Cousins Properties Incorporated: FY2021 Form 10-K Summary
Business Context and Reporting Period
Cousins Properties Incorporated is a self-administered and self-managed Georgia REIT focused primarily on Class A office properties and mixed-use developments in Sun Belt markets, including Atlanta, Austin, Charlotte, Phoenix, Tampa, Dallas, and Nashville. The filing covers the fiscal year ended December 31, 2021, with comparisons primarily to fiscal 2020.
At year-end, the portfolio included interests in 18.3 million square feet of office space and 620,000 square feet of other space. Operating properties were 91.6% leased, with 89.1% weighted-average occupancy during the fourth quarter.
Key Financial Metrics
| Metric | 2021 | 2020 | Change |
|---|---|---|---|
| Total revenues | $755.1 million | $740.3 million | 2.0% increase |
| Rental property revenues | $739.1 million | $721.9 million | 2.4% increase |
| Net operating income | $474.5 million | $467.2 million | 1.6% increase |
| Net income available to common stockholders | $278.6 million | $237.3 million | 17.4% increase |
| Diluted earnings per share | $1.87 | $1.60 | Increase |
| Funds from operations available to common stockholders | $409.2 million | $413.2 million | 1.0% decrease |
| Diluted FFO per share | $2.75 | $2.78 | 1.1% decrease |
| Net cash provided by operating activities | $389.5 million | $351.1 million | 10.9% increase |
| Cash, cash equivalents and restricted cash | $10.2 million | $6.1 million | Increase |
| Total assets | $7.31 billion | $7.11 billion | Increase |
| Total notes payable | $2.24 billion | $2.16 billion | Increase |
| Dividends declared per common share | $1.24 | $1.20 | Increase |
Rental property operating expenses were $259.5 million, producing consolidated NOI of $479.6 million before the effect of certain items; management reported total NOI, including the Company’s share of unconsolidated joint ventures, of $493.7 million. Same-property NOI decreased 0.5% on a straight-line basis but increased 3.5% on a cash basis.
Operating cash flow funded the $182.8 million of common dividends paid during 2021. Investing cash flow was negative $191.1 million, while financing cash flow was negative $194.4 million. Property acquisition, development, and tenant asset expenditures totaled $787.8 million.
Material Changes Versus the Prior Comparable Period
- Net income increased primarily because of higher operating performance and larger gains on property transactions. The 2021 results included $152.5 million of gains on investment property transactions, compared with $90.1 million in 2020.
- Rental property revenues increased due to acquisitions, development stabilization, and higher occupancy, partially offset by property dispositions. Same-property revenue increased 1%, while same-property operating expenses increased 4%.
- Non-same-property NOI increased 17%, reflecting the stabilization of recently completed developments and the addition of 725 Ponce, Heights Union, and 300 Colorado.
- FFO declined modestly despite higher net income because net income benefited from property-sale and other transaction gains that are excluded from FFO.
- Interest expense increased 10.6% to $67.0 million, primarily because of higher borrowings and lower capitalization of interest, partly offset by lower interest rates.
- The Company leased or renewed 2.1 million square feet during 2021. Cash-basis second-generation net rent increased 15.1%.
- The Company acquired 725 Ponce in Atlanta for $300.2 million, Heights Union in Tampa for $144.8 million, and the remaining interest in 300 Colorado in Austin for $162.5 million.
- The Company sold 816 Congress, One South at the Plaza, and Burnett Plaza, as well as land and a joint venture interest, generating substantial proceeds used to support reinvestment.
- Debt increased primarily because the Company replaced a $250 million term loan with a $350 million amended and restated term loan and funded additional investment activity.
Liquidity, Debt and Capital Commitments
- The Company had $228.5 million outstanding under its $1.0 billion unsecured credit facility and $771.5 million of borrowing capacity at December 31, 2021.
- The credit facility matures January 3, 2023. Management expected to negotiate a replacement facility with capacity at least equal to the existing facility and an extended maturity.
- The $350 million unsecured term loan matures August 30, 2024, subject to extension options.
- The Company had $1.0 billion of unsecured senior notes with fixed rates ranging from 3.78% to 4.09% and maturities from 2025 through 2029.
- Seven fixed-rate, non-recourse mortgage notes totaled $661.5 million. Approximately 75% of debt carried fixed interest rates.
- Debt maturities totaled $102.4 million in 2022, $481.7 million in 2023, and $429.1 million in 2024.
- Material 2022 cash needs included $223.8 million of unfunded tenant improvement and construction obligations and $102.4 million of debt maturities.
- The Company reported compliance with all credit facility, term loan, senior note, and mortgage covenants.
- The Company had an ATM equity program allowing up to $500 million of gross sales. It had entered into forward equity sale agreements for 2.6 million shares expected to settle by September 30, 2022 for approximately $104.0 million of net proceeds; proceeds had not yet been received at year-end.
Guidance, Outlook, Commentary and Risks
The Company did not provide a specific quantitative earnings or FFO outlook in the supplied filing text. Management emphasized a strategy of owning premier Sun Belt office assets, selectively developing properties, recycling capital through dispositions, and maintaining a flexible, relatively low-leveraged balance sheet.
- Four development projects were in process at year-end, with the Company’s share of estimated total costs of $759.0 million. These included 300 Colorado, 100 Mill, Neuhoff, and Domain 9.
- Heights Union was 57.6% occupied at year-end, with stabilized occupancy above 90% anticipated in the second quarter of 2022.
- Management viewed Sun Belt migration, job growth, relatively limited supply in certain markets, and demand for Class A space as favorable trends, but noted significant construction activity in Austin, Charlotte, and Nashville.
- COVID-19 had not materially affected rental obligations through year-end, but remote work and changing tenant space requirements could reduce future office demand, delay leasing decisions, or increase concessions and tenant-improvement costs.
- Key risks include tenant concentration, market concentration in Atlanta and Austin, lease expirations, declining rents or occupancy, development cost overruns and delays, interest-rate volatility, refinancing risk, joint venture partner performance, impairment, environmental liabilities, cyber incidents, and insurance availability and cost.
- The planned discontinuation of LIBOR could affect variable-rate debt pricing. The Company had $578.5 million of variable-rate debt at year-end; a 100-basis-point increase in variable rates would have increased 2021 interest expense by approximately $5.3 million based on average balances.
- The Company is required to distribute taxable income to maintain REIT status and generally intends to continue paying common dividends, subject to operating performance, liquidity, debt covenants, and REIT distribution requirements.
- Management reported no unresolved SEC staff comments, no material litigation exposure based on current expectations, and effective disclosure controls and internal control over financial reporting. Deloitte & Touche issued unqualified audit opinions.
Investor Verification Checklist
- Verify the reconciliation of GAAP net income to FFO and assess the effect of property-sale gains on reported earnings growth.
- Monitor leasing, occupancy, rent spreads, concessions, and lease expirations, particularly in Atlanta and Austin.
- Confirm the timing and funding sources for the $102.4 million of 2022 debt maturities and $223.8 million of unfunded tenant and construction obligations.
- Review the planned refinancing or replacement of the credit facility before its January 2023 maturity.
- Track development budgets, leasing, construction progress, and stabilization of Neuhoff, 100 Mill, Domain 9, and 300 Colorado.
- Assess the impact of remote work, tenant space reductions, and potential changes in office demand on asset values and impairment risk.
- Review the settlement of the forward equity sales and potential dilution from the 2.6 million shares expected to be issued.
- Evaluate exposure to variable interest rates, LIBOR transition terms, joint venture debt, and non-recourse carve-out guarantees.