Cousins Properties Incorporated — Q1 2012 Form 10-Q Summary
Business context and reporting period
Cousins Properties is a self-managed REIT that develops, acquires, owns and manages primarily office and retail properties in Georgia, Texas and North Carolina. At March 31, 2012, the portfolio included interests in approximately 7.8 million square feet of office space, 4.8 million square feet of retail space and two projects under development. The company also managed or leased approximately 13 million square feet for third parties. This filing covers the three months ended March 31, 2012; financial statements are unaudited.
Key financial metrics
| Metric | Q1 2012 | Q1 2011 | Change |
|---|---|---|---|
| Total revenues | $47.2 million | $45.5 million | Up 4% |
| Net loss | $11.4 million | $4.0 million | Loss increased |
| Net loss available to common stockholders | $13.1 million | $7.9 million | Loss increased |
| Loss per common share | $0.13 | $0.08 | Higher loss |
| Funds from operations available to common stockholders | $13.5 million, or $0.13 per share | $8.1 million, or $0.08 per share | Up 66% |
| Cash flow from operating activities | $10.2 million | $9.2 million | Up $1.0 million |
| Rental property revenues | $37.2 million | $32.7 million | Up 14% |
| Rental property operating expenses | $14.4 million | $12.9 million | Up 12% |
| Interest expense | $6.3 million | $7.5 million | Down 17% |
| Impairment losses | $12.2 million | $3.5 million | Higher |
Rental property net operating income, including discontinued operations, was $23.0 million versus $22.0 million in the prior-year quarter. FFO is a non-GAAP supplemental measure and benefited from excluding real estate depreciation, impairment and property-sale effects; it should not be viewed as equivalent to GAAP earnings.
Balance sheet, debt and liquidity
- Total assets were $1.20 billion at March 31, 2012, down from $1.24 billion at December 31, 2011.
- Notes payable were $529.2 million, compared with $539.4 million at year-end. Management reported a weighted-average consolidated debt rate of 4.68% and consolidated debt to undepreciated assets of 39%.
- Cash and cash equivalents were $4.0 million, with restricted cash of $4.1 million.
- The company amended and extended its $350 million senior unsecured credit facility to February 2016, with a one-year extension option and an accordion feature allowing total capacity of up to $500 million, subject to conditions.
- Credit facility borrowings were $87.0 million at March 31, 2012, at an applicable Eurodollar spread of 1.60%. Key covenants include minimum unencumbered interest coverage of 2.00, minimum fixed-charge coverage of 1.40 and maximum leverage of 60%.
- The company issued a $100 million, 3.35% mortgage secured by 191 Peachtree Tower. In April 2012, it prepaid the $24.4 million North Point Center East mortgage using credit facility proceeds.
- Cash flow from investing activities was $11.4 million, supported primarily by a $24.1 million distribution from unconsolidated joint ventures. Financing activities used $22.5 million, including debt repayments, dividends and financing costs. Cash declined by $0.9 million during the quarter.
Material changes versus the prior comparable period
- Revenue growth primarily reflected the 2011 acquisition of the Promenade office building and improved occupancy at The Avenue Forsyth, partly offset by lower occupancy at 555 North Point Center East.
- Fee income decreased 16%, while third-party management and leasing revenues increased 15%.
- Multi-family residential unit sales ceased in the quarter versus $4.7 million of revenue in Q1 2011, reflecting the sale of substantially all such units.
- General and administrative expense declined 11%, and interest expense declined 17% due to prior debt repayments and increased capitalized interest.
- Impairment losses increased to $12.2 million from $3.5 million. The 2012 charge related to The Avenue Collierville, which was under contract for approximately $55 million; the 2011 charge related to the company’s investment in Verde Realty.
- The company sold interests in 18 residential development projects through joint ventures, generating approximately $23.5 million of proceeds to the company and contributing to its strategy of simplifying the portfolio.
Guidance, outlook, commentary and risks
The filing does not provide a formal earnings or FFO guidance range. Management expects current commitments over the next 12 months to be funded through operating cash flow, credit facility and mortgage borrowings, and asset-sale proceeds. It expects to sell additional residential projects and undeveloped land over the next several years, while continuing to evaluate acquisitions and development opportunities.
- Leasing activity during the quarter included 179,000 square feet of office leasing or renewals and 136,000 square feet of retail leasing or renewals. Leasing percentages remained generally consistent with year-end 2011.
- Atlanta and North Carolina markets had flat to modest employment growth and limited improvement in office demand or rental rates. Texas markets showed stronger job growth and lower unemployment; retail tenant sales and consumer confidence improved.
- Galleria 75 and Ten Peachtree Place were under contract for anticipated second-quarter 2012 closings. The Avenue Collierville sale closed in Q2 2012 after quarter-end.
- Development and tenant-related commitments totaled $29.5 million, including $11.3 million of estimated development commitments and $12.9 million of unfunded tenant improvements and other commitments.
- The company’s share of unconsolidated joint-venture debt was approximately $164.2 million, including approximately $31.5 million recourse to the company. Significant guarantees include $26.2 million related to CF Murfreesboro and approximately $11.5 million available under the EP I construction-loan guarantee, although amounts guaranteed based on current borrowings were lower.
- Key risks include refinancing and capital availability, interest-rate exposure, debt-covenant compliance, leasing and tenant credit risk, real estate valuation and impairment risk, development execution, joint-venture obligations, asset-sale pricing and continued REIT qualification.
- Management reported no material adverse effect expected from current litigation and concluded that disclosure controls and procedures were effective.
Important facts for investors to verify
- Reconcile the $13.5 million of FFO to the $13.1 million GAAP loss available to common stockholders, with particular attention to the $12.2 million Collierville impairment and other adjustments.
- Confirm post-quarter-end results of the Collierville, Galleria 75 and Ten Peachtree Place transactions, including proceeds, gains or losses and debt effects.
- Review credit facility covenant headroom, availability and maturity-extension conditions after the February 2012 refinancing.
- Assess near-term liquidity against $52.5 million of contractual obligations due within one year and $28.5 million of listed commitments due within one year.
- Evaluate occupancy, renewal spreads, tenant concessions and leasing costs, especially at properties with significant occupancy changes.
- Review joint-venture debt, guarantees and additional equity funding requirements, including the anticipated $3.1 million EP I contribution and approximately $6.7 million Ten Peachtree Place tenant-cost obligation.