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COUSINS PROPERTIES INC - Quarter Report: 2019 September (Form 10-Q)

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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
 
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 2019
OR
 
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from                      to                     
Commission file number: 001-11312
COUSINS PROPERTIES INCORPORATED
(Exact name of registrant as specified in its charter)
Georgia
 
58-0869052
(State or other jurisdiction of
incorporation or organization)
 
(I.R.S. Employer
Identification No.)
3344 Peachtree Road NE
Suite 1800
Atlanta
Georgia
 
30326-4802
(Address of principal executive offices)
 
(Zip Code)
(404407-1000
(Registrant’s telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
Title of each class
 
Trading Symbol(s)
 
Name of each exchange on which registered
Common Stock, $1 par value per share
 
CUZ
 
New York Stock Exchange
 ("NYSE")
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes No
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes No
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer”, “smaller reporting company”, and "emerging growth company" in Rule 12b-2 of the Exchange Act.
Large accelerated filer
 
Accelerated filer
Non-accelerated filer
 
Smaller reporting company
 
 
 
Emerging growth company
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
Yes No
Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.
Class
 
Outstanding at October 16, 2019
Common Stock, $1 par value per share
 
146,762,271 shares


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FORWARD-LOOKING STATEMENTS

Certain matters contained in this report are “forward-looking statements” within the meaning of the federal securities laws and are subject to uncertainties and risks, as itemized in Item 1A included in the Annual Report on Form 10-K for the year ended December 31, 2018, and as itemized herein. These forward-looking statements include information about possible or assumed future results of the business and our financial condition, liquidity, results of operations, plans, and objectives. They also include, among other things, statements regarding subjects that are forward-looking by their nature, such as:
guidance and underlying assumptions;
business and financial strategy;
future debt financings;
future acquisitions and dispositions of operating assets or joint venture interests;
future acquisitions and dispositions of land, including ground leases;
future development and redevelopment opportunities, including fee development opportunities;
future issuances and repurchases of common stock;
future distributions;
projected capital expenditures;
market and industry trends;
entry into new markets;
future changes in interest rates;
the benefits of the merger with TIER REIT, Inc. ("TIER"), including all future financial and operating results, plans, objectives, expectations, and intentions;
benefits of the transactions with TIER to tenants, employees, stockholders, and other constituents of the combined company;
integrating TIER with us; and
all statements that address operating performance, events, or developments that we expect or anticipate will occur in the future — including statements relating to creating value for stockholders.
Any forward-looking statements are based upon management's beliefs, assumptions, and expectations of our future performance, taking into account information that is currently available. These beliefs, assumptions, and expectations may change as a result of possible events or factors, not all of which are known. If a change occurs, our business, financial condition, liquidity, and results of operations may vary materially from those expressed in forward-looking statements. Actual results may vary from forward-looking statements due to, but not limited to, the following:
the availability and terms of capital;
the ability to refinance or repay indebtedness as it matures;
the failure of purchase, sale, or other contracts to ultimately close;
the failure to achieve anticipated benefits from acquisitions, investments, or dispositions;
the potential dilutive effect of common stock or operating partnership unit issuances;
the availability of buyers and pricing with respect to the disposition of assets;
changes in national and local economic conditions, the real estate industry, and the commercial real estate markets in which we operate (including supply and demand changes), particularly in Atlanta, Austin, Charlotte, Phoenix, Tampa, and Dallas where we have high concentrations of our lease revenues;
changes to our strategy with regard to land and other non-core holdings that require impairment losses to be recognized;
leasing risks, including the ability to obtain new tenants or renew expiring tenants, the ability to lease newly developed and/or recently acquired space, the failure of a tenant to commence or complete tenant improvements on schedule or to occupy leased space, and the risk of declining leasing rates;
changes in the needs of our tenants brought about by the desire for co-working arrangements, trends toward utilizing less office space per employee, and the effect of telecommuting;
any adverse change in the financial condition of one or more of our major tenants;
volatility in interest rates and insurance rates;
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);
cyber security breaches;
changes in senior management and 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;

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any failure to continue to qualify for taxation as a real estate investment trust and meet regulatory requirements;
potential changes to state, local, or federal regulations applicable to our business;
material changes in the rates or the ability to pay dividends on common shares or other securities;
potential changes to the tax laws impacting REITs and real estate in general;
the ability to successfully integrate our operations and employees in connection with the merger with TIER;
the ability to realize anticipated benefits and synergies of the merger with TIER;
the amount of the costs, fees, expenses, and charges related to the merger with TIER; and
those additional risks and factors discussed in reports filed with the Securities and Exchange Commission (“SEC”) by the Company and TIER, and those additional risks and factors discussed in reports filed with the SEC by the Company.

The words “believes,” “expects,” “anticipates,” “estimates,” “plans,” “may,” “intend,” “will,” or similar expressions are intended to identify forward-looking statements. Although we believe that our plans, intentions, and expectations reflected in any forward-looking statements are reasonable, we can give no assurance that such plans, intentions, or expectations will be achieved. We undertake no obligation to publicly update or revise any forward-looking statement, whether as a result of future events, new information, or otherwise, except as required under U.S. federal securities laws.

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PART I — FINANCIAL INFORMATION
Item 1.    Financial Statements.
COUSINS PROPERTIES INCORPORATED AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(in thousands, except share and per share amounts)
 
September 30, 2019
 
December 31, 2018
 
(unaudited)
 
 
Assets:
 
 
 
Real estate assets:
 
 
 
Operating properties, net of accumulated depreciation of $561,489 and $421,495 in 2019 and 2018, respectively
$
5,532,963

 
$
3,603,011

Projects under development
370,755

 
24,217

Land
113,578

 
72,563

 
6,017,296

 
3,699,791

Real estate assets and other assets held for sale
29,193

 

 
 
 
 
Cash and cash equivalents
12,396

 
2,547

Restricted cash
2,268

 
148

Notes and accounts receivable
28,792

 
13,821

Deferred rents receivable
101,213

 
83,116

Investment in unconsolidated joint ventures
186,079

 
161,907

Intangible assets, net
255,613

 
145,883

Other assets
71,270

 
39,083

Total assets
$
6,704,120

 
$
4,146,296

Liabilities:


 


Notes payable
$
1,850,817

 
$
1,062,570

Accounts payable and accrued expenses
225,632

 
110,159

Deferred income
57,411

 
41,266

Intangible liabilities, net of accumulated amortization of $56,414 and $42,473 in 2019 and 2018, respectively
89,578

 
56,941

Other liabilities
131,604

 
54,204

Total liabilities
2,355,042

 
1,325,140

Commitments and contingencies


 


Equity:
 
 
 
  Stockholders' investment:
 
 
 
Preferred stock, $1 par value, 20,000,000 shares authorized, 1,716,837 shares issued and outstanding in 2019 and 2018
1,717

 
1,717

Common stock, $1 par value, 300,000,000 and 175,000,000 shares authorized in 2019 and 2018, respectively, and 149,347,204 and 107,681,130 shares issued in 2019 and 2018, respectively
149,347

 
107,681

Additional paid-in capital
5,493,265

 
3,934,385

Treasury stock at cost, 2,584,933 shares in 2019 and 2018
(148,473
)
 
(148,473
)
Distributions in excess of cumulative net income
(1,211,752
)
 
(1,129,445
)
Total stockholders' investment
4,284,104

 
2,765,865

Nonredeemable noncontrolling interests
64,974

 
55,291

Total equity
4,349,078

 
2,821,156

Total liabilities and equity
$
6,704,120

 
$
4,146,296

 
 
 
 
See accompanying notes.
 
 
 

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

 
Three Months Ended
 
Nine Months Ended
 
September 30,
 
September 30,
 
2019
 
2018
 
2019
 
2018
Revenues:
 
 
 
 
 
 
 
Rental property revenues
$
180,826

 
$
115,719

 
$
439,624

 
$
343,764

Fee income
7,494

 
2,519

 
23,298

 
7,211

Other
3

 
468

 
154

 
1,561

 
188,323

 
118,706

 
463,076

 
352,536

Expenses:
 

 
 

 
 
 
 
Rental property operating expenses
65,646

 
41,579

 
155,838

 
122,501

Reimbursed expenses
1,290

 
955

 
3,269

 
2,757

General and administrative expenses
5,852

 
3,913

 
25,686

 
18,793

Interest expense
14,700

 
9,551

 
37,579

 
29,043

Depreciation and amortization
82,012

 
45,068

 
178,777

 
135,836

Transaction costs
1,048

 

 
50,878

 
228

Other
297

 
93

 
1,101

 
457

 
170,845

 
101,159

 
453,128

 
309,615

Income from unconsolidated joint ventures
3,241

 
2,252

 
9,779

 
10,173

Gain (loss) on sale of investment properties
(27
)
 
(33
)
 
14,388

 
4,912

Gain on extinguishment of debt

 
93

 

 
8

Net income
20,692

 
19,859

 
34,115

 
58,014

Net income attributable to noncontrolling interests
(318
)
 
(374
)
 
(809
)
 
(1,210
)
Net income available to common stockholders
$
20,374

 
$
19,485

 
$
33,306

 
$
56,804

 
 
 
 

 
 
 
 

Net income per common share — basic and diluted

$
0.14

 
$
0.19

 
$
0.27

 
$
0.54

Weighted average shares — basic
146,762

 
105,096

 
121,758

 
105,069

Weighted average shares — diluted
148,530

 
106,880

 
123,529

 
106,867


See accompanying notes.

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

Three Months Ended September 30, 2019
 
 
Preferred
Stock
 
Common
Stock
 
Additional
Paid-In
Capital
 
Treasury
Stock
 
Distributions in
Excess of
Net Income
 
Stockholders’
Investment
 
Nonredeemable
Noncontrolling
Interests
 
Total
Equity
Balance June 30, 2019
 
$
1,717

 
$
149,348

 
$
5,492,648

 
$
(148,473
)
 
$
(1,189,567
)
 
$
4,305,673

 
$
63,945

 
$
4,369,618

Net income (loss)
 

 

 

 

 
20,374

 
20,374

 
318

 
20,692

Amortization of stock options and restricted stock, net of forfeitures
 

 
(1
)
 
617

 

 

 
616

 

 
616

Contributions from nonredeemable noncontrolling interests
 

 

 

 

 

 

 
1,191

 
1,191

Distributions to nonredeemable noncontrolling interests
 

 

 

 

 

 

 
(480
)
 
(480
)
Common dividends ($0.29 per share)
 

 

 

 

 
(42,559
)
 
(42,559
)
 

 
(42,559
)
Balance September 30, 2019
 
$
1,717

 
$
149,347

 
$
5,493,265

 
$
(148,473
)
 
$
(1,211,752
)
 
$
4,284,104

 
$
64,974

 
$
4,349,078

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Three Months Ended September 30, 2018
 
 
Preferred
Stock
 
Common
Stock
 
Additional
Paid-In
Capital
 
Treasury
Stock
 
Distributions in
Excess of
Net Income
 
Stockholders’
Investment
 
Nonredeemable
Noncontrolling
Interests
 
Total
Equity
Balance June 30, 2018
 
$
1,717

 
$
107,683

 
$
3,933,248

 
$
(148,473
)
 
$
(1,116,640
)
 
$
2,777,535

 
$
54,809

 
$
2,832,344

Net income
 

 

 

 

 
19,485

 
19,485

 
374

 
19,859

Amortization of stock options and restricted stock, net of forfeitures
 

 
(2
)
 
563

 

 

 
561

 

 
561

Contributions from nonredeemable noncontrolling interests
 

 

 

 

 

 

 
252

 
252

Distributions to nonredeemable noncontrolling interests
 

 

 

 

 

 

 
(1,198
)
 
(1,198
)
Common dividends ($0.26 per share)
 

 

 

 

 
(27,363
)
 
(27,363
)
 

 
(27,363
)
Balance September 30, 2018
 
$
1,717

 
$
107,681

 
$
3,933,811

 
$
(148,473
)
 
$
(1,124,518
)
 
$
2,770,218

 
$
54,237

 
$
2,824,455

See accompanying notes.


