Cousins Properties Inc.

3344 Peachtree Road NE, Suite 1800
Atlanta, Georgia 30326
U.S.A.
Telephone: (404) 407-1000
Web site: http://www.cousins.com

Public Company
Incorporated:
1961
Employees: 261
Sales: $466.19 million (2017)
Stock Exchanges: New York
Ticker Symbol: CUZ
NAICS: 531120 Lessors of Nonresidential Buildings (except Miniwarehouses)

Cousins Properties Inc. is a publicly traded real estate investment trust (REIT) that operates mostly in Atlanta, Austin, Charlotte, Tampa, and Phoenix. Although it has operated in practically every real estate market segment since its incorporation in 1961, the company now focuses on developing, acquiring, and leasing top-tier office buildings in urban centers. Cousins's portfolio of 15 million square feet of office space is concentrated in its hometown of Atlanta, with Charlotte as its secondary market. The company was created by its namesake founder Thomas G. Cousins, who remained at its helm for 45 years.

FOUNDER LAUNCHES A REAL ESTATE BUSINESS

Tom 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 I. W. Cousins, an auto dealer. He studied premedicine for three years at the University of Georgia and then shifted gears, graduating in 1952 with a degree in finance. However, his business career would be delayed because of a two-year stint in the military. After serving with the Strategic Air Command in Japan and South Korea, he returned home to become a salesman for the 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.

COMPANY PERSPECTIVES

When it comes to strategy, Cousins keeps it simple: assemble a portfolio of trophy assets in high-growth Sun Belt markets, capture value embedded in operating portfolio and execute attractive investment opportunities, all while maintaining a conservative balance sheet.

Cousins was well positioned during 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 in retail and recreational development. In essence, the company developed raw land into “communities,” and independent builders bought lots and produced the buildings. 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. However, even as he was prospering he was sowing the seeds for problems that would emerge during the 1970s and almost lead to his ruin.

THE OMNI PROJECT

In October 1966 Tom Cousins was approached by the attorney Bob Troutman, who owned the air rights over the Western and Atlantic Railroad yard in downtown Atlanta. However, he had to commit to a $5 million commercial property by the end of the year to gain an inexpensive 80-year lease on those rights. Cousins agreed to build a parking deck on the sight, which was in reality a truss that could actually support a 40-story office building in the future. 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 play in it.

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 deck viable. In 1972 he bought a franchise from the National Hockey League to create the Atlanta Flames, which added more need for parking at the Omni. Finally, in conjunction with the 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 multiuse office, hotel, and recreation complex that 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 U.S. Securities and Exchange Commission.

However, unlike other stocks, 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 REITs' ability 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. To make matters worse, a recession was taking hold in the United States and the Atlanta real estate market, which had been overbuilt during the boom times, now crashed.

RIDING OUT A RECESSION

Cousins Properties lost $33 million between 1974 and 1976, when the recession 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 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 he would sell the Atlanta Flames.

KEY DATES
1958:
Thomas G. Cousins launches a real estate company.
1961:
The company is incorporated.
1962:
The company is taken public.
1987:
Cousins becomes a real estate investment trust.
1992:
The New Market Development Company is acquired.
2002:
Tom Cousins steps down as CEO.
2006:
Tom Cousins retires as chair.
2013:
The company enters the Houston market.
2016:
The company merges with Parkway Properties, Inc.
2017:
The company focuses its portfolio on Class A “trophy” office assets.

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 10 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's Paul Thiel, “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 northern 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, which was 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; instead, he turned to other deep-pocketed partners, such as Coca-Cola, Nations-Bank, and the Dutch Institutional Holding Company.

Meanwhile, 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 because interest and depreciation deductions were greatly reduced, which prevented taxpayers from generating paper losses 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.

REVISITING THE REIT CONCEPT

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 was also 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 be listed on the New York Stock Exchange and complete the largest stock offering in company history, netting $58 million.

By that point the disastrous Omni period of Tom Cousin's career was well in the past. Although many competitors were caught in a real estate recession during 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 10 years earlier. In 1992 the REIT acquired the 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 returned in 1995 to that business as well. In 1998 the company acquired its first medical office property and began developing other projects in the sector.

With Tom Cousins well into his 60s, the question of succession took on increasing significance during the mid-1990s. In April 1995 Vipin Patel, a longtime Cousins executive, was named president and COO and, unofficially, Tom Cousins's heir apparent. Filling Patel's position as senior executive vice president was Daniel DuPree, who came over in the New Market Development acquisition. DuPree held that position for the next five years, during which time Cousins began moving aggressively into new territories.

