Cousins Properties Inc 10-Q for FY2021 Q2
Cousins Properties Inc (CUZ)
10-Q
2021-07-29
For: 2021-06-30
View Original
Added on
April 09, 2026
About this 10-Q
Cousins Properties Inc filed this 10-Q on July 29, 2021, covering the quarter ended June 30, 2021 (FY2021 Q2).
Headline figures
Quarter ended June 30, 2021, as reported in this filing, compared with the same period a year earlier where the filing states it.
- Revenue
- $186.64M
- up 3.7% from $179.92M a year earlier
- Net income
- $28.15M
- up 21.9% from net income of $23.1M a year earlier
- Diluted EPS
- $0.19
- up 18.8% from $0.16 a year earlier
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
| QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 | ||||||||
For the quarterly period ended June 30, 2021
OR
| TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 | ||||||||
For the transition period from to
Commission file number: 001-11312
(Exact name of registrant as specified in its charter)
| (State or other jurisdiction of incorporation or organization) | (I.R.S. Employer Identification No.) | ||||||||||||||||
| (Address of principal executive offices) | (Zip Code) | ||||||||||||||||
(404 ) 407-1000
(Registrant’s telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
| Title of each class | Trading Symbol(s) | Name of each exchange on which registered | |||||||||||||||
| ("NYSE") | |||||||||||||||||
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☑ No ☐
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☑ No ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer”, “smaller reporting company”, and "emerging growth company" in Rule 12b-2 of the Exchange Act.
| ☑ | Accelerated filer | ☐ | ||||||||||||
| Non-accelerated filer | ☐ | Smaller reporting company | ||||||||||||
| Emerging growth company | ||||||||||||||
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
Yes ☐ No ☑
Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.
| Class | Outstanding at July 23, 2021 | |||||||
| Common Stock, $1 par value per share | ||||||||
| Page No. | |||||
FORWARD-LOOKING STATEMENTS
Certain matters contained in this report are “forward-looking statements” within the meaning of the federal securities laws and are subject to uncertainties and risks, as itemized in Item 1A included in the Annual Report on Form 10-K for the year ended December 31, 2020, and as itemized herein. These forward-looking statements include information about possible or assumed future results of the business and the Company's financial condition, liquidity, results of operations, plans, and objectives. They also include, among other things, statements regarding subjects that are forward-looking by their nature, such as:
•guidance and underlying assumptions;
•business and financial strategy;
•future debt financings;
•future acquisitions and dispositions of operating assets or joint venture interests;
•future acquisitions and dispositions of land, including ground leases;
•future development and redevelopment opportunities, including fee development opportunities;
•future issuances and repurchases of common stock, limited partnership units, or preferred stock;
•future distributions;
•projected capital expenditures;
•market and industry trends;
•entry into new markets or changes in existing market concentrations;
•future changes in interest rates; and
•all statements that address operating performance, events, or developments that the Company expects or anticipates will occur in the future — including statements relating to creating value for stockholders.
Any forward-looking statements are based upon management's beliefs, assumptions, and expectations of the Company's future performance, taking into account information that is currently available. These beliefs, assumptions, and expectations may change as a result of possible events or factors, not all of which are known. If a change occurs, the Company's business, financial condition, liquidity, and results of operations may vary materially from those expressed in forward-looking statements. Actual results may vary from forward-looking statements due to, but not limited to, the following:
•the availability and terms of capital;
•the ability to refinance or repay indebtedness as it matures;
•the failure of purchase, sale, or other contracts to ultimately close;
•the failure to achieve anticipated benefits from acquisitions, investments, or dispositions;
•the potential dilutive effect of common stock or operating partnership unit issuances;
•the availability of buyers and pricing with respect to the disposition of assets;
•changes in national and local economic conditions, the real estate industry, and the commercial real estate markets in which the Company operates (including supply and demand changes), particularly in Atlanta, Austin, Charlotte, Phoenix, Tampa, Dallas, and Nashville where the Company has high concentrations of the Company's lease revenues, including the impact of high unemployment, volatility in the public equity and debt markets, and international economic and other conditions;
•the impact of a public health crisis, including the COVID-19 pandemic, and the governmental and third-party response to such a crisis, which may affect the Company's key personnel, the Company's tenants, and the costs of operating the Company's assets;
•the impact of social distancing, shelter-in-place, border closings, travel restrictions, remote work requirements, and similar
governmental and private measures taken to combat the spread of a public health crisis on the Company's operations and the
Company's tenants;
•sociopolitical unrest such as political instability, civil unrest, armed hostilities, or political activism, which may result in a disruption of day-to-day building operations;
•changes to the Company's strategy in regard to the Company's real estate assets may require impairment to be recognized;
•leasing risks, including the ability to obtain new tenants or renew expiring tenants, the ability to lease newly-developed and/or recently-acquired space, the failure of a tenant to commence or complete tenant improvements on schedule or to occupy leased space, and the risk of declining leasing rates;
•changes in the needs of the Company's tenants brought about by the desire for co-working arrangements, trends toward utilizing less office space per employee, and the effect of employees working remotely;
•any adverse change in the financial condition of one or more of the Company's tenants;
•volatility in interest rates and insurance rates;
•competition from other developers or investors;
•the risks associated with real estate developments (such as zoning approval, receipt of required permits, construction delays, cost overruns, and leasing risk);
•cyber security breaches;
1
•changes in senior management, changes in the Board of Directors, and the loss of key personnel;
•the potential liability for uninsured losses, condemnation, or environmental issues;
•the potential liability for a failure to meet regulatory requirements;
•the financial condition and liquidity of, or disputes with, joint venture partners;
•any failure to comply with debt covenants under credit agreements;
•any failure to continue to qualify for taxation as a real estate investment trust and meet regulatory requirements;
•potential changes to state, local, or federal regulations applicable to the Company's business;
•material changes in the rates, or the ability to pay, dividends on common shares or other securities;
•potential changes to the tax laws impacting REITs and real estate in general; and
•those additional risks and factors discussed in reports filed with the Securities and Exchange Commission ("SEC") by the Company.
The words “believes,” “expects,” “anticipates,” “estimates,” “plans,” “may,” “intend,” “will,” or similar expressions are intended to identify forward-looking statements. Although the Company believes that the plans, intentions, and expectations reflected in any forward-looking statements are reasonable, the Company can give no assurance that such plans, intentions, or expectations will be achieved. The Company undertakes no obligation to publicly update or revise any forward-looking statement, whether as a result of future events, new information, or otherwise, except as required under U.S. federal securities laws.
2
PART I — FINANCIAL INFORMATION
Item 1. Condensed Consolidated Financial Statements.
COUSINS PROPERTIES INCORPORATED AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(in thousands, except share and per share amounts)
| June 30, 2021 | December 31, 2020 | ||||||||||
| (unaudited) | |||||||||||
| Assets: | |||||||||||
| Real estate assets: | |||||||||||
Operating properties, net of accumulated depreciation of $ | $ | $ | |||||||||
| Projects under development | |||||||||||
| Land | |||||||||||
| Real estate assets and other assets held for sale, net | |||||||||||
| Cash and cash equivalents | |||||||||||
| Restricted cash | |||||||||||
| Accounts receivable | |||||||||||
| Deferred rents receivable | |||||||||||
| Investment in unconsolidated joint ventures | |||||||||||
| Intangible assets, net | |||||||||||
| Other assets | |||||||||||
| Total assets | $ | $ | |||||||||
| Liabilities: | |||||||||||
| Notes payable | $ | $ | |||||||||
| Accounts payable and accrued expenses | |||||||||||
| Deferred income | |||||||||||
| Intangible liabilities, net | |||||||||||
| Other liabilities | |||||||||||
| Liabilities of real estate assets held for sale, net | |||||||||||
| Total liabilities | |||||||||||
| Commitments and contingencies | |||||||||||
| Equity: | |||||||||||
| Stockholders' investment: | |||||||||||
Common stock, $ | |||||||||||
| Additional paid-in capital | |||||||||||
Treasury stock at cost, | ( | ( | |||||||||
| Distributions in excess of cumulative net income | ( | ( | |||||||||
| Total stockholders' investment | |||||||||||
| Nonredeemable noncontrolling interests | |||||||||||
| Total equity | |||||||||||
| Total liabilities and equity | $ | $ | |||||||||
| See accompanying notes. | |||||||||||
3
COUSINS PROPERTIES INCORPORATED AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(unaudited; in thousands, except per share amounts)
| Three Months Ended | Six Months Ended | ||||||||||||||||||||||
| June 30, | June 30, | ||||||||||||||||||||||
| 2021 | 2020 | 2021 | 2020 | ||||||||||||||||||||
| Revenues: | |||||||||||||||||||||||
| Rental property revenues | $ | $ | $ | $ | |||||||||||||||||||
| Fee income | |||||||||||||||||||||||
| Other | |||||||||||||||||||||||
| Expenses: | |||||||||||||||||||||||
| Rental property operating expenses | |||||||||||||||||||||||
| Reimbursed expenses | |||||||||||||||||||||||
| General and administrative expenses | |||||||||||||||||||||||
| Interest expense | |||||||||||||||||||||||
| Depreciation and amortization | |||||||||||||||||||||||
| Transaction costs | |||||||||||||||||||||||
| Other | |||||||||||||||||||||||
| Income from unconsolidated joint ventures | |||||||||||||||||||||||
| Gain (loss) on sales of investments in unconsolidated joint ventures | ( | ||||||||||||||||||||||
| Gain (loss) on investment property transactions | ( | ( | ( | ||||||||||||||||||||
| Net income | |||||||||||||||||||||||
| Net loss (income) attributable to noncontrolling interests | ( | ( | ( | ||||||||||||||||||||
| Net income available to common stockholders | $ | $ | $ | $ | |||||||||||||||||||
| Net income per common share — basic and diluted | $ | $ | $ | $ | |||||||||||||||||||
| Weighted average shares — basic | |||||||||||||||||||||||
| Weighted average shares — diluted | |||||||||||||||||||||||
| See accompanying notes. | |||||||||||||||||||||||
4
COUSINS PROPERTIES INCORPORATED AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF EQUITY
(unaudited; in thousands except per share amounts)
| Three Months Ended June 30, 2021 | ||||||||||||||||||||||||||||||||||||||||||||||||||
| Common Stock | Additional Paid-In Capital | Treasury Stock | Distributions in Excess of Net Income | Stockholders’ Investment | Nonredeemable Noncontrolling Interests | Total Equity | ||||||||||||||||||||||||||||||||||||||||||||
| Balance March 31, 2021 | $ | $ | $ | ( | $ | ( | $ | $ | $ | |||||||||||||||||||||||||||||||||||||||||
| Net income | — | — | — | ( | ||||||||||||||||||||||||||||||||||||||||||||||
Common stock issued pursuant to stock based compensation | — | — | — | |||||||||||||||||||||||||||||||||||||||||||||||
Amortization of stock options, restricted stock, and restricted stock units, net of forfeitures | ( | — | — | — | ||||||||||||||||||||||||||||||||||||||||||||||
Contributions from nonredeemable noncontrolling interests | — | — | — | — | — | |||||||||||||||||||||||||||||||||||||||||||||
Distributions to nonredeemable noncontrolling interests | — | — | — | — | — | ( | ( | |||||||||||||||||||||||||||||||||||||||||||
Common dividends ($ | — | — | — | ( | ( | — | ( | |||||||||||||||||||||||||||||||||||||||||||
| Balance June 30, 2021 | $ | $ | $ | ( | $ | ( | $ | $ | $ | |||||||||||||||||||||||||||||||||||||||||
| Three Months Ended June 30, 2020 | ||||||||||||||||||||||||||||||||||||||||||||||||||
| Common Stock | Additional Paid-In Capital | Treasury Stock | Distributions in Excess of Net Income | Stockholders’ Investment | Nonredeemable Noncontrolling Interests | Total Equity | ||||||||||||||||||||||||||||||||||||||||||||
| Balance March 31, 2020 | $ | $ | $ | ( | $ | ( | $ | $ | $ | |||||||||||||||||||||||||||||||||||||||||
| Net income | — | — | — | |||||||||||||||||||||||||||||||||||||||||||||||
Common stock issued pursuant to stock based compensation | — | — | — | |||||||||||||||||||||||||||||||||||||||||||||||
| Amortization of stock options, restricted stock, and restricted stock units, net of forfeitures | ( | — | — | — | ||||||||||||||||||||||||||||||||||||||||||||||
| Contributions from nonredeemable noncontrolling interests | — | — | — | — | — | |||||||||||||||||||||||||||||||||||||||||||||
| Distributions to nonredeemable noncontrolling interests | — | — | — | — | — | ( | ( | |||||||||||||||||||||||||||||||||||||||||||
Common dividends ($ | — | — | — | ( | ( | — | ( | |||||||||||||||||||||||||||||||||||||||||||
| Balance June 30, 2020 | $ | $ | $ | ( | $ | ( | $ | $ | $ | |||||||||||||||||||||||||||||||||||||||||
See accompanying notes.
