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 September 30, 2007

o		TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from                      to                     

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.)

191 Peachtree Street, Suite 3600, Atlanta, Georgia (Address of principal executive offices)		30303-1740 (Zip Code)

(404) 407-1000
(Registrant’s telephone number, including area code)

     Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes þ No o

     Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer. See definition of “accelerated filer and large accelerated filer” in Rule 12b-2 of the Exchange Act.

Large accelerated filer þ   Accelerated filer o   Non-accelerated filer 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 October 31, 2007
Common Stock, $1 par value per share		51,858,825 shares

 

 

TABLE OF CONTENTS

PART I — FINANCIAL INFORMATION			4
Item 1. Financial Statements			4
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations			24
Item 3. Quantitative and Qualitative Disclosures About Market Risk			35
Item 4. Controls and Procedures			36
PART II — OTHER INFORMATION			36
Item 1. Legal Proceedings			36
Item 1A. Risk Factors			36
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds			36
Item 3. Defaults Upon Senior Securities			37
Item 4. Submission of Matters to a Vote of Security Holders			37
Item 5. Other Information			37
Item 6. Exhibits			37
SIGNATURES			39
EX-31.1 SECTION 302 CERTIFICATION OF THE CEO
EX-31.2 SECTION 302 CERTIFICATION OF THE CFO
EX-32.1 SECTION 906 CERTIFICATION OF THE CEO
EX-32.2 SECTION 906 CERTIFICATION OF THE CFO

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. These include, but are not limited to, general and local economic conditions, local real estate conditions (including the overall condition of the residential market), the activity of others developing competitive projects, the risks associated with development projects (such as delay, cost overruns and leasing/sales risk of new properties), the cyclical nature of the real estate industry, the financial condition of existing tenants, interest rates, the Company’s ability to obtain favorable financing or zoning, environmental matters, the effects of terrorism, the ability of the Company to close properties under contract and other risks detailed from time to time in the Company’s filings with the Securities and Exchange Commission, including those described in Item 1A in the Company’s Annual Report on Form 10-K for the year ended December 31, 2006. The words “believes,” “expects,” “anticipates,” “estimates” and similar expressions are intended to identify forward-looking statements. Although the Company believes that its plans, intentions and expectations reflected in any forward-looking statements are reasonable, the Company can give no assurance that such plans, intentions or expectations will be achieved. Such forward-looking statements are based on current expectations and speak as of the date of such statements. The Company undertakes no obligation to publicly update or revise any forward-looking statement, whether as a result of future events, new information or otherwise.

PART I — FINANCIAL INFORMATION

Item 1. Financial Statements.

COUSINS PROPERTIES INCORPORATED AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited, in thousands, except share and per share amounts)

		September 30,				December 31,
		2007				2006
ASSETS
PROPERTIES:
Operating properties, net of accumulated depreciation of $134,735 and $115,723 in 2007 and 2006, respectively		$	650,342			$	472,375
Operating properties held-for-sale			—				1,470
Land held for investment or future development			98,445				101,390
Projects under development			348,589				300,382
Residential lots under development			39,926				27,624
Total properties			1,137,302				903,241
CASH AND CASH EQUIVALENTS			4,997				11,538
RESTRICTED CASH			4,138				2,824
NOTES AND OTHER RECEIVABLES, net of allowance for doubtful accounts of $828 and $501 in 2007 and 2006, respectively			45,172				32,138
INVESTMENT IN UNCONSOLIDATED JOINT VENTURES			184,423				181,918
OTHER ASSETS			64,978				65,094
TOTAL ASSETS		$	1,441,010			$	1,196,753
LIABILITIES AND STOCKHOLDERS’ INVESTMENT
NOTES PAYABLE		$	557,557			$	315,149
ACCOUNTS PAYABLE AND ACCRUED LIABILITIES			66,935				55,538
DEFERRED GAIN			170,420				154,104
DEPOSITS AND DEFERRED INCOME			4,955				2,062
TOTAL LIABILITIES			799,867				526,853
MINORITY INTERESTS			46,108				43,985
COMMITMENTS AND CONTINGENT LIABILITIES
STOCKHOLDERS’ INVESTMENT:
Preferred stock, 20,000,000 shares authorized, $1 par value:
7.75% Series A cumulative redeemable preferred stock, $25 liquidation preference; 4,000,000 shares issued and outstanding			100,000				100,000
7.50% Series B cumulative redeemable preferred stock, $25 liquidation preference; 4,000,000 shares issued and outstanding			100,000				100,000
Common stock, $1 par value, 150,000,000 shares authorized, 54,799,115 and 54,439,310 shares issued in 2007 and 2006, respectively			54,799				54,439
Additional paid-in capital			347,168				336,974
Treasury stock at cost, 2,941,582 and 2,691,582 shares in 2007 and 2006, respectively			(72,593	)			(64,894	)
Cumulative undistributed net income			64,417				99,396
Accumulated other comprehensive income			1,244				—
TOTAL STOCKHOLDERS’ INVESTMENT			595,035				625,915
TOTAL LIABILITIES AND STOCKHOLDERS’ INVESTMENT		$	1,441,010			$	1,196,753

See accompanying notes to condensed consolidated financial statements.

