Cousins Properties Incorporated — Q2 2022 Form 10-Q Summary
Business Context and Reporting Period
Cousins Properties is a self-administered, self-managed REIT focused primarily on Class A office and mixed-use properties in Sun Belt markets, including Atlanta, Austin, Charlotte, Phoenix, Tampa, Dallas, and Nashville. At June 30, 2022, the portfolio included approximately 18.7 million square feet of office space and 620,000 square feet of other space. This unaudited Form 10-Q covers the three and six months ended June 30, 2022, compared with the corresponding 2021 periods.
Financial Performance and Key Metrics
| Metric | Q2 2022 | Q2 2021 | Six Months 2022 | Six Months 2021 |
|---|---|---|---|---|
| Rental property revenue | $183.2 million | $181.8 million | $366.4 million | $366.6 million |
| Total revenue | $185.7 million | $186.6 million | $372.6 million | $376.2 million |
| Net income available to common stockholders | $34.1 million | $28.2 million | $62.0 million | $57.3 million |
| Diluted EPS | $0.23 | $0.19 | $0.42 | $0.39 |
| Funds from operations | $104.7 million | $102.1 million | $204.2 million | $204.0 million |
| FFO per diluted share | $0.70 | $0.69 | $1.37 | $1.37 |
| Net cash provided by operating activities | Not separately presented for the quarter | $157.7 million | $167.7 million |
Calculated net income margins were approximately 18.4% for Q2 2022 versus 15.0% in Q2 2021, and 16.7% for the first six months versus 15.2% in the prior-year period. Total NOI was $123.1 million in Q2 and $242.7 million for the first six months, compared with $122.7 million and $245.8 million, respectively, in the prior-year periods.
At June 30, 2022, total assets were $7.38 billion, notes payable were $2.31 billion, total liabilities were $2.75 billion, and total equity was $4.63 billion. Cash and cash equivalents were $4.1 million, or $5.3 million including restricted cash. The company had $306.0 million drawn under its $1.0 billion unsecured credit facility and $694.0 million of stated remaining borrowing capacity. Approximately 72% of debt carried fixed interest rates.
The company paid $93.7 million of common dividends during the first six months and declared quarterly dividends of $0.32 per share in Q2, compared with $0.31 per share in Q2 2021.
Material Changes Versus the Prior Comparable Period
- Q2 net income available to common stockholders increased 21.0%, while first-half net income increased 8.3%. The improvement included a $4.5 million gain from an unconsolidated joint venture's sale of land in Uptown Dallas.
- Rental property revenue increased 0.8% in Q2 but decreased 0.05% for the first six months. Same-property revenue declined 2.8% in Q2 and 1.7% year to date, primarily because of lower economic occupancy at 3350 Peachtree and Promenade Tower while under redevelopment.
- Same-property NOI declined 2.1% in both Q2 and the first six months. Total NOI increased 2.8% in Q2 and 0.7% year to date because of non-same-property contributions from acquisitions, property consolidations, and redevelopment activity.
- Fee income fell 52.0% in Q2 and 60.4% year to date as the Norfolk Southern development and consulting activities approached completion. Approximately $1.0 million remained to be recognized under the related performance obligation at June 30, 2022.
- Operating cash flow declined $10.0 million year to date. Investing cash flow changed from $36.4 million provided in 2021 to $193.3 million used in 2022, largely due to redevelopment, development, joint venture contributions, the Avalon interest purchase, and the absence of 2021 property-sale proceeds.
- Property acquisition, development, and tenant asset expenditures increased to $172.2 million from $116.0 million, principally due to redevelopment at two operating properties and development activity at Domain 9.
- On May 2, 2022, the company amended and restated its credit facility, extending maturity from January 2023 to April 2027 and reducing certain spreads and fees.
- On April 21, 2022, the company purchased its partner's 10% interest in the Avalon office properties for $43.4 million, funded in part through equity accounting adjustments; the consolidated asset basis was unchanged.
- On June 29, 2022, the company issued 2.6 million shares under its ATM/forward equity program at an average price of $39.92 per share, generating approximately $101.4 million of net proceeds.
Guidance, Outlook, Risks, Contingencies, and Unusual Items
The filing does not provide clear formal full-year earnings or FFO guidance. Management expects usage of its buildings and parking facilities to gradually increase during the remainder of 2022, potentially increasing parking revenue and certain operating expenses. Management continues to monitor hybrid and remote-work trends, which have kept asset usage below pre-pandemic levels.
Management stated that it expects sufficient liquidity to meet obligations for the foreseeable future and reported compliance with the covenants of its credit facility, term loan, unsecured senior notes, and non-recourse mortgages. Debt maturities, refinancing conditions, interest-rate volatility, inflation, capital availability, and the planned transition away from U.S. dollar LIBOR remain important risks.
Other significant risks include office demand and leasing conditions, tenant defaults or financial weakness, construction delays and cost overruns, development and redevelopment leasing risk, asset impairments, competition, joint venture funding and partner risks, cyber and operational risks, uninsured losses, and the ability to maintain REIT qualification. The company had $200.2 million of future lease-related tenant improvement and construction obligations and $692,000 of performance bonds at June 30, 2022.
No held-for-investment, held-for-sale, land, or development assets were impaired during the periods presented. Ordinary-course litigation was not expected by management to have a material adverse effect. The company disclosed no material changes to previously reported risk factors, and management concluded that disclosure controls were effective.
Important Facts for Investors to Verify
- Reconcile reported GAAP earnings with FFO and assess the effect of the $4.5 million joint venture land-sale gain.
- Review same-property occupancy, leasing volume, rent spreads, concessions, and the impact of hybrid work on office demand.
- Evaluate the funding and expected returns for Promenade Central, Domain 9, Neuhoff, and other development or redevelopment projects.
- Monitor debt maturities, variable-rate exposure, refinancing plans, covenant headroom, and the LIBOR-to-SOFR transition.
- Assess whether operating cash flow can support dividends, tenant-improvement obligations, development spending, and debt service without continued asset sales or equity issuance.
- Track the remaining Norfolk Southern fee income and the effect of its completion on future revenue.
- Review the $43.4 million Avalon partner-interest purchase and the dilution and capital-allocation effects of the 2.6 million-share ATM issuance.