Company Quick10K Filing
Quick10K
Cousins Properties
Closing Price ($) Shares Out (MM) Market Cap ($MM)
$9.28 420 $3,900
10-Q 2019-03-31 Quarter: 2019-03-31
10-K 2018-12-31 Annual: 2018-12-31
10-Q 2018-09-30 Quarter: 2018-09-30
10-Q 2018-06-30 Quarter: 2018-06-30
10-Q 2018-03-31 Quarter: 2018-03-31
10-K 2017-12-31 Annual: 2017-12-31
10-Q 2017-09-30 Quarter: 2017-09-30
10-Q 2017-06-30 Quarter: 2017-06-30
10-Q 2017-03-31 Quarter: 2017-03-31
10-K 2016-12-31 Annual: 2016-12-31
10-Q 2016-09-30 Quarter: 2016-09-30
10-Q 2016-06-30 Quarter: 2016-06-30
10-Q 2016-03-31 Quarter: 2016-03-31
10-K 2015-12-31 Annual: 2015-12-31
10-Q 2015-09-30 Quarter: 2015-09-30
10-Q 2015-06-30 Quarter: 2015-06-30
10-Q 2015-03-31 Quarter: 2015-03-31
10-K 2014-12-31 Annual: 2014-12-31
10-Q 2014-09-30 Quarter: 2014-09-30
10-Q 2014-06-30 Quarter: 2014-06-30
10-Q 2014-03-31 Quarter: 2014-03-31
10-K 2013-12-31 Annual: 2013-12-31
8-K 2019-06-14 M&A, Officers, Amend Bylaw, Regulation FD, Exhibits
8-K 2019-06-14 Enter Agreement, Off-BS Arrangement
8-K 2019-06-12 Shareholder Vote, Other Events, Exhibits
8-K 2019-04-24 Earnings, Exhibits
8-K 2019-03-25 Enter Agreement, Exhibits
8-K 2019-03-25 Regulation FD, Other Events, Exhibits
8-K 2019-02-06 Earnings, Exhibits
8-K 2018-11-05 Officers
8-K 2018-10-24 Earnings, Exhibits
8-K 2018-09-18 Officers, Other Events
8-K 2018-07-25 Earnings, Exhibits
8-K 2018-01-04 Enter Agreement, Off-BS Arrangement
LEG Leggett & Platt 5,010
PRFT Perficient 1,010
CNXN PC Connection 935
LEVL Level One Bancorp 188
PSTI Pluristem Therapeutics 99
MLNT Melinta Therapeutics 55
BOXL Boxlight 45
EDGW Edgewater Technology 0
LEXE Liberty Expedia Holdings 0
FMCB Farmers & Merchants Bancorp 0
CUZ 2019-03-31
Part I - Financial Information
Item 1. Financial Statements.
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations
Item 3. Quantitative and Qualitative Disclosures About Market Risk.
Item 4. Controls and Procedures.
Part II. Other Information
Item 1. Legal Proceedings.
Item 1A. Risk Factors
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.
Item 5. Other Information.
Item 6. Exhibits.
EX-10.1 exhibit101.htm
EX-31.1 cuz-exhibit3111q19.htm
EX-31.2 cuz-exhibit3121q19.htm
EX-32.1 cuz-exhibit3211q19.htm
EX-32.2 cuz-exhibit3221q19.htm

Cousins Properties Earnings 2019-03-31

CUZ 10Q Quarterly Report

Balance SheetIncome StatementCash Flow

10-Q 1 form10-qmarch312019.htm 10-Q Document

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
þ
 
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 2019
OR
o
 
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
(State or other jurisdiction of
incorporation or organization)
58-0869052
(I.R.S. Employer
Identification No.)
3344 Peachtree Road NE, Suite 1800, Atlanta, Georgia
(Address of principal executive offices)
30326-4802
(Zip Code)
(404) 407-1000
(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 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 þ No o
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 þ No o
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 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 þ
 
Accelerated filer o
Non-accelerated filer o
 
Smaller reporting company o
 
 
Emerging growth company o
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. o
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
Yes o No þ
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 May 6, 2019
Common Stock, $1 par value per share
 
420,586,130 shares






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:
2019 guidance and underlying assumptions;
business and financial strategy;
future debt financings;
future acquisitions and dispositions of operating assets;
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 proposed transactions involving us and TIER REIT, Inc. ("TIER"), including all future financial and operating results, plans, objectives, expectations and intentions;
benefits of the proposed transactions with TIER to tenants, employees, stockholders, and other constituents of the combined company;
integrating TIER with us;
the expected timetable for completing the proposed transactions with TIER; 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, Charlotte, Austin, Phoenix, and Tampa where we have high concentrations of our lease revenue;
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 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;

2


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;
risks associated with the ability to consummate the proposed transactions with TIER and the timing of the closing of the proposed transactions with TIER;
the failure to obtain debt financing arrangements in connection with the proposed transactions with TIER;
the ability to secure favorable interest rates on debt financing incurred in connection with the proposed transactions with TIER;
the ability to successfully integrate our operations and employees in connection with the proposed transaction with TIER;
the ability to realize anticipated benefits and synergies of the proposed transactions with TIER;
the outcome of pending litigation related to the merger with TIER;
the amount of the costs, fees, expenses, and charges related to the proposed transactions 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.

3


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)
 
March 31, 2019
 
December 31, 2018
 
(unaudited)
 
 
Assets:
 
 
 
Real estate assets:
 
 
 
Operating properties, net of accumulated depreciation of $459,423 and $421,495 in 2019 and 2018, respectively
$
3,714,115

 
$
3,603,011

Projects under development
35,282

 
24,217

Land
35,868

 
72,563

 
3,785,265

 
3,699,791

 
 
 
 
Cash and cash equivalents
3,456

 
2,547

Restricted cash
170

 
148

Notes and accounts receivable
10,558

 
13,821

Deferred rents receivable
91,240

 
83,116

Investment in unconsolidated joint ventures
167,429

 
161,907

Intangible assets, net
146,994

 
145,883

Other assets
46,081

 
39,083

Total assets
$
4,251,193

 
$
4,146,296

Liabilities:


 


Notes payable
$
1,116,474

 
$
1,062,570

Accounts payable and accrued expenses
91,477

 
110,159

Deferred income
55,074

 
41,266

Intangible liabilities, net of accumulated amortization of $45,545 and $42,473 in 2019 and 2018, respectively
53,869

 
56,941

Other liabilities
106,070

 
54,204

Total liabilities
1,422,964

 
1,325,140

Commitments and contingencies


 


Equity:
 
 
 
  Stockholders' investment:
 
 
 
Preferred stock, $1 par value, 20,000,000 shares authorized, 6,867,357 shares issued and outstanding in 2019 and 2018
6,867

 
6,867

Common stock, $1 par value, 700,000,000 shares authorized, 430,926,519 and 430,724,520 shares issued in 2019 and 2018, respectively
430,927

 
430,725

Additional paid-in capital
3,605,692

 
3,606,191

Treasury stock at cost, 10,339,735 shares in 2019 and 2018
(148,473
)
 
(148,473
)
Distributions in excess of cumulative net income
(1,124,596
)
 
(1,129,445
)
Total stockholders' investment
2,770,417

 
2,765,865

Nonredeemable noncontrolling interests
57,812

 
55,291

Total equity
2,828,229

 
2,821,156

Total liabilities and equity
$
4,251,193

 
$
4,146,296

 
 
 
 
See accompanying notes.
 
