Cousins Properties Incorporated

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Cousins Properties Incorporated

2500 Windy Ridge Parkway, Suite 1600
Atlanta, Georgia 30339-5683
U.S.A.
Telephone: (770) 955-2200
Fax: (770) 857-2360
Web site: http://www.cousinsproperties.com

Public Company
Incorporated: 1961
Employees: 421
Sales: $314.8 million (2003)
Stock Exchanges: New York
Ticker Symbol: CUZ
NAIC: 525930 Real Estate Investment Trusts

Cousins Properties Incorporated is a real estate investment trust (REIT) based in Atlanta, Georgia, involved in the development of commercial office, medical office, and retail properties. Although very much focused on the Atlanta area, Cousins also has projects in Alabama, California, Florida, North Carolina, Virginia, and Texas. Cousins' office portfolio of 37 commercial office properties contains more than 13 million square feet. It owns an additional seven medical office buildings with 990,000 square feet. Cousins' retail portfolio includes 12 properties with close to 1.6 million square feet of space. In addition, Cousins owns more than 280 acres of valuable Atlanta property earmarked for future commercial development. The REIT is traded on the New York Stock Exchange.

Founder Launching a Real Estate Business in 1958

Cousins' chairman, Thomas G. Cousins, founded the real estate company that would evolve into the present-day REIT in 1958. He was born in Atlanta in 1933, the son of auto dealer I.W. Cousins. He studied pre-medicine for three years at the University of Georgia and then shifted gears, graduating in 1952 with a degree in finance. His business career, however, would be delayed because of a two-year stint in the military. After serving with the Strategic Air Command in Japan and Korea, he returned home to become a salesman for Knox Homes Corp., a manufacturer of prefabricated housing. In 1958 he struck out on his own, forming Cousins Properties to build single-family homes. The first man he hired was his father.

Cousins Properties grew at a fast clip. After recording $11,000 in sales in 1958, the company reached the $1.6 million mark in 1960 and topped $5 million in 1962, a year after the business was formally incorporated. It was during these early years in business that Cousins developed a three-part philosophy that would serve him well over the ensuing decades. First, avoid debt. Instead of building several houses and then putting them up for sale, Cousins built a model house to attract buyers and minimize his cash outlay. Second, keep control. In 1962 he took the company public, successfully raising $500,000 but in the process giving up more control than he was comfortable with. He would make sure he did not make that mistake later in his career. Finally, find reliable partners. Cousins used joint ventures as a way to expand beyond single-family homes and become involved in larger projects. He provided the land and development expertise while the investor provided the money and bore most of the risks. Ownership and profits were split. It was an arrangement he used to great effect later in his career with such partners as Coca-Cola, the Ford Foundation, and IBM.

Cousins was well positioned in the 1960s to enjoy the benefits of an economic boom that was taking place in Atlanta. In 1965 Cousins diversified beyond single-family homes, becoming involved in Atlanta-area industrial parks and downtown office buildings, as well as retail and recreational development. In essence, the company developed raw land into "communities," and independent builders bought lots and produced the homes. This approach also freed up construction money and allowed Cousins to begin building large apartment complexes and launch a mortgage company. Tom Cousins admitted later that the real estate business was so strong in Atlanta at the time that he thought it was impossible to lose money. But even as he was prospering he was sowing the seeds for problems that would emerge in the 1970s and almost lead to his ruin.

Problems in the 1970s

In October 1966 Tom Cousins was approached by attorney Bob Troutman, who owned the air rights over the Western and Atlantic Railroad yard in downtown Atlanta. But he had to commit to a $5 million commercial property by the end of the year in order to gain an inexpensive 80-year lease on those rights. Cousins agreed to build a parking deck on the sight, in reality a truss that could actually support a 40-story office building in the future. Yet few people would actually park there and Cousins soon found himself in the position of throwing good money after bad. To make use of the parking deck he decided to build an arena, but to get support from Atlanta's mayor on the project, he had to have a professional basketball team to play in it—and not just a vague commitment to move to the city in the future. As a result, Cousins bought the St. Louis Hawks in 1968 and moved them to Atlanta, where they played at the Georgia Tech fieldhouse. The facility was too small to allow Cousins to turn a profit on the team, but he was able to secure the financing to build his downtown arena, known as the Omni. Unfortunately, the Hawks did not draw enough fans to make the parking decks viable. In 1972 he bought a franchise from the National Hockey League, creating the Atlanta Flames, which added more need for parking at the Omni. Finally, in conjunction with out-of-town developer Maurice Alpert, Cousins erected what he thought would be the final piece in making his parking deck a paying concern: the construction of the Omni International, a multi-use office, hotel, and recreation complex, which opened in 1975.

Even as the Omni project was consuming a great deal of his time, Tom Cousins was active on other fronts. Cousins Properties was involved in a number of successful projects throughout the South. Moreover, in 1970 he formed a REIT called Cousins Mortgage-Equity Investments, which went public, raising $42.5 million. REITs had been created by Congress in 1960 as a way for small investors to own real estate in a manner similar to mutual funds. REITs could be taken public and their shares traded just like stock, and were subject to regulation by the Securities and Exchange Commission. Unlike other stocks, however, REITs were required by law to pay out at least 95 percent of their taxable income to shareholders each year, a provision that severely limited the ability of REITs to retain internally generated funds. In addition, limited partnership tax shelter schemes that were legal at the time proved more attractive to investors than REITs. According to a 1990 Georgia Trend profile, "The REIT represented a radical departure for Cousins in every way. He was using his company's own money, he didn't have control of the projects, and, in order to grow, he was aligning himself with an array of developers who would later cause him immense problems." To make matters worse, a recession was taking hold in the United States and the Atlanta real estate market, overbuilt during the boom times, now crashed.