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

Nine Months Ended September 30, 2019
 
 
Preferred
Stock
 
Common
Stock
 
Additional
Paid-In
Capital
 
Treasury
Stock
 
Distributions in
Excess of
Net Income
 
Stockholders’
Investment
 
Nonredeemable
Noncontrolling
Interests
 
Total
Equity
Balance December 31, 2018
 
$
1,717

 
$
107,681

 
$
3,934,385

 
$
(148,473
)
 
$
(1,129,445
)
 
$
2,765,865

 
$
55,291

 
$
2,821,156

Net income
 

 

 

 

 
33,306

 
33,306

 
809

 
34,115

Common stock issued in merger
 

 
41,576

 
1,556,613

 

 

 
1,598,189

 

 
1,598,189

Common stock issued pursuant to stock based compensation
 

 
91

 
419

 

 

 
510

 

 
510

Amortization of stock options and restricted stock, net of forfeitures
 

 
(1
)
 
1,848

 

 

 
1,847

 

 
1,847

Nonredeemable noncontrolling interests acquired in merger
 

 

 

 

 

 

 
5,348

 
5,348

Contributions from nonredeemable noncontrolling interests
 

 

 

 

 

 

 
5,271

 
5,271

Distributions to nonredeemable noncontrolling interests
 

 

 

 

 

 

 
(1,745
)
 
(1,745
)
Common dividends ($0.87 per share)
 

 

 

 

 
(115,613
)
 
(115,613
)
 

 
(115,613
)
Balance September 30, 2019
 
$
1,717

 
$
149,347

 
$
5,493,265

 
$
(148,473
)
 
$
(1,211,752
)
 
$
4,284,104

 
$
64,974

 
$
4,349,078

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Nine Months Ended September 30, 2018
 
 
Preferred
Stock
 
Common
Stock
 
Additional
Paid-In
Capital
 
Treasury
Stock
 
Distributions in
Excess of
Net Income
 
Stockholders’
Investment
 
Nonredeemable
Noncontrolling
Interests
 
Total
Equity
Balance December 31, 2017
 
$
1,717

 
$
107,587

 
$
3,932,689

 
$
(148,373
)
 
$
(1,121,647
)
 
$
2,771,973

 
$
53,138

 
$
2,825,111

Net income
 

 

 

 

 
56,804

 
56,804

 
1,210

 
58,014

Common stock issued pursuant to stock based compensation
 

 
99

 
(566
)
 
(100
)
 

 
(567
)
 

 
(567
)
Cumulative effect of change in accounting principle
 

 

 

 

 
22,329

 
22,329

 

 
22,329

Amortization of stock options and restricted stock, net of forfeitures
 

 
(5
)
 
1,688

 

 

 
1,683

 

 
1,683

Contributions from nonredeemable noncontrolling interests
 

 

 

 

 

 

 
1,960

 
1,960

Distributions to nonredeemable noncontrolling interests
 

 

 

 

 

 

 
(2,071
)
 
(2,071
)
Common dividends ($0.78 per share)
 

 

 

 

 
(82,004
)
 
(82,004
)
 

 
(82,004
)
Balance September 30, 2018
 
$
1,717

 
$
107,681

 
$
3,933,811

 
$
(148,473
)
 
$
(1,124,518
)
 
$
2,770,218

 
$
54,237

 
$
2,824,455

See accompanying notes.

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COUSINS PROPERTIES INCORPORATED AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited; in thousands)
 
Nine Months Ended September 30,
 
2019
 
2018
CASH FLOWS FROM OPERATING ACTIVITIES:
 
 
 
Net income
$
34,115

 
$
58,014

Adjustments to reconcile net income to net cash provided by operating activities:
 
 
 
Gain on sale of investment properties
(14,388
)
 
(4,912
)
Depreciation and amortization
178,777

 
135,836

Amortization of deferred financing costs and premium/discount on notes payable
1,723

 
1,808

Stock-based compensation expense, net of forfeitures
3,209

 
2,825

Effect of non-cash adjustments to revenues
(31,166
)
 
(24,028
)
Income from unconsolidated joint ventures
(9,779
)
 
(10,173
)
Operating distributions from unconsolidated joint ventures
6,125

 
15,056

Gain on extinguishment of debt

 
(8
)
Changes in other operating assets and liabilities:
 
 
 
Change in other receivables and other assets, net
(13,638
)
 
(435
)
Change in operating liabilities, net
43,387

 
4,054

Net cash provided by operating activities
198,365

 
178,037

CASH FLOWS FROM INVESTING ACTIVITIES:
 
 
 
Proceeds from investment property sales
58,968

 

Property acquisition, development, and tenant asset expenditures
(252,034
)
 
(132,468
)
Investment in unconsolidated joint ventures
(21,476
)
 
(43,276
)
Distributions from unconsolidated joint ventures
11

 
2,032

Cash and restricted cash acquired in merger
85,989

 

Change in notes receivable and other assets
(71
)
 
(4,429
)
Other

 
(4,261
)
Net cash used in investing activities
(128,613
)
 
(182,402
)
CASH FLOWS FROM FINANCING ACTIVITIES:
 
 
 
Proceeds from credit facility
904,000

 

Repayment of credit facility
(824,000
)
 

Repayment of notes payable
(687,207
)
 
(28,719
)
Issuance of unsecured senior notes
650,000

 

Payment of deferred financing costs
(2,866
)
 
(6,166
)
Contributions from nonredeemable noncontrolling interests
5,271

 
252

Distributions to nonredeemable noncontrolling interests
(1,745
)
 
(2,071
)
Common dividends paid
(100,372
)
 
(79,842
)
Other
(864
)
 
(1,709
)
Net cash used in financing activities
(57,783
)
 
(118,255
)
NET INCREASE (DECREASE) IN CASH, CASH EQUIVALENTS, AND RESTRICTED CASH
11,969

 
(122,620
)
CASH, CASH EQUIVALENTS, AND RESTRICTED CASH AT BEGINNING OF PERIOD
2,695

 
205,745

CASH, CASH EQUIVALENTS, AND RESTRICTED CASH AT END OF PERIOD
$
14,664

 
$
83,125

See accompanying notes.

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COUSINS PROPERTIES INCORPORATED AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2019
(Unaudited)
1. DESCRIPTION OF BUSINESS AND BASIS OF PRESENTATION
Description of Business
Cousins Properties Incorporated (“Cousins”), a Georgia corporation, is a publicly traded (NYSE: CUZ), self-administered, and self-managed real estate investment trust (“REIT”). Cousins conducts substantially all of its operations through Cousins Properties LP ("CPLP"). Cousins owns approximately 99% of CPLP and consolidates CPLP. Cousins TRS Services LLC ("CTRS"), which is wholly owned by CPLP, is a taxable entity which owns and manages its own real estate portfolio and performs certain real estate related services for other parties. Cousins, CPLP, CTRS, and their subsidiaries are hereinafter referred to collectively as "the Company."
The Company develops, acquires, leases, manages, and owns Class A office and mixed-use properties in Sun Belt markets with a focus on Georgia, Texas, North Carolina, Arizona, and Florida. Cousins has elected to be taxed as a REIT and intends to, among other things, distribute 100% of its net taxable income to stockholders, thereby eliminating any liability for federal income taxes under current law. Therefore, the results included herein do not include a federal income tax provision for Cousins.
Basis of Presentation
The condensed consolidated financial statements are unaudited and were prepared by the Company in accordance with accounting principles generally accepted in the United States of America (“GAAP”) for interim financial information and in accordance with the rules and regulations of the Securities and Exchange Commission (“SEC”). In the opinion of management, these financial statements reflect all adjustments necessary (which adjustments are of a normal and recurring nature) for the fair presentation of the Company's financial position as of September 30, 2019 and the results of operations for the three and nine months ended September 30, 2019 and 2018. The results of operations for the three and nine months ended September 30, 2019 are not necessarily indicative of results expected for the full year. Certain information and footnote disclosures normally included in financial statements prepared in accordance with GAAP have been condensed or omitted pursuant to the rules and regulations of the SEC. These condensed consolidated financial statements should be read in conjunction with the consolidated financial statements and the notes thereto included in the Company's Annual Report on Form 10-K for the year ended December 31, 2018. The accounting policies employed are substantially the same as those shown in note 2 to the consolidated financial statements included therein.
On June 14, 2019, the Company restated and amended its articles of incorporation to effect a reverse stock split of the issued and outstanding shares of its common and preferred stock pursuant to which (1) each four shares of the Company's issued and outstanding common stock were combined into one share of the Company's common or preferred stock, respectively, and (2) the authorized number of the Company's common stock was proportionally reduced to 175 million shares. Fractional shares of common stock resulting from the reverse stock split were settled in cash. Fractional shares of preferred stock resulting from the reverse stock split were redeemed without payout. Immediately thereafter, the Company further amended its articles of incorporation to increase the number of authorized shares of its common stock from 175 million to 300 million shares. All shares of common stock, stock options, restricted stock units, and per share information presented in the condensed consolidated financial statements have been adjusted to reflect the reverse stock split on a retroactive basis for all periods presented.
For the three and nine months ended September 30, 2019 and 2018, there were no items of other comprehensive income. Therefore, no presentation of comprehensive income is required. Additionally, certain subtotals within the condensed consolidated statements of operations for the three and nine months ended September 30, 2018 were removed to conform to the current period presentation.
On January 1, 2019, the Company began recording lease termination fees in rental property revenues on the condensed consolidated statements of operations as a result of the adoption of Accounting Standards Update ("ASU") 2016-02, "Leases," ("ASC 842"). The prior period amounts, which were included in other revenues, were reclassified to conform to the current period presentation.
The Company evaluates all partnerships, joint ventures, and other arrangements with variable interests to determine if the entity or arrangement qualifies as a variable interest entity ("VIE"), as defined in the Financial Accounting Standard Board's ("FASB") Accounting Standards Codification ("ASC"). If the entity or arrangement qualifies as a VIE and the Company is determined to be the primary beneficiary, the Company is required to consolidate the assets, liabilities, and results of operations of the VIE. At September 30, 2019, the Company had no investments or interests in any VIEs.




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Recently Issued Accounting Standards
On January 1, 2019, the Company adopted ASC 842, which amended the previous standard for lease accounting by requiring lessees to record most leases on their balance sheets and making targeted changes to lessor accounting and reporting. The new standard requires lessees to record a right-of-use asset and a lease liability for leases and classify such leases as either finance or operating leases based on the principle of whether the lease is effectively a financed purchase of the leased asset by the lessee. The classification of the leases determines whether the lease expense is recognized based on an effective interest method (finance leases) or on a straight-line basis over the term of the lease (operating leases). The new standard also revised the treatment of indirect leasing costs and permits the capitalization and amortization of direct leasing costs only. For the three and nine months ended September 30, 2018, the Company capitalized $778,000 and $2.8 million of indirect leasing costs, respectively.
The Company adopted the following optional practical expedients provided in ASC 842:
no reassessment of any expired or existing contracts to determine if they contain a lease;
no requirement to write-off any unamortized, previously capitalized, initial direct costs for existing leases;
no recognition of right-of-use assets for leases with a term of one year or less;
no requirement to separately classify and disclose non-lease components of revenue in lease contracts from the related lease components provided certain conditions are met; and
no requirement to reassess the classification of existing leases as finance leases versus operating leases.
For those leases where the Company is lessee, specifically ground leases, the adoption of ASC 842 required the Company to record a right-of-use asset and a lease liability in the amount of $56.3 million on the condensed consolidated balance sheet. In calculating the right of use asset and lease liability the Company used a weighted average discount rate of 4.49%, which represented the Company's incremental borrowing rate related to the ground lease assets as of January 1, 2019. Ground leases executed before the adoption of ASC 842 are accounted for as operating leases and did not result in a materially different ground lease expense. However, most ground leases executed after the adoption of ASC 842 are expected to be accounted for as finance leases, which will result in ground lease expense being recorded using the effective interest method instead of the straight-line method over the term of the lease, resulting in higher expense associated with the ground lease in the earlier years of a ground lease when compared to the straight line method. The Company used the "modified retrospective" method upon adoption of ASC 842, which permitted application of the new standard on the adoption date as opposed to the earliest comparative period presented in its financial statements. For additional disclosures, see note 4 "Leases."
On January 1, 2018, the Company adopted, ASU 2017-05, “Other Income - Gains and Losses from the Derecognition of Nonfinancial Assets (Subtopic 610-20): Clarifying the Scope of Asset Derecognition Guidance and Accounting for Partial Sales of Nonfinancial Assets” (“ASU 2017-05"). As a result of the adoption of ASU 2017-05, the Company recorded a cumulative effect from change in accounting principle, which credited distributions in excess of cumulative net income by $22.3 million. This cumulative effect adjustment resulted from the 2013 transfer of a wholly-owned property to an entity in which it had a noncontrolling interest.
2. MERGER WITH TIER REIT, INC.
On June 14, 2019, pursuant to the Agreement and Plan of Merger dated March 25, 2019 (the “Merger Agreement”), by and among the Company and TIER REIT, Inc. (“TIER”), TIER merged with and into a subsidiary of the Company (the “Merger”) with this subsidiary continuing as the surviving corporation of the Merger. In accordance with the terms and conditions of the Merger Agreement, each share of TIER common stock issued and outstanding immediately prior to the Merger, was converted into 2.98 newly issued pre-reverse split shares of the Company’s common stock with fractional shares being settled in cash. In the Merger, former TIER common stockholders received approximately 166 million pre-reverse split shares of common stock of the Company. As discussed in note 1 to the condensed consolidated financial statements, immediately following the Merger, the Company completed a 1-for-4 reverse stock split.
The Merger has been accounted for as a business combination with the Company as the accounting acquirer, which requires, among other things, that the assets acquired and liabilities assumed be recognized at their acquisition date fair value. The total value of the transaction is based on the closing stock price of the Company's common stock on June 13, 2019, the day immediately prior to the closing of the Merger. Based on the shares issued in the transaction, the total fair value of the assets acquired and liabilities assumed in the Merger was $1.6 billion. During the three and nine months ended September 30, 2019, the Company incurred expenses related to the Merger of $1.0 million and $50.9 million, respectively.
Management engaged a third party valuation specialist to assist with valuing the real estate assets acquired and liabilities assumed in the Merger. The third party used cash flow analyses as well as an income approach and a cost approach to determine the fair value of real estate assets acquired. Based on additional information that may become available, subsequent adjustments may be made to the purchase price allocation within the allocation period, which typically does not exceed one year.