5
COUSINS PROPERTIES INCORPORATED AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF EQUITY
(unaudited; in thousands except per share amounts)
| Six Months Ended June 30, 2021 | ||||||||||||||||||||||||||||||||||||||||||||||||||
| Preferred Stock | Common Stock | Additional Paid-In Capital | Treasury Stock | Distributions in Excess of Net Income | Stockholders’ Investment | Nonredeemable Noncontrolling Interests | Total Equity | |||||||||||||||||||||||||||||||||||||||||||
| Balance December 31, 2020 | $ | $ | $ | $ | ( | $ | ( | $ | $ | $ | ||||||||||||||||||||||||||||||||||||||||
| Net income | — | — | — | — | ||||||||||||||||||||||||||||||||||||||||||||||
Common stock issued pursuant to stock based compensation | — | — | — | — | ||||||||||||||||||||||||||||||||||||||||||||||
Amortization of stock options, restricted stock, and restricted stock units, net of forfeitures | — | ( | — | — | — | |||||||||||||||||||||||||||||||||||||||||||||
Contributions from nonredeemable noncontrolling interests | — | — | — | — | — | — | ||||||||||||||||||||||||||||||||||||||||||||
Distributions to nonredeemable noncontrolling interests | — | — | — | — | — | — | ( | ( | ||||||||||||||||||||||||||||||||||||||||||
Common dividends ($ | — | — | — | — | ( | ( | — | ( | ||||||||||||||||||||||||||||||||||||||||||
| Balance June 30, 2021 | $ | $ | $ | $ | ( | $ | ( | $ | $ | $ | ||||||||||||||||||||||||||||||||||||||||
| Six Months Ended June 30, 2020 | ||||||||||||||||||||||||||||||||||||||||||||||||||
| Preferred Stock | Common Stock | Additional Paid-In Capital | Treasury Stock | Distributions in Excess of Net Income | Stockholders’ Investment | Nonredeemable Noncontrolling Interests | Total Equity | |||||||||||||||||||||||||||||||||||||||||||
| Balance December 31, 2019 | $ | $ | $ | $ | ( | $ | ( | $ | $ | $ | ||||||||||||||||||||||||||||||||||||||||
| Net income | — | — | — | — | ||||||||||||||||||||||||||||||||||||||||||||||
Common stock issued pursuant to stock based compensation | — | ( | — | — | ( | — | ( | |||||||||||||||||||||||||||||||||||||||||||
| Common stock issued pursuant to unitholder redemption | ( | — | — | ( | ||||||||||||||||||||||||||||||||||||||||||||||
| Amortization of stock options, restricted stock, and restricted stock units, net of forfeitures | — | ( | — | — | — | |||||||||||||||||||||||||||||||||||||||||||||
Contributions from nonredeemable noncontrolling interests | — | — | — | — | — | — | ||||||||||||||||||||||||||||||||||||||||||||
Distributions to nonredeemable noncontrolling interests | — | — | — | — | — | — | ( | ( | ||||||||||||||||||||||||||||||||||||||||||
Common dividends ($ | — | — | — | — | ( | ( | — | ( | ||||||||||||||||||||||||||||||||||||||||||
| Balance June 30, 2020 | $ | $ | $ | $ | ( | $ | ( | $ | $ | $ | ||||||||||||||||||||||||||||||||||||||||
| See accompanying notes. | ||||||||||||||||||||||||||||||||||||||||||||||||||
6
COUSINS PROPERTIES INCORPORATED AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited; in thousands)
| Six Months Ended June 30, | |||||||||||
| 2021 | 2020 | ||||||||||
| CASH FLOWS FROM OPERATING ACTIVITIES: | |||||||||||
| Net income | $ | $ | |||||||||
| Adjustments to reconcile net income to net cash provided by operating activities: | |||||||||||
| Gain on sales of investment in unconsolidated joint ventures | ( | ( | |||||||||
| Gain (loss) on investment property transactions | ( | ||||||||||
| Depreciation and amortization | |||||||||||
| Amortization and write-off of deferred financing costs and premium on notes payable | ( | ( | |||||||||
| Equity-classified stock-based compensation expense, net of forfeitures | |||||||||||
| Effect of non-cash adjustments to rental revenues | ( | ( | |||||||||
| Income from unconsolidated joint ventures | ( | ( | |||||||||
| Operating distributions from unconsolidated joint ventures | |||||||||||
| Changes in other operating assets and liabilities: | |||||||||||
| Change in receivables and other assets, net | ( | ( | |||||||||
| Change in operating liabilities, net | ( | ( | |||||||||
| Net cash provided by operating activities | |||||||||||
| CASH FLOWS FROM INVESTING ACTIVITIES: | |||||||||||
| Proceeds from investment property sales, net | |||||||||||
| Proceeds from sale of interest in unconsolidated joint ventures, net | |||||||||||
| Property acquisition, development, and tenant asset expenditures | ( | ( | |||||||||
| Return of capital distributions from unconsolidated joint venture | |||||||||||
| Contributions to unconsolidated joint ventures | ( | ( | |||||||||
| Change in notes receivable and other assets | |||||||||||
| Net cash provided by investing activities | |||||||||||
| CASH FLOWS FROM FINANCING ACTIVITIES: | |||||||||||
| Proceeds from credit facility | |||||||||||
| Repayment of credit facility | ( | ( | |||||||||
| Repayment of notes payable | ( | ( | |||||||||
| Payment of deferred financing costs | ( | ||||||||||
| Contributions from noncontrolling interests | |||||||||||
| Distributions to nonredeemable noncontrolling interests | ( | ( | |||||||||
| Common dividends paid | ( | ( | |||||||||
| Issuance of term loan | |||||||||||
| Repayment of term loan | ( | ||||||||||
| Other | ( | ||||||||||
| Net cash used in financing activities | ( | ( | |||||||||
| NET INCREASE IN CASH, CASH EQUIVALENTS, AND RESTRICTED CASH | |||||||||||
| CASH, CASH EQUIVALENTS, AND RESTRICTED CASH AT BEGINNING OF PERIOD | |||||||||||
| CASH, CASH EQUIVALENTS, AND RESTRICTED CASH AT END OF PERIOD | $ | $ | |||||||||
See accompanying notes.
7
COUSINS PROPERTIES INCORPORATED AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
June 30, 2021
(Unaudited)
1. DESCRIPTION OF BUSINESS AND BASIS OF PRESENTATION
Description of Business: Cousins Properties Incorporated (“Cousins”), a Georgia corporation, is a self-administered and self-managed real estate investment trust (“REIT”). Cousins conducts substantially all of its operations through Cousins Properties LP ("CPLP"). Cousins owns in excess of 99 % of CPLP, and CPLP is consolidated with Cousins for financial reporting purposes. CPLP also owns Cousins TRS Services LLC ("CTRS"), a taxable entity that owns and manages its own real estate portfolio and performs certain real estate-related services for other parties.
