousins incurred by the Partnerships during 1994, 1995 and 1996 were as follows ($ in thousands):
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, 1996, 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):
At December 31, 1995 and 1996, 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 $14,754,000 and $14,331,000, respectively. Of the 1996 amount, 57% was related to leases with IBM.
7. NOTES PAYABLE
At December 31, 1996, notes payable consisted of the following ($ in thousands):
On December 16, 1996, WWA completed the financing of the 3200 Windy Hill Road Building with a $70 million mortgage note payable at an 8.23% interest rate and maturity of January 1, 2007. Concurrent with the financing, WWA paid down its line of credit to $0 and on January 16, 1997, made a cash distribution of $10 million to each partner.
On January 7, 1997, WWA received a commitment for the financing of the 4100 and 4300 Wildwood Parkway Buildings which is scheduled to fund by April 1, 1997. The $30 million non-recourse mortgage note payable has an interest rate of 7.65% and a term of fifteen years.
The 2300 Windy Ridge Parkway Building and 3200 Windy Hill Road Building mortgage notes, as well as the $30 million mortgage note on which WWA has received a commitment, 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, 1997, 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 $143,775,000 were pledged as security on the Partnerships' debt.
The aggregate maturities of the indebtedness at December 31, 1996 summarized above are as follows ($ in thousands):
The Partnerships capitalize interest expense to property under development as required by Statement of Financial Accounting Standards No. 34. In the years ended December 31, 1995 and 1996, the Partnerships capitalized interest totaling $236,000 and $1,053,000, respectively.
At December 31, 1995 and 1996, the carrying value of the Partnerships' notes payable approximates fair value.
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 $256,000 per year, and escalate at ten year intervals based on the cumulative increase in the Consumer Price Index ("Index") over the prior ten year period (subject to a 5% annual cap on the increase in such Index in any one year). The next escalation date is December 1, 2006.
9. COMBINED STATEMENTS OF CASH FLOWS-SUPPLEMENTAL INFORMATION
Interest (net of amounts capitalized) was as follows ($ in thousands):
1994 1995 1996 ---- ---- ----
Interest paid $11,780 $12,011 $9,096
Significant non-cash financing and investing activities included the following:
In 1994, the child care facility under construction with an aggregate cost of $1,600,000 was transferred from Land and Property Predevelopment Costs to Income Producing Properties.
In 1995 and 1996, land parcels with costs of $6,537,000 and $4,498,000, respectively, 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 $29,368,000 were transferred from Projects Under Construction to Income Producing Properties.
SCHEDULE III WILDWOOD ASSOCIATES AND GREEN VALLEY ASSOCIATES II REAL ESTATE AND ACCUMULATED DEPRECIATION DECEMBER 31, 1996 ($ in thousands)
=======
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, 1995 and 1996, and the related statements of operations, partners' capital, and cash flows for each of the three years in the period ended December 31, 1996. 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, 1995 and 1996, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 1996, 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 January 31, 1997
CSC ASSOCIATES, L.P. BALANCE SHEETS DECEMBER 31, 1995 AND 1996 ($ in thousands)
The accompanying notes are an integral part of these balance sheets.
CSC ASSOCIATES, L.P. STATEMENTS OF OPERATIONS FOR THE YEARS ENDED DECEMBER 31, 1994, 1995 AND 1996 ($ in thousands)
CSC ASSOCIATES, L.P. STATEMENTS OF PARTNERS' CAPITAL FOR THE YEARS ENDED DECEMBER 31, 1994, 1995 AND 1996 ($ in thousands)
The accompanying notes are an integral part of these statements.
CSC ASSOCIATES, L.P. STATEMENTS OF CASH FLOWS FOR THE YEARS ENDED DECEMBER 31, 1994, 1995 AND 1996 ($ in thousands)
CSC ASSOCIATES, L.P. NOTES TO FINANCIAL STATEMENTS DECEMBER 31, 1994, 1995 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 NationsBank Corporation. 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 NationsBank 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 - -----------------------------
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 organizational costs, 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 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, 1995 and 1996, there is no allowance for doubtful accounts included in the accompanying balance sheet.