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The purchase price was allocated as follows (in thousands):
Real estate assets
$
2,186,719

Real estate assets held for sale
29,193

Cash and cash equivalents
84,042

Restricted cash
1,947

Notes and other receivables
7,447

Investment in unconsolidated joint ventures
349

Intangible assets
142,316

Other assets
10,039

 
2,462,052

 
 
Notes payable
747,549

Accounts payable and accrued expenses
48,030

Deferred income
8,388

Intangible liabilities
46,579

Other liabilities
7,796

Nonredeemable noncontrolling interests
5,348

 
863,690

 
 
Total purchase price
$
1,598,362


During the three and nine months ended September 30, 2019, the Company recorded revenues of $52.1 million and $61.7 million, respectively, related to the Merger. The following unaudited supplemental pro forma information is based upon the Company's historical condensed consolidated statements of operations, adjusted as if the Merger had occurred on January 1, 2018. The supplemental pro forma information is not necessarily indicative of future results, or of actual results, that would have been achieved had the Merger been consummated at the beginning of the period.
 
 
Three months ended September 30,
 
Nine months ended September 30,
 
 
2019
 
2018
 
2019
 
2018
 
 
(unaudited, in thousands)
Revenues
 
$
188,323

 
$
176,711

 
$
555,324

 
$
521,945

Net income
 
21,740

 
44,218

 
110,188

 
30,829

Net income available to common stockholders
 
21,410

 
43,689

 
108,724

 
30,466


2019 supplemental pro forma earnings were adjusted to exclude $1.0 million and $50.9 million of transaction costs incurred in the three and nine months ended September 30, 2019, respectively. Supplemental pro forma earnings for the nine months ended September 30, 2018 were adjusted to include this change.
3. TRANSACTIONS WITH NORFOLK SOUTHERN RAILWAY COMPANY
On March 1, 2019, the Company entered into a series of agreements and executed related transactions with Norfolk Southern Railway Company (“NS”) as follows:
Sold land to NS for $52.5 million.
Executed a Development Agreement with NS whereby the Company will receive fees totaling $5 million in consideration for development services for NS’s corporate headquarters that is being constructed on the land sold to NS.
Executed a Consulting Agreement with NS whereby the Company will receive fees totaling $32 million in consideration for consulting services for NS’s corporate headquarters. The Development Agreement and Consulting Agreement are collectively referred to below as the “Fee Agreements.”
Purchased a building from NS (“1200 Peachtree”) for $82 million subject to a three-year market rate lease with NS that covers the entire building.

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The Company sold the land to NS for $5.0 million above its carrying amount, which included $37.0 million of land purchased in 2018, $6.5 million of land purchased in 2019, and $4.0 million of site preparation work. The Company purchased 1200 Peachtree from NS for an amount it determined to be $10.3 million below the building’s fair value.
The Company determined that all contracts and transactions associated with NS should be combined for accounting purposes, and the amounts exchanged under the combined contracts should be allocated to the various components of the overall transaction at fair value or market value as discussed below. The Company determined that the purchase of 1200 Peachtree should be recorded at fair value of $92.3 million (see below for allocation of the purchase price). The Company determined that the lease with NS at the 1200 Peachtree building was at market value under ASC 842. The land sale was accounted for under ASC 610-20 and no gain or loss was recorded on the derecognition of this non-financial asset as the fair value was determined to equal the carrying amount. Consideration related to various services provided to NS, and accounted for under ASC 606, was determined to be $52.3 million and represents the negotiated market value for the services agreed to by the Company and NS in the contracts. This amount included non-cash consideration of the $10.3 million discount on the purchase of 1200 Peachtree as well as cash consideration of $5 million from the land sale contract (difference between fair value and contract amount), $5 million from the Development Agreement, and $32 million from the Consulting Agreement. Since all of the agreements and contracts above were executed for the purpose of delivering and constructing a corporate headquarters for NS and all of the services and deliverables are highly interdependent, the Company determined that the services represent a single performance obligation under ASC 606.
The Company determined that control of the services to be provided is being transferred over time and, thus, the Company must recognize the $52.3 million contract price in revenue as it satisfies the performance obligation. The Company determined that the inputs method of measuring progress of satisfying the performance obligation was the most appropriate method of recognizing revenue for the services component. Therefore, the Company began recognizing revenue in the quarter ended March 31, 2019, and will recognize future revenue based upon the time spent by the Company’s employees in providing these services as compared to the total estimated time required to satisfy the performance obligation. During the three and nine months ended September 30, 2019, the Company recognized $5.6 million and $17.2 million, respectively, in fee income in its statements of operations related to the services provided to NS.
The following table summarizes the allocations of the estimated fair value of the assets and liabilities of the 1200 Peachtree discussed above (in thousands):
Tangible assets:
 
Land and improvements
$
19,495

Building
62,836

Tangible assets
82,331

 
 
Intangible assets:
 
In-place leases
9,969

Intangible assets
9,969

 
 
Total assets acquired
$
92,300


4. LEASES
At September 30, 2019, the Company had five properties subject to operating ground leases with a weighted average remaining term of 72 years and two finance ground leases with a weighted average remaining term of five years. At September 30, 2019, the Company had right-of-use assets of $69.5 million included in operating properties, projects under development, or land on the condensed consolidated balance sheets and a lease liability of $70.1 million included in other liabilities on the condensed consolidated balance sheets. The weighted average discount rate on these ground leases at September 30, 2019 was 4.5%.
Rental payments on these ground leases are adjusted periodically based on either the Consumer Price Index, changes in developed square feet on the underlying leased asset, or on a pre-determined schedule. The monthly payments on a pre-determined schedule are recognized on a straight-line basis over the terms of the respective leases while payments resulting from changes in the Consumer Price Index or future development are reflected in the statement of operations at the time of the change.
For the three and nine months ended September 30, 2019, the Company recognized operating ground lease expense of $1.1 million and $2.8 million, respectively, of which no amounts represented variable lease expenses, and recognized interest expense related to finance ground leases of $115,000 and $347,000, respectively. For the three and nine months ended September 30, 2019, the Company paid $478,000 and $1.4 million, respectively, in cash related to operating ground leases and made no cash payments related to financing ground leases. At September 30, 2019 and December 31, 2018, respectively, the future minimum payments to be made by consolidated entities for ground leases are as follows (in thousands):

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September 30, 2019
 
Operating Ground Leases
 
Finance Ground Leases
2019
$
818

 
$
462

2020
3,175

 
462

2021
2,959

 
6,562

2022
2,672

 
162

2023
2,614

 
162

Thereafter
202,604

 
3,838

 
$
214,842

 
$
11,648

 
 
 
 
Discount
(155,027
)
 
(1,572
)
Lease liability
$
59,815

 
$
10,076

December 31, 2018
 
Operating Ground Leases
 
Finance Ground Leases
2019
$
2,441

 
$
462

2020
2,460

 
462

2021
2,497

 
6,562

2022
2,497

 
162

2023
2,497

 
162

Thereafter
202,603

 
3,838

 
$
214,995

 
$
11,648


5. INVESTMENT IN UNCONSOLIDATED JOINT VENTURES
The following information summarizes financial data and principal activities of the Company's unconsolidated joint ventures. The information included in the following table entitled summary of financial position is as of September 30, 2019 and December 31, 2018 (in thousands). The information included in the summary of operations table is for the nine months ended September 30, 2019 and 2018 (in thousands):
 
 
Total Assets
 
Total Debt
 
Total Equity
 
Company’s Investment
 
SUMMARY OF FINANCIAL POSITION:
 
2019
 
2018
 
2019
 
2018
 
2019
 
2018
 
2019
 
2018
 
Terminus Office Holdings LLC
 
$
257,554

 
$
258,060

 
$
195,290

 
$
198,732

 
$
55,502

 
$
50,539

 
$
50,781

 
$
48,571

 
DC Charlotte Plaza LLLP
 
184,544

 
155,530

 

 

 
93,775

 
88,922

 
49,759

 
46,554

 
Austin 300 Colorado Project, LP
 
104,875

 
51,180

 
5,488

 

 
68,054

 
41,298

 
36,462

 
22,335

 
Carolina Square Holdings LP
 
114,486

 
106,187

 
75,514

 
74,638

 
25,860

 
28,844

 
15,221

 
16,840

 
AMCO 120 WT Holdings, LLC
 
70,163

 
36,680

 

 

 
62,185

 
31,372

 
11,966

 
5,538

 
HICO Victory Center LP
 
15,382

 
15,069

 

 

 
15,196

 
14,801

 
10,264

 
10,003

 
Charlotte Gateway Village, LLC
 
112,768

 
112,553

 

 

 
108,176

 
109,666

 
7,480

 
8,225

 
CL Realty, L.L.C.
 
4,159

 
4,169

 

 

 
4,039

 
4,183

 
2,814

 
2,886

 
Temco Associates, LLC
 
1,551

 
1,482

 

 

 
1,448

 
1,379

 
953

 
919

 
TR 208 Nueces Member, LLC
 
3,176

 

 

 

 
1,396

 

 
349

 

 
EP II LLC
 
247

 
247

 

 

 
165

 
165

 
28

 
30

 
EP I LLC
 
461

 
461

 

 

 
296

 
296

 
2

 
6

 
Wildwood Associates
 
11,105

 
11,157

 

 

 
10,998

 
11,108

 
(512
)
(1)
(460
)
(1)
Crawford Long - CPI, LLC
 
29,052

 
26,429

 
68,347

 
69,522

 
(41,326
)
 
(44,146
)
 
(19,723
)
(1)
(21,071
)
(1)
 
 
$
909,523

 
$
779,204

 
$
344,639

 
$
342,892

 
$
405,764

 
$
338,427

 
$
165,844

 
$
140,376

 


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Total Revenues
 
Net Income (Loss)
 
Company's Share of Income (Loss)
SUMMARY OF OPERATIONS:
 
2019
 
2018
 
2019
 
2018
 
2019
 
2018
Charlotte Gateway Village, LLC
 
$
20,368

 
$
20,043

 
$
7,510

 
$
7,792

 
$
3,755

 
$
3,896

Terminus Office Holdings LLC
 
34,964

 
33,545

 
4,962

 
4,424

 
2,381

 
2,276

DC Charlotte Plaza LLLP
 
10,716

 

 
4,196

 

 
2,098

 

Crawford Long - CPI, LLC
 
9,412

 
9,381

 
2,821

 
2,631

 
1,349

 
1,254

HICO Victory Center LP
 
356

 
282

 
356

 
282

 
197

 
160

Austin 300 Colorado Project, LP
 
319

 
385

 
152

 
173

 
76

 
86

Temco Associates, LLC
 
128

 
128

 
61

 
58

 
35

 
32

Carolina Square Holdings LP
 
8,757

 
7,403

 
191

 
5

 
5

 
(173
)
AMCO 120 WT Holdings, LLC
 
5

 

 
(81
)
 
(28
)
 

 

EP II LLC
 
1

 

 

 
(21
)
 
(1
)
 
(15
)
EP I LLC
 
3

 
27

 

 
1

 
(4
)
 
(5
)
Wildwood Associates
 

 

 
(80
)
 
(1,108
)
 
(40
)
 
2,739

CL Realty, L.L.C.
 