Cousins, CPLP, CTRS, and their subsidiaries (collectively, the “Company”) develop, acquire, lease, manage, and own primarily Class A office properties and opportunistic mixed-use developments in the Sun Belt markets of the United States with a focus on Atlanta, Austin, Charlotte, Phoenix, Tampa, and Dallas. Cousins has elected to be taxed as a REIT and intends to, among other things, distribute 100 % of its net taxable income to stockholders, thereby eliminating any liability for federal income taxes under current law. Therefore, the results included herein do not include a federal income tax provision for Cousins. As of June 30, 2021, the Company's portfolio of real estate assets consisted of interests in 19.0 million square feet of office space and 620,000 square feet of other space.
For the three and six months ended June 30, 2021 and 2020, there were no items of other comprehensive income. Therefore, the Company did not present comprehensive income.
The Company evaluates all partnerships, joint ventures, and other arrangements with variable interests to determine if the entity or arrangement qualifies as a variable interest entity ("VIE"), as defined in the Financial Accounting Standard Board's ("FASB") Accounting Standards Codification ("ASC"). If the entity or arrangement qualifies as a VIE and the Company is determined to be the primary beneficiary, the Company is required to consolidate the assets, liabilities, and results of operations of the VIE. At June 30, 2021, the Company had no investments or interests in any VIEs.
2. TRANSACTIONS WITH NORFOLK SOUTHERN RAILWAY COMPANY
On March 1, 2019, the Company entered into a series of agreements and executed related transactions with Norfolk Southern Railway Company (“NS”) as follows:
•Sold land to NS for $52.5 million.
•Executed a Development Agreement with NS whereby the Company will receive fees totaling $5 million in consideration for development services for NS’s corporate headquarters that is being constructed on the land sold to NS.
•Executed a Consulting Agreement with NS whereby the Company will receive fees totaling $32 million in consideration for consulting services for NS’s corporate headquarters. The Development Agreement and Consulting Agreement are collectively referred to below as the “Fee Agreements.”
•Purchased a building from NS (“1200 Peachtree”) for $82 million subject to a three-year market rate lease with NS that covers the entire building.
The Company sold the land to NS for $5 million above its carrying amount, which included $37 million of land purchased in 2018, $6.5 million of land purchased in 2019, and $4 million of site preparation work. The Company purchased 1200 Peachtree from NS for an amount it determined to be $10.3 million below the building’s fair value.
The Company determined that all contracts and transactions associated with NS should be combined for accounting purposes, and the amounts exchanged under the combined contracts should be allocated to the various components of the overall transaction at
8
3. REAL ESTATE
Acquisitions
On March 12, 2021, the Company acquired a 0.24 acre land parcel in Atlanta for a gross purchase price of $8 million which is held in a 95 % owned consolidated joint venture.
Subsequent to June 30, 2021, on July 28, 2021, the Company acquired 725 Ponce, a 372,000 square foot office building in Midtown Atlanta, for a gross purchase price of $300.2 million.
Dispositions
On April 7, 2021, the Company sold Burnett Plaza in Fort Worth for a gross sales price of $137.5 million and recorded a loss of $19,000 .
The Company had two dispositions of consolidated operating properties during the six months ended June 30, 2020. The Company sold the following properties in 2020 ($ in thousands):
| Property | Property Type | Location | Square Feet | Sales Price | ||||||||||||||||||||||||||||||||||
| Hearst Tower | Office | Charlotte, NC | $ | |||||||||||||||||||||||||||||||||||
| Woodcrest | Office | Cherry Hill, NJ | $ | |||||||||||||||||||||||||||||||||||
The Company sold the properties noted above as part of its ongoing business strategy, using the proceeds from the dispositions to fund new investment activity. The gain of $90.3 million from the sale of these two properties is net of $380,000 of estimated state income tax.
Subsequent to June 30, 2021, on July 1, 2021, the Company sold 0.7 acres of land in Tempe adjacent to our 100 Mill development to a hotel developer for $6.4 million. Net proceeds approximated our book value.
9
Held For Sale Buildings
The Company's One South at the Plaza property in Charlotte was classified as held for sale as of June 30, 2021 as the result of the Company accepting an offer for the sale of the property in the second quarter of 2021, and the Company's Burnett Plaza property in Fort Worth was classified as held for sale as of December 31, 2020 as the result of the Company accepting an offer for the sale of the property in the fourth quarter of 2020. The major classes of assets and liabilities of those properties held for sale were as follows (in thousands):
| June 30, 2021 | December 31, 2020 | |||||||||||||
| Real estate assets and other assets held for sale | ||||||||||||||
Operating property, net of accumulated depreciation of $ | $ | $ | ||||||||||||
| Notes and accounts receivable | ||||||||||||||
| Deferred rents receivable | ||||||||||||||
Intangible assets, net of accumulated amortization of $ in 2021 and 2020, respectively | ||||||||||||||
| Other assets | ||||||||||||||
| Total real estate assets and other assets held for sale | $ | $ | ||||||||||||
| Liabilities of real estate assets held for sale | ||||||||||||||
| Accounts payable and accrued expenses | $ | $ | ||||||||||||
| Deferred income | ||||||||||||||
Intangible liabilities, net of accumulated amortization of $ in 2021 and 2020, respectively | ||||||||||||||
| Other liabilities | ||||||||||||||
| Total liabilities of real estate assets held for sale | $ | $ | ||||||||||||
Subsequent to quarter end, on July 23, 2021, the Company sold One South at the Plaza for a gross sales price of $271.5 million and an estimated gain of $13 million.
Impairment
The Company tests buildings held for investment for impairment whenever changes in circumstances indicate a building’s carrying value may not be recoverable. The test is conducted using undiscounted cash flows for the shorter of the building’s estimated hold period or its remaining useful life. When testing for recoverability of buildings held for investment, projected cash flows are used over its expected hold period. If the expected hold period includes some likelihood of shorter-term hold period from a potential sale, the probability of a sale is layered into the analysis. If any building's held for investment analysis were to fail the impairment test, its book value would be written down to its then current estimated fair value, before any selling expense, and that building would continue to depreciate over its remaining useful life. None of the Company’s held for investment buildings were impaired during any periods presented in the accompanying statement of operations while under the held for investment classification.
The Company also reviews held for sale assets for impairments. If book value is in excess of estimated fair value less estimated selling costs, we impair those assets to fair value less estimated selling costs. There were no held for sale buildings impaired during any periods presented in the accompanying statements of operations.
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4. INVESTMENT IN UNCONSOLIDATED JOINT VENTURES
The following information summarizes financial data and principal activities of the Company's unconsolidated joint ventures. The information included in the following table entitled summary of financial position is as of June 30, 2021 and December 31, 2020 (in thousands). The information included in the summary of operations table is for the six months ended June 30, 2021 and 2020 (in thousands):
| Total Assets | Total Debt | Total Equity (Deficit) | Company’s Investment | ||||||||||||||||||||||||||||||||||||||||||||||||||
| SUMMARY OF FINANCIAL POSITION: | 2021 | 2020 | 2021 | 2020 | 2021 | 2020 | 2021 | 2020 | |||||||||||||||||||||||||||||||||||||||||||||
| DC Charlotte Plaza LLLP | $ | $ | $ | $ | $ | $ | $ | $ | |||||||||||||||||||||||||||||||||||||||||||||
| Austin 300 Colorado Project, LP | |||||||||||||||||||||||||||||||||||||||||||||||||||||
| AMCO 120 WT Holdings, LLC | |||||||||||||||||||||||||||||||||||||||||||||||||||||
| HICO Victory Center LP | |||||||||||||||||||||||||||||||||||||||||||||||||||||
| Carolina Square Holdings LP | ( | ( | (1) | ||||||||||||||||||||||||||||||||||||||||||||||||||
| Crawford Long - CPI, LLC | ( | ( | ( | (1) | ( | (1) | |||||||||||||||||||||||||||||||||||||||||||||||
| Other | |||||||||||||||||||||||||||||||||||||||||||||||||||||
| $ | $ | $ | $ | $ | $ | $ | $ | ||||||||||||||||||||||||||||||||||||||||||||||
| Total Revenues | Net Income (Loss) | Company's Share of Income (Loss) | ||||||||||||||||||||||||||||||||||||
| SUMMARY OF OPERATIONS: | 2021 | 2020 | 2021 | 2020 | 2021 | 2020 | ||||||||||||||||||||||||||||||||
| DC Charlotte Plaza LLLP | $ | $ | $ | $ | $ | $ | ||||||||||||||||||||||||||||||||
| Crawford Long - CPI, LLC | ||||||||||||||||||||||||||||||||||||||
| Carolina Square Holdings LP | ||||||||||||||||||||||||||||||||||||||
| Charlotte Gateway Village, LLC | ||||||||||||||||||||||||||||||||||||||
| Austin 300 Colorado Project, LP | ||||||||||||||||||||||||||||||||||||||
| HICO Victory Center LP | ||||||||||||||||||||||||||||||||||||||
| AMCO 120 WT Holdings, LLC | ( | ( | ( | ( | ||||||||||||||||||||||||||||||||||
| Other | ( | ( | ||||||||||||||||||||||||||||||||||||
| $ | $ | $ | $ | $ | $ | |||||||||||||||||||||||||||||||||
(1) Negative bases are included in deferred income on the consolidated balance sheets.
In June 2021, the Company's partner at DC Charlotte Plaza, LLLP ("DCCP") exercised their option to purchase the Company's 50 % interest in DCCP at a value determined by appraisal and subject to a capitalization rate range of 6.5 % to 8.0 % per the joint venture agreement. The sale is expected to close at the end of the third quarter of 2021.
In March 2021, Carolina Square Holdings LP ("Carolina Square"), a 50 % owned joint venture with NR 123 Franklin LLC ("Northwood Ravin"), issued a non-recourse mortgage note with a principal balance of $135.7 million. Proceeds from the issuance of this mortgage note were used to repay in full its $77.5 million construction loan that was set to mature May 1, 2021 and to make a pro-rata distribution of $26.0 million to each partner. The mortgage loan bears interest at the London Interbank Offering Rate ("LIBOR") plus 1.80 % and matures on March 18, 2026.
