Cousins Properties Incorporated — 2Q 2020 Form 10-Q Summary
Business context and reporting period
Cousins Properties is a self-administered, self-managed REIT focused on Class A office and mixed-use properties in Sun Belt markets. The filing covers the quarter and six months ended June 30, 2020. The portfolio comprised 35 operating properties totaling 19.4 million square feet and six active development projects. Results remain affected by the June 2019 TIER REIT merger, subsequent acquisitions and dispositions, and COVID-19-related operating conditions.
Key financial metrics
| Metric | Three months ended June 30 | Six months ended June 30 |
|---|---|---|
| Rental property revenue | $175.1 million, up 29.8% | $364.2 million, up 40.7% |
| Total revenue | $179.9 million, up 26.7% | $373.8 million, up 36.0% |
| Net income | $23.2 million versus $(22.6) million | $198.5 million versus $13.4 million |
| Net income available to common stockholders | $23.1 million; $0.16 per diluted share | $198.0 million; $1.34 per diluted share |
| FFO | $98.0 million; $0.66 per diluted share | $210.7 million; $1.42 per diluted share |
| FFO before TIER transaction costs | $98.0 million; $0.66 per share | $211.1 million; $1.42 per share |
| Consolidated NOI | $112.9 million, up 28.3% | $234.7 million, up 39.8% |
| Net cash provided by operating activities | Not separately provided | $133.6 million versus $77.8 million |
Consolidated rental-property NOI margin was approximately 64.5% for the quarter and 64.4% for the six months, compared with approximately 65.2% and 64.9%, respectively, in the prior-year periods. Same-property NOI decreased 2.4% in the second quarter, primarily because of lower parking revenue associated with reduced physical occupancy; excluding parking, same-property NOI increased 0.7%.
Liquidity, debt and cash flow
- Cash and cash equivalents were $28.3 million at June 30, 2020; cash, cash equivalents and restricted cash totaled $30.2 million.
- Total notes payable were $1.94 billion, down from $2.22 billion at December 31, 2019. Approximately 85% of debt was fixed-rate, and the weighted-average debt maturity was 5.4 years.
- The $1.0 billion unsecured credit facility was undrawn and fully available. The company also had a $250 million unsecured term loan and $1.0 billion of unsecured senior notes.
- The company reported compliance with all debt covenants. Contractual obligations totaled $2.52 billion, including debt principal, interest commitments and ground leases.
- Six-month investing cash flow was $248.8 million, primarily reflecting $433.7 million of property-sale proceeds and $52.9 million from joint-venture interest sales, partly offset by $235.5 million of property acquisition, development and tenant expenditures.
- Six-month financing cash flow was $(369.8) million, including $87.1 million of common dividends, $562.8 million of credit-facility and notes repayments, and $280.5 million of credit-facility borrowings.
- Unfunded tenant-improvement and construction obligations were $193.8 million, and performance bonds totaled $1.2 million.
Material changes versus the prior comparable period
- Revenue and NOI increased substantially due primarily to the inclusion of properties acquired in the TIER merger, 1200 Peachtree, and Terminus, partially offset by property dispositions.
- Interest expense increased 16.0% in the quarter and 30.7% for the six months, mainly because of senior notes issued in 2019 and higher average credit-facility borrowings during the six-month period.
- Depreciation and amortization increased 43.1% in the quarter and 49.3% for the six months, primarily due to the TIER properties and other acquired assets.
- Prior-year results included approximately $49.8 million of TIER merger transaction costs; 2020 transaction costs were $63,000 for the quarter and $428,000 for the six months.
- 2020 net income included a $90.7 million gain on the sale of Hearst Tower and a $46.0 million gain on sales of interests in unconsolidated joint ventures, principally Gateway Village and Wildwood.
- The company purchased a Charlotte parking garage for $85.0 million during the quarter and sold Hearst Tower for $455.5 million and Woodcrest for $25.3 million during the first quarter.
- The quarterly common dividend was $0.30 per share, compared with $0.29 in the prior-year quarter; six-month dividends were $89.1 million versus $73.1 million.
Guidance, outlook, management commentary, risks and unusual items
The filing does not provide a clear quantitative full-year earnings or FFO guidance figure. Management stated that it expected sufficient liquidity to meet obligations for the foreseeable future, while noting that COVID-19 could adversely affect future cash flows and financial condition. Future dividends are expected to be funded primarily by operating cash flow, asset-sale proceeds, joint-venture distributions and, if necessary, debt.
- COVID-19 had not materially affected rental obligations as of June 30, 2020, and rent-adjustment requests were handled case by case. Some lease modifications involved rent forgiveness or payment deferrals.
- No impairments or material valuation adjustments to tenant receivables were recorded as of June 30, 2020, but future impairments or collectibility adjustments remain possible.
- Management identified risks from prolonged economic weakness, tenant defaults or bankruptcies, reduced office-space demand and work-from-home trends, lower parking and leasing activity, and disruptions to development timelines.
- The company has significant exposure to Atlanta, Austin, Charlotte, Phoenix, Tampa and Dallas. Changes in local economic conditions, tenant demand, interest rates and capital-market access could materially affect results.
- Unconsolidated joint ventures had $197.5 million of third-party debt. The company no longer guaranteed 12.5% of the Carolina Square construction loan following an April 2020 amendment that extended its maturity to May 2021.
- Variable-rate debt uses LIBOR-related pricing, creating transition risk from the expected phaseout of LIBOR after 2021.
- The company sold non-core assets and joint-venture interests as part of its capital-allocation strategy and expects to continue actively managing its portfolio and recycling capital.
Most important facts for investors to verify
- Reconcile reported net income and FFO to recurring property performance, excluding the Hearst Tower, Gateway Village and Wildwood gains.
- Assess the sustainability of same-property NOI and occupancy trends, particularly the effect of reduced parking revenue and work-from-home practices.
- Review tenant rent collections, lease modifications, deferred rents receivable and any subsequent COVID-19-related impairments.
- Verify debt maturities, covenant headroom, fixed-versus-variable-rate exposure and the availability of the full $1.0 billion credit facility.
- Evaluate the company’s ability to fund $193.8 million of unfunded tenant-improvement and construction commitments while maintaining dividends.
- Monitor development spending, leasing activity, capital recycling and the effect of asset dispositions on future recurring revenue and NOI.
- Confirm whether subsequent filings provide quantitative guidance or revised assessments of COVID-19, office demand and LIBOR-transition risks.