 

 
(129
)
 
(116
)
 
(72
)
 
(71
)
Other
 

 

 

 
(14
)
 

 
(6
)
 
 
$
85,029

 
$
71,194

 
$
19,959

 
$
14,079

 
$
9,779

 
$
10,173


(1) Negative balances are included in deferred income on the balance sheets.
On October 1, 2019, the Company purchased its partner's interest in Terminus Office Holdings LLC ("TOH") for $148 million in a transaction that valued Terminus 100 and Terminus 200 at $503 million. In the fourth quarter of 2019, the Company will consolidate TOH and record the assets and liabilities at fair value. The Company expects to recognize a gain of approximately $94 million on this acquisition achieved in stages.
6. INTANGIBLE ASSETS
Intangible assets on the balance sheets as of September 30, 2019 and December 31, 2018 included the following (in thousands):
 
 
2019
 
2018
In-place leases, net of accumulated amortization of $162,263 and $125,130 in 2019 and 2018, respectively
 
$
204,023

 
$
105,964

Above-market tenant leases, net of accumulated amortization of $24,649 and $19,502 in 2019 and 2018, respectively
 
32,332

 
20,453

Below-market ground lease, net of accumulated amortization of $828 and $621 in 2019 and 2018, respectively
 
17,584

 
17,792

Goodwill
 
1,674

 
1,674

 
 
$
255,613

 
$
145,883


The carrying amount of goodwill did not change during the nine months ended September 30, 2019 and 2018.
7. OTHER ASSETS
Other assets on the balance sheets as of September 30, 2019 and December 31, 2018 included the following (in thousands):
 
 
2019
 
2018
Predevelopment costs and earnest money
 
$
33,997

 
$
8,249

Furniture, fixtures and equipment, leasehold improvements, and other deferred costs, net of accumulated depreciation of $28,082 and $25,193 in 2019 and 2018, respectively
 
17,355

 
14,942

Prepaid expenses and other assets
 
9,603

 
5,087

Lease inducements, net of accumulated amortization of $2,111 and $1,545 in 2019 and 2018, respectively
 
5,423

 
4,961

Line of credit deferred financing costs, net of accumulated amortization of $2,576 and $1,451 in 2019 and 2018, respectively
 
4,892

 
5,844

 
 
$
71,270

 
$
39,083



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8. NOTES PAYABLE
The following table summarizes the terms of notes payable outstanding at September 30, 2019 and December 31, 2018 (in thousands):
Description
 
Interest Rate
 
Maturity (1)
 
2019
 
2018
2019 Senior Notes, Unsecured
 
3.95%
 
2029
 
$
275,000

 
$

Term Loan, Unsecured
 
3.22%
 
2021
 
250,000

 
250,000

2017 Senior Notes, Unsecured
 
3.91%
 
2025
 
250,000

 
250,000

2019 Senior Notes, Unsecured
 
3.86%
 
2028
 
250,000

 

Fifth Third Center
 
3.37%
 
2026
 
141,131

 
143,497

2019 Senior Notes, Unsecured
 
3.78%
 
2027
 
125,000

 

Colorado Tower
 
3.45%
 
2026
 
117,677

 
119,427

2017 Senior Notes, Unsecured
 
4.09%
 
2027
 
100,000

 
100,000

Promenade
 
4.27%
 
2022
 
96,813

 
99,238

816 Congress
 
3.75%
 
2024
 
80,415

 
81,676

Credit Facility, Unsecured
 
3.07%
 
2023
 
80,000

 

Legacy Union One
 
4.24%
 
2023
 
66,000

 

Meridian Mark Plaza
 
6.00%
 
2020
 
23,117

 
23,524

 
 
 
 
 
 
$
1,855,153

 
$
1,067,362

Unamortized premium
 
 
 
 
 
2,335

 

Unamortized loan costs
 
 
 
 
 
(6,671
)
 
(4,792
)
Total Notes Payable
 
 
 
 
 
$
1,850,817

 
$
1,062,570


(1) Weighted average maturity of notes payable outstanding at September 30, 2019 was 6.3 years.

Credit Facility
The Company has a $1 billion senior unsecured line of credit (the "Credit Facility") that matures on January 3, 2023. The Credit Facility contains financial covenants that require, among other things, the maintenance of an unencumbered interest coverage ratio of at least 1.75; a fixed charge coverage ratio of at least 1.50; a secured leverage ratio of no more than 40%; and an overall leverage ratio of no more than 60%. The Credit Facility also contains customary representations and warranties and affirmative and negative covenants, as well as customary events of default. The amounts outstanding under the Credit Facility may be accelerated upon the occurrence of any events of default.
The interest rate applicable to the Credit Facility varies according to the Company's leverage ratio, and may, at the election of the Company, be determined based on either (1) the current LIBOR plus a spread of between 1.05% and 1.45%, or (2) the greater of Bank of America's prime rate, the federal funds rate plus 0.50%, or the one-month LIBOR plus 1.0% (the "Base Rate"), plus a spread of between 0.10% or 0.45%, based on leverage.
At September 30, 2019, the Credit Facility's spread over LIBOR was 1.05%. The amount that the Company may draw under the Credit Facility is a defined calculation based on the Company's unencumbered assets and other factors. The total available borrowing capacity under the Credit Facility was $920.0 million at September 30, 2019.
Term Loan
The Company has a $250 million unsecured term loan (the "Term Loan") that matures on December 2, 2021. The Term Loan has financial covenants consistent with those of the Credit Facility. The interest rate applicable to the Term Loan varies according to the Company’s leverage ratio and may, at the election of the Company, be determined based on either (1) the current LIBOR plus a spread of between 1.20% and 1.70%, based on leverage or (2) the greater of Bank of America's prime rate, the federal funds rate plus 0.50%, or the one-month LIBOR plus 1.00% (the “Base Rate”), plus a spread of between 0.00% and 0.75%, based on leverage. At September 30, 2019, the Term Loan's spread over LIBOR was 1.20%.



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Unsecured Senior Notes
The Company has unsecured senior notes of $1.0 billion that were funded in five tranches. The first tranche of $100 million is due in 2027 and has a fixed annual interest rate of 4.09%. The second tranche of $250 million is due in 2025 and has a fixed annual interest rate of 3.91%. The third tranche of $125 million is due in 2027 and has a fixed annual interest rate of 3.78%. The fourth tranche of $250 million is due in 2028 and has a fixed annual interest rate of 3.86%. The fifth tranche of $275 million is due in 2029 and has a fixed annual interest rate of 3.95%.
The unsecured senior notes contain financial covenants that require, among other things, the maintenance of an unencumbered interest coverage ratio of at least 1.75; a fixed charge coverage ratio of at least 1.50; an overall leverage ratio of no more than 60%; and a secured leverage ratio of no more than 40%. The senior notes also contain customary representations and warranties and affirmative and negative covenants, as well as customary events of default.
Other Debt Information
At September 30, 2019 and December 31, 2018, the estimated fair value of the Company’s notes payable were $1.9 billion and $1.1 billion, respectively, calculated by discounting the debt's remaining contractual cash flows at estimated rates at which similar loans could have been obtained at September 30, 2019 and December 31, 2018. The estimate of the current market rate, which is the most significant input in the discounted cash flow calculation, is intended to replicate debt of similar maturity and loan-to-value relationship. These fair value calculations are considered to be Level 2 under the guidelines as set forth in ASC 820 as the Company utilizes market rates for similar type loans from third party brokers.
For the three and nine months ended September 30, 2019 and 2018, interest expense was recorded as follows (in thousands):
 
Three Months Ended September 30,
 
Nine Months Ended September 30,
 
2019
 
2018
 
2019
 
2018
Total interest incurred
$
18,918

 
$
11,087

 
$
43,928

 
$
33,064

Interest capitalized
(4,218
)
 
(1,536
)
 
(6,349
)
 
(4,021
)
Total interest expense
$
14,700

 
$
9,551

 
$
37,579

 
$
29,043


9. COMMITMENTS AND CONTINGENCIES
Commitments
At September 30, 2019, the Company had outstanding performance bonds totaling $487,000. As a lessor, the Company had $206.6 million in future obligations under leases to fund tenant improvements and other future construction obligations at September 30, 2019. As a lessee, the Company had future obligations for operating leases other than ground leases of $333,000 at September 30, 2019.
Litigation
The Company is subject to various legal proceedings, claims, and administrative proceedings arising in the ordinary course of business, some of which are expected to be covered by liability insurance. Management makes assumptions and estimates concerning the likelihood and amount of any potential loss relating to these matters using the latest information available. The Company records a liability for litigation if an unfavorable outcome is probable and the amount of loss or range of loss can be reasonably estimated. If an unfavorable outcome is probable and a reasonable estimate of the loss is a range, the Company accrues the best estimate within the range. If no amount within the range is a better estimate than any other amount, the Company accrues the minimum amount within the range. If an unfavorable outcome is probable but the amount of the loss cannot be reasonably estimated, the Company discloses the nature of the litigation and indicates that an estimate of the loss or range of loss cannot be made. If an unfavorable outcome is reasonably possible and the estimated loss is material, the Company discloses the nature and estimate of the possible loss of the litigation. The Company does not disclose information with respect to litigation where an unfavorable outcome is considered to be remote or where the estimated loss would not be material. Based on current expectations, such matters, both individually and in the aggregate, are not expected to have a material adverse effect on the liquidity, results of operations, business, or financial condition of the Company.
10. STOCK-BASED COMPENSATION
The Company has several types of stock-based compensation - stock options, restricted stock, and restricted stock units (“RSUs”) - which are described in note 13 of the notes to consolidated financial statements in the Company's Annual Report on Form 10-K for the year ended December 31, 2018. The expense related to stock option and restricted stock awards is fixed. The expense related to RSUs fluctuates from period to period dependent, in part, on the Company's stock price and stock performance relative to its peers. The Company recorded stock-based compensation expense, net of forfeitures, of $67,000 and $403,000 for the three months ended September 30, 2019 and 2018, respectively, and $6.7 million and $6.4 million for the nine months ended September 30, 2019 and 2018, respectively.