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

		Three Months Ended								Nine Months Ended
		September 30,								September 30,
		2007				2006				2007				2006
REVENUES:
Rental property revenues		$	30,664			$	19,505			$	80,293			$	65,357
Fee income			10,513				7,321				28,439				23,457
Multi-family residential unit sales			20				1,026				20				22,741
Residential lot and outparcel sales			4,551				4,572				7,453				12,206
Interest and other			439				379				4,939				831
			46,187				32,803				121,144				124,592
COSTS AND EXPENSES:
Rental property operating expenses			12,573				8,054				33,931				24,969
General and administrative expenses			14,719				12,985				45,013				40,036
Depreciation and amortization			10,554				6,639				28,629				21,967
Multi-family residential unit cost of sales			23				1,346				(24	)			19,081
Residential lot and outparcel cost of sales			3,344				3,425				5,684				8,926
Interest expense			3,265				2,625				3,796				11,119
Loss on extinguishment of debt			446				15,443				446				18,207
Other			1,054				414				2,172				1,349
			45,978				50,931				119,647				145,654
INCOME (LOSS) FROM CONTINUING OPERATIONS BEFORE TAXES, MINORITY INTEREST AND INCOME FROM UNCONSOLIDATED JOINT VENTURES			209				(18,128	)			1,497				(21,062	)
BENEFIT (PROVISION) FOR INCOME TAXES FROM OPERATIONS			1,806				(7	)			3,906				(4,301	)
MINORITY INTEREST IN (INCOME) LOSS OF CONSOLIDATED SUBSIDIARIES			286				(899	)			(1,418	)			(3,290	)
INCOME (LOSS) FROM UNCONSOLIDATED JOINT VENTURES			(898	)			142,355				6,911				162,882
INCOME FROM CONTINUING OPERATIONS BEFORE GAIN ON SALE OF INVESTMENT PROPERTIES			1,403				123,321				10,896				134,229
GAIN ON SALE OF INVESTMENT PROPERTIES, NET OF APPLICABLE INCOME TAX PROVISION			355				244				4,857				1,110
INCOME FROM CONTINUING OPERATIONS			1,758				123,565				15,753				135,339
DISCONTINUED OPERATIONS, NET OF APPLICABLE INCOME TAX PROVISION:
Income from discontinued operations			31				634				321				1,071
Gain on sale of investment properties			9,872				54,068				18,014				54,394
			9,903				54,702				18,335				55,465
NET INCOME			11,661				178,267				34,088				190,804
DIVIDENDS TO PREFERRED STOCKHOLDERS			(3,812	)			(3,812	)			(11,437	)			(11,437	)
NET INCOME AVAILABLE TO COMMON STOCKHOLDERS		$	7,849			$	174,455			$	22,651			$	179,367
PER SHARE INFORMATION — BASIC:
Income (loss) from continuing operations (after preferred dividends)		$	(0.04	)		$	2.37			$	0.09			$	2.46
Income from discontinued operations			0.19				1.08				0.35				1.10
Basic net income available to common stockholders		$	0.15			$	3.45			$	0.44			$	3.56
PER SHARE INFORMATION — DILUTED:
Income (loss) from continuing operations (after preferred dividends)		$	(0.04	)		$	2.29			$	0.09			$	2.38
Income from discontinued operations			0.19				1.04				0.34				1.06
Diluted net income available to common stockholders		$	0.15			$	3.33			$	0.43			$	3.44
CASH DIVIDENDS DECLARED PER COMMON SHARE		$	0.37			$	0.37			$	1.11			$	1.11
WEIGHTED AVERAGE SHARES			51,690				50,630				51,744				50,436
DILUTED WEIGHTED AVERAGE SHARES			51,690				52,428				53,214				52,106

See accompanying notes to condensed consolidated financial statements.

COUSINS PROPERTIES INCORPORATED AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited, in thousands, except per share amounts)

		Nine Months Ended September 30,
		2007				2006
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income		$	34,088			$	190,804
Adjustments to reconcile net income to net cash flows provided by operating activities:
Gain on sale of investment properties, net of income tax provision			(22,871	)			(55,504	)
Loss on extinguishment of debt			446				18,207
Depreciation and amortization			28,781				33,567
Amortization of deferred financing costs			787				851
Stock-based compensation			3,853				4,615
Effect of recognizing rental revenues on a straight-line or market basis			(911	)			(2,431	)
Income from unconsolidated joint ventures less than (in excess of) operating distributions			(94	)			(1,795	)
Residential lot, outparcel and multi-family cost of sales, net of closing costs paid			5,436				27,579
Residential lot, outparcel and multi-family acquisition and development expenditures			(35,167	)			(27,749	)
Income tax benefit from stock options			(783	)			—
Minority interest in income of consolidated entities			1,418				3,290
Changes in other operating assets and liabilities:
Change in other receivables			(9,035	)			10,461
Change in accounts payable and accrued liabilities			8,172				9,540
Net cash provided by operating activities			14,120				211,435
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from investment property sales			36,680				188,470
Proceeds from venture formation			19,338				230,027
Property acquisition and development expenditures			(222,191	)			(387,293	)
Investment in unconsolidated joint ventures			(6,302	)			(19,988	)
Distributions from unconsolidated joint ventures in excess of income			3,891				82,143
Investment in notes receivable, net			(1,180	)			(1,237	)
Change in other assets, net			(17,287	)			(12,721	)
Change in restricted cash			(1,314	)			1,026
Net cash provided by (used in) investing activities			(188,365	)			80,427
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from credit and construction facilities			1,159,700				(953,836	)
Repayment of credit and construction facilities			(1,055,800	)			961,301
Payment of loan issuance costs			(3,117	)			(2,024	)
Defeasance costs paid			—				(15,443	)
Proceeds from other notes payable or construction loans			162,417				10,262
Repayment of other notes payable or construction loans			(23,909	)			(161,380	)
Common stock issued, net of expenses			5,918				12,653
Purchase of treasury stock			(7,699	)			—
Income tax benefit from stock options			783				862
Common dividends paid			(57,629	)			(56,387	)
Preferred dividends paid			(11,438	)			(11,437	)
Contributions from minority partners			405				955
Distributions to minority partners			(1,927	)			(20,574	)
Net cash provided by (used in) financing activities			167,704				(235,048	)
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS			(6,541	)			56,814
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD			11,538				9,336
CASH AND CASH EQUIVALENTS AT END OF PERIOD		$	4,997			$	66,150

See accompanying notes to condensed consolidated financial statements.