 
 

4

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


 
Three Months Ended
 
March 31,
 
2019
 
2018
Revenues:
 
 
 
Rental property revenues
$
123,345

 
$
113,348

Fee income
8,728

 
2,894

Other
660

 
960

 
132,733

 
117,202

Expenses:
 

 
 

Rental property operating expenses
43,487

 
40,191

Reimbursed expenses
932

 
942

General and administrative expenses
11,460

 
6,809

Interest expense
10,820

 
9,778

Depreciation and amortization
45,861

 
45,093

Acquisition costs
3

 
91

Other
180

 
320

 
112,743

 
103,224

Income from unconsolidated joint ventures
2,904

 
2,885

Gain (loss) on sale of investment properties
13,111

 
(372
)
Loss on extinguishment of debt

 
(85
)
Net income
36,005

 
16,406

Net income attributable to noncontrolling interests
(664
)
 
(363
)
Net income available to common stockholders
$
35,341

 
$
16,043

 
 
 
 

Net income per common share — basic and diluted

$
0.08

 
$
0.04

Weighted average shares — basic
420,510

 
420,154

Weighted average shares — diluted
427,607

 
427,695


See accompanying notes.

5


COUSINS PROPERTIES INCORPORATED AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF EQUITY
Three Months Ended March 31, 2019 and 2018
(unaudited, in thousands)


 
 
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
 
$
6,867

 
$
430,725

 
$
3,606,191

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

 
$
55,291

 
$
2,821,156

Net income
 

 

 

 

 
35,341

 
35,341

 
664

 
36,005

Common stock issued pursuant to stock based compensation
 

 
202

 
(1,106
)
 

 

 
(904
)
 

 
(904
)
Amortization of stock options and restricted stock, net of forfeitures
 

 

 
607

 

 

 
607

 

 
607

Contributions from nonredeemable noncontrolling interests
 

 

 

 

 

 

 
2,581

 
2,581

Distributions to nonredeemable noncontrolling interests
 

 

 

 

 

 

 
(724
)
 
(724
)
Common dividends ($0.0725 per share)
 

 

 

 

 
(30,492
)
 
(30,492
)
 

 
(30,492
)
Balance March 31, 2019
 
$
6,867

 
$
430,927

 
$
3,605,692

 
$
(148,473
)
 
$
(1,124,596
)
 
$
2,770,417

 
$
57,812

 
$
2,828,229

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Balance December 31, 2017
 
$
6,867

 
$
430,350

 
$
3,604,776

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

 
$
53,138

 
$
2,825,111

Net income
 

 

 

 

 
16,043

 
16,043

 
363

 
16,406

Common stock issued pursuant to stock based compensation
 

 
232

 
(991
)
 

 

 
(759
)
 

 
(759
)
Cumulative effect of change in accounting principle
 

 

 

 

 
22,329

 
22,329

 

 
22,329

Amortization of stock options and restricted stock, net of forfeitures
 

 
(9
)
 
551

 

 

 
542

 

 
542

Distributions to nonredeemable noncontrolling interests
 

 

 

 

 

 

 
(399
)
 
(399
)
Common dividends ($0.065 per share)
 

 

 

 

 
(27,315
)
 
(27,315
)
 

 
(27,315
)
Balance March 31, 2018
 
$
6,867

 
$
430,573

 
$
3,604,336

 
$
(148,373
)
 
$
(1,110,590
)
 
$
2,782,813

 
$
53,102

 
$
2,835,915

See accompanying notes.

6

COUSINS PROPERTIES INCORPORATED AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited, in thousands)


 
Three Months Ended March 31,
 
2019
 
2018
CASH FLOWS FROM OPERATING ACTIVITIES:
 
 
 
Net income
$
36,005

 
$
16,406

Adjustments to reconcile net income to net cash provided by operating activities:
 
 
 
(Gain) loss on sale of investment properties
(13,111
)
 
372

Depreciation and amortization
45,861

 
45,093

Amortization of deferred financing costs and premium/discount on notes payable
615

 
552

Stock-based compensation expense, net of forfeitures
607

 
542

Effect of non-cash adjustments to revenues
(11,933
)
 
(9,996
)
Income from unconsolidated joint ventures
(2,904
)
 
(2,885
)
Operating distributions from unconsolidated joint ventures
2,536

 
2,564

Loss on extinguishment of debt

 
85

Changes in other operating assets and liabilities:
 
 
 
Change in other receivables and other assets, net
(1,720
)
 
(7,094
)
Change in operating liabilities, net
(11,455
)
 
(24,733
)
Net cash provided by operating activities
44,501

 
20,906

CASH FLOWS FROM INVESTING ACTIVITIES:
 
 
 
Proceeds from investment property sales
57,676

 

Property acquisition, development, and tenant asset expenditures
(122,785
)
 
(60,175
)
Investment in unconsolidated joint ventures
(5,566
)
 
(21,613
)
Distributions from unconsolidated joint ventures

 
242

Change in notes receivable and other assets
(23
)
 
(795
)
Other

 
(472
)
Net cash used in investing activities
(70,698
)
 
(82,813
)
CASH FLOWS FROM FINANCING ACTIVITIES:
 
 
 
Proceeds from credit facility
160,000

 

Repayment of credit facility
(103,600
)
 

Repayment of notes payable
(2,710
)
 
(2,161
)
Payment of deferred financing costs

 
(6,013
)
Contributions from nonredeemable noncontrolling interests
2,581

 

Distributions to nonredeemable noncontrolling interests
(724
)
 
(399
)
Common dividends paid
(27,326
)
 
(25,169
)
Other
(1,093
)
 
(759
)
Net cash provided by (used in) financing activities
27,128

 
(34,501
)
NET INCREASE (DECREASE) IN CASH, CASH EQUIVALENTS, AND RESTRICTED CASH
931

 
(96,408
)
CASH, CASH EQUIVALENTS, AND RESTRICTED CASH AT BEGINNING OF PERIOD
2,695

 
205,745

CASH, CASH EQUIVALENTS, AND RESTRICTED CASH AT END OF PERIOD
$
3,626

 
$
109,337

See accompanying notes.

