Business Context and Reporting Period
Company: Cousins Properties Incorporated (Cousins Properties Inc)
Filing Type: Form 10-Q (Quarterly Report)
Reporting Period: Three and six months ended June 30, 2011
Business Overview: Cousins is a self-administered and self-managed Real Estate Investment Trust (REIT) developing, managing, and owning office, retail, industrial, and residential real estate. As of June 30, 2011, the portfolio included interests in 7.4 million square feet of office space, 4.8 million square feet of retail space, and 1.5 million square feet of industrial space. The Company also manages approximately 12.7 million square feet of third-party properties.
Key Financial Metrics (Six Months Ended June 30, 2011)
| Metric | Value (in thousands) |
|---|---|
| Total Revenues | $94,375 |
| Net Loss | $(4,847) |
| Net Loss Attributable to Common Stockholders | $(12,563) |
| Funds From Operations (FFO) Available to Common Stockholders | $19,018 |
| Net Cash Provided by Operating Activities | $27,086 |
| Total Assets | $1,337,132 |
| Total Notes Payable (Debt) | $498,034 |
| Cash and Cash Equivalents | $4,349 |
| Weighted Average Shares Outstanding (Basic) | 103,588 |
Material Changes vs. Prior Period
- Revenue: Total revenues decreased by approximately 21% ($25.4 million) compared to the six months ended June 30, 2010. This decline was primarily driven by a significant reduction in multi-family residential unit sales and residential lot/outparcel sales, as the Company had no outparcel sales in 2011 compared to eight in 2010.
- Net Loss: The Net Loss attributable to common stockholders increased to $(12.6) million from $(10.2) million in the prior year period. This was largely due to a $3.5 million impairment loss on the investment in Verde Realty and lower gains from property sales.
- Interest Expense: Interest expense decreased by approximately 26% ($5.2 million) year-over-year, attributed to lower average debt outstanding and the termination of interest rate swaps that previously fixed rates higher than current variable rates.
- Operating Cash Flow: Net cash provided by operating activities decreased by approximately $22.1 million compared to the prior year, primarily due to reduced cash inflows from multi-family and outparcel sales.
Guidance, Outlook, and Risks
Management Commentary & Outlook:
- Leasing Environment: The Company leased 225,000 sq. ft. of office and 199,000 sq. ft. of retail space in the quarter. While Atlanta and Dallas markets have stabilized, significant improvement is expected only after employment recovers. Austin and North Carolina markets showed positive job growth and lease absorption.
- Development: In June 2011, the Company began construction on its first development project since 2007: Emory Point, a mixed-use joint venture project in Atlanta. The Company anticipates selling non-strategic land and industrial holdings to fund investment activities.
- Liquidity: The Company expects to fund debt maturities and commitments via its Credit Facility (with $345.4 million borrowing capacity), new mortgage loans, and asset sales. It maintains an active shelf registration for up to $500 million in securities.
Risks and Contingencies:
- Impairment: Recorded a $3.5 million other-than-temporary impairment loss on its investment in Verde Realty due to the withdrawal of Verde's proposed IPO.
- Debt Maturities: The Company has relatively low debt maturities for the remainder of 2011 but must manage refinancing risks. The Credit Facility maturity was extended to August 29, 2012.
- Market Conditions: Risks include adverse economic conditions, leasing risks (inability to renew leases on favorable terms), and rising interest rates.
Investor Verification Checklist
- Impairment Details: Verify the specific valuation methodology and future outlook for the Verde Realty investment following the $3.5 million impairment charge.
- Debt Refinancing: Confirm the status of the 600 University Park Plaza mortgage note maturing August 10, 2011, and the execution of the Credit Facility extension.
- Development Capital: Monitor the funding requirements for the new Emory Point joint venture, which anticipates approximately $19.6 million in additional cash contributions.
- Asset Sales Strategy: Track the execution of the strategy to sell non-strategic land and industrial holdings to fund future investments and debt obligations.
- Dividend Sustainability: Review the Company's leverage ratio relative to Credit Facility covenants (55% threshold) to ensure continued ability to pay dividends.