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On April 23, 2019, the Company's stockholders approved the Cousins Properties Incorporated 2019 Omnibus Incentive Stock Plan (the "2019 Plan"). The Company also maintains the Cousins Properties Incorporated 2009 Incentive Stock Plan (the "2009 Plan") and the Cousins Properties Incorporated 2005 Restricted Stock Unit Plan (the “RSU Plan”) although no further issuances are permitted under the 2009 plan or RSU Plan. Under the 2009 Plan, during the quarter ended March 31, 2019, the Company made restricted stock grants of 65,822 shares to key employees, which vest ratably over a three-year period. Under the RSU Plan, during the quarter ended March 31, 2019, the Company awarded two types of performance-based RSUs to key employees based on the following metrics: (1) Total Stockholder Return of the Company, as defined in the RSU Plan, as compared to the companies in the SNL US REIT Office index (“TSR RSUs”), and (2) the ratio of cumulative funds from operations per share to targeted cumulative funds from operations per share (“FFO RSUs”), as defined in the RSU Plan. The performance period for both awards is January 1, 2019 to December 31, 2021, and the targeted units awarded of TSR RSUs and FFO RSUs was 65,247 and 27,963, respectively. The ultimate payout of these awards can range from 0% to 200% of the targeted number of units depending on the achievement of the market and performance metrics described above. These RSU awards cliff vest on December 31, 2021 and are to be settled in cash with payment dependent on attainment of required service, market, and performance criteria. The number of RSUs vesting will be determined by the Compensation Committee, and the payout per unit will be equal to the average closing price on each trading day during the 30-day period ending on December 31, 2021. The Company expenses an estimate of the fair value of the TSR RSUs over the performance period using a quarterly Monte Carlo valuation. The FFO RSUs are expensed over the vesting period using the fair market value of the Company's stock at the reporting date multiplied by the anticipated number of units to be paid based on the current estimate of what the ratio is expected to be upon vesting. Dividend equivalents on the TSR RSUs and the FFO RSUs will also be paid based upon the percentage vested. The Company expects to make all future grants of restricted stock and restricted stock units under the 2019 Plan.
Under the 2019 Plan, during the quarter ended June 30, 2019, the Company issued 37,166 shares of common stock to members of its board of directors in lieu of fees and recorded $1.4 million in general and administrative expense related to these issuances.
11. REVENUE RECOGNITIION
The Company categorizes its primary sources of revenue into revenue from contracts with customers and other revenue accounted for as leases under ASC 842 as follows:
Rental property revenues consist of (1) contractual revenues from leases recognized on a straight-line basis over the term of the respective lease; (2) percentage rents recognized once a specified sales target is achieved; (3) parking revenue; (4) termination fees; and (5) the reimbursement of the tenants' share of real estate taxes, insurance, and other operating expenses. The Company's leases typically include renewal options and are classified and accounted for as operating leases. Rental property revenues are accounted for in accordance with the guidance set forth in ASC 842.
Fee income consists of development fees, management fees, and leasing fees earned from unconsolidated joint ventures and from third parties. Fee income is accounted for in accordance with the guidance set forth in ASC 606.
For the three and nine months ended September 30, 2019, the Company recognized rental property revenues of $180.8 million and $439.6 million, respectively, of which $53.9 million and $122.8 million, respectively, represented variable rental revenue. For the three and nine months ended September 30, 2018, the Company recognized rental property revenues of $115.7 million and $343.8 million, respectively. For the three and nine months ended September 30, 2019, the Company recognized fee and other revenue of $7.5 million and $23.5 million, respectively. For the three and nine months ended September 30, 2018, the Company recognized fee and other revenue of $3.0 million and $8.8 million, respectively. The following tables set forth the future minimum rents to be received by consolidated entities under existing non-cancellable leases as of September 30, 2019 and December 31, 2018, respectively (in thousands):
September 30, 2019
 
 
2019
$
139,270

2020
572,471

2021
547,573

2022
496,473

2023
455,942

Thereafter
1,954,183

 
$
4,165,912


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December 31, 2018
 
 
2019
$
328,607

2020
330,477

2021
314,410

2022
280,959

2023
256,233

Thereafter
1,115,490

 
$
2,626,176


12. SALE OF AIR RIGHTS
On February 26, 2019, the Company sold air rights that cover eight acres within Downtown Atlanta for a gross sales price of $13.25 million and recorded a gain of $13.1 million.

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13. EARNINGS PER SHARE
The following table sets forth the computation of basic and diluted earnings per share for the three and nine months ended September 30, 2019 and 2018 (in thousands):
 
Three Months Ended September 30,
 
Nine Months Ended September 30,
 
2019
 
2018
 
2019
 
2018
Earnings per Common Share - basic:
 
 
 
 
 
 
 
Numerator:
 
 
 
 
 
 
 
      Net income
$
20,692

 
$
19,859

 
$
34,115

 
$
58,014

Net income attributable to noncontrolling interests in
CPLP from continuing operations
(241
)
 
(326
)
 
(564
)
 
(1,023
)
      Net income attributable to other noncontrolling interests
(77
)
 
(48
)
 
(245
)
 
(187
)
Net income available to common stockholders
$
20,374

 
$
19,485

 
$
33,306

 
$
56,804

 
 
 
 
 
 
 
 
Denominator:
 
 
 
 
 
 
 
Weighted average common shares - basic
146,762

 
105,096

 
121,758

 
105,069

Net income per common share - basic
$
0.14

 
$
0.19

 
$
0.27

 
$
0.54

 
 
 
 
 
 
 
 
Earnings per common share - diluted:
 
 
 
 
 
 
 
Numerator:
 
 
 
 
 
 
 
      Net income
$
20,692

 
$
19,859

 
$
34,115


$
58,014

Net income attributable to other noncontrolling interests
(77
)
 
(48
)
 
(245
)
 
(187
)
Net income available for common stockholders before net income attributable to noncontrolling interests in CPLP
$
20,615

 
$
19,811

 
$
33,870

 
$
57,827

 
 
 
 
 
 
 
 
Denominator:
 
 
 
 
 
 
 
Weighted average common shares - basic
146,762

 
105,096

 
121,758

 
105,069

     Add:
 
 
 
 
 
 
 
Potential dilutive common shares - stock options
24

 
40

 
27

 
54

Weighted average units of CPLP convertible into
    common shares
1,744

 
1,744

 
1,744

 
1,744

Weighted average common shares - diluted
148,530

 
106,880

 
123,529

 
106,867

Net income per common share - diluted
$
0.14

 
$
0.19

 
$
0.27


$
0.54

 
 
 
 
 
 
 
 
Anti-dilutive stock options outstanding

 

 

 
2



For the nine months ended September 30, 2018, anti-dilutive stock represents stock options whose exercise price exceeds the average market value of the Company's stock. These anti-dilutive stock options are not included in the current calculation of dilutive weighted average shares but could be dilutive in the future.


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14. CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS - SUPPLEMENTAL INFORMATION
Supplemental information related to the cash flows, including significant non-cash activity affecting the condensed consolidated statement of cash flows, for the nine months ended September 30, 2019 and 2018 is as follows (in thousands):
 
2019
 
2018
Interest paid
$
39,592

 
$
31,601

Non-Cash Transactions:
 
 
 
Non-cash assets and liabilities assumed in TIER transaction
1,512,373

 

Ground lease right-of-use assets and associated liabilities
56,294

 

Common stock dividends declared and accrued
42,567

 
27,364

Change in accrued property, acquisition, development, and tenant expenditures
22,599

 
21,920

Non-cash consideration for property acquisition
10,071

 

Transfers from projects under development to operating properties

 
212,628

Cumulative effect of change in accounting principle

 
22,329

Transfer from investment in unconsolidated joint venture to projects under development

 
7,025


The following table provides a reconciliation of cash, cash equivalents, and restricted cash recorded on the balance sheets to cash, cash equivalents, and restricted cash in the statements of cash flows (in thousands):
 
September 30, 2019
 
December 31, 2018
Cash and cash equivalents
$
12,396

 
$
2,547

Restricted cash
2,268

 
148

Total cash, cash equivalents, and restricted cash
$
14,664

 
$
2,695


15. REPORTABLE SEGMENTS
The Company's segments are based on its method of internal reporting, which classifies operations by property type and geographical area. The segments by property type are: Office and Mixed-Use. The segments by geographical region are: Atlanta, Austin, Charlotte, Dallas, Phoenix, Tampa, and Other. Included in Other is a property held for sale in Cherry Hill, New Jersey and properties located in Chapel Hill, Fort Worth, and Houston. These reportable segments represent an aggregation of operating segments reported to the Chief Operating Decision Maker based on similar economic characteristics that include the type of property and the geographical location. Each segment includes both consolidated operations and the Company's share of unconsolidated joint venture operations.
Company management evaluates the performance of its reportable segments in part based on net operating income (“NOI”). NOI represents rental property revenues, less termination fees, less rental property operating expenses. NOI is not a measure of cash flows or operating results as measured by GAAP, is not indicative of cash available to fund cash needs, and should not be considered an alternative to cash flows as a measure of liquidity. All companies may not calculate NOI in the same manner. The Company considers NOI to be an appropriate supplemental measure to net income as it helps both management and investors understand the core operations of the Company's operating assets. NOI excludes corporate general and administrative expenses, interest expense, depreciation and amortization, impairments, gains/loss on sales of real estate, and other non-operating items.
Segment net income, amount of capital expenditures, and total assets are not presented in the following tables because management does not utilize these measures when analyzing its segments or when making resource allocation decisions. Information on the Company's segments along with a reconciliation of NOI to net income for the three and nine months ended September 30, 2019 and 2018 are as follows (in thousands):

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Table of Contents


Three Months Ended September 30, 2019
 
Office
 
Mixed-Use
 
Total
Net Operating Income:
 
 
 
 
 
 
Atlanta
 
$
38,926

 
$

 
$
38,926

Austin
 
29,452

 

 
29,452

Charlotte
 
21,692

 

 
21,692

Dallas
 
3,416

 

 
3,416

Phoenix
 
8,913

 

 
8,913

Tampa
 
8,309

 

 
8,309

Other
 
9,266

 
668

 
9,934

Total Net Operating Income
 
$
119,974

 
$
668

 
$
120,642

Three Months Ended September 30, 2018
 
Office
 
Mixed-Use
 
Total
Net Operating Income:
 
 
 
 
 
 
Atlanta
 
$
32,296

 
$

 
$
32,296

Austin
 
15,180

 

 
15,180

Charlotte
 
15,924

 

 
15,924

Phoenix
 
9,265

 

 
9,265

Tampa
 
7,446

 

 
7,446

Other
 
310

 
437

 
747

Total Net Operating Income
 
$
80,421

 
$
437

 
$
80,858

Nine Months Ended September 30, 2019
 
Office
 
Mixed-Use
 
Total
Net Operating Income:
 
 
 
 
 
 
Atlanta
 
$
115,692

 
$

 
$
115,692

Austin
 
63,977

 

 
63,977

Charlotte
 
55,550

 

 
55,550

Dallas
 
4,086

 

 
4,086

Phoenix
 
27,694

 

 
27,694

Tampa
 
24,869

 

 
24,869

Other
 
11,678

 
2,244

 
13,922

Total Net Operating Income
 
$
303,546

 
$
2,244

 
$
305,790

Nine Months Ended September 30, 2018
 
Office
 
Mixed-Use
 
Total
Net Operating Income:
 
 
 
 
 
 
Atlanta
 
$
96,639

 
$

 
$
96,639

Austin
 
45,209

 

 
45,209

Charlotte
 
47,197

 

 
47,197

Phoenix
 
27,119

 

 
27,119

Tampa
 
22,816

 

 
22,816

Other
 
1,183

 
1,468

 
2,651

Total Net Operating Income
 
$
240,163

 
$
1,468

 
$
241,631








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Table of Contents


The following reconciles Net Operating Income to Net Income for each of the periods presented (in thousands):
 
Three Months Ended September 30,
 
Nine Months Ended September 30,
 
2019
 
2018
 
2019
 
2018
Net Operating Income
$
120,642

 
$
80,858

 
$
305,790

 
$
241,631

Net operating income from unconsolidated joint ventures
(9,037
)
 
(6,994
)
 
(26,289
)
 
(21,643
)
Fee income
7,494

 
2,519

 
23,298

 
7,211

Termination fee income
3,575

 
276

 
4,285

 
1,275

Other income
3

 
468

 
154

 
1,561

Reimbursed expenses
(1,290
)
 
(955
)
 
(3,269
)
 
(2,757
)
General and administrative expenses
(5,852
)
 
(3,913
)
 
(25,686
)
 
(18,793
)
Interest expense
(14,700
)
 
(9,551
)
 
(37,579
)
 
(29,043
)
Depreciation and amortization
(82,012
)
 
(45,068
)
 
(178,777
)
 
(135,836
)
Acquisition and transaction costs
(1,048
)
 

 
(50,878
)
 
(228
)
Other expenses
(297
)
 
(93
)
 
(1,101
)
 
(457
)
Income from unconsolidated joint ventures
3,241

 
2,252

 
9,779

 
10,173

Gain (loss) on sale of investment properties
(27
)
 
(33
)
 
14,388

 
4,912

Gain on extinguishment of debt

 
93

 

 
8

Net Income
$
20,692


$
19,859

 
$
34,115

 
$
58,014


Revenues by reportable segment, including a reconciliation to total rental property revenues on the condensed consolidated statements of operations, for three and nine months ended September 30, 2019 and 2018 are as follows (in thousands):
Three Months Ended September 30, 2019
 
Office
 
Mixed-Use
 
Total
Revenues:
 
 
 
 
 
 
Atlanta
 
$
60,486

 
$

 
$
60,486

Austin
 
50,614

 

 
50,614

Charlotte
 
34,762

 

 
34,762

Dallas
 
4,274

 

 
4,274

Phoenix
 
12,754

 

 
12,754

Tampa
 
14,335

 

 
14,335

Other
 
17,290

 
1,101

 
18,391

Total segment revenues
 
194,515

 
1,101

 
195,616

Less Company's share of rental property revenues from unconsolidated joint ventures
 
(13,689
)
 
(1,101
)
 
(14,790
)
Total rental property revenues
 
$
180,826

 
$

 
$
180,826

Three Months Ended September 30, 2018
 
Office
 
Mixed-Use
 
Total
Revenues:
 
