Cousins Properties Incorporated — Q1 2022 Form 10-Q Summary
Business Context and Reporting Period
Cousins Properties is a self-managed REIT focused primarily on Class A office properties and mixed-use developments in Sun Belt markets, including Atlanta, Austin, Charlotte, Phoenix, Tampa, Dallas and Nashville. The portfolio comprised approximately 18.7 million square feet of office space and 620,000 square feet of other space at March 31, 2022. This filing reports unaudited results for the three months ended March 31, 2022, compared with the same period in 2021.
Key Financial Metrics
| Metric | Q1 2022 | Q1 2021 | Change |
|---|---|---|---|
| Total revenues | $186.9 million | $189.6 million | Down 1.4% |
| Rental property revenues | $183.2 million | $184.8 million | Down 0.9% |
| Net income | $28.2 million | $29.3 million | Down 3.9% |
| Net income available to common stockholders | $28.0 million | $29.1 million | Down 3.9% |
| Diluted earnings per share | $0.19 | $0.20 | Down $0.01 |
| Funds from operations | $99.4 million | $102.0 million | Down 2.5% |
| FFO per diluted share | $0.67 | $0.69 | Down $0.02 |
| Net operating income | $119.6 million | $123.1 million | Down 2.9% |
| Cash flow from operating activities | $24.1 million | $35.8 million | Down $11.7 million |
Net income margin was approximately 15.1% of total revenue in Q1 2022, compared with approximately 15.5% in Q1 2021. Same-property NOI decreased 2.1%, while total consolidated NOI decreased 1.3% to $116.9 million. Including the Company’s share of unconsolidated joint ventures, same-property NOI decreased 2.0%.
At March 31, 2022, total assets were $7.36 billion, total liabilities were $2.78 billion and total equity was $4.58 billion. Notes payable totaled $2.35 billion, compared with $2.24 billion at December 31, 2021. Approximately 70% of debt carried fixed interest rates. Cash and cash equivalents were $7.0 million, and total cash, cash equivalents and restricted cash were $8.2 million.
The $1.0 billion unsecured credit facility had $345.0 million drawn and $655.0 million of available borrowing capacity. The facility matures January 3, 2023. The Company stated that it was in compliance with all debt covenants and expected to negotiate a replacement facility before maturity. The weighted average maturity of outstanding notes payable was 3.5 years.
Capital expenditures for property acquisition, development and tenant assets were $77.8 million, up from $61.4 million. Common dividends paid were $46.1 million, or $0.32 per share declared for the quarter.
Material Changes Versus the Prior Comparable Period
- Rental property revenue declined primarily because of 2021 property sales and the commencement of a full-building redevelopment at Promenade Central, partly offset by 2021 acquisitions and the consolidation of 300 Colorado.
- Same-property revenue declined 0.6%, while same-property operating expenses increased 2.1%, largely because higher physical occupancy increased certain operating costs.
- Termination fee income increased by $1.4 million to $1.5 million.
- Fee income declined 69.4% to $1.4 million as development activity related to the Norfolk Southern agreements continued to wind down. Approximately $2.4 million remained to be recognized under the related performance obligation at March 31, 2022.
- Other income increased by $2.1 million, primarily because of a final payment of contingent rights related to a previously disposed investment.
- General and administrative expense increased 19.8% to $8.1 million, primarily due to higher stock-based compensation.
- Interest expense decreased 9.8% to $15.5 million because more interest was capitalized for development and redevelopment activity, partly offset by higher LIBOR and increased borrowings.
- Operating cash flow decreased mainly because of the timing of tenant payments. Investing outflows increased because of redevelopment spending and contributions to the Neuhoff joint venture.
Guidance, Outlook, Risks and Unusual Items
The filing does not provide a clear quantitative full-year 2022 earnings or FFO guidance figure. Management expects sufficient liquidity to meet obligations for the foreseeable future and expects to fund dividends through operating cash flow and, if necessary, asset sales, joint venture distributions, borrowings and equity offerings.
Management reported leasing or renewals of 324,000 square feet during the quarter at a weighted average net effective rent of $23.74 per square foot. For space leased during the prior year, net effective rent increased 27.4%. Physical occupancy was increasing, but management cautioned that COVID-19, remote work and changing tenant space requirements could adversely affect demand, occupancy and operating costs.
Key risks include refinancing the credit facility and maturing mortgage debt, rising interest rates and the transition from LIBOR, office-market supply and demand changes, tenant credit quality, leasing and development execution, inflation, capital availability, and potential future impairments. The Company had $259.1 million of future obligations to fund tenant improvements and other construction obligations, plus $692,000 of performance bonds.
No held-for-investment, held-for-sale, land or development-project impairment was recorded in the periods presented. The Company stated that litigation matters were not expected to have a material adverse effect based on current expectations. Subsequent to quarter-end, on April 21, 2022, the Company purchased a partner’s 10% interest in the Avalon office properties for $43.4 million; the transaction did not change control or the consolidated basis of Avalon’s assets and liabilities.
The Company had an ATM equity program with up to $500 million of aggregate gross sales capacity. As of March 31, 2022, 2.6 million shares had been sold under forward equity sale agreements for expected net proceeds of $104.0 million, but the shares had not yet settled and the Company had not received the proceeds.
Most Important Facts for Investors to Verify
- Verify the refinancing or replacement of the $1.0 billion credit facility before its January 2023 maturity.
- Monitor debt maturities, floating-rate exposure, LIBOR-to-SOFR transition terms and compliance with leverage and coverage covenants.
- Assess leasing demand, physical occupancy, renewal spreads and the effect of remote work on the Sun Belt office portfolio.
- Track Promenade Central and Neuhoff redevelopment spending, leasing progress and total remaining commitments.
- Reconcile FFO and NOI trends with GAAP net income, cash flow and dividend funding capacity.
- Confirm settlement timing and dilution from the $104.0 million forward equity sales and the impact of the Avalon interest purchase.