In March 2020, the Company sold its 50 % owned joint venture interest in Charlotte Gateway Village, LLC ("Gateway"), which owned a 1.1 million square foot office building in Charlotte, to its partner for a gross sales price of $52.2 million. The sale was triggered by the exercise of the partner's purchase option and the proceeds from this sale represent a 17 % internal rate of return for the Company on its invested capital, as stipulated in the partnership agreement. The Company recognized a gain of $44.7 million on the sale of its interest in Gateway, net of $188,000 of estimated state income tax.
In February 2020, the Company sold its remaining interest in the Wildwood Associates joint venture, which owned a 6.3 acre parcel of land in Atlanta, to its venture partner for a gross sales price of $900,000 . The Company recognized a gain of $1.3 million on the sale of its interest in Wildwood Associates, which included elimination of the remaining negative basis in the joint venture of $520,000 .
Subsequent to quarter end, on July 28, 2021, Neuhoff Holdings LLC ("Neuhoff"), a 50 -50 joint venture, was formed for the purpose of developing a mixed-use property in Nashville. The Company made an initial contribution of $35.1 million for its interest in the land and development costs incurred to date. In addition to the existing assets of the joint venture, Neuhoff also has rights to adjacent parcels for future development.
Subsequent to quarter end, on July 28, 2021, 715 Ponce Holdings LLC, a 50 -50 joint venture, was formed for the purpose of developing a property in Midtown Atlanta. The Company made an initial contribution of $4.0 million for its interest in the land held by the joint venture.
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5. INTANGIBLE ASSETS AND LIABILITIES
| 2021 | 2020 | |||||||||||||
In-place leases, net of accumulated amortization of $ in 2021 and 2020, respectively | $ | $ | ||||||||||||
Above-market rents, net of accumulated amortization of $ in 2021 and 2020, respectively | ||||||||||||||
Below-market ground lease, net of accumulated amortization of $ $ | ||||||||||||||
| Goodwill | ||||||||||||||
| $ | $ | |||||||||||||
| 2021 | 2020 | |||||||||||||
Below-market rents, net of accumulated amortization of $ | $ | $ | ||||||||||||
Above-market ground lease, net of accumulated amortization of $ | ||||||||||||||
| $ | $ | |||||||||||||
Aggregate net amortization expense related to intangible assets and liabilities for the three and six months ended June 30, 2021 was $8.3 million and $16.3 million, respectively. Aggregate net amortization expense related to intangible assets and liabilities for three and six months ended June 30, 2020 was $11.4 million and $23.5 million, respectively. Over the next five years and thereafter, aggregate amortization of these intangible assets and liabilities is anticipated to be as follows (in thousands):
| In-Place Leases | Above-Market Rents | Below-Market Ground Lease | Below-Market Rents | Above-Market Ground Lease | |||||||||||||||||||||||||
| 2021 (six months) | $ | $ | $ | $ | ( | $ | ( | ||||||||||||||||||||||
| 2022 | ( | ( | |||||||||||||||||||||||||||
| 2023 | ( | ( | |||||||||||||||||||||||||||
| 2024 | ( | ( | |||||||||||||||||||||||||||
| 2025 | ( | ( | |||||||||||||||||||||||||||
| Thereafter | ( | ( | |||||||||||||||||||||||||||
| $ | $ | $ | $ | ( | $ | ( | |||||||||||||||||||||||
The carrying amount of goodwill did not change during the three and six months ended June 30, 2021 and 2020.
6. OTHER ASSETS
Other assets on the consolidated balance sheets as of June 30, 2021 and December 31, 2020 included the following (in thousands):
| 2021 | 2020 | |||||||||||||
Furniture, fixtures and equipment, leasehold improvements, and other deferred costs, net of accumulated depreciation of $ | $ | $ | ||||||||||||
| Predevelopment costs and earnest money | ||||||||||||||
| Prepaid expenses and other assets | ||||||||||||||
Lease inducements, net of accumulated amortization of $ | ||||||||||||||
Line of credit deferred financing costs, net of accumulated amortization of $ | ||||||||||||||
| $ | $ | |||||||||||||
Predevelopment costs represent amounts that are capitalized related to predevelopment projects that the Company determined are probable of future development.
Lease inducements are incentives paid to tenants in conjunction with leasing space, such as moving costs, sublease arrangements of prior space, and other costs. These amounts are amortized into rental revenues over the individual underlying lease terms.
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7. NOTES PAYABLE
The following table summarizes the terms of notes payable outstanding at June 30, 2021 and December 31, 2020 ($ in thousands):
| Description | Interest Rate (1) | Maturity (2) | 2021 | 2020 | ||||||||||||||||||||||
| Unsecured Notes: | ||||||||||||||||||||||||||
| Credit Facility, Unsecured | 2023 | $ | $ | |||||||||||||||||||||||
| Term Loan, Unsecured | 2024 | |||||||||||||||||||||||||
| Term Loan, Unsecured | 2021 | |||||||||||||||||||||||||
| 2019 Senior Notes, Unsecured | 2029 | |||||||||||||||||||||||||
| 2017 Senior Notes, Unsecured | 2025 | |||||||||||||||||||||||||
| 2019 Senior Notes, Unsecured | 2028 | |||||||||||||||||||||||||
| 2019 Senior Notes, Unsecured | 2027 | |||||||||||||||||||||||||
| 2017 Senior Notes, Unsecured | 2027 | |||||||||||||||||||||||||
| Secured Mortgage Notes: | ||||||||||||||||||||||||||
| Fifth Third Center | 2026 | |||||||||||||||||||||||||
| Terminus 100 | 2023 | |||||||||||||||||||||||||
| Colorado Tower | 2026 | |||||||||||||||||||||||||
| Promenade | 2022 | |||||||||||||||||||||||||
| Domain 10 (3) | 2024 | |||||||||||||||||||||||||
| Terminus 200 | 2023 | |||||||||||||||||||||||||
| Legacy Union One | 2023 | |||||||||||||||||||||||||
| $ | $ | |||||||||||||||||||||||||
| Unamortized premium | ||||||||||||||||||||||||||
| Unamortized loan costs | ( | ( | ||||||||||||||||||||||||
| Total Notes Payable | $ | $ | ||||||||||||||||||||||||
(1) Interest rate as of June 30, 2021.
(2) Weighted average maturity of notes payable outstanding at June 30, 2021 was 4.7 years.
Credit Facility
The Company has a $1 billion senior unsecured line of credit (the "Credit Facility") that matures on January 3, 2023. The Credit Facility contains financial covenants that require, among other things, the maintenance of an unencumbered interest coverage ratio of at least 1.75 x; a fixed charge coverage ratio of at least 1.50 x; a secured leverage ratio of no more than 40 %; and an overall leverage ratio of no more than 60 %. The Credit Facility also contains customary representations and warranties and affirmative and negative covenants, as well as customary events of default. The amounts outstanding under the Credit Facility may be accelerated upon the occurrence of any events of default. The Company is in compliance with all covenants of the Credit Facility.
The interest rate applicable to the Credit Facility varies according to the Company's leverage ratio, and may, at the election of the Company, be determined based on either (1) the current LIBOR plus a spread of between 1.05 % and 1.45 %, or (2) the greater of Bank of America's prime rate, the federal funds rate plus 0.50 %, or the one-month LIBOR plus 1.0 % (the "Base Rate"), plus a spread of between 0.10 % or 0.45 %, based on leverage.
At June 30, 2021, the Credit Facility's spread over LIBOR was 1.05 %. The amount that the Company may draw under the Credit Facility is a defined calculation based on the Company's unencumbered assets and other factors. The total available borrowing capacity under the Credit Facility was $968.0 million at June 30, 2021.
Term Loan
On June 28 2021, the Company entered into an Amended and Restated Term Loan Agreement (the "New Term Loan") that amended the former term loan agreement. Under the New Term Loan, the Company has borrowed $350 million that matures on
13
August 30, 2024 with an option to, on up to four successive occasions, extend the maturity date for an additional 180 days. The New Term Loan has financial covenants consistent with those of the Credit Facility. The interest rate applicable to the New Term Loan varies according to the Company’s leverage ratio and may, at the election of the Company, be determined based on either (1) the Eurodollar Rate Loans plus a spread of between 1.05 % and 1.65 %, (2) the current LIBOR Daily Floating plus a spread of between 1.05 % and 1.65 %, or (3) the interest rate applicable to Base Rate Loans plus a spread of between 0.05 % and 0.65 %. At June 30, 2021, the New Term Loan's spread over LIBOR was 1.05 %. The Company is in compliance with all covenants of the New Term Loan.
Prior to June 28, 2021, the Company had a $250 million unsecured term loan (the "Old Term Loan") that was scheduled to mature on December 2, 2021. The Old Term Loan had financial covenants consistent with those of the Credit Facility. The interest rate applicable to the Old Term Loan varied according to the Company’s leverage ratio and could have, at the election of the Company, been determined based on either (1) the current LIBOR plus a spread of between 1.20 % and 1.70 %, based on leverage or (2) the greater of Bank of America's prime rate, the federal funds rate plus 0.50 %, or the one-month LIBOR plus 1.00 %, plus a spread of between 0.00 % and 0.75 %, based on leverage.
Unsecured Senior Notes
The Company has unsecured senior notes of $1.0 billion that were funded in five tranches. The first tranche of $100 million is due in 2027 and has a fixed annual interest rate of 4.09 %. The second tranche of $250 million is due in 2025 and has a fixed annual interest rate of 3.91 %. The third tranche of $125 million is due in 2027 and has a fixed annual interest rate of 3.78 %. The fourth tranche of $250 million is due in 2028 and has a fixed annual interest rate of 3.86 %. The fifth tranche of $275 million is due in 2029 and has a fixed annual interest rate of 3.95 %.
The unsecured senior notes contain financial covenants that require, among other things, the maintenance of an unencumbered interest coverage ratio of at least 1.75 x; a fixed charge coverage ratio of at least 1.50 x; a secured leverage ratio of no more than 40 %; and an overall leverage ratio of no more than 60 %. The senior notes also contain customary representations and warranties and affirmative and negative covenants, as well as customary events of default. The amounts outstanding under the senior notes may be accelerated upon the occurrence of any events of default. The Company is in compliance with all covenants of the unsecured senior notes.