 
 
 
 
 
Atlanta
 
$
51,248

 
$

 
$
51,248

Austin
 
26,493

 

 
26,493

Charlotte
 
23,274

 

 
23,274

Tampa
 
12,857

 

 
12,857

Phoenix
 
12,228

 

 
12,228

Other
 
1,104

 
429

 
1,533

Total segment revenues
 
127,204

 
429

 
127,633

Less Company's share of rental property revenues from unconsolidated joint ventures
 
(11,485
)
 
(429
)
 
(11,914
)
Total rental property revenues
 
$
115,719

 
$

 
$
115,719


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Table of Contents


Nine Months Ended September 30, 2019
 
Office
 
Mixed-Use
 
Total
Revenues:
 
 
 
 
 
 
Atlanta
 
$
177,455

 
$

 
$
177,455

Austin
 
110,521

 

 
110,521

Charlotte
 
85,258

 

 
85,258

Dallas
 
5,078

 

 
5,078

Phoenix
 
38,562

 

 
38,562

Tampa
 
40,776

 

 
40,776

Other
 
21,416

 
3,378

 
24,794

Total segment revenues
 
479,066

 
3,378

 
482,444

Less Company's share of rental property revenues from unconsolidated joint ventures
 
(39,442
)
 
(3,378
)
 
(42,820
)
Total rental property revenues
 
$
439,624

 
$

 
$
439,624

Nine Months Ended September 30, 2018
 
Office
 
Mixed-Use
 
Total
Revenues:
 
 
 
 
 
 
Atlanta
 
$
151,479

 
$

 
$
151,479

Austin
 
79,516

 

 
79,516

Charlotte
 
69,316

 

 
69,316

Tampa
 
37,556

 

 
37,556

Phoenix
 
37,147

 

 
37,147

Other
 
3,238

 
997

 
4,235

Total segment revenues
 
378,252

 
997

 
379,249

Less Company's share of rental property revenues from unconsolidated joint ventures
 
(34,488
)
 
(997
)
 
(35,485
)
Total rental property revenues
 
$
343,764

 
$

 
$
343,764






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Table of Contents


Item 2.    Management's Discussion and Analysis of Financial Condition and Results of Operations
Overview:
Cousins Properties Incorporated ("Cousins") (and collectively, with its subsidiaries, the "Company," "we," "our," or "us") is a publicly traded (NYSE: CUZ), self-administered, and self-managed real estate investment trust, or REIT. Cousins conducts substantially all of its business through Cousins Properties, LP ("CPLP"). Cousins owns approximately 99% of CPLP and consolidates CPLP. CPLP owns Cousins TSR Services LLC, a taxable entity which owns and manages its own real estate portfolio and performs certain real estate related services for other parties. Our strategy is to create value for our stockholders through ownership of the premier urban office portfolio in the Sun Belt markets, with a particular focus on Georgia, Texas, North Carolina, Arizona, and Florida. This strategy is based on a disciplined approach to capital allocation that includes strategic acquisitions, selective development projects, and timely dispositions of non-core assets. This strategy is also based on a simple, flexible, and low-leveraged balance sheet that allows us to pursue investment opportunities at the most advantageous points in the cycle. To implement this strategy, we leverage our strong local operating platforms within each of our major markets.
Consistent with this strategy, on June 14, 2019, we merged with TIER REIT, Inc. ("TIER") in a stock-for-stock transaction (the "Merger"). As a result, we acquired interests in nine operating properties containing 5.8 million square feet of space, two office properties under development that are expected to add 620,000 square feet of space upon completion, and seven strategically located land parcels on which up to 2 million square feet of additional space may be developed. As a part of this transaction, we issued $650 million in senior unsecured debt at a weighted average interest rate of 3.88%, which effectively replaced the majority of the TIER debt assumed and repaid by the Credit Facility in the Merger. We believe that this merger creates a company with an attractive portfolio of trophy office assets balanced across the premier Sun Belt markets. We believe that the Merger will enhance our position in our existing markets of Austin and Charlotte, provide a strategic entry into Dallas, and balance our exposure in Atlanta. The Merger is also expected to enhance growth and to provide value-add opportunities as a result of TIER's active and attractive development portfolio and land bank. As of quarter-end, our portfolio of real estate assets consisted of interests in 38 operating properties (37 office and one mixed use), containing 21.8 million square feet of space, and five projects (four office and one mixed-use) under active development.
During the quarter, we leased or renewed 741,000 square feet of office space. The weighted average net effective rent of these leases, representing base rent less operating expense reimbursements and leasing costs, was $27.03 per square foot. For those leases that were previously occupied within the past year, net effective rent increased 17.2%. Same property net operating income (defined below) for consolidated properties and our share of unconsolidated properties increased by 0.3% between the three months ended September 30, 2019 and 2018.
On June 14, 2019, we restated and amended our articles of incorporation to effect a reverse stock split of the issued and outstanding shares of its common stock pursuant to which, (1) each four shares of our issued and outstanding common stock were combined into one share of our common stock and (2) the authorized number of our common stock was proportionally reduced to 175 million shares. Fractional shares of common stock resulting from the reverse stock split were settled in cash. Fractional shares of preferred stock resulting from the reverse stock split were redeemed without payout. Immediately thereafter, we further amended our articles of incorporation to increase the number of authorized shares of our common stock from 175 million to 300 million shares.
On October 1, 2019, we purchased our partner's interest in Terminus Office Holdings LLC ("TOH") for $148 million in a transaction that valued Terminus 100 and Terminus 200 at $503 million. In the fourth quarter of 2019, we will consolidate TOH and record the assets and liabilities at fair value. We expect to recognize a gain of approximately $94 million on this acquisition achieved in stages.
Results of Operations
General
Our financial results have been significantly affected by the Merger. In addition, our results have been affected by a series of transactions we entered into on March 1, 2019 with Norfolk Southern Railway Company ("NS") whereby we executed an agreement to develop NS's corporate headquarters in Midtown Atlanta and purchased 1200 Peachtree, a 370,000 square foot office building in Midtown Atlanta, from NS that is 100% leased by NS. Accordingly, our historical financial statements may not be indicative of future operating results.
Rental Property Revenue, Rental Property Operating Expenses, and Net Operating Income
The following table summarizes rental property revenues, rental property operating expenses, and net operating income ("NOI") for each of the periods presented, including our same property portfolio. NOI represents rental property revenue (excluding lease termination fees) less rental property operating expenses. Our same property portfolio is comprised of 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 or has been substantially completed and owned by us for each of the periods presented. This information is presented for consolidated properties only and does not include net operating income from our unconsolidated joint ventures.

24

Table of Contents


 
Three Months Ended September 30,
 
Nine Months Ended September 30,
 
2019
 
2018
 
$ Change
 
% Change
 
2019
 
2018
 
$ Change
 
% Change
Rental Property Revenues
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Same Property
$
112,357

 
$
107,844

 
$
4,513

 
4.2
%
 
$
334,135

 
$
320,260

 
$
13,875

 
4.3
%
Legacy TIER Properties
52,095

 

 
52,095

 
100.0
%
 
61,746

 

 
61,746

 
100.0
%
Other Non-Same Properties
16,374

 
7,875

 
8,499

 
107.9
%
 
43,743

 
23,504

 
20,239

 
86.1
%
Total Rental Property Revenues
$
180,826

 
$
115,719

 
$
65,107

 
56.3
%
 
$
439,624

 
$
343,764

 
$
95,860

 
27.9
%
 
 
 
 
 
 
 

 
 
 
 
 
 
 
 
Rental Property Operating Expenses
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Same Property
$
40,882

 
$
39,550

 
$
1,332

 
3.4
%
 
$
121,799

 
$
116,885

 
$
4,914

 
4.2
%
Legacy TIER Properties
20,012

 

 
20,012

 
100.0
%
 
23,245

 

 
23,245

 
100.0
%
Other Non-Same Properties
4,752

 
2,029

 
2,723

 
134.2
%
 
10,794

 
5,616

 
5,178

 
92.2
%
Total Rental Property Operating Expenses
$
65,646

 
$
41,579

 
$
24,067

 
57.9
%
 
$
155,838

 
$
122,501

 
$
33,337

 
27.2
%
 
 
 
 
 
 
 

 
 
 
 
 
 
 
 
Net Operating Income
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Same Property NOI
$
68,426

 
$
68,018

 
$
408

 
0.6
%
 
$
208,578

 
$
202,101

 
$
6,477

 
3.2
%
Legacy TIER Properties
31,556

 

 
31,556

 
100.0
%
 
37,975

 

 
37,975

 
100.0
%
Other Non-Same Properties
11,623


5,846

 
5,777

 
98.8
%
 
32,948

 
17,887

 
15,061

 
84.2
%
Total NOI
$
111,605

 
$
73,864

 
$
37,741

 
51.1
%
 
$
279,501

 
$
219,988

 
$
59,513

 
27.1
%
Same property rental property revenues increased in the three and nine month periods as a result of termination fees at Hearst Tower in connection with the BB&T/SunTrust lease and higher occupancy at Northpark, Corporate Center, and Hayden Ferry. Same property rental property operating expenses increased in the three and nine month periods primarily as a result of an increase in real estate taxes due to higher assessments of value in the Austin and Charlotte markets.
Revenues and expenses for Legacy TIER properties represent amounts recorded for the properties acquired in the Merger.
Revenues and expenses of Other Non-Same Properties increased in the three and nine month periods primarily as a result of the operations of 1200 Peachtree, which was acquired in the first quarter of 2019, and Spring & 8th, whose final phase commenced operations in the fourth quarter of 2018.
Fee Income
Fee income increased $5.0 million (197%) between the 2019 and 2018 three month periods and increased $16.1 million (223%) between the 2019 and 2018 nine month periods. The increase is primarily driven by fee income related to the transactions with NS.
General and Administrative Expenses
General and administrative expenses increased $1.9 million (50%) between the 2019 and 2018 three month periods and increased $6.9 million (37%) between the 2019 and 2018 nine month periods. These increases are primarily driven by long-term compensation expense increases as a result of fluctuations in our common stock price relative to our office peers included in the SNL US Office REIT Index.
Interest Expense
Interest expense, net of amounts capitalized, increased $5.1 million (54%) between the 2019 and 2018 three month periods and increased $8.5 million (29%) between the 2019 and 2018 nine month periods. The increase in both the three and nine month periods is due to interest incurred on the unsecured senior notes that were issued on June 19, 2019, interest incurred on a mortgage loan assumed in the Merger, and an increase in the average outstanding balance on our credit facility.
Depreciation and Amortization
 
Three Months Ended September 30,
 
Nine Months Ended September 30,
 
2019
 
2018
 
$ Change
 
% Change
 
2019
 
2018
 
$ Change
 
% Change
Depreciation and Amortization
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Same Property
$
51,595

 
$
42,074

 
$
9,521

 
22.6
%
 
$
133,426

 
$
126,907

 
$
6,519

 
5.1
%
Legacy TIER Properties
24,973

 

 
24,973

 
100.0
%
 
29,890

 

 
29,890

 
100.0
%
Other Non-Same Properties
5,444

 
2,994

 
2,450

 
81.8
%
 
15,461

 
8,929

 
6,532

 
73.2
%
Total Depreciation and Amortization
$
82,012

 
$
45,068

 
$
36,944

 
82.0
%
 
$
178,777

 
$
135,836

 
$
42,941

 
31.6
%
Same property depreciation and amortization increased in the three and nine month periods due primarily to the acceleration of amortization of tenant improvements and in-place leases on tenants who terminated their leases at Hearst Tower in connection with the

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BB&T/Suntrust lease. For the nine month period this was partially offset by the acceleration of amortization of tenant improvements and in-place leases on tenants who terminated their leases in early 2018.
Depreciation and amortization for Legacy TIER properties represent amounts recorded on the properties acquired in the Merger.
Depreciation and amortization of Other Non-Same Properties increased in the three and nine month periods primarily as a result of depreciation and amortization of 1200 Peachtree, which was acquired in the first quarter of 2019, and Spring & 8th, whose final phase commenced operations in the fourth quarter of 2018.
Transaction Costs
Transaction costs for the three and nine months ended September 30, 2019 relate to the Merger. These costs include financial advisory, legal, accounting, severance, and other costs of combining our operations with TIER.
Income from Unconsolidated Joint Ventures
Income from unconsolidated joint ventures consisted of the Company's share of the following (in thousands):
 