7


COUSINS PROPERTIES INCORPORATED AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
March 31, 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 98% 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 Sunbelt 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 March 31, 2019 and the results of operations for the three months ended March 31, 2019 and 2018. The results of operations for the three months ended March 31, 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.
For the three months ended March 31, 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 months ended March 31, 2018 were removed 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.
In the first quarter of 2019, the Company transferred the right to acquire a building to a special purpose entity to facilitate a potential Section 1031 exchange under the Internal Revenue Code of 1986, as amended, and the special purpose entity acquired the building. To realize the tax deferral available under Section 1031, the Company must complete the exchange and relinquish title to the to-be-exchanged building within 180 days of the purchase date. The Company has determined that this special purpose entity is a VIE, and the Company is the primary beneficiary. Therefore, the Company consolidates this entity. As of March 31, 2019, this VIE had total assets of $92.3 million, no significant liabilities, and no significant cash flows.
Recently Issued Accounting Standards
On January 1, 2019, the Company adopted Accounting Standards Update ("ASU") 2016-02, "Leases," ("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

8


amortization of direct leasing costs only. For the three months ended March 31, 2018, the Company capitalized $1.2 million of indirect leasing costs.
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 at 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 on the consolidated balance sheet. The Company recorded right-of-use assets and lease liabilities in the amount of $56.3 million upon the adoption of ASC 842. 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 ground lease expense 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 March 25, 2019, the Company and TIER REIT, Inc. (“TIER”) entered into an Agreement and Plan of Merger (the “Merger Agreement”), pursuant to which TIER will merge with and into a subsidiary of the Company (the “Merger”). Pursuant to the Merger Agreement, upon the terms and subject to the conditions of the Merger Agreement, upon closing, each share of TIER common stock, issued and outstanding, will be converted into the right to receive 2.98 newly issued shares of the Company’s common stock. In addition, upon closing, each outstanding award of TIER restricted shares and restricted stock units will become fully vested (in the case of restricted stock units, to the extent provided in the TIER equity plan, and in the case of any performance-based restricted stock units, with performance determined to be achieved as set forth in the TIER equity plan) and will convert into newly issued shares of Company common stock on the same basis as other shares of TIER common stock.
The respective boards of directors (the “Board of Directors”) of the Company and TIER have unanimously approved the Merger Agreement and have recommended that their respective stockholders approve their Merger-related propsals. Upon closing, two members of the Board of Directors of TIER, Scott W. Fordham and one additional independent member on the Board of Directors of TIER to be mutually agreed upon by the parties, will be appointed to the Board of Directors of the Company.
The closing of the Merger is subject to satisfaction or waiver of certain conditions, including: (1) approval of the Merger by TIER stockholders; (2) approval of the issuance of Company common stock by the Company’s stockholders; (3) approval for listing on the New York Stock Exchange of the Company common stock to be issued in the Merger; (4) the absence of an injunction or law prohibiting the Merger; (5) the correctness of all representations and warranties, made by the parties to the Merger Agreement and performance by the parties of their obligations under the Merger Agreement (subject in most cases to materiality or material adverse effect qualifications) and receipt of an officer's certificate from each party attesting thereto; (6) receipt by the Company and by TIER of an opinion to the effect that the Merger will qualify as a “reorganization” within the meaning of Section 368(a) of the Internal Revenue Code of 1986, as amended (the “Code”), and of an opinion as to the qualification of the Company and TIER, respectively, as a real estate investment trust (“REIT”) under the Code; and (7) effectiveness of the registration statement that will contain the joint proxy statement/prospectus sent to Company and TIER stockholders.
The Merger Agreement contains customary representations and warranties by each party. The Company and TIER have also agreed to various customary covenants and agreements, including, among others, to conduct their business in the ordinary course

9


consistent with past practice during the period between the execution of the Merger Agreement and closing and to maintain REIT status. The Merger Agreement provides that, during the period from the date of the Merger Agreement until closing, TIER will be subject to certain restrictions on its ability to solicit alternative transaction proposals from third parties, to provide non-public information to third parties and to engage in discussions with third parties regarding alternative transaction proposals, subject to customary exceptions.
The Merger Agreement contains certain termination rights for the Company and TIER. The Merger Agreement can be terminated by mutual written consent or by either party (1) if there is a final nonappealable order, decree, or ruling permanently enjoining or otherwise prohibiting the consummation of the Merger; (2) if the Merger has not been consummated by 5:00 p.m., New York time, on October 31, 2019; (3) if the Company’s stockholders fail to approve the issuance of Company common stock in connection with the Merger or TIER’s stockholders fail to approve the Merger; or (4) if the other party has breached or failed to perform any of its representations, warranties, or covenants in a way that prevents satisfaction of a closing condition, subject to a cure period. In addition, the Company may terminate the Merger Agreement if the Board of Directors of TIER changes its recommendation with respect to the Merger or upon a willful breach by TIER of its obligations not to solicit alternative transaction proposals. TIER may terminate the Merger Agreement in order to enter into a definitive agreement with respect to a Superior Proposal (as defined in the Merger Agreement) (subject to compliance with certain terms and conditions included in the Merger Agreement). If the Merger Agreement is terminated because (1) the Board of Directors of TIER changes its recommendation to TIER stockholders with respect to the Merger; (2) TIER terminates the Merger Agreement to enter into a definitive agreement with respect to a Superior Proposal; or (3) TIER consummates or enters into an agreement for an alternative transaction within twelve months following termination under certain circumstances, TIER must pay a termination fee of $45.5 million million to the Company. The amount payable to the Company by TIER may also be reduced to the extent necessary to maintain Cousins' qualification as a REIT. Should any amount of the fee be unpaid because of REIT requirements, TIER shall place the unpaid amount of the fee in escrow and shall not release any portion thereof to Cousins unless and until Cousins receives a reasoned opinion from counsel or other tax advisor or a ruling from the IRS providing that Cousins' receipt of the unpaid fee will not impact its qualification as a REIT under the Code. The obligations of TIER to pay any unpaid portion of the fee shall terminate on December 31 following the date which is five years from the date of March 25, 2019. Amounts remaining in escrow after the obligation of TIER to pay the fee terminates shall be released to TIER.
In connection with the Merger, the Company has filed an amended registration statement on Form S-4 (File No. 333-230968), declared effective by the SEC on May 8, 2019, that includes a joint proxy statement of Cousins and TIER that also constitutes a prospectus of the Company.
The Merger is currently anticipated to close in the second quarter of 2019. During the three months ended March 31, 2019, the Company incurred no material merger-related expenses.
Two putative stockholder class action lawsuits have been filed by purported TIER stockholders challenging the disclosures made in connection with the Merger. the lawsuits seek to enjoin the Merger, to recover damages if the Merger is consummated, attorney's fees, and other relief. Additional lawsuits arising out of the Merger may be filed in the future. For a more detailed description of litigation in connection with the Merger, see note 9 "Commitments and Contingencies."
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 will be 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 (the “1200 Peachtree Building”) for $82 million subject to a three-year market rate lease with NS that covers the entire building.
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 the 1200 Peachtree Building from NS for an amount it determined to be $10.3 million below the building’s fair value.
In accordance with Accounting Standards Codification ("ASC") 606, the Company determined that all contracts and transactions associated with NS, with the exception of the aforementioned lease which will be accounted for in accordance with ASC 842, should be combined for accounting purposes given the fact that they were all executed simultaneously for the single commercial purpose of delivering and constructing a corporate headquarters for NS, and the contracts are interdependent and would not have been entered into separately. Further, the Company concluded that the Fee Agreements have a single performance