COUSINS PROPERTIES INCORPORATED AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2007
(UNAUDITED)

1. BASIS OF PRESENTATION AND NEW ACCOUNTING PRONOUNCEMENTS

      Basis of Presentation

     The condensed consolidated financial statements included herein include the accounts of Cousins Properties Incorporated (“Cousins”) and its consolidated subsidiaries, including Cousins Real Estate Corporation and its subsidiaries (“CREC”). All of the entities included in the condensed consolidated financial statements are hereinafter referred to collectively as the “Company.”

     Cousins has elected to be taxed as a real estate investment trust (“REIT”) and intends to, among other things, distribute 100% of its federal taxable income to stockholders, thereby eliminating any liability for federal income taxes. Therefore, the results included herein do not include a federal income tax provision for Cousins. CREC operates as a taxable REIT subsidiary and is taxed separately from Cousins as a C-Corporation. Accordingly, the condensed consolidated statements of income include a provision for CREC’s income taxes.

     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 (the “SEC”). In the opinion of management, these financial statements reflect all adjustments necessary (which adjustments are of a normal and recurring nature) for the fair presentation of the Company’s financial position as of September 30, 2007 and results of operations for the three and nine month periods ended September 30, 2007 and 2006. Results of operations for the three and nine months ended September 30, 2007 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 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, 2006. The accounting policies employed are materially the same as those shown in Note 2 to the consolidated financial statements included in such Form 10-K, with the exception of the following addition.

     The Company uses derivative financial instruments to manage or hedge its exposure to interest rate changes. The Company follows guidelines for derivative instruments as outlined in Statement of Financial Accounting Standards (“SFAS”) No. 133 “Accounting for Derivative Instruments and Hedging Activities,” as amended. SFAS No. 133 requires that all derivative instruments be recorded on the balance sheet at their fair value. SFAS No. 133 requires that changes in the fair value of derivatives that qualify as cash flow hedges be recognized in other comprehensive income (“OCI”), which is included in the Company’s equity section of the balance sheet, while the ineffective portion of the derivative’s change in fair value be recognized in the income statement. Upon the settlement of a hedge, gains and losses associated with the transaction are recorded in OCI and amortized over the underlying term of the hedged item. The Company formally documents all relationships between hedging instruments and hedged items. The Company assesses, both at inception of the hedge and on an ongoing basis, whether the derivatives that are used in hedging transactions are highly effective in offsetting changes in the cash flows of the hedged items. In assessing the hedge, the Company uses standard market conventions and techniques such as

discounted cash flow analysis, option pricing models and termination costs at each balance sheet date. All methods of assessing fair value result in a general approximation of value, and such value may never actually be realized.

      Prior Period Adjustments

     In periods prior to the fourth quarter of 2006, the Company recorded reimbursements of salary and benefits of on-site employees pursuant to management agreements with third parties and unconsolidated joint ventures as reductions of these expenses. In the fourth quarter of 2006, the Company determined that these amounts should be recorded as revenues in accordance with Emerging Issues Task Force (“EITF”) No. 99-19, “Reporting Revenue Gross as a Principal versus Net as an Agent,” and, accordingly, began recording these reimbursements in Fee Income on the Condensed Consolidated Statements of Income. Prior periods have been revised to conform to this new presentation. As a result, Fee Income and General and Administrative Expenses have increased by $3.9 million and $11.1 million in the three and nine months ended September 30, 2006, respectively, when compared to amounts previously reported.

      New Accounting Pronouncement

     Effective January 1, 2007, the Company adopted Financial Accounting Standards Board Interpretation No. 48, “Accounting for Uncertainties in Income Taxes” (“FIN 48”). FIN 48 prescribes a recognition threshold and measurement attribute for recognizing tax return positions in the financial statements as those which are “more-likely-than-not” to be sustained upon examination by the taxing authority. FIN 48 also provides guidance on derecognition, classification, interest and penalties, accounting for income tax uncertainties in interim periods and the level of disclosures associated with any recorded income tax uncertainties. The Company believes that all of its material income tax filing positions and deductions would be sustained upon audit under current tax laws and regulations. Therefore, the Company recorded no reserves and no cumulative effect adjustment in the financial statements in conjunction with the adoption of FIN 48, and there was no impact on the Company’s financial position, results of operations or cash flows.

2. SUPPLEMENTAL CASH FLOWS INFORMATION

     The following table summarizes supplemental information related to cash flows ($ in thousands):

		Nine Months Ended
		September 30,
		2007				2006
Interest paid, including defeasance costs, net of amounts capitalized		$	1,935			$	43,887
Net income taxes (refunded) paid			(105	)			7,701
Non-Cash Transactions
Transfer from operating properties to land			2,392				7,250
Transfer from projects under development to operating properties			154,715				—
Transfer from other assets to projects under development			22,064				—
Transfer from other assets to operating properties			136				—
Change in accrued expenditures excluded from development and acquisition expenditures			2,481				371
Transfer from land to operating properties			2,868				—
Transfer from land to projects under development			18,997				4,783
Transfer from operating properties to operating properties held-for-sale			—				3,194
Change in fair value of derivative instrument			1,244				—
Transfer from projects under development to land			885				2,524
Transfer from investment in joint venture to deferred gain			2,227				—
SAB 51 gain, net of tax, recorded in investment in joint ventures and additional paid-in capital			—				453
Transfer related to venture formation:
Projects under development to investment in joint venture			—				3,980
Operating properties to investment in joint venture			—				16,019
Transfer from other assets to land			—				228
Transfer from other assets to investment in joint venture			—				1,439
Transfer from investment in joint venture to other assets			—				9,636
Transfer from notes and other receivables to accounts payable			—				696
Transfer from unearned compensation to additional paid-in capital			—				8,495
Forfeitures of restricted stock			—				17

3. NOTES PAYABLE, INTEREST EXPENSE AND COMMITMENTS AND CONTINGENCIES

     The following table summarizes the terms and amounts of the notes payable outstanding at September 30, 2007 and December 31, 2006 ($ in thousands):

