Cousins Properties Incorporated — FY2020 Form 10-K Summary
Business context and reporting period
Cousins Properties is a self-managed Georgia REIT focused primarily on Class A office properties and mixed-use developments in Sun Belt markets, especially Atlanta, Austin, Charlotte, Phoenix, Tampa, and Dallas. The filing covers the fiscal year ended December 31, 2020, with comparative results for 2019 and 2018. The Company owned interests in 19.7 million square feet of office space and 310,000 square feet of mixed-use space at year-end.
- The Company operates primarily through Cousins Properties LP and owns more than 99% of that partnership.
- The portfolio was 90.8% leased at December 31, 2020; office properties were 90.7% leased.
- Atlanta and Austin generated 35.0% and 27.1%, respectively, of fourth-quarter 2020 property NOI, creating meaningful geographic concentration.
Financial performance and key metrics
| Metric | 2020 | 2019 | Change |
|---|---|---|---|
| Total revenues | $740.3 million | $657.5 million | +12.6% |
| Rental property revenues | $721.9 million | $628.8 million | +14.8% |
| Net income | $238.1 million | $152.7 million | +56.0% |
| Net income available to common stockholders | $237.3 million | $150.4 million | +57.7% |
| Basic and diluted EPS | $1.60 | $1.17 | +36.8% |
| Funds from operations | $413.2 million | $328.8 million | +25.7% |
| FFO per share | $2.77 | $2.53 | +9.5% |
| Net operating income | $467.2 million | $399.4 million | +17.0% |
| Operating cash flow | $351.1 million | $303.2 million | +15.8% |
| Dividends declared per common share | $1.20 | $1.16 | +3.4% |
- Calculated rental-property NOI margin was approximately 64.7% in 2020, compared with approximately 63.5% in 2019. Net income margin was approximately 32.2% versus 23.2% in 2019; the comparison was significantly affected by property-sale gains and other unusual items.
- Same-property NOI decreased 0.5% for the year but increased 0.7% on a cash basis. Excluding parking and adjusting for payment deferrals, same-property cash NOI increased 4.5%.
- Leasing activity totaled 1.4 million square feet. Second-generation net rent increased 27.2% on a straight-line basis and 13.1% on a cash basis.
- Total assets were $7.1 billion and stockholders’ investment was $4.5 billion at year-end.
Debt, liquidity and cash flows
- Total notes payable were $2.16 billion at December 31, 2020, including $1.48 billion of unsecured debt and $677.9 million of secured mortgage debt. Approximately 75% of debt was fixed-rate.
- The Company had $232.4 million drawn on its $1.0 billion credit facility and $767.6 million of stated additional borrowing capacity. Cash, cash equivalents, and restricted cash totaled $6.1 million.
- Debt maturities included $266.4 million in 2021, $102.4 million in 2022, and $485.6 million in 2023. The $250 million term loan matures in December 2021; the $1.0 billion credit facility matures in January 2023.
- The Company reported compliance with all credit facility, senior note, term loan, and mortgage covenants.
- Operating cash flow of $351.1 million was more than sufficient to cover the $176.3 million of common dividends paid, but investing and financing activity produced a net decrease in cash of $11.5 million.
- Capital expenditures for property acquisitions, development, improvements, leasing, land, and related costs totaled $619.6 million, up from $482.6 million in 2019.
- Unfunded tenant improvement and construction obligations totaled $153.5 million. Unconsolidated joint ventures had $230.3 million of third-party debt, mostly non-recourse; the Company guaranteed 12.5% of the Carolina Square construction loan.
Material changes versus the prior comparable period
- Results benefited from the 2019 TIER REIT merger, which added substantial office assets and increased the year-over-year comparison base for operating revenue and expenses.
- 2020 acquisitions included The RailYard in Charlotte for $201.3 million, a Charlotte parking garage for $85.3 million, and Charlotte land parcels totaling $46.9 million, plus a 90%-owned Austin land acquisition.
- The Company sold Hearst Tower for $455.5 million, Woodcrest for $25.3 million, and its Gateway Village joint venture interest for $52.2 million. It also sold other joint venture interests, generating $45.8 million of gains on sales of unconsolidated investments.
- Property-sale gains totaled $90.1 million in 2020 versus $110.8 million in 2019. The 2020 result included a $14.8 million impairment charge related to Burnett Plaza, which was classified as held for sale.
- Fee income declined 36.1% to $18.2 million, primarily because of the timing of fees associated with 2019 transactions with Norfolk Southern.
- General and administrative expense declined 26.9% to $27.0 million, largely due to lower liability-classified compensation expense. Interest expense increased 12.3% to $60.6 million, primarily because of senior notes issued in connection with the TIER merger.
Development, outlook, commentary and risks
- Five development projects were active at year-end, with the Company’s share of estimated total costs of $449.4 million. The projects included 120 West Trinity, 10000 Avalon, 300 Colorado, Domain 10, and 100 Mill.
- Management expects initial revenue recognition from 300 Colorado in the first quarter of 2021 and 100 Mill in the first quarter of 2022. The filing does not provide formal earnings or operating guidance.
- Management stated that COVID-19 had not materially affected rental obligations through year-end, but tenants broadly adopted remote work, parking revenue declined, and some tenants received rent deferrals or other lease modifications.
- Management expects sufficient liquidity to meet obligations for the foreseeable future, while noting that the pandemic could adversely affect future cash flows and financial condition.
- Key risks include prolonged changes in office demand from remote work, tenant credit deterioration, leasing and renewal risk, concentrated exposure to Atlanta and Austin, asset impairment, development cost overruns and delays, refinancing and interest-rate risk, LIBOR transition, joint venture obligations, environmental and uninsured losses, cyber incidents, and continued REIT qualification.
- Legal proceedings arising in the ordinary course were not expected to have a material adverse effect. Management and Deloitte & Touche LLP concluded that disclosure controls and internal control over financial reporting were effective; Deloitte issued unqualified audit opinions.
Most important facts for investors to verify
- Verify the timing and terms of the $266.4 million of 2021 debt maturities, including the $250 million term loan, and the Company’s refinancing or repayment plan.
- Assess whether office demand, physical occupancy, parking revenue, lease renewals, concessions, and tenant credit quality deteriorate as remote-work practices persist.
- Reconcile reported net income and FFO to recurring property operations, separating gains from Hearst Tower, Gateway Village, and other dispositions from ongoing earnings.
- Review the $153.5 million of unfunded tenant improvement and construction commitments and the remaining $449.4 million share of development costs.
- Monitor Burnett Plaza and other assets for further impairments, changes in sale plans, or valuation pressure.
- Evaluate exposure to joint venture debt, guarantees, ground leases, geographic concentration, and the transition away from LIBOR.