10


obligation to provide services to NS for a new corporate headquarters as the services being provided to NS are highly interdependent. The transaction price for the Fee Agreements was determined to be comprised of both cash and non-cash consideration associated with this arrangement. The cash consideration represents the amounts to be received under the Fee Agreements as well as the excess of the sales price of the land over the fair value of the land. The non-cash consideration represents the $10.3 million excess of the fair value of the 1200 Peachtree Building over the amount the Company paid. The gross transaction price for the Fee Agreements was $52.3 million.
In accordance with ASC 606, the Company determined that control of the services to be provided under the Fee Agreements is being transferred over time and, thus, the Company must recognize the transaction 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 Fee Agreements. Therefore, the Company recognized revenue in the quarter ended March 31, 2019, and will recognize future revenue under the Fee Agreements 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 months ended March 31, 2019, the Company recognized $6.6 million in fee income in its statements of operations related to the Fee Agreements.
The following table summarizes the allocations of the estimated fair value of the assets and liabilities of the 1200 Peachtree Building 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 net assets acquired
$
92,300

4. LEASES
At March 31, 2019, the Company had three properties subject to operating ground leases with a weighted average remaining term of 74 years and two finance ground leases with a weighted average remaining term of five years. At March 31, 2019, the Company had right-of-use assets of $68.1 million included in operating properties, projects under development, or land on the condensed consolidated balance sheets and a lease liability of $68.0 million included in other liabilities on the condensed consolidated balance sheets. The weighted average discount rate at March 31, 2019 was 4.50%, which represents the Company's incremental borrowing rate related to the ground lease assets.
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 not estimated as part of our measurement of straight-line rental expense.
For the three months ended March 31, 2019, the Company recognized $839,000 of operating ground lease expense, of which no amounts represented variable lease expenses, and $116,000 of interest expense related to finance ground leases. For the three months ended March 31, 2019, $393,000 was paid in cash for operating ground leases and no cash payments were made for financing ground leases. At March 31, 2019 and December 31, 2018, respectively, the future minimum payments to be made by consolidated entities for ground leases are as follows (in thousands):

11


March 31, 2019
 
Operating Ground Leases
 
Finance Ground Leases
2019
$
1,831

 
$
462

2020
2,460

 
462

2021
2,497

 
6,562

2022
2,497

 
162

2023
2,497

 
162

Thereafter
202,603

 
3,838

 
$
214,385

 
$
11,648

 
 
 
 
Discount
(156,270
)
 
(1,803
)
Lease liability
$
58,115

 
$
9,845

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

 
 
 
 
Discount
(156,867
)
 
(1,918
)
Lease liability
$
58,128

 
$
9,730


12


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 March 31, 2019 and December 31, 2018. The information included in the summary of operations table is for the three months ended March 31, 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
 
$
261,069

 
$
258,060

 
$
197,598

 
$
198,732

 
$
52,370

 
$
50,539

 
$
49,334

 
$
48,571

 
DC Charlotte Plaza LLLP
 
175,223

 
155,530

 

 

 
89,989

 
88,922

 
47,691

 
46,554

 
Austin 300 Colorado Project, LP
 
66,812

 
51,180

 
1

 

 
46,723

 
41,298

 
25,159

 
22,335

 
Carolina Square Holdings LP
 
113,906

 
106,187

 
74,649

 
74,638

 
27,017

 
28,844

 
15,862

 
16,840

 
HICO Victory Center LP
 
15,042

 
15,069

 

 

 
14,970

 
14,801

 
10,073

 
10,003

 
Charlotte Gateway Village, LLC
 
112,218

 
112,553

 

 

 
109,190

 
109,666

 
7,987

 
8,225

 
AMCO 120 WT Holdings, LLC
 
50,791

 
36,680

 

 

 
44,203

 
31,372

 
7,493

 
5,538

 
CL Realty, L.L.C.
 
4,168

 
4,169

 

 

 
4,139

 
4,183

 
2,864

 
2,886

 
Temco Associates, LLC
 
1,505

 
1,482

 

 

 
1,402

 
1,379

 
930

 
919

 
EP II LLC
 
246

 
247

 

 

 
164

 
165

 
30

 
30

 
EP I LLC
 
459

 
461

 

 

 
294

 
296

 
6

 
6

 
Wildwood Associates
 
11,147

 
11,157

 

 

 
11,085

 
11,108

 
(472
)
(1)
(460
)
(1)
Crawford Long - CPI, LLC
 
26,968

 
26,429

 
69,136

 
69,522

 
(43,258
)
 
(44,146
)
 
(20,648
)
(1)
(21,071
)
(1)
 
 
$
839,554

 
$
779,204

 
$
341,384

 
$
342,892

 
$
358,288

 
$
338,427

 
$
146,309

 
$
140,376

 
 
 
Total Revenues
 
Net Income (Loss)
 
Company's Share of Income (Loss)
SUMMARY OF OPERATIONS:
 
2019
 
2018
 
2019
 
2018
 
2019
 
2018
Charlotte Gateway Village, LLC
 
$
6,743

 
$
6,772

 
$
2,524

 
$
2,793

 
$
1,262

 
$
1,397

Terminus Office Holdings
 
11,797

 
10,922

 
1,831

 
1,599

 
880

 
830

Crawford Long - CPI, LLC
 
3,129

 
3,126

 
889

 
823

 
424

 
391

DC Charlotte Plaza LLLP
 
410

 

 
410

 

 
205

 

HICO Victory Center LP
 
130

 
96

 
130

 
96

 
62

 
50

Carolina Square Holdings LP
 
3,294

 
2,614

 
170

 
202

 
58

 
(175
)
Austin 300 Colorado Project, LP
 
126

 
150

 
72

 
99

 
36

 
49

Temco Associates, LLC
 
32

 
48

 
15

 
22

 
11

 
11

Wildwood Associates
 

 

 
(23
)
 
(1,000
)
 
(12
)
 
317

CL Realty, L.L.C.
 

