Cousins Properties Incorporated — Q3 2021 Form 10-Q Summary
Business Context and Reporting Period
Cousins Properties Incorporated is a self-managed and self-administered 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 filing covers the three and nine months ended September 30, 2021. At quarter-end, the portfolio included approximately 18.5 million square feet of office space and 620,000 square feet of other space.
Key Financial Metrics
| Metric | Q3 2021 | Q3 2020 | Change |
|---|---|---|---|
| Total revenues | $188.7 million | $183.4 million | +2.9% |
| Rental property revenues | $185.5 million | $179.0 million | +3.6% |
| Net operating income | $118.4 million | $115.8 million | +2.2% |
| Net income | $54.1 million | $28.3 million | +91.6% |
| Net income available to common stockholders | $54.0 million | $28.1 million | +92.1% |
| Diluted EPS | $0.36 | $0.19 | +89.5% |
| FFO | $102.4 million | $102.0 million | +0.4% |
| FFO per diluted share | $0.69 | $0.69 | Flat |
For the nine months ended September 30, 2021, total revenues were $564.9 million, net income available to common stockholders was $111.3 million, diluted EPS was $0.75, and FFO was $306.4 million, or $2.06 per diluted share. The prior-year nine-month results benefited from significant property and joint-venture sale gains, making comparisons less representative.
Q3 net margin was approximately 28.7%, compared with approximately 15.4% in Q3 2020. The increase primarily reflected higher gains on investment property and joint-venture transactions rather than a comparable increase in recurring operating earnings. Consolidated NOI margin was approximately 63.8% of rental property revenues.
Cash Flow, Balance Sheet, Debt, and Liquidity
- Net cash provided by operating activities was $298.6 million for the first nine months of 2021, up from $259.0 million in the comparable 2020 period.
- Investing activities used $51.4 million, including $488.2 million of property acquisition, development, and tenant asset expenditures and $389.8 million of investment property sale proceeds.
- Financing activities used $246.6 million, including $136.7 million of common dividends paid and net debt repayments.
- Cash, cash equivalents, and restricted cash totaled $6.8 million at September 30, 2021, including $5.5 million of unrestricted cash.
- Total assets were $7.0 billion and total liabilities were $2.5 billion at quarter-end. Notes payable were $2.05 billion, compared with $2.16 billion at December 31, 2020.
- The $1.0 billion unsecured credit facility had $34.0 million drawn and $966.0 million of available borrowing capacity. The company reported compliance with applicable debt covenants.
- The company entered into a new $350.0 million unsecured term loan maturing August 30, 2024, replacing a $250.0 million term loan that had been scheduled to mature in December 2021.
- Approximately 81% of debt carried fixed interest rates. The weighted-average maturity of notes payable was 4.39 years.
- The company paid common dividends of $0.93 per share during the first nine months of 2021, compared with $0.90 per share in the prior-year period.
Material Changes Versus the Prior Comparable Period
- Same-property NOI decreased 1.4% in Q3 and 0.7% for the first nine months. Same-property revenue was essentially flat in Q3, while operating expenses increased 1.9%.
- Non-same-property NOI increased 31.5% in Q3 and 18.2% for the first nine months, driven by completed developments, additional properties, and the July 2021 acquisition of 725 Ponce.
- The company acquired the 372,000-square-foot 725 Ponce office property in Midtown Atlanta for $300.8 million, including acquisition costs.
- The company sold One South at the Plaza in Charlotte for $271.5 million and recognized a $13.1 million gain. It also sold its interest in the DC Charlotte Plaza joint venture for $60.8 million and recognized a $13.1 million gain.
- The company formed a 50/50 joint venture for the Neuhoff mixed-use development in Nashville and contributed $35.1 million. The project is expected to include 448,000 square feet of office and retail space and 542 multifamily units.
- Interest expense increased 11.0% in Q3 and 12.5% for the first nine months, primarily because less interest was capitalized and borrowings increased.
- General and administrative expense increased 40.8% in Q3, primarily due to higher stock compensation expense.
- Fee income decreased 28.9% in Q3 and 9.8% for the first nine months, primarily reflecting lower revenue from the Norfolk Southern service arrangements.
Guidance, Outlook, Commentary, Risks, and Unusual Items
The filing does not provide a clear numerical earnings or FFO outlook. Management stated that it expects sufficient liquidity to meet obligations for the foreseeable future and intends to continue recycling capital through selective asset sales, acquisitions, development, joint ventures, debt, and potential equity issuance.
- During Q3, the company leased or renewed 597,000 square feet of office space. Weighted-average net effective rent was $24.06 per square foot, and net effective rent increased 31.6% for spaces leased within the prior year.
- Physical occupancy at properties remained affected by remote work. Management reported that rental obligations had not been materially affected by COVID-19 to date, but acknowledged uncertainty regarding variants, tenant demand, office utilization, and the pace of return to the office.
- Subsequent to quarter-end, the company acquired the 294,000-square-foot Heights Union office property in Tampa for $144.8 million.
- The company had $244.0 million of future obligations under leases to fund tenant improvements and other construction obligations.
- Unconsolidated joint ventures had $317.4 million of third-party debt, generally non-recourse to the company, although certain non-recourse carve-out guarantees exist.
- Potential risks include leasing and renewal conditions, remote-work trends, tenant credit quality, concentrated exposure to Sun Belt markets, interest-rate and LIBOR transition risk, refinancing, development costs and delays, joint-venture obligations, covenant compliance, cybersecurity, and REIT qualification.
- No impairment charges were recorded for held-for-investment or held-for-sale properties in the periods presented. Management stated that future impairments or tenant receivable valuation adjustments could result if economic and office-market conditions weaken.
- The company established a $500 million at-the-market equity offering program. The filing states that forward-sale agreements representing approximately $62.6 million of expected net proceeds were entered into during Q3, but proceeds had not yet been received and shares had not yet been issued.
Important Facts for Investors to Verify
- Whether same-property NOI and physical office occupancy stabilize as tenants return to offices.
- The leasing, occupancy, development costs, and eventual returns associated with 725 Ponce, Heights Union, Neuhoff, and other development projects.
- The company’s ability to refinance or repay mortgage debt and other maturities while maintaining covenant compliance.
- The effect of variable-rate debt and the transition away from U.S. dollar LIBOR after 2023.
- Whether COVID-19, remote work, tenant concessions, or tenant credit deterioration lead to impairments or increased collection losses.
- The timing and dilution implications of settling the forward equity-sale agreements and using the remaining $500 million ATM authorization.
- The sustainability of dividends and FFO after required tenant improvements, leasing costs, development spending, and debt service.