Secured Mortgage Notes
In June of 2021, the Company executed a collateral swap for the mortgage previously secured by the Company's 816 Congress property in Austin. The mortgage is now secured by the Company's Domain 10 property in Austin. All other terms of the note were unchanged.
On February 3, 2020, the Company prepaid in full, without penalty, the $23 million Meridian Mark Plaza mortgage note.
As of June 30, 2021, the Company had $669.8 million outstanding on seven non-recourse mortgage notes. All interest rates on the secured mortgage notes are fixed. Assets with depreciated carrying values of $1.2 billion were pledged as security on these mortgage notes payable.
Other Debt Information
At June 30, 2021 and December 31, 2020, the estimated fair value of the Company’s notes payable was $2.2 billion and $2.3 billion, respectively, calculated by discounting the debt's remaining contractual cash flows at estimated rates at which similar loans could have been obtained at June 30, 2021 and December 31, 2020. The estimate of the current market rate, which is the most significant input in the discounted cash flow calculation, is intended to replicate debt of similar maturity and loan-to-value relationship. These fair value calculations are considered to be Level 2 under the guidelines as set forth in ASC 820 as the Company utilizes market rates for similar type loans from third party brokers.
For the three and six months ended June 30, 2021 and 2020, interest expense was recorded as follows (in thousands):
| Three Months Ended June 30, | Six Months Ended June 30, | ||||||||||||||||||||||||||||||||||
| 2021 | 2020 | 2021 | 2020 | ||||||||||||||||||||||||||||||||
| Total interest incurred | $ | $ | $ | $ | |||||||||||||||||||||||||||||||
| Interest capitalized | ( | ( | ( | ( | |||||||||||||||||||||||||||||||
| Total interest expense | $ | $ | $ | $ | |||||||||||||||||||||||||||||||
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8. OTHER LIABILITIES
Other liabilities on the consolidated balance sheets as of June 30, 2021 and December 31, 2020 included the following (in thousands):
| 2021 | 2020 | |||||||||||||
| Ground lease liability | $ | $ | ||||||||||||
| Prepaid rent | ||||||||||||||
| Security deposits | ||||||||||||||
| Restricted stock unit liability | ||||||||||||||
| Other liabilities | ||||||||||||||
| $ | $ | |||||||||||||
9. COMMITMENTS AND CONTINGENCIES
Commitments
The Company had outstanding performance bonds totaling $647,000 at June 30, 2021. As a lessor, the Company had $258.9 million in future obligations under leases to fund tenant improvements and other future construction obligations at June 30, 2021.
Litigation
The Company is subject to various legal proceedings, claims and administrative proceedings arising in the ordinary course of business, some of which are expected to be covered by liability insurance. Management makes assumptions and estimates concerning the likelihood and amount of any potential loss relating to these matters using the latest information available. The Company records a liability for litigation if an unfavorable outcome is probable and the amount of loss or range of loss can be reasonably estimated. If an unfavorable outcome is probable and a reasonable estimate of the loss is a range, the Company accrues the best estimate within the range. If no amount within the range is a better estimate than any other amount, the Company accrues the minimum amount within the range. If an unfavorable outcome is probable but the amount of the loss cannot be reasonably estimated, the Company discloses the nature of the litigation and indicates that an estimate of the loss or range of loss cannot be made. If an unfavorable outcome is reasonably possible and the estimated loss is material, the Company discloses the nature and estimate of the possible loss of the litigation. The Company does not disclose information with respect to litigation where an unfavorable outcome is considered to be remote or where the estimated loss would not be material. Based on current expectations, such matters, both individually and in the aggregate, are not expected to have a material adverse effect on the liquidity, results of operations, business, or financial condition of the Company.
Contingencies
Events related to the COVID-19 pandemic and the actions taken to contain it have created substantial uncertainty for all businesses, including the Company. The Company’s condensed consolidated financial statements as of and for the three and six months ended June 30, 2021 and June 30, 2020 have been prepared in light of these circumstances without any impairments on held for use long-lived investments or significant valuation adjustments to amounts due from tenants. However, circumstances related to the COVID-19 pandemic may result in recording impairments or material valuation adjustments to amounts due from tenants in future periods.
10. STOCKHOLDERS' EQUITY
11. REVENUE RECOGNITION
The Company categorizes its primary sources of revenue into revenue from contracts with customers and other revenue accounted for as leases under ASC 842 as follows:
•Rental property revenues consist of (1) contractual revenues from leases recognized on a straight-line basis over the term of the respective lease; (2) percentage rents recognized once a specified sales target is achieved; (3) parking revenue; (4) termination fees; and (5) the reimbursement of the tenants' share of real estate taxes, insurance, and other operating expenses. The
15
Company's leases typically include renewal options and are classified and accounted for as operating leases. Rental property revenues are accounted for in accordance with the guidance set forth in ASC 842.
•Fee income consists of development fees, management fees, and leasing fees earned from unconsolidated joint ventures and from third parties. Fee income is accounted for in accordance with the guidance set forth in ASC 606.
For the three and six months ended June 30, 2021, the Company recognized rental property revenues of $181.8 million and $366.6 million, respectively, of which $48.2 million and $96.0 million, respectively, represented variable rental revenue. For the three and six months ended June 30, 2020, the Company recognized rental property revenues of $175.1 million and $364.2 million, respectively, of which $44.2 million and $98.3 million, respectively, represented variable rental revenue.
For the three and six months ended June 30, 2021, the Company recognized fee and other revenue of $4.9 million and $9.6 million, respectively. For the three and six months ended June 30, 2020, the Company recognized fee and other revenue of $4.8 million and $9.6 million, respectively.
12. STOCK-BASED COMPENSATION
The Company maintains the Cousins Properties Incorporated 2019 Omnibus Incentive Stock Plan (the "2019 Plan") under which the Company has several types of stock-based compensation — stock options, restricted stock, and restricted stock units ("RSUs").
Employee Awards
The Company's stock compensation expense for three and six months ended June 30, 2021 relates to restricted stock and RSUs awarded in 2021, 2020, 2019, and 2018. Stock compensation expense for three and six months ended June 30, 2020 relates to restricted stock and RSUs awarded in 2020, 2019, 2018, and 2017. Restricted stock, the 2021 RSUs, and the 2020 RSUs are equity-classified awards (settled in shares of the Company) for which compensation expense per share is fixed. The 2019, 2018, and 2017 RSUs are liability-classified awards (settled in cash) for which the expense fluctuates from period to period dependent, in part, on the Company's stock price. For the three and six months ended June 30, 2021 and 2020, stock-based compensation expense, net of forfeitures, was recorded as follows (in thousands):
| Three Months Ended June 30, | Six Months Ended June 30, | |||||||||||||||||||||||||||||||||||||
| 2021 | 2020 | 2021 | 2020 | |||||||||||||||||||||||||||||||||||
| Equity-classified awards: | ||||||||||||||||||||||||||||||||||||||
| Restricted stock | $ | $ | $ | $ | ||||||||||||||||||||||||||||||||||
| Market based RSUs | ||||||||||||||||||||||||||||||||||||||
| Performance based RSUs | ||||||||||||||||||||||||||||||||||||||
| Total equity-classified award expense, net of forfeitures | ||||||||||||||||||||||||||||||||||||||
| Liability-classified awards | ||||||||||||||||||||||||||||||||||||||
| Market based RSUs | ||||||||||||||||||||||||||||||||||||||
| Performance based RSUs | ( | |||||||||||||||||||||||||||||||||||||
| Time vested RSUs | ||||||||||||||||||||||||||||||||||||||
| Dividend equivalent units | ||||||||||||||||||||||||||||||||||||||
| Total liability-classified award expense, net of forfeitures | ||||||||||||||||||||||||||||||||||||||
| Total stock-based compensation expense, net of forfeitures | $ | $ | $ | $ | ||||||||||||||||||||||||||||||||||
Information on the Company's stock compensation plan, including information on the Company's equity-classified and liability-classified awards is discussed in note 16 of the notes to consolidated financial statements in the Company's Annual Report on Form 10-K for the year ended December 31, 2020.
Director Awards
16
13. EARNINGS PER SHARE
The following table sets forth the computation of basic and diluted earnings per share for the three and six months ended June 30, 2021 and 2020 (in thousands, except per share amounts):
| Three Months Ended June 30, | Six Months Ended June 30, | ||||||||||||||||||||||
| 2021 | 2020 | 2021 | 2020 | ||||||||||||||||||||
| Earnings per Common Share - basic: | |||||||||||||||||||||||
| Numerator: | |||||||||||||||||||||||
| Net income | $ | $ | $ | $ | |||||||||||||||||||
Net income attributable to noncontrolling interests in CPLP from continuing operations | ( | ( | ( | ( | |||||||||||||||||||
| Net loss (income) attributable to other noncontrolling interests | ( | ( | ( | ||||||||||||||||||||
| Net income available to common stockholders | $ | $ | $ | $ | |||||||||||||||||||
| Denominator: | |||||||||||||||||||||||
| Weighted average common shares - basic | |||||||||||||||||||||||
| Net income per common share - basic | $ | $ | $ | $ | |||||||||||||||||||
| Earnings per common share - diluted: | |||||||||||||||||||||||
| Numerator: | |||||||||||||||||||||||
| Net income | $ | $ | $ | $ | |||||||||||||||||||
| Net loss (income) attributable to other noncontrolling interests | ( | ( | ( | ||||||||||||||||||||
| Net income available for common stockholders before allocation of net income attributable to noncontrolling interests in CPLP | $ | $ | $ | $ | |||||||||||||||||||
| Denominator: | |||||||||||||||||||||||
| Weighted average common shares - basic | |||||||||||||||||||||||
| Add: | |||||||||||||||||||||||
Potential dilutive common shares - stock options | |||||||||||||||||||||||
Potential dilutive common shares - restricted stock units, less shares assumed purchased at market price | |||||||||||||||||||||||
Weighted average units of CPLP convertible into common shares | |||||||||||||||||||||||
| Weighted average common shares - diluted | |||||||||||||||||||||||
| Net income per common share - diluted | $ | $ | $ | $ | |||||||||||||||||||
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14. CONSOLIDATED STATEMENTS OF CASH FLOWS - SUPPLEMENTAL INFORMATION
Supplemental information related to the cash flows, including significant non-cash activity affecting the consolidated statement of cash flows, for the six months ended June 30, 2021 and 2020 is as follows (in thousands):
| 2021 | 2020 | ||||||||||
| Interest paid | $ | $ | |||||||||
| Income taxes paid | |||||||||||
| Non-Cash Activity: | |||||||||||
| Transfer from operating properties and related assets and liabilities to assets and liabilities of real estate assets held for sale | |||||||||||
| Common stock dividends declared and accrued | |||||||||||
| Transfers from projects under development to operating properties | |||||||||||
| Transfer from land held and other assets to projects under development | |||||||||||
The following table provides a reconciliation of cash, cash equivalents, and restricted cash recorded on the consolidated balance sheets to cash, cash equivalents, and restricted cash in the consolidated statements of cash flows (in thousands):
| June 30, 2021 | December 31, 2020 | ||||||||||
| Cash and cash equivalents | $ | $ | |||||||||
| Restricted cash | |||||||||||
| Total cash, cash equivalents, and restricted cash | $ | $ | |||||||||
15. REPORTABLE SEGMENTS
The Company's segments are based on the method of internal reporting, which classifies operations by property type and geographical area. The segments by property type are Office and Other. Included in the Other property type are apartments, apartment retail, and the College Street Garage. The segments by geographical region are Atlanta, Austin, Charlotte, Dallas, Phoenix, Tampa, and Other. Included in the Other geographical region are properties located in Chapel Hill, Houston, Fort Worth (sold in April 2021), and Cherry Hill, New Jersey (sold in February 2020). These reportable segments represent an aggregation of operating segments reported to the Chief Operating Decision Maker (our Chief Executive Officer) based on similar economic characteristics that include the type of property and the geographical location. Each segment includes both consolidated operations and the Company's share of joint venture operations.
