Business Context and Reporting Period
Company: Cousins Properties Incorporated (REIT)
Filing Type: Form 10-Q (Quarterly Report)
Period Ended: March 31, 2011
Business Overview: Cousins develops, manages, and owns office, retail, industrial, and residential real estate. As of March 31, 2011, the portfolio included 7.4 million sq. ft. of office space, 4.8 million sq. ft. of retail space, and interests in 24 residential communities. The company also provides management services for third-party properties.
Key Financial Metrics
| Metric (in thousands) | Q1 2011 | Q1 2010 |
|---|---|---|
| Total Revenues | $48,956 | $67,200 |
| Net Loss (GAAP) | $(4,049) | $2,180 |
| Net Loss Attributable to Common Stockholders | $(7,857) | $(1,573) |
| Funds From Operations (FFO) to Common | $8,122 | $13,980 |
| Net Cash Provided by Operating Activities | $9,183 | $32,074 |
| Total Assets | $1,335,453 | $1,371,282 |
| Total Notes Payable | $496,823 | $509,509 |
| Cash and Cash Equivalents | $5,097 | $7,599 |
Liquidity: The company had $250.1 million available to draw under its Credit Facility as of March 31, 2011. The weighted average interest rate on consolidated debt was 5.2%.
Material Changes vs. Prior Period
- Revenue Decline: Total revenues decreased 27% to $48.9 million, primarily driven by a significant drop in residential lot and outparcel sales ($13.6 million decrease) and multi-family unit sales ($5.5 million decrease). Rental property revenues increased slightly by 4% ($1.4 million).
- Impairment Loss: The company recorded a $3.5 million impairment loss on its investment in Verde, a non-public REIT, due to indicators of other-than-temporary impairment. No such loss was recorded in Q1 2010.
- Operating Expenses: Interest expense decreased 23% ($2.2 million) due to lower average borrowings and interest rates. General and administrative expenses decreased 8% ($0.6 million).
- Discontinued Operations: The company recognized a $0.4 million loss on the sale of Jefferson Mill Business Park Building A in February 2011. Q1 2010 included income from discontinued operations of $1.1 million.
- FFO Decline: Funds From Operations available to common stockholders decreased 42% to $8.1 million, reflecting lower sales activity and the impairment charge.
Outlook, Risks, and Management Commentary
- Strategic Focus: Management is focused on leasing vacant office and retail space, increasing fee income, and managing leverage to improve liquidity. The company anticipates one significant development start for the remainder of 2011.
- Market Conditions: Demand for residential lots remains low in principal markets (Texas, Florida, Atlanta). Management expects these conditions to continue negatively impacting results until markets improve.
- Debt Maturities: The company has relatively low debt maturities in 2011. It intends to fund maturities via its Credit Facility, new mortgage loans, or asset sales. The Credit Facility can be extended for one year to August 2012.
- Foreclosure Risk: The Handy Road Associates, LLC mortgage note matured March 30, 2011. The company notified the lender it would not satisfy the note, and foreclosure proceedings have begun. The note is non-recourse to the company but guaranteed by a partner.
- Dividends: The company paid a common dividend of $0.045 per share in Q1 2011 (down from $0.09 in Q1 2010, which included a stock component). Future dividends are expected to be funded by operating cash flows and asset sales.
Key Facts for Investor Verification
- Impairment Impact: Verify the $3.5 million impairment charge on the Verde investment and its impact on future earnings.
- Foreclosure Status: Monitor the status of the Handy Road Associates foreclosure and potential liability exposure despite the non-recourse nature of the debt.
- Residential Market Recovery: Assess the timeline for recovery in residential lot and outparcel sales, which were a major revenue driver in 2010 but negligible in 2011.
- Liquidity Position: Confirm the utilization of the $250.1 million available credit line and the company's ability to refinance maturing debt without adverse terms.
- Dividend Sustainability: Evaluate the reduction in the common dividend and the company's ability to maintain distributions given the decline in FFO.