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.
Impairment of Long-Lived Assets - -------------------------------
In 1995, the Partnership adopted SFAS No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed of" which requires impairment losses to be recorded on long-lived assets used in operations when indicators of impairment are present and the undiscounted cash flows estimated to be generated by those assets are less than the assets' carrying amount. SFAS No. 121 also addresses the accounting for long-lived assets that are expected to be disposed of. The adoption of SFAS No. 121 had no effect on the financial results of the Partnership.
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, 1996, 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):
In the years ended December 31, 1995 and 1996, income recognized on a straight-line basis exceeded income which would have accrued in accordance with the lease terms by $1,148,000 and $748,000, respectively. At December 31, 1995 and 1996, 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 $9,684,000 and $10,432,000, respectively. Of that amount, 20% was related to leases with NB Holdings Corporation. At December 31, 1996, two professional services firms leased approximately 15% and 14%, 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 $220,000 in 1996.
The estimated fair value of both the note payable and related note receivable at December 31, 1996 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 $3 million line of credit provided by an affiliate of Premises. Interest on the line is paid at a floating rate (6.14% weighted average rate in December 1996) and interest only is payable quarterly through July 31, 1997, at which time the entire outstanding balance is due. There were no borrowings under the line as of December 31, 1995 and 1996.
The maturities of the Notes at December 31, 1996 are as follows (in thousands):
======= 5. RELATED PARTIES ---------------
The Partnership engaged CPI and an affiliate of CPI to manage, develop and lease the Building. During 1994, 1995 and 1996, fees to CPI and its affiliate incurred by the Partnership were as follows ($ 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 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 $1,000,000 would be due to CSC. In addition, CSC is responsible for the maintenance of the parking deck and the payment of the related operating expenses.
SCHEDULE III
CSC ASSOCIATES, L.P. REAL ESTATE AND ACCUMULATED DEPRECIATION DECEMBER 31, 1996 ($ in thousands)
REPORT OF INDEPENDENT AUDITORS
The Partners Haywood Mall Associates (A South Carolina Joint Venture)
We have audited the accompanying balance sheets of Haywood Mall Associates (A South Carolina Joint Venture) as of December 31, 1996 and 1995, and the related statements of income, cash flows and venturers' equity for each of the three years in the period ended December 31, 1996. Our audits also included the financial statement schedules of Haywood Mall Associates listed in the Index at Item 14(a). These financial statements and schedules are the responsibility of the Management of the Joint Venture. Our responsibility is to express an opinion on these financial statements and schedules 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 Haywood Mall Associates (A South Carolina Joint Venture) at December 31, 1996 and December 31, 1995, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 1996, in conformity with generally accepted accounting principles. Also, in our opinion the related financial statement schedules, when considered in relation to the basic financial statements taken as a whole, present fairly in all material respects the information set forth therein.
ERNST & YOUNG LLP
New York, NY February 6, 1997
HAYWOOD MALL ASSOCIATES (A South Carolina Joint Venture)
BALANCE SHEETS DECEMBER 31, 1996 AND 1995
The accompanying notes are an integral part of these financial statements.
HAYWOOD MALL ASSOCIATES (A South Carolina Joint Venture)
STATEMENTS OF INCOME FOR THE YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
The accompanying notes are an integral part of these financial statements.
HAYWOOD MALL ASSOCIATES (A South Carolina Joint Venture)
STATEMENTS OF CASH FLOWS FOR THE YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
The accompanying notes are an integral part of these financial statements.
HAYWOOD MALL ASSOCIATES (A South Carolina Joint Venture)
STATEMENTS OF VENTURERS' EQUITY FOR THE THREE YEARS ENDED DECEMBER 31, 1996
The accompanying notes are an integral part of these financial statements.