Company management evaluates the performance of its reportable segments in part based on net operating income (“NOI”). NOI represents rental property revenues, less termination fees, less rental property operating expenses. NOI is not a measure of cash flows or operating results as measured by GAAP, is not indicative of cash available to fund cash needs, and should not be considered an alternative to cash flows as a measure of liquidity. All companies may not calculate NOI in the same manner. The Company considers NOI to be an appropriate supplemental measure to net income as it helps both management and investors understand the core operations of the Company's operating assets. NOI excludes fee income, other revenue, corporate general and administrative expenses, reimbursed expenses, interest expense, depreciation and amortization, impairments, gains/loss on sales of real estate, gain/loss on extinguishment of debt, transaction costs and other non-operating items.
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Segment net income, amount of capital expenditures, and total assets are not presented in the following tables because management does not utilize these measures when analyzing its segments or when making resource allocation decisions. Information on the Company's segments along with a reconciliation of NOI to net income for three and six months ended June 30, 2021 and 2020 are as follows (in thousands):
| Three Months Ended June 30, 2021 | Office | Other | Total | |||||||||||||||||
| Revenues: | ||||||||||||||||||||
| Atlanta | $ | $ | $ | |||||||||||||||||
| Austin | ||||||||||||||||||||
| Charlotte | ||||||||||||||||||||
| Dallas | ||||||||||||||||||||
| Phoenix | ||||||||||||||||||||
| Tampa | ||||||||||||||||||||
| Other | ||||||||||||||||||||
| Total segment revenues | ||||||||||||||||||||
| Less: Company's share of rental property revenues from unconsolidated joint ventures | ( | ( | ( | |||||||||||||||||
| Total rental property revenues | $ | $ | $ | |||||||||||||||||
| Three Months Ended June 30, 2020 | Office | Other | Total | |||||||||||||||||
| Revenues: | ||||||||||||||||||||
| Atlanta | $ | $ | $ | |||||||||||||||||
| Austin | ||||||||||||||||||||
| Charlotte | ||||||||||||||||||||
| Dallas | ||||||||||||||||||||
| Phoenix | ||||||||||||||||||||
| Tampa | ||||||||||||||||||||
| Other | ||||||||||||||||||||
| Total segment revenues | ||||||||||||||||||||
| Less: Company's share of rental property revenues from unconsolidated joint ventures | ( | ( | ( | |||||||||||||||||
| Total rental property revenues | $ | $ | $ | |||||||||||||||||
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| Six Months Ended June 30, 2021 | Office | Other | Total | |||||||||||||||||
| Revenues | ||||||||||||||||||||
| Atlanta | $ | $ | $ | |||||||||||||||||
| Austin | ||||||||||||||||||||
| Charlotte | ||||||||||||||||||||
| Dallas | ||||||||||||||||||||
| Phoenix | ||||||||||||||||||||
| Tampa | ||||||||||||||||||||
| Other | ||||||||||||||||||||
| Total segment revenues | ||||||||||||||||||||
| Less: Company's share of rental property revenues from unconsolidated joint ventures | ( | ( | ( | |||||||||||||||||
| Total rental property revenues | $ | $ | $ | |||||||||||||||||
| Six Months Ended June 30, 2020 | Office | Other | Total | |||||||||||||||||
| Revenues | ||||||||||||||||||||
| Atlanta | $ | $ | $ | |||||||||||||||||
| Austin | ||||||||||||||||||||
| Charlotte | ||||||||||||||||||||
| Dallas | ||||||||||||||||||||
| Phoenix | ||||||||||||||||||||
| Tampa | ||||||||||||||||||||
| Other | ||||||||||||||||||||
| Total segment revenues | ||||||||||||||||||||
| Less: Company's share of rental property revenues from unconsolidated joint ventures | ( | ( | ( | |||||||||||||||||
| Total rental property revenues | $ | $ | $ | |||||||||||||||||
NOI by reportable segment for the three and six months ended June 30, 2021 and 2020 are as follows (in thousands):
| Three Months Ended June 30, 2021 | Office | Other | Total | |||||||||||||||||
| Net Operating Income: | ||||||||||||||||||||
| Atlanta | $ | $ | $ | |||||||||||||||||
| Austin | ||||||||||||||||||||
| Charlotte | ||||||||||||||||||||
| Dallas | ||||||||||||||||||||
| Phoenix | ||||||||||||||||||||
| Tampa | ||||||||||||||||||||
| Other | ||||||||||||||||||||
| Total Net Operating Income | $ | $ | $ | |||||||||||||||||
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| Three Months Ended June 30, 2020 | Office | Other | Total | |||||||||||||||||
| Net Operating Income: | ||||||||||||||||||||
| Atlanta | $ | $ | ( | $ | ||||||||||||||||
| Austin | ||||||||||||||||||||
| Charlotte | ||||||||||||||||||||
| Dallas | ||||||||||||||||||||
| Phoenix | ||||||||||||||||||||
| Tampa | ||||||||||||||||||||
| Other | ||||||||||||||||||||
| Total Net Operating Income | $ | $ | $ | |||||||||||||||||
| Six Months Ended June 30, 2021 | Office | Other | Total | |||||||||||||||||
| Net Operating Income: | ||||||||||||||||||||
| Atlanta | $ | $ | $ | |||||||||||||||||
| Austin | ||||||||||||||||||||
| Charlotte | ||||||||||||||||||||
| Dallas | ||||||||||||||||||||
| Phoenix | ||||||||||||||||||||
| Tampa | ||||||||||||||||||||
| Other | ||||||||||||||||||||
| Total Net Operating Income | $ | $ | $ | |||||||||||||||||
| Six Months Ended June 30, 2020 | Office | Other | Total | |||||||||||||||||
| Net Operating Income: | ||||||||||||||||||||
| Atlanta | $ | $ | ( | $ | ||||||||||||||||
| Austin | ||||||||||||||||||||
| Charlotte | ||||||||||||||||||||
| Dallas | ||||||||||||||||||||
| Phoenix | ||||||||||||||||||||
| Tampa | ||||||||||||||||||||
| Other | ||||||||||||||||||||
| Total Net Operating Income | $ | $ | $ | |||||||||||||||||
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The following reconciles Net Operating Income to net income for each of the periods presented (in thousands):
| Three Months Ended June 30, | Six Months Ended June 30, | ||||||||||||||||||||||
| 2021 | 2020 | 2021 | 2020 | ||||||||||||||||||||
| Net Operating Income | $ | $ | $ | $ | |||||||||||||||||||
| Net operating income from unconsolidated joint ventures | ( | ( | ( | ( | |||||||||||||||||||
| Fee income | |||||||||||||||||||||||
| Termination fee income | |||||||||||||||||||||||
| Other income | |||||||||||||||||||||||
| Reimbursed expenses | ( | ( | ( | ( | |||||||||||||||||||
| General and administrative expenses | ( | ( | ( | ( | |||||||||||||||||||
| Interest expense | ( | ( | ( | ( | |||||||||||||||||||
| Depreciation and amortization | ( | ( | ( | ( | |||||||||||||||||||
| Transaction costs | ( | ( | |||||||||||||||||||||
| Other expenses | ( | ( | ( | ( | |||||||||||||||||||
| Income from unconsolidated joint ventures | |||||||||||||||||||||||
| Gain (loss) on sales of investments in unconsolidated joint ventures | ( | ||||||||||||||||||||||
| Gain (loss) on investment property transactions | ( | ( | ( | ||||||||||||||||||||
| Net income | $ | $ | $ | $ | |||||||||||||||||||
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Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations
Overview of 2021 Performance and Company and Industry Trends
Cousins Properties Incorporated ("Cousins") (and collectively, with its subsidiaries, the "Company," "we," "our," or "us") is a publicly traded (NYSE: CUZ), self-administered, and self-managed real estate investment trust, or REIT. Cousins conducts substantially all of its business through Cousins Properties, LP ("CPLP"). Cousins owns in excess of 99% of CPLP and consolidates CPLP. CPLP owns Cousins TRS Services LLC, a taxable entity which owns and manages its own real estate portfolio and performs certain real estate related services for other parties. Our strategy is to create value for our stockholders through ownership of the premier urban office portfolio in the Sun Belt markets, with a particular focus on Atlanta, Austin, Charlotte, Phoenix, Tampa, and Dallas. This strategy is based on a disciplined approach to capital allocation that includes asset acquisitions, selective development projects, and timely dispositions of non-core assets. This strategy is also based on a simple, flexible, and low-leveraged balance sheet that allows us to pursue compelling growth opportunities at the most advantageous points in the cycle. To implement this strategy, we leverage our strong local operating platforms within each of our major markets.