				Term/
				Amortization								Outstanding at
		Interest		Period				Final				September 30,				December 31,
Description		Rate		(Years)				Maturity				2007				2006
Credit facility (a maximum of $500,000), unsecured		LIBOR + 0.75% to 1.25%			4/N/A				8/29/11			$	196,800			$	—
Term facility (a maximum of $100,000), unsecured		Swapped rate of 5.01% + 0.70% to 1.20%			5/N/A				8/29/12				100,000				—
Credit facility (replaced by above facility in August 2007)		LIBOR + 0.8% to 1.3%			4/N/A				3/7/10				—				128,200
Construction facility (terminated in August 2007)		LIBOR + 0.8% to 1.3%			4/N/A				3/7/10				—				64,700
The American Cancer Society Center CMBS loan (interest only until October 1, 2011)		6.4515%			5/30				9/1/17				136,000				—
333/555 North Point Center East mortgage note		7.00%			10/25				11/1/11				29,044				29,571
Meridian Mark Plaza mortgage note		8.27%			10/28				9/1/10				23,301				23,602
100/200 North Point Center East mortgage note (interest only until July 1, 2010)		5.39%			5/30				6/1/12				25,000				22,365
The Points at Waterview mortgage note		5.66%			10/25				1/1/16				17,912				18,183
600 University Park Place mortgage note		7.38%			10/30				8/10/11				13,023				13,168
Lakeshore Park Plaza mortgage note		6.78%			10/25				11/1/08				8,861				9,082
King Mill Project I member loan (a maximum of $2,849)		9.00%			3/N/A				8/30/08				2,702				2,625
King Mill Project I second member loan (a maximum of $2,349)		9.00%			3/N/A				6/26/09				2,001				1,815
Jefferson Mill Project member loan (a maximum of $3,156)		9.00%			3/N/A				9/13/09				2,586				1,432
Other miscellaneous notes		Various		Various				Various					327				406
												$	557,557			$	315,149

     On August 29, 2007, the Company executed an Amended and Restated Credit Agreement (the “New Facility”) with Bank of America and other participating banks. The New Facility recast the existing $400 million Senior Unsecured Revolving Credit Facility (the “Prior Revolver”) and $100 million Construction Facility (collectively referred to as the “Prior Facilities”) by:

	•		increasing the size of the Prior Revolver by $100 million to $500 million (the “New Revolver”),
	•		paying in full and terminating the $100 million Construction Facility, and
	•		creating a $100 million Senior Unsecured Term Loan Facility (“Term Facility”).

     The maturity date of the New Revolver is August 29, 2011, with an additional one-year extension at the Company’s election. The Term Facility matures August 29, 2012. The New Revolver can be expanded by an additional $100 million, under certain circumstances.

     Under the New Revolver, the Company may borrow, at its option, funds at an interest rate calculated as (1) the greater of Bank of America’s prime rate or 0.50% over the Federal Funds Rate (the “Base Rate”) or (2) the current LIBOR rate plus the applicable spread as detailed below. The pricing spread of the New Revolver, plus a comparison to the Prior Revolver, is as follows:

		Applicable Spread —				Applicable Spread —
Leverage Ratio		Prior Revolver				New Revolver
≤ 35%			0.80	%			0.75	%
>35% but ≤ 45%			0.90	%			0.85	%
>45% but ≤ 50%			1.00	%			0.95	%
>50% but ≤ 55’%			1.15	%			1.10	%
>55%			1.30	%			1.25	%

     Under the Term Facility, the Company may borrow, at its option, funds at an interest rate calculated as (1) the greater of Bank of America’s prime rate or 0.50% over the Federal Funds Rate or (2) the current LIBOR rate plus the applicable spread as detailed below. The Company intends to elect the LIBOR option throughout the duration of the Term Facility.

Leverage Ratio		Applicable Spread — Term Facility
≤ 35%			0.70	%
>35% but ≤ 45%			0.80	%
>45% but ≤ 50%			0.90	%
>50% but ≤ 55’%			1.05	%
>55%			1.20	%

     On August 17, 2007, the Company entered into an interest rate swap agreement with a notional amount of $100 million in order to manage its interest rate risk associated with the Term Facility. This swap was designated as a cash flow hedge against the Term Facility and effectively fixes the underlying LIBOR rate of the Term Facility at 5.01%. Payments made or received under the interest rate swap agreement are recorded in interest expense on the condensed consolidated statements of income. The Company is not utilizing the “shortcut method” of accounting for this instrument and is following the hypothetical derivative method as outlined in the Derivative Implementation Group’s No. G7, “Cash Flow Hedges: Measuring the Ineffectiveness of a Cash Flow Hedge under Paragraph 30(b) when the Shortcut Method is not Applied.” The fair value of the interest rate swap agreement at September 30, 2007 was approximately $1.2 million and is recorded in other assets on the condensed consolidated balance sheet. The change in value of the interest rate swap agreement is recorded in OCI, which is included in the equity section of the condensed consolidated balance sheet. Ineffectiveness is analyzed on a quarterly basis and any ineffectiveness is recorded in the condensed consolidated statements of income. There was no ineffectiveness in either the three or nine month 2007 periods.

     Interest is due periodically as defined by the New Facility. Principal is due in full for both the New Revolver and the Term Facility on the maturity dates. The New Revolver has a swing line sub-facility of up to $50 million, bearing interest at the Base Rate less 1.00%. The swing line sub-facility is to be repaid within five business days of any advance thereunder, and is subject to the same availability parameters as the New Facility.