 

 
(29
)
 
(44
)
 
(22
)
 
(28
)
EP I LLC
 

 
4

 
(2
)
 
(16
)
 

 
(12
)
EP II LLC
 

 

 

 
(5
)
 

 
(4
)
AMCO 120 WT Holdings, LLC
 

 

 
(10
)
 
(7
)
 

 

Other
 

 

 

 
(5
)
 

 
59

 
 
$
25,661

 
$
23,732

 
$
5,977

 
$
4,557

 
$
2,904

 
$
2,885

(1) Negative balances are included in deferred income on the balance sheets.


13


6. INTANGIBLE ASSETS
Intangible assets on the balance sheets as of March 31, 2019 and December 31, 2018 included the following (in thousands):
 
 
2019
 
2018
In-place leases, net of accumulated amortization of $132,512 and $125,130 in 2019 and 2018, respectively
 
$
108,552

 
$
105,964

Above-market tenant leases, net of accumulated amortization of $20,910 and $19,502 in 2019 and 2018, respectively
 
19,045

 
20,453

Below-market ground lease, net of accumulated amortization of $690 and $621 in 2019 and 2018, respectively
 
17,723

 
17,792

Goodwill
 
1,674

 
1,674

 
 
$
146,994

 
$
145,883

The carrying amount of goodwill did not change during the three months ended March 31, 2019 and 2018.
7. OTHER ASSETS
Other assets on the balance sheets as of March 31, 2019 and December 31, 2018 included the following (in thousands):
 
 
2019
 
2018
Furniture, fixtures and equipment, leasehold improvements, and other deferred costs, net of accumulated depreciation of $26,057 and $25,193 in 2019 and 2018, respectively
 
$
15,011

 
$
14,942

Predevelopment costs and earnest money
 
10,685

 
8,249

Prepaid expenses and other assets
 
9,971

 
5,087

Line of credit deferred financing costs, net of accumulated amortization of $1,824 and $1,451 in 2019 and 2018, respectively
 
5,632

 
5,844

Lease inducements, net of accumulated amortization of $1,724 and $1,545 in 2019 and 2018, respectively
 
4,782

 
4,961

 
 
$
46,081

 
$
39,083

8. NOTES PAYABLE
The following table summarizes the terms of notes payable outstanding at March 31, 2019 and December 31, 2018 (in thousands):
Description
 
Interest Rate
 
Maturity (1)
 
2019
 
2018
Term Loan, Unsecured
 
3.69%
 
2021
 
$
250,000

 
$
250,000

Senior Notes, Unsecured
 
3.91%
 
2025
 
250,000

 
250,000

Senior Notes, Unsecured
 
4.09%
 
2027
 
100,000

 
100,000

Fifth Third Center
 
3.37%
 
2026
 
142,715

 
143,497

Colorado Tower
 
3.45%
 
2026
 
118,849

 
119,427

Promenade
 
4.27%
 
2022
 
98,438

 
99,238

816 Congress
 
3.75%
 
2024
 
81,260

 
81,676

Credit Facility, Unsecured
 
3.54%
 
2023
 
56,400

 

Meridian Mark Plaza
 
6.00%
 
2020
 
23,391

 
23,524

 
 
 
 
 
 
$
1,121,053

 
$
1,067,362

Unamortized loan costs
 
 
 
 
 
(4,579
)
 
(4,792
)
Total Notes Payable
 
 
 
 
 
$
1,116,474

 
$
1,062,570


(1) Weighted average maturity of notes payable outstanding at March 31, 2019 was 5.4 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; and an overall leverage ratio of no more than 60%, plus a portion of the net cash proceeds from certain equity issuances. The Credit Facility also contains customary representations and

14


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 March 31, 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 $943.6 million at March 31, 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 March 31, 2019, the Term Loan's spread over LIBOR was 1.20%.
Unsecured Senior Notes
The Company has $350 million of unsecured senior notes that were funded in two tranches. The first tranche of $100 million has a 10-year maturity and has a fixed annual interest rate of 4.09%. The second tranche of $250 million has an 8-year maturity and has a fixed annual interest rate of 3.91%.
The unsecured senior notes contain financial covenants that require, among other things, the maintenance of an unencumbered interest coverage ratio of at least 2.00; a fixed charge coverage ratio of at least 1.50; an overall leverage ratio of no more than 60%; and a minimum shareholders' equity in an amount equal to $1.9 billion, plus a portion of the net cash proceeds from certain equity issuances. 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 March 31, 2019 and December 31, 2018, the estimated fair value of the Company’s notes payable was $1.1 billion for each of the periods, calculated by discounting the debt's remaining contractual cash flows at estimated rates at which similar loans could have been obtained at March 31, 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 months ended March 31, 2019 and 2018, interest was recorded as follows (in thousands):
 
2019
 
2018
Total interest incurred
$
11,835

 
$
10,874

Interest capitalized
(1,015
)
 
(1,096
)
Total interest expense
$
10,820

 
$
9,778

9. COMMITMENTS AND CONTINGENCIES
Commitments
At March 31, 2019, the Company had outstanding performance bonds totaling $556,000. As a lessor, the Company had $95.1 million in future obligations under leases to fund tenant improvements and other future construction obligations at March 31, 2019. As a lessee, the Company had future obligations for other operating leases of $449,000 at March 31, 2019.
Litigation
On May 1, 2019, a purported TIER stockholder filed a putative stockholder class action against TIER and the members of the TIER board of directors challenging the disclosures made in connection with the Merger. The lawsuit is captioned Martin v. TIER REIT, INC., et al., No. 1:19-CV-01292, and is pending in the United States District Court for the District of Maryland. On

15


May 3, 2019, a purported TIER stockholder filed a putative stockholder class action against TIER, the members of the TIER board of directors, and the Company also challenging the disclosures made in connection with the Merger. The lawsuit is captioned Franchi v. TIER REIT, Inc. et al., No. 1:19-CV-01310, and is also pending in the United States District Court for the District of Maryland. The complaints generally allege that the registration statement filed in connection with the Merger of which this joint proxy statement/prospectus forms a part fails to disclose certain allegedly material information in violation of Section 14(a) and 20(a) of the Exchange Act and Rule 14a-9 promulgated thereunder. The alleged omissions relate to (i) the existence of certain provisions in confidentiality agreements entered into between TIER and alternative bidders during the strategic sales process; (ii) certain financial projections and GAAP reconciliations for TIER and the Company; and (iii) certain financial analyses performed by TIER's financial advisor. Plaintiffs seek to enjoin the Defendants from proceeding with the Merger and seek damages in the event the transaction is consummated. TIER and the Company are reviewing the complaints and have not yet formally responded to them, but believe that Plaintiffs' allegations are without merit and intend to defend against them vigorously. However, litigation is inherently uncertain and there can be no assurance regarding the likelihood that TIER's and the Company's defense of the actions will be successful. Accordingly, at this time, the Company is not able to determine if the outcome of these matters will have a material adverse effect on the liquidity, results of operations, business, or financial condition of the Company. Additional lawsuits arising out of the Merger may also be filed in the future.
The Company is subject to various other 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 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 a portion of the stock-based compensation awards is fixed. The expense related to other stock-based compensation awards 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 $5.5 million and $2.6 million for the three months ended March 31, 2019 and 2018, respectively.
The Company maintains the 2009 Incentive Stock Plan (the "2009 Plan") and the 2005 Restricted Stock Unit Plan (the “RSU Plan”). Under the 2009 Plan, during the quarter ended March 31, 2019, the Company made restricted stock grants of 263,339 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 260,988 and 111,853, 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.
11. REVENUE
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 revenue consists 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; and (4) 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 revenue is 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.
Other revenue consists primarily of termination fees, which are accounted for in accordance with the guidance set forth in ASC 842.
For the three months ended March 31, 2019, the Company recognized rental property revenue of $123.3 million, of which $32.6 million represented variable rental revenue. For the three months ended March 31, 2018 the Company recognized rental property revenue of $113.3 million. For the three months ended March 31, 2019 and 2018 the Company recognized fee and other revenue of $9.4 million and $3.9 million, respectively. The following tables set forth the future minimum rents to be received by consolidated entities under existing non-cancellable leases as of March 31, 2019 and December 31, 2018, respectively (in thousands):

