Cousins Properties Incorporated — Q1 2021 Form 10-Q Summary
Business Context and Reporting Period
Cousins Properties is a self-managed REIT focused primarily on Class A office properties and mixed-use developments in Sun Belt markets, including Atlanta, Austin, Charlotte, Phoenix, Tampa, and Dallas. The filing covers the three months ended March 31, 2021, compared with the three months ended March 31, 2020. At quarter-end, the portfolio included approximately 18.9 million square feet of office space and 1.3 million square feet of other space.
Key Financial Metrics
| Metric | Q1 2021 | Q1 2020 | Change |
|---|---|---|---|
| Total revenue | $189.6 million | $193.9 million | (2.2%) |
| Rental property revenue | $184.8 million | $189.1 million | (2.3%) |
| Net income | $29.3 million | $175.3 million | (83.3%) |
| Net income available to common stockholders | $29.1 million | $174.9 million | (83.4%) |
| Diluted earnings per share | $0.20 | $1.18 | Down $0.98 |
| Funds from operations | $102.0 million | $112.7 million | (9.5%) |
| FFO per diluted share | $0.69 | $0.76 | (9.2%) |
| Net cash provided by operating activities | $35.8 million | $13.0 million | +$22.8 million |
| Capital expenditures | $61.4 million | $68.0 million | (9.7%) |
| Cash, cash equivalents and restricted cash at quarter-end | $15.8 million | $126.6 million | Prior year benefited from asset-sale proceeds |
Reported net income and EPS were materially affected by $137.1 million of gains from 2020 property and joint-venture dispositions. Excluding these types of disposition gains, FFO declined less sharply than GAAP earnings. Rental revenue represented approximately 97.5% of total revenue. Reported consolidated NOI, excluding termination-fee income, was approximately $118.4 million, or about 62.5% of total revenue; the filing also reports total NOI of $123.1 million including the Company's share of unconsolidated joint ventures.
At March 31, 2021, total assets were $7.1 billion, notes payable were $2.215 billion, and total equity was $4.481 billion. Debt consisted of $1.539 billion of unsecured debt and $673.9 million of secured mortgage debt, before unamortized debt adjustments. Approximately 76% of debt carried fixed interest rates, and the weighted average debt maturity was 4.3 years.
Material Changes Versus the Prior Comparable Period
- Same-property NOI decreased 4.2%, primarily because of lower parking revenue associated with reduced building occupancy during the COVID-19 pandemic and the expiration of a large tenant lease at One South at the Plaza.
- Leasing activity totaled 271,000 square feet. Net effective rent on leases covering space leased within the prior year increased 21.5%.
- Non-same-property results increased because of completed developments and newly operating properties, including Domain 10, Domain 12, Avalon 10000, and The RailYard, partly offset by 2020 asset sales.
- Income from unconsolidated joint ventures declined 44.4% to $1.9 million, primarily because the Company sold its interest in Gateway Village in March 2020.
- Q1 2020 included substantial gains from sales of Hearst Tower, Woodcrest, Gateway Village, and Wildwood Associates; Q1 2021 included virtually no disposition gain.
- Interest expense increased 8.2% to $17.2 million, principally because less interest was capitalized as development projects became operational.
- The Company acquired an Atlanta land parcel for $8 million through a 95%-owned consolidated joint venture.
- Carolina Square, a 50%-owned joint venture, refinanced a $77.5 million construction loan with a $135.7 million non-recourse mortgage and distributed $26.0 million to each partner.
Cash Flow, Debt and Liquidity
Operating cash flow increased to $35.8 million. Investing cash flow was negative $35.8 million, reflecting $61.4 million of property acquisition, development and tenant expenditures, partly offset by a $26.0 million return of capital from Carolina Square. Financing cash flow was positive $9.7 million, including $56.6 million of net Credit Facility borrowings, partly offset by $44.6 million of common dividends.
The Company had $14.6 million of cash and $711.0 million of remaining borrowing capacity under its $1.0 billion unsecured Credit Facility. A $250 million unsecured Term Loan matures in December 2021. Total contractual obligations were $2.768 billion, including $144.0 million of unfunded tenant-improvement and construction obligations. Management stated that it expects sufficient liquidity for the foreseeable future, while noting that future cash flows could be adversely affected by COVID-19.
Subsequent to quarter-end, the Company sold Burnett Plaza for $137.5 million, recognized a $364,000 gain, and used the net proceeds to reduce the Credit Facility.
Guidance, Outlook, Commentary and Risks
The filing does not provide a specific quantitative 2021 earnings or FFO outlook. Management expects physical occupancy and parking demand to improve as vaccinations increase and tenants return to offices. Lease obligations had not been materially affected by COVID-19 through the filing date, but management stated that the duration and long-term effects of remote work, tenant financial stress, and the broader economic recovery remain uncertain.
- Key risks include prolonged COVID-19 effects, lower office utilization, reduced parking revenue, tenant defaults, declining leasing demand, and changes in tenants' space requirements.
- The Company is concentrated in several Sun Belt markets, particularly Atlanta, Austin, Charlotte, Phoenix, Tampa, and Dallas.
- Refinancing and interest-rate risks relate to the December 2021 Term Loan, secured mortgage maturities, variable-rate debt, and the planned phaseout of U.S. dollar LIBOR after June 2023.
- Management reported compliance with Credit Facility, Term Loan, senior-note, and mortgage covenants. The filing states that no buildings were impaired during the periods presented, but future impairments or tenant receivable valuation adjustments remain possible.
- The Company had $144.0 million of future lease-related tenant-improvement and construction obligations and $577,000 of performance bonds at quarter-end.
- Routine litigation was not expected to have a material adverse effect, based on management's current assessment.
Important Facts for Investors to Verify
- Confirm the refinancing or repayment plan for the $250 million Term Loan maturing in December 2021.
- Monitor same-property occupancy, rent collections, parking revenue, lease expirations, concessions, and tenant-improvement spending as office-return trends develop.
- Reconcile GAAP earnings with FFO and distinguish recurring operating performance from 2020 disposition gains.
- Evaluate leverage, covenant headroom, secured debt maturities, variable-rate exposure, and the effect of any LIBOR replacement.
- Track the use of proceeds from the Burnett Plaza sale and the Company's ability to fund dividends, development, and leasing commitments from operating cash flow.
- Assess potential future impairments, tenant receivable reserves, and other valuation effects if the pandemic or remote-work trends persist.