Three Months Ended September 30,
 
Nine Months Ended September 30,
 
2019
 
2018
 
$ Change
 
% Change
 
2019
 
2018
 
$ Change
 
% Change
Net operating income
$
9,037

 
$
6,994

 
$
2,043

 
29.2
 %
 
$
26,289

 
$
21,643

 
$
4,646

 
21.5
 %
Termination fee income
9

 

 
9

 
100.0
 %
 
16

 

 
16

 
100.0
 %
Other income, net
20

 
36

 
(16
)
 
(44.4
)%
 
99

 
83

 
16

 
19.3
 %
Gain on sale of undepreciated property

 

 

 
 %
 

 
2,779

 
(2,779
)
 
(100.0
)%
Depreciation and amortization
(4,148
)
 
(3,119
)
 
(1,029
)
 
33.0
 %
 
(11,556
)
 
(9,554
)
 
(2,002
)
 
21.0
 %
Interest expense
(1,677
)
 
(1,657
)
 
(20
)
 
1.2
 %
 
(5,064
)
 
(4,763
)
 
(301
)
 
6.3
 %
Net loss on sale of investment property

 
(2
)
 
2

 
(100.0
)%
 
(5
)
 
(15
)
 
10

 
(66.7
)%
Income from unconsolidated joint ventures
$
3,241

 
$
2,252

 
$
989

 
43.9
 %
 
$
9,779

 
$
10,173

 
$
(394
)
 
(3.9
)%
Net operating income and depreciation and amortization from unconsolidated joint ventures increased between the three and nine month periods primarily due to the commencement of operations in the first quarter of 2019 of Dimensional Place, the office building owned by the DC Charlotte Plaza LLLP joint venture. Gain on sale of undepreciated property from unconsolidated joint ventures in the nine month 2018 period relates to the sale of a parcel of land held by the Wildwood Associates joint venture.
Gain on Sale of Investment Properties
The gain on sale of investment properties for the nine months ended September 30, 2019 includes the sale of the Company's air rights that cover approximately eight acres within an area of Downtown Atlanta as well as the condemnation of land by the City of Tempe at two of the Company's properties.
Funds From Operations
The table below shows Funds from Operations (“FFO”) and the related reconciliation to net income available to common stockholders. We calculate FFO in accordance with the National Association of Real Estate Investment Trusts’ (“NAREIT”) definition, which is net income available to common stockholders (computed in accordance with GAAP), excluding extraordinary items, cumulative effect of change in accounting principle, and gains on sale or impairment losses on depreciable property, plus depreciation and amortization of real estate assets, and after adjustments for unconsolidated partnerships and joint ventures to reflect FFO on the same basis.
FFO is used by industry analysts and investors as a supplemental measure of a REIT’s operating performance. Historical cost accounting for real estate assets implicitly assumes that the value of real estate assets diminishes predictably over time. Since real estate values instead have historically risen or fallen with market conditions, many industry investors and analysts have considered presentation of operating results for real estate companies that use historical cost accounting to be insufficient by themselves. Thus, NAREIT created FFO as a supplemental measure of REIT operating performance that excludes historical cost depreciation, among other items, from GAAP net income. The use of FFO, combined with the required primary GAAP presentations, has been fundamentally beneficial, improving the understanding of operating results of REITs among the investing public and making comparisons of REIT operating results more meaningful. Company management evaluates operating performance in part based on FFO. Additionally, we use FFO, along with other measures, to assess performance in connection with evaluating and granting incentive compensation to its officers and other key employees. The reconciliation of net income to FFO is as follows for the three and nine months ended September 30, 2019 and 2018 (in thousands, except per share information):

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Three Months Ended September 30,
 
Nine Months Ended September 30,
 
2019
 
2018
 
2019
 
2018
Net Income Available to Common Stockholders
$
20,374

 
$
19,485

 
$
33,306

 
$
56,804

Depreciation and amortization of real estate assets:
 
 
 
 

 

Consolidated properties
81,569

 
44,599

 
177,424

 
134,426

Share of unconsolidated joint ventures
4,148

 
3,119

 
11,556

 
9,554

Partners' share of real estate depreciation
(171
)
 
(72
)
 
(366
)
 
(211
)
(Gain) loss on sale of depreciated properties:
 
 
 
 
 
 
 
Consolidated properties
48

 
33

 
102

 
(4,912
)
Share of unconsolidated joint ventures

 

 
5

 
15

     Non-controlling interest related to unitholders
241

 
326

 
564

 
1,023

Funds From Operations
$
106,209

 
$
67,490

 
$
222,591

 
$
196,699

Per Common Share — Diluted:
 
 
 
 

 

Net Income Available to Common Stockholders
$
0.14

 
$
0.19

 
$
0.27

 
$
0.54

Funds From Operations
$
0.72

 
$
0.63

 
$
1.80

 
$
1.84

Weighted Average Shares — Diluted
148,530

 
106,880

 
123,529

 
106,867


Net Operating Income

Company management evaluates the performance of its property portfolio in part based on NOI. NOI represents rental property revenues, less termination fees, less rental property operating expenses. NOI is not a measure of cash flows or operating results as measured by GAAP, is not indicative of cash available to fund cash needs, and should not be considered an alternative to cash flows as a measure of liquidity. All companies may not calculate NOI in the same manner. The Company considers NOI to be an appropriate supplemental measure to net income as it helps both management and investors understand the core operations of the Company's operating assets. NOI excludes corporate general and administrative expenses, interest expense, depreciation and amortization, impairments, gains/loss on sales of real estate, and other non-operating items.
The following table reconciles NOI for consolidated properties to net income for each of the periods presented (in thousands):
 
Three Months Ended September 30,
 
Nine Months Ended September 30,
 
2019
 
2018
 
2019
 
2018
Net income
$
20,692

 
$
19,859

 
$
34,115

 
$
58,014

Fee income
(7,494
)
 
(2,519
)
 
(23,298
)
 
(7,211
)
Termination fee income
(3,575
)
 
(276
)
 
(4,285
)
 
(1,275
)
Other income
(3
)
 
(468
)
 
(154
)
 
(1,561
)
Reimbursed expenses
1,290

 
955

 
3,269

 
2,757

General and administrative expenses
5,852

 
3,913

 
25,686

 
18,793

Interest expense
14,700

 
9,551

 
37,579

 
29,043

Depreciation and amortization
82,012

 
45,068

 
178,777

 
135,836

Acquisition and transaction costs
1,048

 

 
50,878

 
228

Other expenses
297

 
93

 
1,101

 
457

Income from unconsolidated joint ventures
(3,241
)
 
(2,252
)
 
(9,779
)
 
(10,173
)
Gain (loss) on sale of investment properties
27

 
33

 
(14,388
)
 
(4,912
)
Gain on extinguishment of debt

 
(93
)
 

 
(8
)
Net Operating Income
$
111,605

 
$
73,864

 
$
279,501

 
$
219,988


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Liquidity and Capital Resources
Our primary short-term and long-term liquidity needs include the following:
property and land acquisitions;
expenditures on development projects;
building improvements, tenant improvements, and leasing costs;
principal and interest payments on indebtedness; and
common stock dividends and distributions to outside unitholders of CPLP.
We may satisfy these needs with one or more of the following:
cash and cash equivalents on hand;
net cash from operations;
proceeds from the sale of assets;
borrowings under our credit facility;
proceeds from mortgage notes payable;
proceeds from construction loans;
proceeds from unsecured loans;
proceeds from offerings of equity securities; and
joint venture formations.
As of September 30, 2019, we had $80.0 million drawn under our Credit Facility with the ability to borrow an additional $920.0 million.
Contractual Obligations and Commitments
The following table sets forth information as of September 30, 2019 with respect to our outstanding contractual obligations and commitments (in thousands):
 
 
Total
 
Less than 1 Year
 
1-3 Years
 
3-5 Years
 
More than 5 years
Contractual Obligations:
 
 
 
 
 
 
 
 
 
 
Company debt:
 
 
 
 
 
 
 
 
 
 
Unsecured credit facility
 
$
80,000

 
$

 
$

 
$
80,000

 
$

Unsecured senior notes
 
1,000,000

 

 

 

 
1,000,000

Term loan
 
250,000

 

 
250,000

 

 

Mortgage notes payable
 
525,153

 
2,788

 
45,082

 
171,316

 
305,967

Interest commitments (1)
 
456,622

 
67,663

 
140,012

 
103,914

 
145,033

Ground leases
 
226,698

 
3,702

 
12,900

 
5,523

 
204,573

Other operating leases
 
333

 
188

 
145

 

 

Total contractual obligations
 
$
2,538,806

 
$
74,341

 
$
448,139

 
$
360,753

 
$
1,655,573

Commitments:
 
 
 
 
 
 
 
 
 
 
Unfunded tenant improvements and construction obligations
 
$
206,596

 
$
202,186

 
$
4,410

 
$

 
$

Performance bonds
 
487

 
487

 

 

 

Total commitments
 
$
207,083

 
$
202,673

 
$
4,410

 
$

 
$

(1)
Interest on variable rate obligations is based on rates effective as of September 30, 2019.
In addition, we have several standing or renewable service contracts mainly related to the operation of buildings. These contracts are in the ordinary course of business and are generally one year or less. These contracts are not included in the above table and are usually reimbursed in whole or in part by tenants.
Other Debt Information
Our existing mortgage debt is primarily non-recourse, fixed-rate mortgage notes secured by various real estate assets. Many of our non-recourse mortgages contain covenants which, if not satisfied, could result in acceleration of the maturity of the debt. We expect to either refinance the non-recourse mortgages at maturity or repay the mortgages with proceeds from asset sales, debt, or other capital sources.

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Over 80% of our debt bears interest at a fixed rate. Our variable-interest debt instruments, including our Credit Facility and $250 million term loan, may use London Interbank Offering Rate ("LIBOR") as a benchmark for establishing the rate. LIBOR is the subject of recent regulatory guidance and proposals for reform. These reforms may cause LIBOR to no longer be provided or to perform differently than in the past. If LIBOR is no longer widely available, or otherwise at our option, our Credit Facility and term loan facilities provide for alternate interest rate calculations.
There can be no assurances as to what alternative interest rates may be and whether such interest rate will be more or less favorable than LIBOR and any other unforeseen impacts of the potential discontinuation of LIBOR. The Company intends to continue monitoring the developments with respect to the potential phasing out of LIBOR after 2021 and work with its lenders to ensure any transition away from LIBOR will have minimal impact on its financial condition, but can provide no assurances regarding the impact of the discontinuation of LIBOR.
Future Capital Requirements
To meet capital requirements for future investment activities over the long term, we intend to actively manage our portfolio of properties, generating internal cash flows, and strategically sell assets. We expect to continue to utilize indebtedness to fund future commitments, if available and under appropriate terms. We may also seek equity capital and capital from joint venture partners to implement our strategy.
Our business model is dependent upon raising or recycling capital to meet obligations and to fund development and acquisition activity. If one or more sources of capital are not available when required, we may be forced to reduce the number of projects we acquire or develop and/or raise capital on potentially unfavorable terms, or we may be unable to raise capital, which could have an adverse effect on our financial position or results of operations.
Cash Flows Summary
We report and analyze our cash flows based on operating activities, investing activities, and financing activities. The following table sets forth the changes in cash flows (in thousands):
 
Nine Months Ended September 30,
 
2019
 
2018
 
Change
Net cash provided by operating activities
$
198,365

 
$
178,037

 
$
20,328

Net cash used in investing activities
(128,613
)
 
(182,402
)
 
53,789

Net cash used in financing activities
(57,783
)
 
(118,255
)
 
60,472

The reasons for significant increases and decreases in cash flows between the periods are as follows:
Cash Flows from Operating Activities. Cash flows from operating activities increased $20.3 million between the 2019 and 2018 nine month periods primarily due to net cash received from the commencement of operations at the second and final phase of Spring & 8th in the fourth quarter of 2018, 1200 Peachtree in the first quarter of 2019, and properties acquired in the Merger in the second quarter of 2019, offset by cash paid for transaction costs.
Cash Flows from Investing Activities. Cash flows used in investing activities decreased $53.8 million between the 2019 and 2018 nine month periods primarily due to cash received in the Merger and cash received from the sale of land to NS, offset by an increase in cash used for acquisitions due to the purchase of 1200 Peachtree and cash used for the development of new properties.
Cash Flows from Financing Activities. Cash flows used in financing activities decreased $60.5 million between the 2019 and 2018 nine month periods primarily due to an increase in net borrowings during 2019.
Capital Expenditures. We incur costs related to our real estate assets that include acquisition of properties, development of new properties, redevelopment of existing or newly purchased properties, leasing costs for new or replacement tenants, and ongoing property repairs and maintenance.
Capital expenditures for assets we develop or acquire and then hold and operate are included in the property acquisition, development, and tenant asset expenditures line item within investing activities on the condensed consolidated statements of cash flows. Amounts accrued are removed from the table below (accrued capital adjustment) to show the components of these costs on a cash basis. Components of costs included in this line item for the nine months ended September 30, 2019 and 2018 are as follows (in thousands):

