Business Context and Reporting Period
Company: Cousins Properties Incorporated (Cousins Properties Inc)
Filing Type: Form 10-Q (Quarterly Report)
Reporting Period: Quarter and six months ended June 30, 2010
Business Overview: Cousins is a self-administered and self-managed Real Estate Investment Trust (REIT) that develops, manages, and owns office, multi-family, retail, industrial, and residential real estate. As of June 30, 2010, the portfolio included interests in 7.5 million square feet of office space, 4.6 million square feet of retail space, and significant land holdings. The Company also provides management services for third-party properties.
Key Financial Metrics
| Metric (in thousands) | Six Months Ended June 30, 2010 | Six Months Ended June 30, 2009 |
|---|---|---|
| Total Revenues | $119,869 | $95,049 |
| Net Income (Loss) Available to Common Stockholders | $(10,168) | $79,258 |
| Funds From Operations (FFO) Available to Common Stockholders | $21,875 | $(57,341) |
| Net Cash Provided by Operating Activities | $49,174 | $15,516 |
| Total Assets | $1,469,022 | $1,491,552 |
| Total Notes Payable (Debt) | $580,378 | $590,208 |
| Cash and Cash Equivalents | $17,137 | $9,464 |
Note: The 2009 Net Income included a one-time gain of approximately $167.2 million from the sale of investment properties related to a 2006 venture formation with Prudential, which significantly inflated the prior year's results.
Material Changes vs. Prior Period
- Revenue Growth: Total revenues increased 26% year-over-year (Y/Y) for the six-month period, driven primarily by a 153% increase in multi-family residential unit sales ($18.1M vs $1.2M) and a 141% increase in residential lot and outparcel sales ($14.1M vs $5.9M).
- Net Income Decline: Net income available to common stockholders turned negative ($10.2M loss) compared to a $79.3M profit in 2009. This decline is largely attributable to the absence of the $167.2M gain on sale of investment properties recognized in the first half of 2009.
- Impairment Losses: Impairment losses decreased significantly to $586,000 in 2010 compared to $36.5 million in 2009. The 2009 figure included a $34.9M charge on the 10 Terminus Place condominium project.
- Operating Cash Flow: Net cash provided by operating activities increased 217% to $49.2M, driven by higher proceeds from multi-family and lot sales and reduced development expenditures.
- Debt Reduction: Total notes payable decreased by approximately $9.8 million. The Company repaid the $8.7M Glenmore Garden Villas loan and reduced borrowings on its Credit Facility.
Guidance, Outlook, and Management Commentary
- Market Outlook: Management notes a decrease in traditional development opportunities due to the economic environment but remains optimistic about non-traditional opportunities, such as acquiring distressed assets or projects with financing problems.
- Development Activity: The Company did not commence any new development or predevelopment projects in the first six months of 2010 and anticipates limited activity for the remainder of 2010 and early 2011.
- Liquidity Strategy: The Company is actively managing its portfolio to recycle capital. Recent actions include restructuring the Terminus 200 venture, extending the CF Murfreesboro Associates loan, and refinancing the Meridian Mark Plaza loan at a lower interest rate (6% vs 8.27%).
- Dividends: The Company continues to pay quarterly dividends in a combination of cash and stock. The dividend per share was reduced to $0.09 in 2010 from $0.25 in 2009.
- Recent Transactions (Post-Period):
- Sold San Jose MarketCenter for $85 million (estimated gain of $6.5 million).
- Repaid the $100 million Term Facility, increasing Credit Facility availability to $350 million.
- Terminated an interest rate swap associated with the Term Facility, incurring a $9.2 million expense to be recognized in Q3 2010.
- Risks: Key risks include the availability of capital, adverse economic conditions affecting the real estate market, leasing risks, and the potential for additional impairments.
Investor Verification Checklist
- Gain on Sale of Investment Properties: Verify the impact of the $167.2M one-time gain in 2009 on year-over-year comparisons; the 2010 results reflect core operations without this non-recurring item.
- Impairment Charges: Review the $586,000 impairment charge in 2010 related to the 60 North Market condominium project and assess the risk of future impairments given the economic climate.
- Debt Covenants and Maturities: Confirm compliance with the amended Credit Facility covenants (minimum Fixed Charge Coverage Ratio reduced to 1.30) and review the schedule of mortgage maturities, particularly the $180M Terminus 100 note maturing in 2012.
- Joint Venture Restructuring: Examine the financial impact of the Terminus 200 LLC restructuring, including the $17.25M debt guarantee payment and the reduction of ownership interest from 50% to 20%.
- Dividend Sustainability: Assess the ability to maintain the current dividend policy given the shift to a cash-and-stock payment structure and the reduction in dividend per share.