CUZ

Business Context and Reporting Period

Company: Cousins Properties Incorporated (REIT)
Filing Type: Form 10-Q (Quarterly Report)
Period Ended: September 30, 2010
Business Overview: Cousins develops, manages, and owns office, retail, industrial, and residential real estate. As of September 30, 2010, the portfolio included 7.5 million sq. ft. of office space, 4.4 million sq. ft. of retail space, and approximately 9,300 acres of land. The Company also provides third-party management services for 13.0 million sq. ft. of space.

Key Financial Metrics (Nine Months Ended Sept 30, 2010)

Material Changes vs. Prior Period

• Net Loss vs. Net Income: The Company reported a net loss of $18.6 million available to common stockholders for the nine months ended Sept 30, 2010, compared to net income of $22.2 million in the prior year. This reversal is primarily due to a $9.8 million loss on extinguishment of debt and interest rate swaps, and the absence of a $168.6 million gain on sale of investment properties recognized in 2009 (related to a 2006 venture formation).
• Revenue Growth: Total revenues increased 14% year-over-year, driven by a 137% increase in residential lot and outparcel sales and a 137% increase in multi-family unit sales.
• Debt Reduction: Total notes payable decreased by $75.8 million. The Company repaid its $100 million Term Facility in July 2010 and refinanced the Meridian Mark Plaza mortgage, replacing a $22 million note at 8.27% with a $27 million note at 6.0%.
• Impairments: Impairment losses were significantly lower in 2010 ($0.6 million) compared to 2009 ($40.5 million), which included large charges on the Terminus 200 joint venture and other assets.
• Discontinued Operations: The Company sold San Jose MarketCenter in July 2010 for $85 million, recognizing a $6.6 million gain. Results for this property are classified as discontinued operations.

Guidance, Outlook, and Risks

• Development Outlook: Management anticipates limited development activity for the remainder of 2010 and early 2011 due to a decrease in traditional development opportunities. No new development or predevelopment projects were commenced in the first nine months of 2010.
• Liquidity Strategy: The Company expects to fund commitments through cash from operations, its Credit Facility (with $350 million available after Term Facility repayment), and strategic asset sales. The Company is not currently incurring significant new development costs.
• Dividends: The quarterly common dividend was reduced to $0.09 per share in 2010 (from $0.15-$0.25 in 2009). Dividends are paid in a combination of cash and stock.
• Key Risks:
  • Capital Availability: Tightening credit markets may limit access to financing for refinancing or new projects.
  • Joint Venture Guarantees: The Company has off-balance sheet obligations, including a $26.2 million guarantee on the CF Murfreesboro Associates construction loan.
  • Market Conditions: Continued adverse economic conditions could lead to further impairments or leasing risks.

Investor Verification Checklist

• Debt Maturities: Verify the Company's ability to refinance $180 million in mortgage notes maturing in 2012 (Terminus 100) and $69.6 million in credit facility debt maturing in 2011.
• FFO vs. GAAP Reconciliation: Review the significant difference between GAAP Net Loss ($18.6M) and positive FFO ($22.8M) to understand the impact of non-cash depreciation and one-time gains/losses.
• Joint Venture Exposure: Assess the financial health of unconsolidated joint ventures, particularly Terminus 200 and CF Murfreesboro, given the Company's guarantees and recent restructuring activities.
• Asset Sales Pipeline: Monitor the execution of the strategy to recycle capital through asset sales, as new development activity is currently paused.
• Dividend Sustainability: Confirm that operating cash flows ($61.3M for 9 months) remain sufficient to cover the cash portion of dividends ($18.8M for 9 months) amidst reduced development income.