During the quarter, we leased or renewed 484,000 square feet of office space. The weighted average net effective rent of these leases, representing base rent less operating expense reimbursements and leasing costs, was $23.77 per square foot. For those office spaces that were under lease within the past year, net effective rent increased 21.7%. Same property net operating income (defined below) for consolidated properties and our share of unconsolidated properties increased by 1.4% between the three months ended June 30, 2021 and 2020.
On April 7, 2021, the Company sold Burnett Plaza for a gross purchase price of $137.5 million and recorded a loss of $19,000.
Subsequent to quarter end:
•On July 1, 2021, we sold a 0.7 acre land parcel adjacent to our 100 Mill development in Phoenix, AZ, to a hotel developer for a gross sales price of $6.4 million. Net proceeds approximated book value.
•On July 23, 2021, we sold our One South at the Plaza operating property in Charlotte for a gross sales price of $271.5 million and an estimated gain of $13 million.
•On July 28, 2021, we purchased 725 Ponce, a 372,000 square foot office property in Midtown Atlanta, for $300.2 million.
•Entered into 50/50 joint venture to develop Neuhoff, a mixed-use project in Nashville, TN, which will include 448,000 square feet of office and retail space as well as 542 multi-family units for an estimated investment of $275 million.
•Entered into a 50/50 joint venture, with an initial contribution of $4.0 million, which owns a land parcel adjacent to 725 Ponce upon which a 150,000-200,000 square foot property can be developed.
On a regular basis we review and, as appropriate, revise our corporate contingency plan, which addresses the steps necessary to respond to an unexpected interruption of business, including the unavailability of our corporate office space. Since March 2020, in accordance with the advice of the CDC due to the threat presented by the ongoing COVID-19 pandemic, our tenants widely adopted remote working for their office employees and the physical occupancy at our buildings decreased accordingly. The rental obligations under our leases have not been materially affected by the COVID-19 pandemic to date, and any requests for rent adjustments are addressed on a case-by-case basis. With the increased availability of vaccines, we have begun to see increases in physical occupancy at our properties, which we expect will continue to result in increased demand for monthly and transient parking. We cannot predict, however, how the COVID-19 pandemic (including the spread of variant strains) may impact our operations in the future.
Although the impact to our business of the COVID-19 pandemic has not been severe to date, the long-term impact of the pandemic on our tenants or prospective tenants and the world-wide economy is uncertain and will depend on the scope, severity, and duration of the pandemic, along with the speed of vaccinations in our markets and a return to the office by our tenants. A prolonged economic downturn resulting from the pandemic could adversely affect many of our tenants or prospective tenants, which could, in turn, adversely impact our business, financial condition, and results of operations.
Results of Operations For The Three and Six Months Ended June 30, 2021
General
Net income available to common stockholders for the three and six months ended June 30, 2021 was $28.2 million and $57.3 million, respectively. For the three and six months ended June 30, 2020 the net income available to common stockholders was $23.1
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million and $198.0 million, respectively. We detail below material changes in the components of net income available to common stockholders for the three and six months ended June 30, 2021 compared to 2020.
Rental Property Revenue, Rental Property Operating Expenses, and Net Operating Income
The following results include the performance of our Same Property portfolio. Our Same Property portfolio include office properties that have been fully operational and owned by us in each of the comparable reporting periods. A fully operational property is one that has achieved 90% economic occupancy or has been substantially complete for at least one year. Properties held for sale at June 30, 2021 are excluded from Same Property.
We use Net Operating Income ("NOI"), a non-GAAP financial measure, to measure the operating performance of our properties. NOI is also widely used by industry analysts and investors to evaluate performance. NOI, which is rental property revenues (excluding termination fees) less rental property operating expenses, excludes certain components from net income in order to provide results that are more closely related to a property's results of operations. Certain items, such as interest expense, while included in net income, do not affect the operating performance of a real estate asset and are often incurred at the corporate level as opposed to the property level. As a result, we use only those income and expense items that are incurred at the property level to evaluate a property's performance. Depreciation, amortization, and impairment are also excluded from NOI. Same Property NOI allows analysts, investors, and management to analyze continuing operations and evaluate the growth trend of our portfolio.
Rental property revenues, rental property operating expenses, and NOI changed between the 2021 and 2020 periods as follows ($ in thousands):
| Three Months Ended June 30, | Six Months Ended June 30, | ||||||||||||||||||||||||||||||||||||||||||||||
| 2021 | 2020 | $ Change | % Change | 2021 | 2020 | $ Change | % Change | ||||||||||||||||||||||||||||||||||||||||
| Rental Property Revenues | |||||||||||||||||||||||||||||||||||||||||||||||
| Same Property | $ | 158,561 | $ | 154,517 | $ | 4,044 | 2.6 | % | $ | 316,417 | $ | 313,631 | $ | 2,786 | 0.9 | % | |||||||||||||||||||||||||||||||
| Non-Same Properties | 22,423 | 20,043 | 2,380 | 11.9 | % | 49,332 | 47,214 | 2,118 | 4.5 | % | |||||||||||||||||||||||||||||||||||||
| Termination Fee Income | 782 | 539 | 243 | 45.1 | % | 824 | 3,383 | (2,559) | (75.6) | % | |||||||||||||||||||||||||||||||||||||
| Total Rental Property Revenues | $ | 181,766 | $ | 175,099 | $ | 6,667 | 3.8 | % | $ | 366,573 | $ | 364,228 | $ | 2,345 | 0.6 | % | |||||||||||||||||||||||||||||||
| Rental Property Operating Expenses | |||||||||||||||||||||||||||||||||||||||||||||||
| Same Property | $ | 56,352 | $ | 53,366 | $ | 2,986 | 5.6 | % | $ | 112,662 | $ | 109,216 | $ | 3,446 | 3.2 | % | |||||||||||||||||||||||||||||||
| Non-Same Properties | 7,364 | 8,255 | (891) | (10.8) | % | 17,449 | 18,760 | (1,311) | (7.0) | % | |||||||||||||||||||||||||||||||||||||
| 3344 Peachtree Legal Expense Recovery | — | — | — | — | % | — | (1,817) | 1,817 | (100.0) | % | |||||||||||||||||||||||||||||||||||||
| Total Rental Property Operating Expenses | $ | 63,716 | $ | 61,621 | $ | 2,095 | 3.4 | % | $ | 130,111 | $ | 126,159 | $ | 3,952 | 3.1 | % | |||||||||||||||||||||||||||||||
| Net Operating Income | |||||||||||||||||||||||||||||||||||||||||||||||
| Same Property NOI | $ | 102,209 | $ | 101,151 | $ | 1,058 | 1.0 | % | $ | 203,755 | $ | 204,415 | $ | (660) | (0.3) | % | |||||||||||||||||||||||||||||||
| Non-Same Property NOI | 15,059 | 11,788 | 3,271 | 27.7 | % | 31,883 | 28,454 | 3,429 | 12.1 | % | |||||||||||||||||||||||||||||||||||||
| 3344 Peachtree Legal Expense Recovery | — | — | — | — | % | — | 1,817 | (1,817) | (100.0) | % | |||||||||||||||||||||||||||||||||||||
| Total NOI | $ | 117,268 | $ | 112,939 | $ | 4,329 | 3.8 | % | $ | 235,638 | $ | 234,686 | $ | 952 | 0.4 | % | |||||||||||||||||||||||||||||||
Same Property revenues increased for both the three and six month periods primarily due to an increase in economic occupancy at a property in our Tampa market in 2021. Same Property operating expenses have been adjusted to remove a $1.8 million one-time credit for construction-related legal expenses that were recovered through settlement during the six months ended June 30, 2021. Same Property operating expenses, after this adjustment, increased for both the three and six month periods primarily due to an increase in real estate taxes and an increase in operating expenses related to higher physical occupancy at our properties.
Non-Same Property increased for both the three and six month periods primarily as a result of completed development and commencement of operations at Domain 10, Domain 12, 10000 Avalon, and 120 West Trinity and the addition of The RailYard in November 2020, partially offset by the sales of Hearst Tower and Woodcrest in the first quarter of 2020 and the sale of Burnett Plaza in the second quarter of 2021.
General and Administrative Expenses
General and administrative expenses decreased $1.2 million or 14.4%, for the three months ended June 30, 2021 compared to the same period in the prior year. This decrease is primarily driven by variances in stock compensation.
Interest Expense
Interest expense, net of amounts capitalized, increased $2.7 million or 19.0% and $4.0 million or 13.3% for three and six months ended June 30, 2021, respectively, compared to the same periods in the prior year. This increase is primarily due to a decrease in
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interest capitalized in 2021 as a result of the start of preliminary operational activity for projects in their final stages of development after June 30, 2020.
Depreciation and Amortization
Depreciation and amortization changed between the 2021 and 2020 periods as follows ($ in thousands):
| Three Months Ended June 30, | Six Months Ended June 30, | ||||||||||||||||||||||||||||||||||||||||||||||
| 2021 | 2020 | $ Change | % Change | 2021 | 2020 | $ Change | % Change | ||||||||||||||||||||||||||||||||||||||||
| Depreciation and Amortization | |||||||||||||||||||||||||||||||||||||||||||||||
| Same Property | $ | 61,551 | $ | 62,421 | $ | (870) | (1.4) | % | $ | 122,551 | $ | 125,107 | $ | (2,556) | (2.0) | % | |||||||||||||||||||||||||||||||
| Non-Same Properties | 9,748 | 10,274 | (526) | (5.1) | % | 19,460 | 18,921 | 539 | 2.8 | % | |||||||||||||||||||||||||||||||||||||
| Non-Real Estate Assets | 157 | 173 | (16) | (9.2) | % | 315 | 454 | (139) | (30.6) | % | |||||||||||||||||||||||||||||||||||||
| Total Depreciation and Amortization | $ | 71,456 | $ | 72,868 | $ | (1,412) | (1.9) | % | $ | 142,326 | $ | 144,482 | $ | (2,156) | (1.5) | % | |||||||||||||||||||||||||||||||
Depreciation and amortization of Non-Same Properties decreased between the three month periods primarily as a result of the sale of Burnett Plaza in April 2021. Depreciation and amortization of Non-Same Properties increased between the six month periods primarily as a result of the completed development and commencement of depreciation at Domain 10, Domain 12, and 10000 Avalon and the addition of The RailYard in November 2020, partially offset by the sale of Burnett Plaza in April 2021.