     The New Facility also includes customary events of default, including, but not limited to, the failure to pay any interest or principal when due, the failure to perform covenants of the credit agreement, incorrect or misleading representations or warranties, insolvency or bankruptcy, change of control, the occurrence of certain ERISA events and certain judgment defaults. The amounts outstanding under the New Facility may be accelerated upon certain events of default. The New Facility contains restrictive covenants pertaining to the operations of the Company, including limitations on the amount of debt that may be incurred, the sale of assets, transactions with affiliates,

dividends, and distributions. The New Facility also includes certain financial covenants that require, among other things, the maintenance of an unencumbered interest coverage ratio of at least 1.75, a fixed charge coverage ratio of at least 1.50, a leverage ratio of no more than 60%, unsecured debt ratio restrictions, and a minimum stockholders’ equity of $421.9 million plus 70% of future net equity proceeds.

     The Company had $196.8 million drawn on the New Revolver as of September 30, 2007 and, net of $17.4 million reserved for outstanding letters of credit, the Company had $285.8 million available for future borrowings under this facility. In conjunction with the amendment of the New Revolver and the termination of the Construction Facility, in the third quarter of 2007, the Company charged $446,000 of unamortized loan closing costs to Loss on Extinguishment of Debt.

     On July 9, 2007, the Company entered into a $100 million bridge loan with the administrative agent under the Existing Revolver. The bridge loan was to mature on October 9, 2007, with an option to extend to January 9, 2008, and an interest rate of LIBOR plus 0.75%. This loan was paid in full and cancelled in conjunction with the closing of the New Facility.

     On August 31, 2007, a wholly-owned subsidiary of the Company, 250 Williams Street LLC, executed a loan agreement with J. P. Morgan Chase Bank, N.A (the “ACS Loan”). This loan is non-recourse to the Company, subject to customary non-recourse “carve-outs,” and is collateralized by The American Cancer Society Center (“The ACS Center,” formerly Inforum), a 993,000 square foot office building in downtown Atlanta, Georgia. The principal amount of the ACS Loan is $136 million, with an interest rate of 6.4515% and a maturity of September 1, 2017. Payments are due monthly under the ACS Loan, with interest only due through September 1, 2011. Principal and interest are due monthly thereafter based on a 30-year amortization schedule. 250 Williams Street LLC is a special-purpose entity whose purpose is to own and operate The ACS Center. The real estate and other assets of The ACS Center are restricted under the ACS Loan agreement in that they are not available to settle other debts of the Company. However, provided that the ACS Loan has not incurred an uncured event of default, as defined in the loan agreement, the cash flows from 250 Williams Street LLC, after payments of debt service, operating expenses and reserves, are available for distribution to the Company.

     For the three and nine months ended September 30, 2007 and 2006, interest expense was recorded as follows ($ in thousands):

		Three Months Ended								Nine Months Ended
		September 30,								September 30,
		2007				2006				2007				2006
Incurred		$	8,821			$	8,208			$	21,999			$	26,637
Capitalized			(5,556	)			(5,583	)			(18,203	)			(15,518	)
Expensed		$	3,265			$	2,625			$	3,796			$	11,119

     At September 30, 2007, the Company had outstanding letters of credit and performance bonds of $37 million. The Company has several projects under development and redevelopment for which it estimates total future funding commitments of $472.4 million at September 30, 2007. Additionally, the Company has future obligations as a lessor of office, retail and industrial space to fund approximately $15.5 million of tenant improvements as of September 30, 2007. As a lessee, the Company has future obligations under ground and office leases of approximately $16.6 million at September 30, 2007.

     On October 16, 2007, 3280 Peachtree I LLC, a wholly-owned subsidiary of the Company, executed a loan agreement with The Northwestern Mutual Life Insurance Company. This loan is non-recourse to the Company, subject to customary non-recourse “carve-outs,” and is collateralized by Terminus 100, a 656,000 square foot office building in the Buckhead district of Atlanta, Georgia.

The principal amount of the loan is $180 million, with an interest rate of 6.13% and a maturity of October 1, 2012. Interest is due monthly throughout the loan, with the principal balance due at maturity.

4. EARNINGS PER SHARE

     Net income per share-basic is calculated as net income available to common stockholders divided by the weighted average number of common shares outstanding during the period. Net income per share-diluted is calculated as net income available to common stockholders divided by the diluted weighted average number of common shares outstanding during the period. Diluted weighted average number of common shares is calculated to reflect the potential dilution under the treasury stock method that would occur if stock options, restricted stock or other contracts to issue common stock were exercised and resulted in additional common shares outstanding. The numerator used in the Company’s per share calculations is the same for both basic and diluted net income per share.

     Weighted average shares-basic and weighted average shares-diluted were as follows (in thousands):

		Three Months Ended								Nine Months Ended
		September 30,								September 30,
		2007				2006				2007				2006
Weighted average shares-basic			51,690				50,630				51,744				50,436
Dilutive potential common shares:
Stock options			—				1,589				1,419				1,498
Restricted stock			—				209				51				172
Weighted average shares-diluted			51,690				52,428				53,214				52,106
Anti-dilutive options not included			2,936				36				919				24

     Because the Company reported a net loss from continuing operations (after preferred stock dividends) for the three months ended September 30, 2007, the effect of all common stock equivalents on per share earnings for that period was anti-dilutive and were therefore excluded from the calculation of weighted average shares-diluted.

5. STOCK-BASED COMPENSATION

     The Company adopted Statement of Financial Accounting Standard (“SFAS”) No. 123(R), “Share-Based Payment,” on January 1, 2006, using the modified prospective method. SFAS 123(R) requires that companies recognize as compensation expense the grant date fair value of share-based awards over the required service period of the awards. The Company has several types of stock-based compensation — stock options, restricted stock and restricted stock units — which are described in Note 7 of “Notes to Consolidated Financial Statements” in the Company’s Annual Report on Form 10-K for the year ended December 31, 2006. The Company uses the Black-Scholes model to value its new stock option grants under SFAS 123(R) and recognizes compensation expense in general and administrative expense in the Condensed Consolidated Statements of Income over the related awards’ vesting period. A portion of share-based payment expense is capitalized to projects under development in accordance with SFAS No. 67, “Accounting for Costs and Initial Rental Operations of Real Estate Projects.” SFAS 123(R) also requires the Company to estimate forfeitures in calculating the expense related to stock-based compensation, and to reflect the benefits of tax deductions in excess of recognized compensation cost to be reported as both a financing cash inflow and an operating cash outflow.

