Cousins Properties Incorporated — FY2022 Form 10-K Summary
Business Context and Reporting Period
Cousins Properties 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, Tampa, Phoenix, Charlotte, Dallas, and Nashville. The filing covers the fiscal year ended December 31, 2022, with comparisons to 2021. The company owned interests in approximately 18.8 million square feet of office space and 310,000 square feet of other space at year-end.
Financial Performance and Key Metrics
| Metric | 2022 | 2021 | Change |
|---|---|---|---|
| Rental property revenue | $753.5 million | $739.1 million | 2.0% increase |
| Total revenue | $762.3 million | $755.1 million | 0.9% increase |
| Net income available to common stockholders | $166.8 million | $278.6 million | 40.1% decrease |
| Diluted earnings per share | $1.11 | $1.87 | Decrease |
| Total NOI | $492.7 million | $474.5 million | 3.8% increase |
| Same-property NOI | $419.8 million | $419.9 million | Essentially unchanged |
| Funds from operations | $408.8 million | $409.2 million | 0.1% decrease |
| Diluted FFO per share | $2.72 | $2.75 | Decrease |
| Net cash provided by operating activities | $365.2 million | $389.5 million | 6.2% decrease |
| Dividends declared per common share | $1.28 | $1.24 | Increase |
Total NOI represented approximately 65% of rental property revenue; this is a non-GAAP measure and is not a substitute for GAAP income or operating cash flow. Net income was materially affected by the absence of the large property-sale gains recognized in 2021, including the gain on sale of investment properties.
Leasing, Portfolio, and Operating Trends
- Operating properties were 91.0% leased at December 31, 2022, with weighted average economic occupancy of 87.1%.
- The company leased or renewed 2.0 million square feet during 2022, including 997,000 square feet of new or expansion leases.
- Cash-basis second-generation net rent increased 9.5%, while same-property NOI increased 1.0% on a cash basis.
- Atlanta and Austin generated approximately 36% and 31% of fourth-quarter 2022 property NOI, respectively, creating meaningful geographic concentration.
- The top 20 tenants accounted for 37.9% of annualized base rental revenue; Amazon was the largest tenant at 7.3%.
Cash Flow, Debt, and Liquidity
- Cash, cash equivalents, and restricted cash declined to $5.1 million at December 31, 2022 from $10.2 million at year-end 2021.
- Cash used in investing activities was $334.5 million, primarily reflecting building improvements, tenant improvements, leasing costs, development spending, and joint venture contributions.
- Total notes payable were $2.335 billion, compared with $2.238 billion at year-end 2021. The filing separately reports approximately $2.3 billion of outstanding indebtedness.
- The company had $56.6 million drawn on its $1.0 billion revolving credit facility and $943.4 million of available borrowing capacity at year-end.
- Debt included $1.0 billion of fixed-rate senior notes, $750 million of term loans, and $535.2 million of fixed-rate mortgage debt. The weighted average maturity of notes payable was approximately four years.
- Interest expense increased 8.2% to $72.5 million due primarily to higher rates on variable-rate debt, the new $400 million term loan, and higher average revolver borrowings.
- The company expects to fund $181.1 million of 2023 unfunded tenant improvements and construction obligations through operating cash flow, asset sales, borrowings, equity proceeds, joint venture sources, or other financing.
- Management stated that the company was in compliance with all applicable debt covenants.
Material Changes Versus 2021
- Net income declined by $111.8 million, primarily because 2021 included substantially larger gains from property and joint venture dispositions.
- Rental property revenue increased modestly, supported by acquisitions and consolidation of properties, while same-property revenue and NOI were broadly stable.
- Fee income declined 60.7% to $6.1 million as development activity associated with the Norfolk Southern transactions neared completion. All related deferred fee revenue had been recognized by year-end.
- The company completed two developments, 300 Colorado in Austin and 100 Mill in Phoenix, and continued development of Domain 9 in Austin and Neuhoff in Nashville.
- The company acquired its partner’s 10% interest in the 8000 and 10000 Avalon properties for $43.4 million and sold its 50% interest in Carolina Square for gross proceeds of $105.0 million, recognizing a $56.3 million gain.
- The company issued 2.6 million common shares under previously established forward sale contracts for gross proceeds of approximately $105.1 million.
- The revolving credit facility was extended to April 2027, a $400 million term loan was issued with a March 2025 maturity, and the $350 million term loan was hedged with a swap fixing the underlying SOFR rate at 4.23% through maturity.
- The company repaid the Promenade Tower and Legacy Union mortgages and refinanced the Terminus mortgages through January 2031 at 6.34%.
Outlook, Commentary, Risks, and Unusual Items
Management believes Sun Belt markets and high-quality, well-located office properties should outperform broader office-market conditions, citing flight-to-quality and flight-to-location trends. However, the filing does not provide formal quantitative earnings, NOI, FFO, occupancy, or dividend guidance for 2023.
- Key operating risks include remote and hybrid work trends, tenant downsizing, elevated sublease availability, lower demand for office space, lease expirations, tenant concessions, and tenant credit deterioration.
- Interest-rate increases may raise borrowing costs and reduce property values. Approximately $456.6 million of variable-rate debt was outstanding at year-end; management estimated that a 1% increase in variable rates would have increased 2022 interest expense by approximately $6.7 million based on average balances.
- Approximately $429.1 million of debt principal is scheduled for 2024 and $656.8 million for 2025, creating refinancing and capital-markets exposure.
- Development projects remain exposed to construction delays, cost overruns, financing availability, permitting, and lease-up risks. Active development had an estimated total cost of $710 million, including the company’s $428.5 million share.
- Additional risks include geographic and tenant concentration, joint venture partner performance, ground leases, environmental liabilities, climate and insurance costs, cybersecurity, REIT qualification, and debt-covenant compliance.
- The company reported no material impairment charges in 2022 and stated that ordinary-course litigation is not expected to have a material adverse effect.
- Management and Deloitte concluded that disclosure controls and internal control over financial reporting were effective. Deloitte issued unqualified opinions on the financial statements and internal controls.
Important Facts for Investors to Verify
- Reconcile the decline in GAAP earnings with the relatively stable FFO and NOI, particularly the impact of 2021 and 2022 disposition gains.
- Monitor occupancy, leasing spreads, tenant concessions, and renewal activity as hybrid-work effects continue to develop.
- Assess refinancing capacity for the 2024–2025 maturities and the sensitivity of interest expense to SOFR and other market rates.
- Evaluate the $181.1 million of 2023 unfunded tenant improvement and construction obligations against operating cash flow and available liquidity.
- Review the lease-up and cost assumptions for Domain 9 and Neuhoff, including the company’s share of estimated project costs.
- Consider exposure to Atlanta and Austin, which together represented approximately two-thirds of fourth-quarter 2022 property NOI.
- Confirm the sustainability of the $1.28 per-share dividend relative to operating cash flow, FFO, debt covenants, and future capital requirements.