16


March 31, 2019
 
 
2019
$
301,235

2020
400,754

2021
379,056

2022
334,015

2023
301,549

Thereafter
1,266,401

 
$
2,983,010

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.

17


13. EARNINGS PER SHARE
The following table sets forth the computation of basic and diluted earnings per share for the three months ended March 31, 2019 and 2018 (in thousands):
 
Three Months Ended March 31,
 
2019
 
2018
Earnings per Common Share - basic:
 
 
 
Numerator:
 
 
 
      Net income
$
36,005

 
$
16,406

Net income attributable to noncontrolling interests in CPLP
from continuing operations
(588
)
 
(287
)
      Net income attributable to other noncontrolling interests
(76
)
 
(76
)
         Net income available to common stockholders
$
35,341

 
$
16,043

 
 
 
 
Denominator:
 
 
 
Weighted average common shares - basic
420,510

 
420,154

Earnings per common share - basic
$
0.08

 
$
0.04

 
 
 
 
Earnings per common share - diluted:
 
 
 
Numerator:
 
 
 
      Net income
$
36,005

 
$
16,406

Net income attributable to other noncontrolling interests
(76
)
 
(76
)
Net income available for common stockholders before
     net income attributable to noncontrolling interests in
     CPLP
$
35,929

 
$
16,330

 
 
 
 
Denominator:
 
 
 
Weighted average common shares - basic
420,510

 
420,154

     Add:
 
 
 
Potential dilutive common shares - stock options
123

 
567

Weighted average units of CPLP convertible into
    common shares
6,974

 
6,974

Weighted average common shares - diluted
427,607

 
427,695

Earnings per common share - diluted
$
0.08

 
$
0.04

 
 
 
 
Anti-dilutive stock options outstanding

 
24


14. CONSOLIDATED STATEMENTS OF CASH FLOWS - SUPPLEMENTAL INFORMATION
Supplemental information related to the cash flows, including significant non-cash activity affecting the consolidated statement of cash flows, for the three months ended March 31, 2019 and 2018 is as follows (in thousands):
 
2019
 
2018
Interest paid, net of amounts capitalized
$
14,267

 
$
13,775

Non-Cash Transactions:
 
 
 
Ground lease right-of-use assets and associated liabilities
56,294

 

Common stock dividends declared
30,492

 
27,315

Change in accrued property, acquisition, development, and tenant expenditures
11,085

 
28,465

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



18


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):
 
March 31, 2019
 
December 31, 2018
Cash and cash equivalents
$
3,456

 
$
2,547

Restricted cash
170

 
148

Total cash, cash equivalents, and restricted cash
$
3,626

 
$
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, Phoenix, Tampa, and Other. 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 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 months ended March 31, 2019 and 2018 are as follows (in thousands):
Three Months Ended March 31, 2019
 
Office
 
Mixed-Use
 
Total
Net Operating Income:
 
 
 
 
 
 
Atlanta
 
$
37,399

 
$

 
$
37,399

Austin
 
15,948

 

 
15,948

Charlotte
 
15,808

 

 
15,808

Phoenix
 
9,491

 

 
9,491

Tampa
 
7,988

 

 
7,988

Other
 
230

 
867

 
1,097

Total Net Operating Income
 
$
86,864

 
$
867

 
$
87,731

Three Months Ended March 31, 2018
 
Office
 
Mixed-Use
 
Total
Net Operating Income:
 
 
 
 
 
 
Atlanta
 
$
32,165

 
$

 
$
32,165

Austin
 
14,941

 

 
14,941

Charlotte
 
15,842

 

 
15,842

Phoenix
 
8,974

 

 
8,974

Tampa
 
7,728

 

 
7,728

Other
 
440

 
488

 
928

Total Net Operating Income
 
$
80,090

 
$
488

 
$
80,578






19


The following reconciles Net Operating Income to Net Income for each of the periods presented (in thousands):
 
Three Months Ended March 31,
 
2019
 
2018
Net Operating Income
$
87,731

 
$
80,578

Net operating income from unconsolidated joint ventures
(7,873
)
 
(7,421
)
Fee income
8,728

 
2,894

Other income
660

 
960

Reimbursed expenses
(932
)
 
(942
)
General and administrative expenses
(11,460
)
 
(6,809
)
Interest expense
(10,820
)
 
(9,778
)
Depreciation and amortization
(45,861
)
 
(45,093
)
Acquisition and transaction costs
(3
)
 
(91
)
Loss on extinguishment of debt

 
(85
)
Other expenses
(180
)
 
(320
)
Income from unconsolidated joint ventures
2,904

 
2,885

Gain (loss) on sale of investment properties
13,111

 
(372
)
Net Income
$
36,005


$
16,406

Revenues by reportable segment, including a reconciliation to total rental property revenues on the condensed consolidated statements of operations, for three months ended March 31, 2019 and 2018 are as follows (in thousands):
Three Months Ended March 31, 2019
 
Office
 
Mixed-Use
 
Total
Revenues:
 
 
 
 
 
 
Atlanta
 
$
57,468

 
$

 
$
57,468

Austin
 
27,556

 

 
27,556

Charlotte
 
23,402

 

 
23,402

Tampa
 
12,971

 

 
12,971

Phoenix
 
13,003

 

 
13,003

Other
 
546

 
1,181

 
1,727

Total segment revenues
 
134,946

 
1,181

 
136,127

Less Company's share of rental property revenues from unconsolidated joint ventures
 
(11,601
)
 
(1,181
)
 
(12,782
)
Total rental property revenues
 
$
123,345

 
$

 
$
123,345

Three Months Ended March 31, 2018
 
Office
 
Mixed-Use
 
Total
Revenues:
 
