Cousins Properties Incorporated 2012 Form 10-K Summary
Business Context and Reporting Period
Cousins Properties is a self-administered REIT focused primarily on Class A office and retail properties in Sunbelt markets, particularly Georgia, Texas and North Carolina. The filing covers the fiscal year ended December 31, 2012, with comparative information for 2011 and 2010. At year-end, the portfolio included approximately 7.8 million square feet of office space, 3.7 million square feet of retail space and 404,000 square feet of apartments.
Key Financial Metrics
| Metric | 2012 | 2011 | Change |
|---|---|---|---|
| Total revenue | $148.3 million | $129.0 million | 15% increase |
| Rental property revenue | $125.6 million | $105.6 million | 19% increase |
| Fee income | $17.8 million | $13.8 million | 29% increase |
| Net income available to common stockholders | $32.8 million | $(141.3) million | Returned to profitability |
| Net income per diluted common share | $0.32 | $(1.36) | Improved |
| Funds from operations available to common stockholders | $66.5 million | $(76.9) million | Improved materially |
| FFO per diluted share | $0.64 | $(0.74) | Improved materially |
| Net cash provided by operating activities | $95.3 million | $55.6 million | 71% increase |
| Cash and cash equivalents | $176.9 million | $4.9 million | Substantial increase |
| Notes payable | $425.4 million | $539.4 million | 21% decrease |
| Total assets | $1.124 billion | $1.236 billion | 9% decrease |
| Dividends declared per common share | $0.18 | $0.18 | Unchanged |
Net operating income reported by segment was $110.5 million in 2012 versus $110.6 million in 2011. Office same-property leasing improved to 91% at year-end from 89%, while retail same-property leasing improved to 90% from 88%. The office portfolio had 82% weighted-average occupancy and the retail portfolio had 86% weighted-average occupancy at year-end. The top 20 tenants represented approximately 43% of annualized base rental revenue.
Material Changes Versus the Prior Comparable Period
- The Company sold approximately $401.2 million of non-core assets, including three retail centers, several office properties, land interests and its third-party management and leasing business.
- Property sales and other dispositions generated significant gains, including a $23.3 million gain on the sale of the Company's interest in Palisades West, a $7.3 million gain from the Ten Peachtree Place venture, and gains from several retail and office sales.
- The Company recorded only $488,000 of impairment losses in 2012, compared with $100.1 million in 2011. The 2011 amount primarily reflected a strategic reassessment of land and other non-core assets.
- Rental property revenue benefited from the Promenade and 2100 Ross Avenue acquisitions, higher occupancy at 191 Peachtree Tower and commencement of operations at Mahan Village. These benefits were partly offset by property sales and lower activity at certain assets.
- Interest expense declined to $23.9 million from $27.8 million, primarily because of lower average borrowings, debt repayments and refinancing activity.
- Capital expenditures declined to $105.1 million from $181.9 million, largely because 2011 included the Promenade acquisition and higher development spending.
- The Company reduced its share of the carrying amount of commercial and residential land from $115.9 million to $59.3 million and exited or substantially reduced its residential land, condominium, industrial development and third-party management businesses.
Debt, Liquidity and Capital Resources
- The $350 million unsecured Credit Facility was amended to extend maturity to February 2016, with a potential one-year extension and an accordion feature increasing capacity to $500 million under specified conditions.
- No amounts were drawn under the Credit Facility at December 31, 2012; stated borrowing capacity was $269.2 million after considering applicable limitations. The Company reported compliance with its financial covenants.
- The Company issued a $100 million mortgage secured by 191 Peachtree Tower at a fixed 3.35% rate, maturing in 2018, and prepaid the $24.5 million 100/200 North Point mortgage.
- Consolidated debt had a weighted-average interest rate of 5.14%, a weighted-average maturity of 6.7 years and a debt-to-undepreciated-assets ratio of 35.3%.
- Debt maturities totaled $4.8 million in 2013, $17.9 million in 2014, $5.2 million in 2015, $20.2 million in 2016, $132.7 million in 2017 and $244.7 million thereafter.
- Unconsolidated joint ventures had approximately $390.8 million of debt, including approximately $40.6 million recourse to the Company. The Company also had repayment or loan guarantees related to CF Murfreesboro, Cousins Watkins and Emory Point.
- Cash flow from operations funded the $31.7 million of cash common and preferred dividends paid during 2012. The annual common dividend remained $0.18 per share.
Outlook, Management Commentary, Risks and Unusual Items
Management stated that the 2012 objectives of simplifying the business, selling non-core assets, improving leasing and investing in core-market opportunities were achieved. Management described the Company as well positioned for further investment because of its year-end cash balance, reduced leverage and unused credit capacity.
- Management expects to continue selling land and other non-core assets, leasing vacant space and pursuing opportunistic office acquisitions, developments and redevelopments in core markets.
- Potential future development includes a second phase of Emory Point and the proposed Third and Colorado office project in Austin, with estimated project costs of approximately $130 million if the project proceeds. No formal earnings or FFO guidance was provided.
- After year-end, the Company acquired the remaining interest in Terminus 200, contributed Terminus 100 and Terminus 200 to a 50-50 joint venture with JP Morgan, and acquired Post Oak Central in Houston for a stated transaction value of $232.6 million. These transactions increased Houston exposure and were funded with cash and Credit Facility borrowings; approximately $85 million was outstanding under the facility afterward.
- Development projects included Emory Point and Mahan Village. At year-end, Emory Point apartments were 30% leased and retail was 82% leased; Mahan Village was 88% leased. Stabilization estimates were subject to change.
- Key risks include tenant concentration, exposure to Atlanta markets, lease rollover and retention, property and land impairments, real estate market conditions, refinancing and interest-rate risk, joint-venture obligations, development cost overruns, environmental liabilities and continued REIT qualification.
- The Company recorded a $7.5 million gain on the sale of the third-party management and leasing business. The agreement permits up to $15.4 million of gross proceeds, with approximately 63.5% received at closing; additional consideration remains subject to working-capital adjustments and earn-out provisions.
- CF Murfreesboro had $94.5 million drawn on a facility maturing December 31, 2013, and the Company provided a $26.2 million repayment guarantee. The filing states that the venture amended the loan but does not eliminate the refinancing risk.
- CREC had approximately $197.7 million of federal and state net operating loss carryforwards, but a full valuation allowance was recorded against related deferred tax assets.
Important Facts for Investors to Verify
- Reconcile reported net income and FFO to recurring property operations, given the substantial effect of asset-sale gains, discontinued operations and prior-period impairments.
- Review the post-year-end Terminus and Post Oak Central transactions, including final gains, financing, ownership percentages and resulting leverage.
- Assess lease rollover exposure, particularly the 2013-2017 office expirations and the concentration of NOI in four Atlanta properties.
- Evaluate refinancing and guarantee exposure at CF Murfreesboro, Crawford Long, Emory Point and other unconsolidated ventures.
- Confirm whether leasing and stabilization targets for 2100 Ross Avenue, Emory Point and Mahan Village were achieved after year-end.
- Monitor future impairment risk from the accelerated liquidation of land and other non-core assets.
- Verify the sustainability of the $0.18 annual common dividend against recurring operating cash flow, required REIT distributions and Credit Facility covenants.