Business Context and Reporting Period
Cousins Properties Incorporated is a self-managed Georgia REIT focused primarily on Class A office properties and mixed-use developments in Sun Belt markets, including Atlanta, Austin, Tampa, Charlotte, Phoenix, Dallas, and Nashville. The company conducts substantially all operations through Cousins Properties LP and owned approximately 18.8 million square feet of office space at December 31, 2023.
This Form 10-K covers the fiscal year ended December 31, 2023. Fourth-quarter operating metrics are included where disclosed.
Key Financial Metrics
| Metric | 2023 | 2022 | Change |
|---|---|---|---|
| Rental property revenues | $799.0 million | $753.5 million | 6.0% increase |
| Total revenues | $802.9 million | $762.3 million | 5.3% increase |
| Net income available to common stockholders | $83.0 million | $166.8 million | 49.7% decrease |
| Diluted earnings per share | $0.55 | $1.11 | 49.5% decrease |
| Same-property NOI | $489.8 million | $466.4 million | 5.0% increase |
| Total consolidated NOI | $525.3 million | $492.7 million | 6.6% increase |
| Funds from operations available to common stockholders | $398.3 million | $408.8 million | 2.6% decrease |
| FFO per diluted share | $2.62 | $2.72 | 3.7% decrease |
| Net cash provided by operating activities | $368.4 million | $365.2 million | $3.2 million increase |
| Capital expenditures and development costs | $279.5 million | $342.2 million | $62.7 million decrease |
| Common dividends declared per share | $1.28 | $1.28 | Unchanged |
Based on reported rental property revenues and consolidated NOI, the approximate NOI margin was 65.7%. Net income available to common stockholders represented approximately 10.3% of total revenues. NOI and FFO are non-GAAP measures and should be considered supplemental to GAAP results.
- Operating properties were 90.9% leased at year-end, with fourth-quarter weighted average economic occupancy of 87.6%.
- Second-generation cash rent increased 5.8%, and same-property cash-basis NOI increased 4.2% during 2023.
- Cash and cash equivalents were $6.0 million at year-end. The $1.0 billion credit facility had $185.1 million drawn and $814.9 million of stated remaining borrowing capacity.
- Notes payable totaled $2.46 billion before unamortized loan costs, or $2.46 billion of principal outstanding; the balance-sheet carrying amount was $2.46 billion at year-end. The filing separately describes total outstanding indebtedness as approximately $2.5 billion.
- Variable-rate debt totaled $385.1 million at year-end. Fixed-rate debt, including swapped term-loan exposure, totaled approximately $2.1 billion at a weighted average rate of 4.50%.
Material Changes Versus the Prior Comparable Period
- Net income declined primarily because 2022 included a $56.3 million gain from selling the company's interest in Carolina Square. The 2023 results also reflected materially higher interest expense.
- Interest expense increased 45.4% to $105.5 million, driven by higher rates on variable-rate debt, the 2022 term loan, refinancing activity, and higher average credit-facility borrowings. The weighted average rate on variable-rate debt rose from 5.43% at December 31, 2022 to 6.39% at December 31, 2023.
- Rental property revenues and same-property NOI increased, supported by higher economic occupancy, stabilized properties, tenant-funded improvements, and increased termination-fee income.
- Fee income decreased 77.6% to $1.4 million, primarily because the Norfolk Southern service transactions were substantially completed in 2022.
- Capital expenditures decreased as the Domain 9 development approached completion and significant 2022 redevelopment projects were completed, partly offset by higher tenant-improvement and leasing costs.
- The company sold a 10.4-acre Atlanta-area land parcel for $4.25 million and recorded a $507,000 gain.
Development, Financing, Outlook, and Risks
- Neuhoff, a 50%-owned Nashville mixed-use joint venture, includes 448,000 square feet of office space and 542 apartments. The company's share of expected project cost is $281.5 million; office space was 22% leased at year-end, with initial office occupancy beginning in the fourth quarter of 2023.
- Domain 9, a wholly owned 338,000-square-foot Austin office development, had an estimated total cost of $147.0 million, was 98% leased, and was expected to begin initial occupancy in the first quarter of 2024.
- The company entered into a swap fixing the SOFR component on $200 million of its $400 million 2022 term loan at 4.298% through March 2025. Subsequent to year-end, it fixed the remaining $200 million at 4.6675% effective January 26, 2024.
- Debt maturities include approximately $429.1 million in 2024, $656.8 million in 2025, and $220.1 million in 2026, before considering extension options and refinancing activities. The 2024 maturities include the $350 million 2021 term loan and certain mortgage principal payments.
- Material 2024 unfunded tenant-improvement and development obligations were $109.6 million. Management expects available liquidity to meet obligations for the foreseeable future.
- Management believes Sun Belt markets and the company's higher-quality portfolio are positioned to outperform the broader office sector, particularly as tenants favor newer, higher-quality buildings. The filing does not provide quantified earnings or FFO guidance.
- WeWork leases generated $8.6 million of 2023 annual rental property revenue. WeWork filed for Chapter 11 in November 2023; as of February 7, 2024, no court-approved rejection of the company's leases had been received. Management expected three leases would likely continue, potentially with reduced space or rent, while another lease was expected to be terminated. Potential balance-sheet exposure for the three leases was estimated at $1.7 million if rejection became probable; the other lease's exposure was supported by a letter of credit.
- SVB Financial's lease at Hayden Ferry 1 was rejected in bankruptcy, resulting in a $1.6 million revenue reduction in June 2023 and a subsequent redevelopment of the building.
- Key risks include office demand and remote-work trends, tenant defaults and concentration, leasing and occupancy declines, interest-rate volatility, substantial debt maturities, refinancing risk, development cost overruns and delays, joint-venture obligations, ground leases, impairment risk, climate and severe-weather exposure, cybersecurity, and continued REIT qualification.
- The company reported compliance with debt covenants, effective disclosure controls and internal control over financial reporting, and an unqualified audit opinion from Deloitte & Touche LLP.
Important Facts for Investors to Verify
- Reconcile the reported debt maturities with refinancing plans, extension options, available credit capacity, and expected interest-rate exposure.
- Monitor occupancy, lease expirations, concessions, tenant-improvement spending, and leasing spreads, particularly in Atlanta and Austin, which generated the largest shares of fourth-quarter NOI.
- Assess potential WeWork rent reductions or lease rejections and the resulting effect on revenue, deferred assets, and occupancy.
- Review the completion, lease-up, financing, and remaining capital requirements for Neuhoff and Domain 9.
- Distinguish GAAP net income from NOI and FFO when evaluating operating performance and dividend coverage.
- Evaluate tenant and market concentration: the top 20 tenants represented 37.9% of annualized base rental revenue, the largest tenant represented 8.1%, and Atlanta and Austin together contributed approximately 69.2% of fourth-quarter property NOI.
- Confirm the company's ability to maintain the $1.28 per-share annual dividend while funding debt maturities, leasing costs, development obligations, and required REIT distributions.