 
 
 
 
 
Atlanta
 
$
49,466

 
$

 
$
49,466

Austin
 
26,576

 

 
26,576

Charlotte
 
23,041

 

 
23,041

Tampa
 
12,536

 

 
12,536

Phoenix
 
12,060

 

 
12,060

Other
 
524

 
795

 
1,319

Total segment revenues
 
124,203

 
795

 
124,998

Less Company's share of rental property revenues from unconsolidated joint ventures
 
(10,855
)
 
(795
)
 
(11,650
)
Total rental property revenues
 
$
113,348

 
$

 
$
113,348



20


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 98% 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 Sunbelt 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. As of March 31, 2019, our portfolio of real estate assets consisted of interests in 29 operating properties (28 office and one mixed use), containing 16.0 million square feet of space, and three projects (two office and one mixed-use) under active development.
We leased or renewed 682,129 square feet of office space during the first quarter of 2019. The weighted average net effective rent of these leases, representing base rent less operating expense reimbursements and leasing costs, was $24.50 per square foot. For those leases that were previously occupied within the past year, net effective rent increased 22.8%. Same property net operating income (defined below) for consolidated properties and our share of unconsolidated properties increased by 4.3% between the three months ended March 31, 2019 and 2018.
On March 1, 2019, we entered into a series of transactions with Norfolk Southern Railway Company ("NS") whereby we executed a development 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 through December 31, 2021. In the first quarter of 2019, we recognized $6.6 million in fee income related to this arrangement.
On March 25, 2019, we entered into an agreement and plan of merger (the "Merger Agreement") with TIER REIT, Inc. ("TIER") whereby TIER will merge with and into a subsidiary of Cousins. We believe that this 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 value-add opportunities as TIER has an active and attractive development portfolio and land bank. Upon closing, we expect to have a portfolio of over 21 million square feet in premier Sunbelt markets. For additional information about the Merger, see "Liquidity and Capital Resources -- Merger with TIER."
Results of Operations
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 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 complete 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.
 
Three Months Ended March 31,
 
2019
 
2018
 
$ Change
 
% Change
Rental Property Revenues
 
 
 
 
 
 
 
Same Property
$
110,530

 
$
105,680

 
$
4,850

 
4.6
%
Non-Same Property
12,815

 
7,668

 
5,147

 
67.1
%
Total Rental Property Revenues
$
123,345

 
$
113,348

 
$
9,997

 
8.8
%
 
 
 
 
 
 
 

Rental Property Operating Expenses
 
 
 
 
 
 
 
Same Property
$
40,380

 
$
38,605

 
$
1,775

 
4.6
%
Non-Same Property
3,107

 
1,586

 
1,521

 
95.9
%
Total Rental Property Operating Expenses
$
43,487

 
$
40,191

 
$
3,296

 
8.2
%
 
 
 
 
 
 
 

Net Operating Income
 
 
 
 
 
 
 
Same Property NOI
$
70,150


$
67,075

 
$
3,075

 
4.6
%
Non-Same Property NOI
9,708


6,082

 
3,626

 
59.6
%
Total NOI
$
79,858


$
73,157

 
$
6,701

 
9.2
%
Same property NOI increased $3.1 million (4.6%) between the 2019 and 2018 three month periods. The increase is primarily due to higher occupancy rates at Northpark, Corporate Center, 111 Congress, and 816 Congress. Non-same property NOI increased $3.6 million (59.6%) between the 2019 and 2018 three month periods primarily due to commencement of operations at the second and final phase of Spring & 8th in the fourth quarter of 2018 and at 1200 Peachtree in the first quarter of 2019 and due to the lease-up of 8000 Avalon. Non-same property expenses increased $1.5 million while non-same property revenues increased $5.1 million because we receive, and recognize, a high percentage of operating expenses in revenue from our tenant at Spring & 8th and because our tenant at 1200 Peachtree is responsible for paying all operating expenses.
Fee Income
Fee income increased $5.8 million (202%) between the 2019 and 2018 three month periods. The increase is primarily driven by fee income related to the NS transactions.
General and Administrative Expenses
General and administrative expenses increased $4.7 million (68%) between the 2019 and 2018 three month periods. The increase is 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 $1.0 million (11%) between the 2019 and 2018 three month periods due to an increase in LIBOR causing an increase in interest expense on the term loan and line of credit and an increase in the average debt outstanding on the line of credit.
Income from Unconsolidated Joint Ventures
Income from unconsolidated joint ventures consisted of the Company's share of the following (in thousands):
 
Three Months Ended March 31,
 
2019
 
2018
 
$ Change
 
% Change
Net operating income
$
7,873

 
$
7,421

 
$
452

 
6.1
 %
Other income, net
39

 
350

 
(311
)
 
(88.9
)%
Depreciation and amortization
(3,254
)
 
(3,419
)
 
165

 
(4.8
)%
Interest expense
(1,754
)
 
(1,515
)
 
(239
)
 
15.8
 %
Net gain on sale of investment property

 
48

 
(48
)
 
(100.0
)%
Income from unconsolidated joint ventures
$
2,904

 
$
2,885

 
$
19

 
0.7
 %
Net operating income from unconsolidated joint ventures increased $452,000 (6%) between the three month periods primarily due to the commencement of operations at Dimensional Place, the office building owned by the DC Charlotte Plaza LLLP joint venture, in the first quarter of 2019. Other income from unconsolidated joint ventures decreased $311,000 (89%) between the three month periods primarily due to the 2018 sale of a parcel of land held by the Wildwood Associates joint venture.
Gain (Loss) on Sale of Investment Properties
The gain on the sale of investment properties in the three months ended March 31, 2019 relates to the sale of the Company's air rights that cover approximately eight acres within an area of Downtown Atlanta.
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

21


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 months ended March 31, 2019 and 2018 (in thousands, except per share information):
 
Three Months Ended March 31,
 
2019
 
2018
Net Income Available to Common Stockholders
$
35,341

 
$
16,043

Depreciation and amortization of real estate assets:
 
 
 
Consolidated properties
45,405

 
44,620

Share of unconsolidated joint ventures
3,254

 
3,419

Partners' share of real estate depreciation
(96
)
 
(69
)
(Gain) loss on sale of depreciated properties:
 
 
 
Consolidated properties
21

 
372

Share of unconsolidated joint ventures

 
(48
)
     Non-controlling interest related to unit holders
588

 
287

Funds From Operations
$
84,513

 
$
64,624

Per Common Share — Diluted:
 
 
 
Net Income Available to Common
Stockholders
$
0.08

 
$
0.04

Funds From Operations
$
0.20

 
$
0.15

Weighted Average Shares — Diluted
427,607

 
427,695


Net Operating Income

Company management evaluates the performance of its property portfolio in part based on NOI. NOI represents rental property revenues 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 each of the periods presented (in thousands):
 