HAYWOOD MALL ASSOCIATES (A South Carolina Joint Venture)
NOTES TO FINANCIAL STATEMENTS DECEMBER 31, 1996, 1995 AND 1994
NOTE A - JOINT VENTURE AGREEMENT
Haywood Mall Associates (the "Venture") is a South Carolina Joint Venture between Bellwether Properties of South Carolina, L.P., a South Carolina Limited Partnership, and Cousins Properties Incorporated (hereinafter collectively referred to as the "Venturers") formed for the purpose of owning and operating a regional shopping center in Greenville, South Carolina.
Under the terms of the joint venture agreement, the Venturers share equally in the cash flow and the profits and losses of the Venture.
NOTE B - SIGNIFICANT ACCOUNTING POLICIES
Shopping Center: Land and building and improvements are stated at cost. Depreciation of the building and improvements is computed on the straight-line method over an estimated useful life of 35 years. The tenants' alterations are amortized over the life of the related leases.
On January 1, 1996, the Venture adopted Statement of Financial Accounting Standards No. 121 "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of" (the Statement). The Statement requires impairment losses to be recognized for long-lived assets used in operations when indicators of impairment are present and the undiscounted cash flows are not sufficient to recover the assets' carrying amount. The impairment loss is measured by comparing the fair value of the asset to its carrying amount. The adoption of the Statement had no effect on the Venture's 1996 financial statements.
Taxes: No provision has been made for income taxes, since any taxes which may be payable are the liability of the individual Venturers.
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.
NOTE C - MORTGAGES PAYABLE
The mortgage notes which bore interest at 9% and 10-1/2% and matured in 2000 were prepaid as of April 29. 1994. A prepayment fee equal to 3-1/2% of the outstanding principal balance was paid in the amount of $680,277.
NOTE D - LEASES
The Venture has a land lease with a base period that extends through the year 2017. Future lease payments due under the lease, at December 31, 1996, are as follows:
1997 - $ 67,000 1998 - 67,000 1999 - 70,000 2000 - 72,000 2001 - 72,000 Thereafter - 1,202,000
There are five l0-year renewal option periods available beginning in the year 2017. Annual payments during the renewal periods are based upon fair market value as determined at each renewal date.
Space in the shopping center is leased to retail tenants. Leases generally provide for minimum rentals plus overage rentals based on the tenants' sales volume, and also require tenants to pay a portion of real estate taxes and other property operating expenses. Lease periods generally range from 5 to 15 years and contain various renewal options.
Future minimum rentals (excluding expenses billable to tenants) to be received under leases, all of which are classified and accounted for as operating leases at December 31, 1996 are as follows:
Year Ending December 31: Amount* -------
1997 $ 8,090,150 1998 8,154,996 1999 7,264,576 2000 6,446,833 2001 5,829,049 Thereafter 16,882,032 ----------- TOTAL $52,667,636 ===========
*Does not include rentals applicable to renewal options.
At December 31, 1996 and 1995, receivables which related to the cumulative excess of revenues recognized in accordance with Statement of Financial Accounting Standards No. 13 "Accounting for Leases" over revenues which accrued in accordance with the actual lease agreements aggregates $1,992,734 and $1,945,382, respectively.
NOTE E - RELATED PARTY TRANSACTIONS
The Venture pays Corporate Property Investors, which has an ownership interest in one of the Venturers, a leasing fee of 1% of gross rentals received, as defined. During the years ended December 31, 1996, 1995 and 1994, the Venture incurred leasing fees of $94,310, $61,601 and $62,405, respectively. Such amounts are included in managing agent's costs on the statements of income.
SCHEDULE III HAYWOOD MALL ASSOCIATES REAL ESTATE AND ACCUMULATED DEPRECIATION DECEMBER 31, 1996 ($ in thousands)