     The Company expensed approximately $1.4 million and $1.1 million for each of the three months ended September 30, 2007 and 2006, respectively, and $4.4 million and $3.9 million for the nine months ended September 30, 2007 and 2006, respectively, for stock-based compensation, after the effect of capitalization to projects under development and income tax benefit. As of September 30, 2007, the Company had $14.5 million of estimated total unrecognized compensation cost related to stock-based compensation, which will be recognized over a weighted average period of 2.3 years.

     The Company estimates the fair value of each option grant on the date of grant using the Black-Scholes option-pricing model. The risk free interest rate utilized in the Black-Scholes calculation is the interest rate on U.S. Government Bonds and Notes having the same life as the estimated life of the Company’s option awards. Expected life of the options granted was computed using historical data reflecting actual hold periods plus an estimated hold period for unexercised options outstanding using the mid-point between 2007 and the expiration date. Expected volatility is based on the historical volatility of the Company’s stock over a period relevant to the related stock option grant. The assumed dividend yield is based on the annual dividend rate for regular dividends at the time of grant. Below are the Black-Scholes inputs used to calculate the weighted-average fair value of 2007 option grants:

Assumptions:
Risk free interest rate			4.62	%
Expected life		6.60 years
Expected volatility			21.10	%
Expected dividend yield			4.67	%
Result:
Weighted-average fair value of options granted		$	5.09

     The following table summarizes stock option activity during the nine months ended September 30, 2007:

														Weighted-
										Aggregate				Average
		Number of								Intrinsic				Remaining
		Options				Weighted-Average				Value				Contractual
		(in thousands)				Exercise Price				(in thousands)				Life (years)
Outstanding at December 31, 2006			6,117			$	23.27
Granted			54				32.67
Exercised			(369	)			16.73
Forfeited			(60	)			31.06
Outstanding at September 30, 2007			5,742			$	23.70			$	32,489				6.14
Exercisable at September 30, 2007			3,769			$	20.02			$	35,201				5.03

     The total intrinsic value of options exercised during the three and nine months ended September 30, 2007 was $0.6 million and $6.8 million, respectively.

     The following table summarizes restricted stock activity during the nine months ended September 30, 2007:

						Weighted-
		Number of				Average
		Shares				Grant Date
		(in thousands)				Fair Value
Non-vested stock at December 31, 2006			164			$	30.39
Vested			(8	)			30.44
Forfeited			(3	)			31.07
Non-vested stock at September 30, 2007			153			$	30.37

     Restricted stock units (“RSU”) are accounted for as liability awards under SFAS 123(R) and employees are paid cash based upon the value of the Company’s stock upon vesting. The following table summarizes RSU activity for the nine months ended September 30, 2007 (in thousands):

Outstanding at December 31, 2006			477
Granted			5
Vested			(3	)
Forfeited			(9	)
Outstanding at September 30, 2007			470

6. PROPERTY TRANSACTIONS

     SFAS No. 144, “Accounting for the Impairment or Disposal of Long-Lived Assets,” requires that the gains and losses from the disposition of certain real estate assets and the related historical results of operations of certain disposed of or held-for-sale assets be included in a separate section, discontinued operations, in the statements of income for all periods presented. SFAS No. 144 also requires that assets and liabilities of held-for-sale properties, as defined, be separately categorized on the balance sheet in the period that they are deemed held-for-sale.

     In the third quarter of 2007, the Company sold 3301 Windy Ridge Parkway, a 107,000 square foot office building in Atlanta, Georgia for a sales price of $16.1 million and a gain of approximately $9.9 million.

     In 2006, the Company sold seven of its 12 stand-alone retail sites under ground leases near North Point Mall in suburban Atlanta, Georgia. The Company sold the remaining five sites in the first quarter of 2007. The Company’s basis in the five sites sold in 2007 was separately classified as held-for-sale on the December 31, 2006 Condensed Consolidated Balance Sheet, and there are no significant liabilities or other assets associated with this project. Also in 2006, the Company sold Frost Bank Tower, a 531,000 square foot office building in Austin, Texas and The Avenue of the Peninsula, a 374,000 square foot retail center in Rolling Hills Estates, California.

     The operations of all of these projects are included in discontinued operations in the accompanying Condensed Consolidated Statements of Income. The following details the components of income from discontinued operations ($ in thousands):

		Three Months Ended								Nine Months Ended
		September 30,								September 30,
		2007				2006				2007				2006
Rental property revenues		$	87			$	5,571			$	856			$	17,961
Other revenues			11				21				72				3,113
Rental property operating expenses			(67	)			(2,542	)			(455	)			(8,401	)
Depreciation and amortization			—				(2,416	)			(152	)			(11,600	)
Provision for income taxes			—				—				(152	)			(2	)
		$	31			$	634			$	169			$	1,071

     The gain on sale of the applicable properties included in Discontinued Operations is as follows ($ in thousands):

		Three Months Ended								Nine Months Ended
		September 30,								September 30,
		2007				2006				2007				2006
North Point Ground Leases		$	—			$	—			$	8,164			$	—
3301 Windy Ridge Parkway			9,872				—				9,872				—
Frost Bank Tower			—				54,080				—				54,080
Other			—				(12	)			(22	)			314
		$	9,872			$	54,068			$	18,014			$	54,394

7. INVESTMENT IN UNCONSOLIDATED JOINT VENTURES

     The Company describes its investments in unconsolidated joint ventures in Note 6 to its Annual Report on Form 10-K for the year ended December 31, 2006. The following table summarizes balance sheet financial data of unconsolidated joint ventures in which the Company had ownership interests as of September 30, 2007 and December 31, 2006 ($ in thousands):