Three Months Ended March 31,
 
2019
 
2018
Net Income
$
36,005

 
$
16,406

Fee income
(8,728
)
 
(2,894
)
Other income
(660
)
 
(960
)
Reimbursed expenses
932

 
942

General and administrative expenses
11,460

 
6,809

Interest expense
10,820

 
9,778

Depreciation and amortization
45,861

 
45,093

Acquisition and transaction costs
3

 
91

Other expenses
180

 
320

Income from unconsolidated joint ventures
(2,904
)
 
(2,885
)
Gain (loss) on sale of investment properties
(13,111
)
 
372

Loss on extinguishment of debt

 
85

Net Operating Income
$
79,858

 
$
73,157


22


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 March 31, 2019, we had $56.4 million drawn under our Credit Facility with the ability to borrow an additional $943.6 million.
Merger with TIER
On March 25, 2019, we entered into the Merger Agreement with TIER, pursuant to which TIER will merge with and into one of our subsidiaries (the “Merger”). Pursuant to the Merger Agreement, upon the terms and subject to the conditions of the Merger Agreement, upon closing, each share of TIER common stock issued and outstanding will be converted into the right to receive 2.98 newly issued shares of our common stock. In addition, upon closing, each outstanding award of TIER restricted shares and restricted stock units will become fully vested (in the case of restricted stock units, to the extent provided in the TIER equity plan, and in the case of any performance-based restricted stock units, with performance determined to be achieved as set forth in the TIER equity plan) and will convert into newly issued shares of our common stock on the same basis as other shares of TIER common stock.
The respective boards of directors (the “Board of Directors”) have unanimously approved the Merger Agreement and have recommended that their respective stockholders approve their Merger-related proposals. Upon closing, two members of the Board of Directors of TIER, Scott W. Fordham and one additional independent member on the Board of Directors of TIER to be mutually agreed upon by the parties, will be appointed to our Board of Directors.
The closing of the Merger is subject to satisfaction or waiver of certain conditions, including: (1) approval of the Merger by TIER stockholders; (2) approval of the issuance of our common stock by our stockholders; (3) approval for listing on the New York Stock Exchange of our common stock to be issued in the Merger; (4) the absence of an injunction or law prohibiting the MErger; (5) the correctness of all representations and warranties made by the parties to the Merger Agreement and performance by the parties of their obligations under the Merger Agreement (subject in most cases to materiality or material adverse effect qualifications), and receipt of an officer's certificate from each party attesting thereto; (6) receipt by us and by TIER of an opinion to the effect that the Merger will qualify as a “reorganization” within the meaning of Section 368(a) of the Internal Revenue Code of 1986, as amended (the “Code”), and of an opinion as to the qualification of us and TIER, respectively, as a real estate investment trust (“REIT”) under the Code; and (7) effectiveness of the registration statement that will contain the joint proxy statement/prospectus sent to our stockholders and TIER stockholders.
The Merger Agreement contains customary representations and warranties by each party. Both companies have also agreed to various customary covenants and agreements, including, among others, to conduct their business in the ordinary course consistent with past practice during the period between the execution of the Merger Agreement and closing and to maintain REIT status. The Merger Agreement provides that, during the period from the date of the Merger Agreement until closing, TIER will be subject to certain restrictions on its ability to solicit alternative transaction proposals from third parties, to provide non-public information to third parties and to engage in discussions with third parties regarding alternative transaction proposals, subject to customary exceptions.
The Merger Agreement contains certain termination rights for both companies. The Merger Agreement can be terminated by mutual written consent or by either party (1) if there is a final nonappealable order, decree, or ruling permanently enjoining or otherwise prohibiting the consummation of the Merger; (2) if the Merger has not been consummated by 5:00 p.m., New York time, on October 31, 2019; (3) if our stockholders fail to approve the issuance of our common stock in connection with the Merger or

23


TIER’s stockholders fail to approve the Merger; or (4) if the other party has breached or failed to perform any of its representations, warranties, or covenants in a way that prevents satisfaction of a closing condition, subject to a cure period. In addition, we may terminate the Merger Agreement if the Board of Directors of TIER changes its recommendation with respect to the Merger or upon a willful breach by TIER of its obligations not to solicit alternative transaction proposals. TIER may terminate the Merger Agreement in order to enter into a definitive agreement with respect to a Superior Proposal (as defined in the Merger Agreement) (subject to compliance with certain terms and conditions included in the Merger Agreement). If the Merger Agreement is terminated because (1) the Board of Directors of TIER changes its recommendation with respect to the Merger; (2) TIER terminates the Merger Agreement to enter into a definitive agreement with respect to a Superior Proposal; or (3) TIER consummates or enters into an agreement for an alternative transaction within twelve months following termination under certain circumstances, TIER must pay a termination fee of $45.5 million to Cousins. The amount payable to Cousins by TIER may also be reduced to the extent necessary to maintain Cousins' qualification as a REIT. should any amount of the fee be unpaid because of REIT requirements, TIER shall place the unpaid amount of the fee in escrow and shall not release any portion thereof to Cousins unless and until Cousins receives a reasoned opinion from counsel or other tax advisor or a ruling from the IRS providing that Cousins; receipt of the unpaid fee will not impact its qualification as a REIT under the Code. The obligations of TIER to pay any unpaid portion of the fee shall terminate on December 31 following the date which is five years from the date of March 25, 2019. Amounts remaining in escrow after the obligation of TIER to pay the fee terminates shall be released to TIER.
In connection with the Merger, we have filed an amended registration statement on Form S-4 (File No. 333-230968), declared effective by the SEC on May 8, 2019, that includes a joint proxy statement of Cousins and TIER that also constitutes a prospectus of Cousins.
The Merger is currently anticipated to close in the second quarter of 2019. During the three months ended March 31, 2019, we incurred no material merger-related expenses.
Two putative stockholder class action lawsuits have been filed by purported TIER stockholders challenging the disclosures made in connection with the Merger. The lawsuits seek to enjoin the Merger, to recover damages if the Merger is consummated, attorney's fees, and other relief. Additional lawsuits arising out of the Merger may be filed in the future. For a more detailed description of litigation in connection with the Merger, see note 9 to the financial statements.
Contractual Obligations and Commitments
The following table sets forth information as of March 31, 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:
 
 
 
 
 
 
 
 
 
 
Term Loan
 
$
56,400

 
$

 
$

 
$
56,400

 
$

Unsecured Senior Notes
 
350,000

 

 

 

 
350,000

Unsecured Credit Facility
 
250,000

 

 
250,000

 

 

Mortgage notes payable
 
464,653

 
8,287

 
45,083

 
105,316

 
305,967

Interest commitments (1)
 
222,833

 
40,566

 
77,277

 
52,792

 
52,198

Ground leases
 
226,033

 
2,904

 
11,990

 
5,318

 
205,821

Other operating leases
 
449

 
239