Cousins Properties lost $33 million from 1974 to 1976, when the Depression bottomed out. Although his original business did reasonably well, the REIT's performance was so poor that it nearly ruined Tom Cousins. Its only value was the tax credits it created because of its deep losses. He sold off the REIT in 1979 to focus his attention on his core business. Two years earlier he had sold his interest in the Atlanta Hawks and in 1981 would sell the Atlanta Flames. His most nettlesome problem during the 1970s was Omni International. He was successful in convincing the state General Assembly to build a convention center, the Georgia World Congress Center, close to the Omni. It opened in 1977 but it did little to salvage the project. Another ten years would pass before Cousins was able to sell his 25 percent interest to Ted Turner, who moved in some of his Cable News Network operations and renamed the facility the CNN Center. Only then did the project finally turn the corner and became profitable. In the words of Georgia Trend, "During his long involvement with the Omni Cousins lost more than $20 million as well as his reputation as the golden boy of Atlanta real estate."

Tom Cousins was able to survive only by convincing his creditors to work with him. He was able to avoid bankruptcy while holding onto Atlanta property that he was convinced would be valuable once the market bounced back, including 400 acres of what would become known as the "Golden Corridor" of north Fulton County. From 1978 to 1982 he tried building and managing some shopping centers but exited the business after concluding that the only way to make a go of such projects was to own the anchor stores. He now returned his focus to commercial development. His breakthrough project, launched in 1982, was Wildwood Office Park, built on some of the land that he had refused to part with. Wildwood also represented a return to an earlier practice of finding strong partners, with IBM in this case supplying the cash and Cousins the land. Throughout the 1980s he did not build any projections on spec, turning to other deep-pocketed partners, such as Coca-Cola, Nations-Bank, and the Dutch Institutional Holding Company.

The REIT form of real estate ownership became more attractive following the Tax Reform Act of 1986. Limited partnership tax shelter investments were shut down: Interest and depreciation deductions were greatly reduced preventing taxpayers from generating paper losses in order to lower their tax liabilities. Separately, the Act also permitted REITs to provide customary services for property, in effect allowing the trusts to operate and manage the properties they owned. To convert to REIT ownership, Cousins spun off into separate companies its management and leasing units, Cousins Management Inc. and Cousins Real Estate Corp. A separate brokerage company called Cousins Realty also was formed. Thus in 1987 Cousins Properties became a REIT and made a public offering of shares, which then began trading on the NASDAQ. Tom Cousins remained the controlling shareholder. In 1992 the REIT would gain a listing on the New York Stock Exchange and complete the largest stock offering in company history, netting $58 million.

Company Perspectives:

The company's mission is to maximize shareholder value—while providing our customers with superior service—through the development, operation, acquisition, and management of high-quality commercial real estate properties.

By now the disastrous Omni period of Tom Cousin's career was well in the past. While many competitors were caught in a real estate recession in the early 1990s, his conservative approach during the previous decade now put him in an advantageous position. Cousins properties had just $1 million in debt and was awash in cash. It was now ready to return to the retail sector, which he had abandoned ten years earlier. In 1992 the REIT acquired New Market Development Company, a retail development company that pioneered the concept of "power center" shopping centers that were anchored by specialty giants such as Home Depot or Circuit City. When the office building sector showed signs of recovery, Cousins in 1995 returned to that business as well. In 1998 the company acquired its first medical office property and began developing other projects in the sector. There even had been talk earlier in the 1990s of pursuing development deals in Europe, but nothing ever came of the idea and the company remained focused on Atlanta.

Succession Issues in the 1990s

With Tom Cousins well into his 60s, the question of succession took on increasing significance starting in the mid-1990s. In April 1995, Vipin Patel, a longtime Cousins executive, was named president and chief operating officer and, unofficially, Tom Cousins' heir apparent. Filling Patel's position as senior executive vice-president was Daniel DuPree, who came over in the New Market acquisition. DuPree held that position for the next five years, during which time Cousins began to move aggressively into new territories. In 1996 it acquired an office building in Charlotte, North Carolina, to enter that market. A year later Cousins made further inroads in Charlotte while also moving into Birmingham, Washington, D.C., and California. In 1999 Cousins entered the Texas market by acquiring a half-interest in Faison-Stone, a Dallas-based full-service real estate company that concentrated on leasing and managing class "A" office properties. The unit was renamed Cousins Stone and was headed by founder R. Dary Stone.

In 2001, DuPree resigned as Cousins' president, maintaining that he needed a break after working "nonstop for 20 years" in real estate. During the five years he held the post, the company realized a 21 percent annualized total return for shareholders. He was replaced by Dary Stone on what proved to be a temporary basis. In January 2002 Stone stepped down and returned to Texas to run the REIT's operations in that state. He was replaced three weeks later by Thomas D. Bell, who also took over the CEO position from the 70-year-old Tom Cousins, who stayed on as chairman and remained very much involved in running the business. Although the 52-year-old Bell had been a member of Cousins' board since the fall of 2000, he had little previous experience in real estate. Rather, he had made his mark in advertising as the chief executive and chairman of Young & Rubicam. After the agency merged with WPP Group PLC, London, in 2000, he left and joined Cousins' board. He soon became vice-chairman of the board and chairman of Cousins' executive committee. Despite a lack of expertise in real estate, Bell was tapped as Cousins' successor because he was familiar with running a large organization and was familiar with the public markets.

With the question of succession at Cousins apparently settled, the REIT carried on much the same as before. It considered starting an industrial development division and made a greater commitment to the Texas market, especially central Texas, but it remained very much focused on Atlanta, and on office buildings and retail power centers there.