		Total Assets								Total Debt								Total Equity								Company’s Investment
		2007				2006				2007				2006				2007				2006				2007				2006
CP Venture IV LLC entities		$	363,402			$	352,798			$	38,451			$	39,364			$	302,889			$	294,169			$	17,964			$	18,610
CP Venture LLC entities			107,246				118,861				—				—				105,826				117,716				4,057				5,157
Charlotte Gateway Village, LLC			176,465				178,784				136,626				144,654				36,222				32,912				10,477				10,502
TRG Columbus Development Venture, Ltd.			242,741				154,281				113,470				76,861				59,942				55,724				29,058				27,619
CL Realty, L.L.C.			129,405				117,820				4,783				5,357				114,268				108,316				70,810				66,979
Temco Associates			63,916				66,001				3,444				3,746				59,297				60,786				30,678				31,223
Crawford Long — CPI, LLC			40,417				42,524				51,774				52,404				(12,055	)			(10,664	)			(4,800	)			(4,037	)
CF Murfreesboro Associates			110,879				54,356				72,799				21,428				21,666				21,698				12,277				11,975
Palisades West, LLC			25,894				26,987				—				—				25,310				25,072				13,008				11,959
Ten Peachtree Place Associates			25,705				27,312				28,495				28,849				(3,212	)			(1,796	)			(3,107	)			(2,411	)
Wildwood Associates			27,076				21,816				—				—				25,173				21,730				(1,452	)			(1,385	)
CSC Associates, L.P.			2,161				2,998				—				—				424				1,410				212				706
Pine Mountain Builders, LLC			5,902				3,999				1,608				614				2,453				2,347				1,454				1,191
Handy Road Associates, LLC			5,402				5,349				3,204				3,204				2,173				2,133				2,184				2,209
CPI/FSP I, L.P.			3,191				3,307				—				—				3,154				3,190				1,603				1,621
Other			—				—				—				—				(2	)			—				—				—
		$	1,329,802			$	1,177,193			$	454,654			$	376,481			$	743,528			$	734,743			$	184,423			$	181,918

     The following table summarizes income statement financial data of unconsolidated joint ventures in which the Company had ownership interests, for the nine months ended September 30, 2007 and 2006 ($ in thousands):

																		Company’s Share of
		Total Revenues								Net Income (Loss)								Net Income (Loss)
		2007				2006				2007				2006				2007				2006
CP Venture IV LLC entities		$	25,138			$	6,081			$	3,704			$	(917	)		$	920			$	1,395
CP Venture LLC entities			15,799				17,389				20,639				6,586				2,134				775
Charlotte Gateway Village, LLC			23,476				23,022				4,218				3,726				882				882
TRG Columbus Development Venture, Ltd.			15,590				68,637				4,777				19,664				883				7,413
CL Realty, L.L.C.			5,823				27,182				4,152				9,248				1,216				4,623
Temco Associates			5,374				34,015				511				10,404				281				4,897
Crawford Long — CPI, LLC			8,203				7,968				1,207				881				547				404
CF Murfreesboro Associates			240				—				(32	)			—				40				—
Palisades West, LLC			247				—				238				—				119				—
Ten Peachtree Place Associates			5,189				5,248				204				557				116				316
Wildwood Associates			6				—				(134	)			(164	)			(67	)			(83	)
CSC Associates, L.P.			38				37,283				(39	)			289,199				(19	)			141,344
Pine Mountain Builders, LLC			1,812				14,668				107				1,676				6				615
Handy Road Associates, LLC			4				187				(220	)			(208	)			(128	)			(223	)
CPI/FSP I, L.P.			—				—				(37	)			—				(18	)			—
Brad Cous Golf Venture, Ltd.			—				178				(2	)			3,127				—				1,107
Other			—				5				—				93				(1	)			(583	)
		$	106,939			$	241,863			$	39,293			$	343,872			$	6,911			$	162,882

8. OTHER ASSETS

     At September 30, 2007 and December 31, 2006, Other Assets included the following ($ in thousands):

		2007				2006
Investment in Verde Group, L.L.C.		$	9,376			$	9,376
FF&E and leasehold improvements, net of accumulated depreciation of $10,273 and $16,429 as of September 30, 2007 and December 31, 2006, respectively			15,055				8,665
Predevelopment costs and earnest money			11,810				22,924
Prepaid expenses and other assets			15,842				6,531
Intangible Assets:
Goodwill			5,529				5,602
Above market leases, net of accumulated amortization of $5,148 and $1,447 as of September 30, 2007 and December 31, 2006, respectively			5,705				9,407
In-place leases, net of accumulated amortization of $1,386 and $472 as of as of September 30, 2007 and December 31, 2006, respectively			1,661				2,589
		$	64,978			$	65,094

     Goodwill relates entirely to the Office/Multi-Family reportable segment. Other intangible assets relate primarily to the 2006 acquisitions of the interests in 191 Peachtree Tower and Cosmopolitan Center. In conjunction with these acquisitions, the Company also acquired intangible liabilities for below market leases and an above market ground lease, which are recorded within Accounts Payable and Accrued Liabilities on the Condensed Consolidated Balance Sheets. Above and below market leases are amortized into rental revenues over the remaining lease terms. In-place leases are amortized into depreciation and amortization expense also over remaining lease terms. The aggregate amortization of these intangible assets and liabilities was $1.2 million and $4.4 million for the three and nine months ended September 30, 2007, respectively. Amortization expense for intangibles totaled $251,000 in both the three and nine months ended September 30, 2006. Aggregate amortization of these intangible assets and liabilities is anticipated to be as follows ($ in thousands):

		Below Market				Above Market				In-Place
		Leases				Leases				Leases				Total
2007			(43	)			1,091				239				1,287
2008			(161	)			4,093				865				4,797
2009			(136	)			182				120				166
2010			(135	)			182				97				144
2011			(125	)			137				79				91
Thereafter			(804	)			20				261				(523	)
			(1,404	)			5,705				1,661				5,962