In 1996 the company acquired an office building in Charlotte, North Carolina. The following year Cousins made further inroads in Charlotte while also moving into Birmingham, Washington, DC, 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 the founder R. Dary Stone.

TRANSITION AT THE TOP

In 2001 DuPree resigned as Cousins's 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 chair and remained very much involved in running the business.

Although the 52-year-old Bell had been a member of Cousins's board since the fall of 2000, he had little previous experience in real estate. Rather, he had made his mark in advertising as the CEO and chair of Young & Rubicam. After the agency merged with WPP Group PLC, London, in 2000, he left and joined Cousins's board. He soon became vice chair of the board and chair of Cousins's executive committee. Despite a lack of expertise in real estate, Bell was tapped as Tom Cousins's successor because he was familiar with running a large organization and was familiar with the public markets.

With the question of succession at Cousins settled, the REIT carried on much the same as before. It made a greater commitment to the Texas market, especially central Texas, but it remained very much focused on Atlanta and on the office buildings and retail power centers there. Meanwhile, the company was taking advantage of a bustling market that was in need of mature, established properties, selling all or part of its equity in 35 projects and reaping $2.7 billion between 2003 and 2006. Some of the proceeds went to set up a new industrial division and to acquire the Gellerstedt Group, a multifamily development company with operations in Miami and Atlanta. As Cousins ventured into new real estate markets, it was spending between $200 million and $400 million on new projects.

The company logged several record-setting transactions in 2006, selling its interest in Atlanta's Bank of America Plaza for $348 per square foot, a city record. It also sold Austin's 33-story Frost Bank Tower for $188 million, a record in that market. The transactions came just as Tom Cousins was preparing to retire at the age of 75. Bell, already the CEO and president of Cousins Properties, now became its chair as well.

RECESSION AND MERGER

In the years immediately following Tom Cousins's retirement, the company had to contend with a major global recession that bit deeply into the real estate market, particularly in the residential sector. However, true to its founding principles, Cousins Properties was not heavily debt leveraged and had the stable financial underpinnings necessary to ride out the turbulence. As the recession deepened in 2009, Bell decided to retire, ceding the CEO position to Larry Gellerstedt, who had joined the company with the acquisition of his multifamily development business a few years earlier. Deciding to get out of the multifamily sector, Gellerstedt sold Cousins's remaining condo and apartment properties and refocused its portfolio on office and miscellaneous nonresidential properties in Georgia, North Carolina, and Texas.

Cousins Property was not just selling during the recession. It was also buying, spending $2.4 billion between 2009 and 2014 to pick up promising properties. The company broke into the Houston market in 2013, when it picked up 5.6 million square feet of office property with one portfolio acquisition. As the recession began to ease, the company stepped up the development of new projects, spending more than $600 million on new developments between 2011 and 2015. Still, the company now faced a new economic crisis. With much of the REIT's portfolio now concentrated in Houston office buildings, a collapse in fuel prices had Wall Street edgy about the future of the region's energy businesses, and Cousins's share price shrank accordingly.

Ed Dinger
Updated, Chris Herzog

PRINCIPAL SUBSIDIARIES

Cousins Properties LP; Cousins Properties Palisades LLC; Cousins Properties Services LLC; Cousins Realty Services, LLC; Cousins Terminus LLC.

PRINCIPAL COMPETITORS

Colonial Properties Trust; Douglas Emmett, Inc.; Equity Commonwealth; Vornado Realty Trust.

FURTHER READING

Couret, Jacques. “Cousins Closes on Parkway Properties Merger.” Atlanta Business Chronicle, October 6, 2016.

Eaton, Collin. “Cousins Properties Acquires Post Oak Central Tower Complex for $232.6M.” Houston Business Journal, February 8, 2013.

Karkaria, Urvaksh. “Cousins Properties Confirms Major Amazon Expansion in Atlanta.” Atlanta Business Chronicle, August 2, 2017.

Lufrano, Sonny. “Tom Cousins Builds Dynasty from the Heart.” Atlanta Business Chronicle, March 5, 2001.

Mistretta, A.J. “Frost Bank Tower Sells for Record $188 Million.” Austin Business Journal, August 3, 2006.

Thiel, Paul. “With a Little Help from His Friends.” Georgia Trend, March 1990.

Vinocur, Barry. “The Ground Floor: Cousins at a Crossroads.” Barron's, March 19, 2001.

Wotapka, Dawn. “Cousins Properties Refocusing on Urban Properties.” REIT Magazine, May–June 2017.