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Nine Months Ended September 30,
 
2019
 
2018
Acquisition of property
$
82,120

 
$

Development
98,331

 
47,842

Operating — leasing costs
31,991

 
29,359

Operating — building improvements
44,670

 
22,711

Purchase of land held for investment
6,548

 

Capitalized interest
6,349

 
4,021

Capitalized personnel costs
4,624

 
6,615

Change in accrued capital expenditures
(22,599
)
 
21,920

Total property acquisition, development, and tenant asset expenditures
$
252,034

 
$
132,468

Capital expenditures, including capitalized interest, increased $119.6 million between the 2019 and 2018 nine month periods primarily due to the purchase of 1200 Peachtree, the purchase of land, and the increase in spending for projects under development. Tenant improvements and leasing costs, as well as related capitalized personnel costs, are a function of the number and size of newly executed leases or renewals of existing leases. The amounts of tenant improvement and leasing costs for our office portfolio on a per square foot basis for the nine months ended September 30, 2019 and 2018 were as follows:
 
 
2019
 
2018
New leases
 
$5.77
 
$8.18
Renewal leases
 
$5.82
 
$5.03
Expansion leases
 
$8.16
 
$7.02
The amounts of tenant improvement and leasing costs on a per square foot basis vary by lease and by market. During the first quarter of 2019, the Company executed a new full-building lease at 1200 Peachtree with NS that had lower than average tenant improvement and leasing costs. This is partially offset by a new lease with BB&T Corporation that had higher than average leasing costs, executed in the second quarter of 2019.
Dividends. We paid common dividends of $100.4 million and $79.8 million in the 2019 and 2018 nine month periods, respectively. We funded the common dividends with cash provided by operating activities. We expect to fund our future quarterly common dividends with cash provided by operating activities, also using proceeds from investment property sales, distributions from unconsolidated joint ventures, and indebtedness, if necessary.
On a quarterly basis, we review the amount of the common dividend in light of current and projected future cash flows from the sources noted above and also consider the requirements needed to maintain our REIT status. In addition, we have certain covenants under credit agreements which could limit the amount of common dividends paid. In general, common dividends of any amount can be paid as long as leverage, as defined in our credit agreements, is less than 60% and we are not in default. Certain conditions also apply in which we can still pay common dividends if leverage is above that amount. We routinely monitor the status of our common dividend payments in light of the covenants of our credit agreements.
Off Balance Sheet Arrangements
General. We have a number of off balance sheet joint ventures with varying structures, as described in note 6 of our 2018 Annual Report on Form 10-K and note 5 of this Form 10-Q. The joint ventures in which we have an interest are involved in the ownership, acquisition, and/or development of real estate. A venture will fund capital requirements or operational needs with cash from operations or financing proceeds, if possible. If additional capital is deemed necessary, a venture may request a contribution from the partners, and we will evaluate such request.
Debt. At September 30, 2019, our unconsolidated joint ventures had aggregate outstanding indebtedness to third parties of $344.6 million. These loans are generally mortgage or construction loans, most of which are non-recourse to us except as described in the paragraph below. In addition, in certain instances, we provide “non-recourse carve-out guarantees” on these non-recourse loans. Certain of these loans have variable interest rates, which creates exposure to the ventures in the form of market risk from interest rate changes.
We guarantee 12.5% of the loan amount related to the Carolina Square construction loan, which has a lending capacity of $79.8 million, and an outstanding balance of $75.5 million as of September 30, 2019. At September 30, 2019, we guaranteed $9.4 million of the amount outstanding.

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Critical Accounting Policies
There have been no material changes in the critical accounting policies from those disclosed in our Annual Report on Form 10-K for the year ended December 31, 2018.
Item 3.    Quantitative and Qualitative Disclosures About Market Risk.
Our primary exposure to market risk results from our debt, which bears interest at both fixed and variable rates. We attempt to mitigate this risk by limiting our debt exposure in total and our maturities in any one year and weighting more towards fixed-rate debt in our portfolio. The fixed rate debt obligations limit the risk of fluctuating interest rates. At September 30, 2019 and December 31, 2018, we had $1.5 billion and $817.4 million of fixed rate debt outstanding at weighted average interest rates of 3.89% and 3.86%, respectively. The amount of fixed-rate debt outstanding primarily increased from December 31, 2018 to September 30, 2019 as a result of the funding of three tranches of Senior Unsecured Notes for a total of $650 million and the assumption of the Legacy Union One mortgage note of $66 million, assumed in the Merger with TIER.
At September 30, 2019, we had $330 million of variable rate debt outstanding, which consisted of the Credit Facility with $80 million outstanding at an interest rate of 3.07% and a $250 million term loan with an interest rate of 3.22%. As of December 31, 2018, we had $250 million of variable rate debt outstanding, which consisted of the Credit Facility with no outstanding balance at an interest rate of 3.55% and a $250 million term loan with an interest rate of 3.70%. Based on our average variable rate debt balances for the nine months ended September 30, 2019, interest incurred would have increased by $2.6 million if these interest rates had been 1% higher.
The following table summarizes our market risk associated with notes payable as of September 30, 2019. It includes the principal maturing, an estimate of the weighted average interest rates on remaining debt obligations, and the fair values of the Company’s fixed and variable rate notes payable. Fair value was calculated by discounting future principal payments at estimated rates at which similar loans could have been obtained at September 30, 2019. The information presented below should be read in conjunction with note 8 of notes to condensed consolidated financial statements included in this Quarterly Report on Form 10-Q. We did not have a significant level of notes receivable at September 30, 2019, and the table does not include information related to notes receivable.
 
Twelve Months Ended September 30,
 
 
 
 
 
 
($ in thousands)
2020
 
2021
 
2022
 
2023
 
2024
 
Thereafter
 
Total
 
Estimated Fair Value
Notes Payable:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Fixed Rate
$
33,863

 
$
11,154

 
$
11,577

 
$
160,497

 
$
8,492

 
$
1,299,570

 
$
1,525,153

 
$
1,594,516

Weighted Average Interest Rate (1)
3.35
%
 
3.35
%
 
3.34
%
 
3.45
%
 
3.45
%
 
3.66
%
 
3.89
%
 
 
Variable Rate
$

 
$

 
$
250,000

 
$
80,000

 
$

 
$

 
$
330,000

 
$
335,063

Weighted Average Interest 
Rate (2)

 

 
3.22
%
 
3.07
%
 

 

 
3.18
%
 
 
(1) Represents weighted average interest rate for debt projected to be outstanding at the end of the period indicated, based on scheduled principal payments and scheduled maturities. The weighted average interest rate in the Total column represents the weighted average interest rate for fixed rate debt as of September 30, 2019.
(2) Interest rates on variable rate notes payable are equal to the variable rates in effect on September 30, 2019. The weighted average interest rate in the Total column represents the weighted average interest rate for variable rate debt as of September 30, 2019.
Item 4.    Controls and Procedures.
We maintain disclosure controls and procedures that are designed to ensure that information required to be disclosed in our Exchange Act reports is recorded, processed, summarized, and reported within the time periods specified in the SEC’s rules and forms, and that such information is accumulated and communicated to management, including the Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure. Management necessarily applied its judgment in assessing the costs and benefits of such controls and procedures, which, by their nature, can provide only reasonable assurance regarding management’s control objectives.
As of the end of the period covered by this report, we carried out an evaluation, under the supervision and with the participation of management, including the Chief Executive Officer along with the Chief Financial Officer, of the effectiveness, design and operation of our disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)). Based upon the foregoing, the Chief Executive Officer along with the Chief Financial Officer concluded that our disclosure controls and procedures were effective. In addition, based on such evaluation we have identified no changes in our internal control over financial reporting that occurred during the

31

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most recent fiscal quarter that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

32

Table of Contents


PART II. OTHER INFORMATION
Item 1.    Legal Proceedings.
Information regarding legal proceedings is described under the subheading "Litigation" in note 9 to the unaudited condensed consolidated financial statements set forth in this Form 10-Q.
Item 1A. Risk Factors
Risk factors that affect our business and financial results are discussed in Part I, "Item 1A. Risk Factors," of our Annual Report on Form 10-K for the year ended December 31, 2018. There have been no material changes in our risk factors from those previously disclosed in our Annual Report and our Quarterly Reports other than as set forth below. You should carefully consider the risks described in our Annual Report and below, which could materially affect our business, financial condition or future results. The risks described in our Annual Report and below are not the only risks we face. Additional risks and uncertainties not currently known to us or that we currently deem immaterial also may materially adversely affect our business, financial condition, and/or operating results. If any of the risks actually occur, our business, financial condition, and/or results of operations could be negatively affected.
We may be unable to integrate the business of TIER successfully or realize the anticipated synergies and related benefits of our merger with TIER or do so within the anticipated time frame.
The ongoing integration of the TIER business into our own will require significant management and resources. We may encounter difficulties in the integration process or in realizing any of the expected benefits from the Merger, including the following:
the inability to successfully combine our business and TIER's business in a manner that permits us to achieve the cost savings anticipated to result from the Merger which would result in some anticipated benefits of the Merger not being realized in the time frame currently anticipated or at all;
lost sales and tenants as a result of certain tenants deciding not do do business with us;
the complexities associated with integrating personnel;
the additional complexities of combining two companies with different histories, cultures, regulatory restrictions, markets and customer bases;
our failure to retain key employees;
potential unknown liabilities and unforeseen increased expenses, delays or regulatory conditions associated with the Merger; and
performance shortfalls as a result of the diversion of management's attention caused by completing the Merger.
For all these reasons, it is possible that the integration process could result in the distraction of our management, the disruption or our ongoing business or inconsistencies in our services, standards, controls, procedures and policies, any of which could adversely affect our ability to maintain relationships with tenants, customers, vendors and employees.
As a result of the Merger, the composition of our Board of Directors has changed.
Concurrent with the closing of the Merger, the Board of Directors has changed and currently consists of ten members, eight of which served on our Board of Directors prior to the Merger and two of which served on TIER's Board of Directors prior to the Merger.
Our future results will suffer if we do not effectively manage our operations following the Merger.
Following the Merger, we may continue to expand our operations through additional acquisitions, development opportunities, and other strategic transactions, some of which involve complex challenges. Our future success will depend, in part, upon our ability to manage our expansion opportunities, which poses substantial challenges for us to integrate new operations into our existing business in an efficient and timely manner, and to successfully monitor our operations, costs, regulatory compliance and service quality, and to maintain other necessary internal controls. We cannot assure you that our expansion or acquisition opportunities will be successful, or that they will realize their expected operating efficiencies, cost savings, revenue enhancements, synergies or other benefits.
Item 2.    Unregistered Sales of Equity Securities and Use of Proceeds.
For information on our equity compensation plans, see note 13 of our Annual Report on Form 10-K, and note 10 to the unaudited condensed consolidated financial statements set forth in this Form 10-Q. We did not make any sales of unregistered securities during the third quarter of 2019. We did not purchase any common shares during the third quarter of 2019.

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Item 6. Exhibits.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 †
 
 
 
 †
 
 
 
 †
 
 
 
 †
 
 
 
101
 †
The following financial information for the Registrant, formatted in XBRL (Extensible Business Reporting Language): (i) the condensed consolidated balance sheets, (ii) the condensed consolidated statements of operations, (iii) the condensed consolidated statements of equity, (iv) the condensed consolidated statements of cash flows, and (v) the notes to condensed consolidated financial statements.


 †
 
Filed herewith.

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SIGNATURES
Pursuant to the requirements 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
 
 
 /s/ Gregg D. Adzema
 
Gregg D. Adzema 
 
Executive Vice President and Chief Financial Officer
(Duly Authorized Officer and Principal Financial Officer) 
Date: October 23, 2019


35