Cousins Properties Incorporated — Q2 2021 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, and Dallas. The filing covers the three and six months ended June 30, 2021. The portfolio included approximately 19.0 million square feet of office space and 620,000 square feet of other space.
Key Financial Metrics
| Metric | Three Months Ended June 30 | Six Months Ended June 30 |
|---|---|---|
| Rental property revenue | $181.8 million, up 3.8% | $366.6 million, up 0.6% |
| Total revenue | $186.6 million, up 3.7% | $376.2 million, up 0.6% |
| Net income available to common stockholders | $28.2 million, or $0.19 per diluted share | $57.3 million, or $0.39 per diluted share |
| Funds from operations | $102.1 million, or $0.69 per diluted share | $204.0 million, or $1.37 per diluted share |
| Consolidated NOI | $117.3 million | $235.6 million |
| Net cash provided by operating activities | Not separately provided for the quarter | $167.7 million |
Consolidated NOI margin was approximately 62.8% of rental property revenue for the quarter and 64.3% for the six-month period. Same-property NOI increased 1.0% in the quarter but decreased 0.3% year to date. Including the Company’s share of unconsolidated ventures, same-property NOI increased 1.4% for the quarter.
At June 30, 2021, total assets were $6.95 billion, total debt was approximately $2.05 billion, and total equity was $4.47 billion. Cash and cash equivalents were $9.8 million, with total cash, cash equivalents, and restricted cash of $11.0 million. The Company had $32.0 million drawn on its $1.0 billion unsecured credit facility and $968.0 million of remaining borrowing capacity.
Debt consisted primarily of $1.0 billion of unsecured senior notes, a $350.0 million unsecured term loan, $669.8 million of secured mortgage notes, and $32.0 million outstanding under the credit facility. Approximately 81% of debt carried fixed interest rates. The weighted-average debt maturity was 4.7 years.
Material Changes Versus the Prior Comparable Period
- Quarterly net income available to common stockholders increased to $28.2 million from $23.1 million, while six-month income declined to $57.3 million from $198.0 million.
- The year-to-date comparison was adversely affected by approximately $136.7 million of gains recognized in 2020 from sales of properties and unconsolidated joint venture interests; 2021 included no comparable gains and a small loss on the Burnett Plaza sale.
- Quarterly FFO increased to $102.1 million from $98.0 million, but six-month FFO declined to $204.0 million from $210.7 million.
- General and administrative expense declined 14.4% in the quarter, primarily due to lower stock compensation expense.
- Interest expense increased 19.0% in the quarter and 13.3% year to date, primarily because less interest was capitalized as development projects moved toward operations.
- Operating cash flow increased $34.1 million year to date, while investing cash flow decreased $212.4 million because the prior-year period included substantially larger property and joint venture disposition proceeds.
- The Company sold Burnett Plaza in April 2021 for $137.5 million and recorded a $19,000 loss. One South at the Plaza was classified as held for sale at quarter end and was subsequently sold on July 23, 2021 for $271.5 million and an estimated $13 million gain.
- On June 28, 2021, the Company replaced its $250 million term loan due in December 2021 with a $350 million term loan maturing August 30, 2024, subject to extension options.
- Quarterly leasing activity totaled 484,000 square feet. Net effective rent increased 21.7% for spaces leased within the prior year.
Guidance, Outlook, Commentary, and Risks
Management stated that it expects available liquidity to be sufficient for foreseeable obligations, using operating cash flow, asset sales, joint venture distributions, debt financing, and potential equity financing. No specific earnings or FFO guidance is provided in the filing text.
Management reported that COVID-19 had not materially affected lease payment obligations through June 30, 2021. Physical occupancy remained reduced because of remote work, although increased vaccination availability was associated with improving occupancy and expected higher parking demand. The filing cautions that variant strains, prolonged remote work, tenant financial stress, and an extended economic downturn could adversely affect leasing, rent collections, property values, and liquidity.
The Company was in compliance with the covenants governing its credit facility, unsecured senior notes, term loan, and mortgage debt. Key credit facility requirements include an overall leverage ratio no greater than 60%, a secured leverage ratio no greater than 40%, an unencumbered interest coverage ratio of at least 1.75 times, and a fixed-charge coverage ratio of at least 1.50 times.
Material commitments included $258.9 million of future tenant improvement and construction obligations, $213.7 million of ground lease obligations, and $647,000 of performance bonds. Unconsolidated joint ventures had $290.9 million of third-party debt, generally non-recourse to the Company, although certain non-recourse carve-out guarantees exist.
Risks include office demand changes from remote and flexible work, leasing and tenant credit risk, concentrated exposure to Sun Belt markets, interest-rate and LIBOR-transition risk, refinancing requirements, development cost overruns, asset impairment, joint venture performance, cybersecurity, regulatory requirements, and continued qualification as a REIT. Management stated that no material changes occurred in previously disclosed risk factors.
Most Important Facts for Investors to Verify
- Reconcile reported GAAP earnings with FFO and assess the effect of property and joint venture sales on year-over-year comparisons.
- Monitor same-property occupancy, rent collections, leasing volume, renewal spreads, and the long-term effect of remote work on office demand.
- Verify debt maturities, refinancing plans, variable-rate exposure, LIBOR replacement terms, and continued compliance with financial covenants.
- Assess liquidity after the subsequent acquisition of 725 Ponce, the One South at the Plaza disposition, and new development joint ventures.
- Evaluate the $258.9 million tenant improvement and construction commitment and the Company’s expected funding sources.
- Review potential future impairments or tenant receivable adjustments related to COVID-19 and broader office-market conditions.
- Confirm the completion and economics of the DCCP joint venture interest sale expected to close in the third quarter of 2021.