9. REPORTABLE SEGMENTS

     The Company has four reportable segments: Office/Multi-Family, Retail, Land, and Industrial. The Office/Multi-family division develops, leases and manages owned and third-party owned office buildings and, through CREC and its affiliates, invests in and/or develops for-sale multi-family real estate products. The Retail and Industrial divisions develop, lease and manage retail and industrial centers, respectively. The Land division owns various tracts of land that are held for investment or future development. The Land division also develops single-family residential communities that are parceled into lots and sold to various homebuilders or sold as undeveloped tracts of land. The Company’s reportable segments are categorized based on the type of product the division provides. The divisions are managed separately because each product they provide has separate and distinct development issues, leasing and/or sales strategies and management issues. The divisions also match the manner in which the chief operating decision maker reviews results and information and allocates resources. The unallocated and other category in the following table includes general corporate overhead costs not specific to any segment, interest expense, as financing decisions are not generally made at the reportable segment level, income taxes and preferred dividends.

     Company management evaluates the performance of its reportable segments in part based on funds from operations available to common stockholders (“FFO”). FFO is a supplemental operating performance measure used in the real estate industry. The Company calculated FFO using the National Association of Real Estate Investment Trusts’ (“NAREIT”) definition of FFO, 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 or losses from sales of 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. For the 2006 three and nine month periods, the Company presented both the NAREIT-defined calculation and an adjusted NAREIT-defined calculation of FFO. The Company adjusted the NAREIT-defined FFO to add back the losses on extinguishment of debt recognized in the second and third quarters of 2006 related to the venture formation with Prudential and the Bank of America Plaza sale (see Notes 4 and 5 in the Form 10-K dated December 31, 2006 for more information). The Company presented this additional measure of FFO because the loss on extinguishment of debt that the Company recognized related to a sale or an exchange of real estate, and all other amounts related to a sale or an exchange of real estate, are excluded from FFO.

     FFO is used by industry analysts, investors and the Company as a supplemental measure of an equity 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 a REIT’s operating performance that excludes historical cost depreciation, among other items, from GAAP net income. Management believes that the use of FFO, combined with the required primary GAAP presentations, has been fundamentally beneficial, improving the understanding of operating results of REITs among the investing public and making comparisons of REIT operating results more meaningful. In addition to Company management evaluating the operating performance of its reportable segments based on FFO results, management uses FFO and FFO per share, along with other measures, to assess performance in connection with evaluating and granting incentive compensation to its officers and other key employees.

     In periods prior to the second quarter of 2007, the Company presented segment net income in its segment footnote, as well as a breakout of assets, investment in joint ventures and capital expenditures made. Management does not utilize these measures when analyzing its segments or when making resource allocation decisions, and therefore this information is no longer provided by segment. FFO is reconciled to net income on a total company basis.

     The following tables summarize the operations of the Company’s reportable segments for the three and nine months ended September 30, 2007 and 2006.

		Office/Multi-Family																Unallocated and
Three Months Ended September 30, 2007 (in thousands)		Division				Retail Division				Land Division				Industrial Division				Other				Total
Rental property revenues — continuing		$	22,925			$	6,948			$	—			$	791			$	—			$	30,664
Rental property revenues — discontinued			84				3				—				—				—				87
Multi-family residential unit sales			20				—				—				—				—				20
Residential lot and outparcel sales			—				1,700				2,851				—				—				4,551
Fee income			8,666				1,355				181				311				—				10,513
Other income — continuing			257				86				—				33				63				439
Other income — discontinued			8				3				—				—				—				11
Total revenues from consolidated entities			31,960				10,095				3,032				1,135				63				46,285
Rental property operating expenses — continuing			(10,273	)			(2,110	)			—				(190	)			—				(12,573	)
Rental property operating expenses — discontinued			(68	)			1				—				—				—				(67	)
Multi-family residential unit cost of sales			(23	)			—				—				—				—				(23	)
Residential lot and outparcel cost of sales			—				(932	)			(2,412	)			—				—				(3,344	)
Third party leasing and management direct operating expenses			(4,681	)			(83	)			—				—				—				(4,764	)
General and administrative expenses			(1,036	)			(2,079	)			(814	)			(250	)			(5,776	)			(9,955	)
Loss on extinguishment of debt			—				—				—				—				(446	)			(446	)
Other expenses — continuing			(55	)			(432	)			(132	)			(435	)			(4,030	)			(5,084	)
Total costs and expenses			(16,136	)			(5,635	)			(3,358	)			(875	)			(10,252	)			(36,256	)
Provision for income taxes from operations — continuing			—				—				—				—				1,809				1,809
Minority interest in income from consolidated subsidiaries			887				(641	)			—				40				—				286
Funds from operations from unconsolidated joint ventures:
Unconsolidated joint venture revenue less operating expenses			1,759				1,198				—				—				49				3,006
Residential lot and outparcel sales, net			—				—				407				—				—				407
Multi-family residential sales, net			(3,345	)			—				—				—				—				(3,345	)
Other joint venture income, net			—				5				(237	)			—				(832	)			(1,064	)
Funds from operations from unconsolidated joint ventures			(1,586	)			1,203				170				—				(783	)			(996	)
Preferred stock dividends			—				—				—				—				(3,812	)			(3,812	)
Funds from operations available to common stockholders		$	15,125			$	5,022			$	(156	)		$	300			$	(12,975	)		$	7,316
Real estate depreciation and amortization:
Continuing																							(9,794	)
Unconsolidated joint ventures																							(1,133	)
Total real estate depreciation and amortization																							(10,927	)
Gain on sale of depreciated investment properties, net of applicable income tax provision:
Continuing																							355
Discontinued																							9,872
Unconsolidated joint ventures																							1,233
Total gain on sale of depreciated investment properties, net of applicable income tax provision																							11,460
Net income available to common stockholders																						$	7,849