Cousins Properties Incorporated — FY2013 Form 10-K Summary
Business context and reporting period
Fiscal year ended December 31, 2013. Cousins is a self-managed Georgia REIT focused primarily on Class A office properties and opportunistic mixed-use developments in Sunbelt markets, particularly Georgia, Texas and North Carolina. At year-end, the portfolio included approximately 14.8 million square feet of office space, 566,000 square feet of retail space and 404,000 square feet of apartments.
Fourth-quarter 2013 revenue was $79.5 million, net income available to common stockholders was $2.1 million and basic and diluted earnings per share were $0.01. Quarterly results were affected by the timing of acquisitions, asset sales and joint-venture gains.
Financial and operating metrics
| Metric | FY2013 | FY2012 |
|---|---|---|
| Total revenues | $210.7 million | $136.8 million |
| Rental property revenues | $194.4 million | $114.2 million |
| Income from continuing operations | $112.0 million | $27.6 million |
| Net income available to common stockholders | $109.1 million | $32.8 million |
| Net income per common share | $0.76 | $0.32 |
| Funds from operations available to common stockholders | $77.1 million, or $0.53 per share | $66.5 million, or $0.64 per share |
| Net operating income | $138.1 million | $110.5 million |
| Same-property NOI growth | 4.6% | Not separately stated |
| Cash flow from operating activities | $137.3 million | $95.3 million |
| Total assets at year-end | $2.27 billion | $1.12 billion |
| Notes payable at year-end | $630.1 million | $425.4 million |
Rental property revenues increased 70%, primarily from the Greenway Plaza and 777 Main acquisition, Post Oak Central, 816 Congress and the 2012 acquisition of 2100 Ross. Rental property operating expenses increased 80% to $90.5 million, while depreciation and amortization increased 93% to $76.3 million as the portfolio expanded.
Operating occupancy improved: same-property weighted average occupancy increased from 89.0% in fourth-quarter 2012 to 90.4% in fourth-quarter 2013. Cash-basis second-generation net effective rent increased 11.3% in the fourth quarter, and net rental rates on office leases increased 12.9% on new leases and renewals for the year.
The company paid $37.2 million of common and preferred dividends in 2013. The common dividend was $0.18 per share for the year, or $0.045 per quarter. In the first quarter of 2014, management increased the quarterly common dividend to $0.075 per share.
Material changes versus the prior comparable period
- Acquired Greenway Plaza and 777 Main for approximately $1.1 billion, Post Oak Central for $230.9 million and 816 Congress for $102.4 million; also acquired the remaining interest in Terminus 200.
- Increased Texas exposure from 8.9% to 51.5% of total square footage and office exposure from 65.6% to 93.8%.
- Disposed of approximately $138.2 million of non-core assets, including substantially all lifestyle and power-center retail holdings, and reduced land holdings.
- Issued 85.5 million common shares in two offerings for net proceeds of approximately $826.2 million. Common shares outstanding increased from 104.1 million at year-end 2012 to 189.7 million at year-end 2013, creating substantial dilution to per-share operating metrics.
- Redeemed all Series A preferred stock for $74.8 million; 3.791 million Series B preferred shares remained outstanding at year-end.
- Debt to total market capitalization declined from 36.5% to 29.5%, despite notes payable increasing by $204.7 million because of the expanded asset base.
- Annualized general and administrative expense as a percentage of undepreciated assets declined from 1.3% to 0.7%, and land declined from 3.5% to 1.6% of undepreciated assets.
- Income from unconsolidated joint ventures increased to $67.3 million, largely because of gains from selling interests in CP Venture Two and CP Venture Five and the sale of The Avenue Murfreesboro.
- No consolidated impairment losses were recorded in 2013, compared with $488,000 in 2012 and substantial impairment charges in 2011.
Debt, liquidity and cash flow
At December 31, 2013, consolidated debt was $630.1 million, consisting of $575.5 million of fixed-rate debt and $54.5 million of variable-rate debt. The weighted average interest rate on consolidated debt was 4.46%, and the weighted average maturity was 5.6 years. More than 80% of total debt, including the company’s share of unconsolidated debt, matured after 2016.
The $350 million unsecured Credit Facility had $40.1 million drawn and $308.9 million of available borrowing capacity at year-end. The facility matures in February 2016, subject to an extension option, and the company was in compliance with its financial covenants. The fixed-charge coverage ratio improved from 2.03 to 2.64 during 2013.
Cash flow from operations of $137.3 million was more than offset by $1.53 billion of property acquisition, development and tenant-asset expenditures, resulting in $1.27 billion of net cash used in investing activities. Equity issuance and financing activities provided $952.9 million. Cash and cash equivalents declined from $176.9 million to $1.0 million at year-end.
Debt maturities include $14.5 million in 2014, no scheduled maturity in 2015, $55.2 million in 2016, $132.7 million in 2017 and $100.0 million in 2018. The company also reported $101.5 million of unfunded tenant-improvement and other construction obligations.
Guidance, outlook, management commentary and risks
Management did not provide formal quantitative earnings guidance in the filing. It expects to create value through leasing existing assets, executing the development pipeline and pursuing opportunistic acquisitions and developments in core markets. Management expects Colorado Tower and Emory Point Phase II to become operational beginning in late 2014 and during 2015, subject to construction, leasing and stabilization conditions.
Active development at year-end included Colorado Tower in Austin, with projected costs of $126.1 million, and Emory Point Phase II in Atlanta, with projected costs of $73.3 million. The company expects future tenant-improvement and leasing costs to exceed 2013 levels because of the expanded portfolio and anticipated leasing activity.
- Portfolio concentration is significant: 32% of fourth-quarter 2013 NOI came from metropolitan Atlanta and 49% from metropolitan Houston; 21% of square footage was leased to energy-sector tenants.
- The top 20 tenants represented 41% of annualized base rental revenue, although no single tenant represented more than 7%.
- Key risks include tenant retention and credit quality, market rents, economic conditions, asset concentration, development delays and cost overruns, joint-venture partner decisions, refinancing and variable-rate debt exposure, covenant compliance, and future impairment charges.
- Unconsolidated joint ventures had $428.2 million of third-party debt. The company had guarantees related to certain joint-venture and construction loans, including $4.3 million for Emory Point Phase I and $1,000 for Emory Point Phase II at year-end.
- The company has $150.4 million of future ground-lease and operating-lease commitments, predominantly due after five years.
- Management stated that ordinary-course litigation is not expected to have a material adverse effect, and that no known environmental liability was expected to be material.
- The company intends to maintain REIT qualification, which generally requires distribution of at least 90% of taxable income. Failure to qualify could result in corporate-level taxes and reduced distributions.
Deloitte & Touche issued unqualified opinions on the consolidated financial statements and internal control over financial reporting. Management concluded that disclosure controls and internal control over financial reporting were effective as of December 31, 2013.
Most important facts for investors to verify
- Whether post-acquisition occupancy, rents and NOI at Greenway Plaza, 777 Main, Post Oak Central and 816 Congress meet underwriting expectations.
- The effect of the 2013 share issuance on FFO per share, net asset value per share and future dividend coverage.
- Available liquidity and refinancing plans before the February 2016 Credit Facility maturity and scheduled 2016–2018 debt maturities.
- Funding requirements, leasing progress and stabilization timing for Colorado Tower and Emory Point Phase II.
- Tenant concentration and Houston energy-sector exposure, particularly under weaker regional or energy-market conditions.
- Potential impairment exposure for land, held-for-sale properties and underperforming assets.
- Cash available for dividends after tenant improvements, leasing costs, development spending, debt service and joint-venture commitments.