Transaction Costs
Transaction costs for the six months ended June 30, 2020 primarily relate to the merger with TIER REIT, Inc. ("TIER"). These costs include financial advisory, legal, accounting, severance, and other costs of combining our operations with TIER.
Income from Unconsolidated Joint Ventures
Income from unconsolidated joint ventures consisted of the Company's share of the following ($ in thousands):
| Three Months Ended June 30, | Six Months Ended June 30, | ||||||||||||||||||||||||||||||||||||||||||||||
| 2021 | 2020 | $ Change | % Change | 2021 | 2020 | $ Change | % Change | ||||||||||||||||||||||||||||||||||||||||
| Net operating income | $ | 5,437 | $ | 4,193 | $ | 1,244 | 29.7 | % | $ | 10,191 | $ | 10,228 | $ | (37) | (0.4) | % | |||||||||||||||||||||||||||||||
| Termination fee income | 7 | 2 | 5 | 250.0 | % | 7 | 3 | 4 | 133.3 | % | |||||||||||||||||||||||||||||||||||||
| Other income, net | 27 | 8 | 19 | 237.5 | % | 56 | 76 | (20) | (26.3) | % | |||||||||||||||||||||||||||||||||||||
| Depreciation and amortization | (2,810) | (2,106) | (704) | 33.4 | % | (5,175) | (4,454) | (721) | 16.2 | % | |||||||||||||||||||||||||||||||||||||
| Interest expense | (863) | (550) | (313) | 56.9 | % | (1,378) | (1,199) | (179) | 14.9 | % | |||||||||||||||||||||||||||||||||||||
| Net gain (loss) on sale of investment property | (3) | 168 | (171) | (101.8) | % | (3) | 486 | (489) | (100.6) | % | |||||||||||||||||||||||||||||||||||||
| Income from unconsolidated joint ventures | $ | 1,795 | $ | 1,715 | $ | 80 | 4.7 | % | $ | 3,698 | $ | 5,140 | $ | (1,442) | (28.1) | % | |||||||||||||||||||||||||||||||
Net operating income from unconsolidated joint ventures increased between the three month periods primarily due to preliminary operations at our 300 Colorado development.
Gain on Sales of Investments in Unconsolidated Joint Ventures
The gain on sales of investments in unconsolidated joint ventures for the six months ended June 30, 2020 includes the sale of our interests in the Wildwood Associates and Gateway Village joint ventures. The capitalization rate of Gateway Village was not a determinant of the sales price as, per the joint venture agreement, our interest was valued at a 17% internal rate of return on our invested capital. There was no capitalization rate associated with the sale of our interest in the Wildwood Associates joint venture as the underlying asset was land.
Gain (loss) on Investment Property Transactions
The gain (loss) on investment property transactions for the six months ended June 30, 2021 and 2020 are primarily due to the sale of Burnett Plaza in April 2021 and Hearst Tower in March 2020. The combined sales prices of the Hearst Tower and Woodcrest dispositions in 2020 represented a weighted average capitalization rate of 5.1%. The sales price of the Burnett disposition in 2021 represented a capitalization rate of 8.2%. Capitalization rates are calculated by dividing projected NOI by the sales price. Projected NOI, which may include assumptions of future leasing, is based on our latest full calendar year forecast at the time of sale.
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Funds From Operations
The table below shows Funds from Operations (“FFO”) and the related reconciliation to net income available to common stockholders. We calculate FFO in accordance with the National Association of Real Estate Investment Trusts’ (“NAREIT”) definition, which is net income available to common stockholders (computed in accordance with GAAP), excluding extraordinary items, cumulative effect of change in accounting principle, and gains on sale or impairment losses on depreciable property, plus depreciation and amortization of real estate assets, and after adjustments for unconsolidated partnerships and joint ventures to reflect FFO on the same basis.
FFO is used by industry analysts and investors as a supplemental measure of a REIT’s operating performance. Historical cost accounting for real estate assets implicitly assumes that the value of real estate assets diminishes predictably over time. Since real estate values instead have historically risen or fallen with market conditions, many industry investors and analysts have considered presentation of operating results for real estate companies that use historical cost accounting to be insufficient by themselves. Thus, NAREIT created FFO as a supplemental measure of REIT operating performance that excludes historical cost depreciation, among other items, from GAAP net income. The use of FFO, combined with the required primary GAAP presentations, has been fundamentally beneficial, improving the understanding of operating results of REITs among the investing public and making comparisons of REIT operating results more meaningful. Company management evaluates operating performance in part based on FFO. Additionally, we use FFO, along with other measures, to assess performance in connection with evaluating and granting incentive compensation to its officers and other key employees. The reconciliation of net income to FFO is as follows for the three and six months ended June 30, 2021 and 2020 (in thousands, except per share information):
| Three Months Ended June 30, | ||||||||||||||||||||||||||||||||||||||
| 2021 | 2020 | |||||||||||||||||||||||||||||||||||||
| Dollars | Weighted Average Common Shares | Per Share Amount | Dollars | Weighted Average Common Shares | Per Share Amount | |||||||||||||||||||||||||||||||||
| Net Income Available to Common Stockholders | $ | 28,153 | 148,665 | $ | 0.19 | $ | 23,101 | 148,548 | $ | 0.16 | ||||||||||||||||||||||||||||
| Noncontrolling interest related to unitholders | 5 | 25 | — | 5 | 25 | — | ||||||||||||||||||||||||||||||||
| Conversion of stock options | — | — | — | — | 5 | — | ||||||||||||||||||||||||||||||||
| Conversion of unvested restricted stock units | — | 50 | — | — | 2 | — | ||||||||||||||||||||||||||||||||
| Net Income — Diluted | 28,158 | 148,740 | 0.19 | 23,106 | 148,580 | 0.16 | ||||||||||||||||||||||||||||||||
| Depreciation and amortization of real estate assets: | ||||||||||||||||||||||||||||||||||||||
| Consolidated properties | 71,299 | — | 0.48 | 72,694 | — | 0.49 | ||||||||||||||||||||||||||||||||
| Share of unconsolidated joint ventures | 2,810 | — | 0.02 | 2,106 | — | 0.01 | ||||||||||||||||||||||||||||||||
| Partners' share of real estate depreciation | (228) | — | — | (212) | — | — | ||||||||||||||||||||||||||||||||
| Loss (gain) on sale of depreciated properties: | ||||||||||||||||||||||||||||||||||||||
| Consolidated properties | 9 | — | — | 201 | — | — | ||||||||||||||||||||||||||||||||
| Share of unconsolidated joint ventures | 3 | — | — | (168) | — | — | ||||||||||||||||||||||||||||||||
| Investments in unconsolidated joint ventures | — | — | — | 232 | — | — | ||||||||||||||||||||||||||||||||
| Funds From Operations | $ | 102,051 | 148,740 | $ | 0.69 | $ | 97,959 | 148,580 | $ | 0.66 | ||||||||||||||||||||||||||||
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| Six Months Ended June 30, | |||||||||||||||||||||||||||||||||||
| 2021 | 2020 | ||||||||||||||||||||||||||||||||||
| Dollars | Weighted Average Common Shares | Per Share Amount | Dollars | Weighted Average Common Shares | Per Share Amount | ||||||||||||||||||||||||||||||
| Net Income Available to Common Stockholders | $ | 57,263 | 148,644 | $ | 0.39 | $ | 198,044 | 147,986 | $ | 1.34 | |||||||||||||||||||||||||
| Noncontrolling interest related to unitholders | 11 | 25 | — | 307 | 572 | — | |||||||||||||||||||||||||||||
| Conversion of stock options | — | 2 | — | — | 10 | — | |||||||||||||||||||||||||||||
| Conversion of unvested restricted stock units | — | 45 | — | — | 2 | — | |||||||||||||||||||||||||||||
| Net Income — Diluted | 57,274 | 148,716 | 0.39 | 198,351 | 148,570 | 1.34 | |||||||||||||||||||||||||||||
| Depreciation and amortization of real estate assets: | |||||||||||||||||||||||||||||||||||
| Consolidated properties | 142,011 | — | 0.95 | 144,100 | — | 0.97 | |||||||||||||||||||||||||||||
| Share of unconsolidated joint ventures | 5,175 | — | 0.03 | 4,453 | — | 0.03 | |||||||||||||||||||||||||||||
| Partners' share of real estate depreciation | (439) | — | — | (361) | — | — | |||||||||||||||||||||||||||||
| Loss (gain) on sale of depreciated properties: | |||||||||||||||||||||||||||||||||||
| Consolidated properties | 26 | — | — | (90,715) | — | (0.61) | |||||||||||||||||||||||||||||
| Share of unconsolidated joint ventures | 3 | — | — | (486) | — | — | |||||||||||||||||||||||||||||
| Investments in unconsolidated joint ventures | (39) | — | — | (44,662) | — | (0.31) | |||||||||||||||||||||||||||||
| Funds From Operations | $ | 204,011 | 148,716 | $ | 1.37 | $ | 210,680 | 148,570 | $ | 1.42 | |||||||||||||||||||||||||
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Net Operating Income
Company management evaluates the performance of its property portfolio in part based on NOI. NOI represents rental property revenues, less termination fees, less rental property operating expenses. NOI is not a measure of cash flows or operating results as measured by GAAP, is not indicative of cash available to fund cash needs, and should not be considered an alternative to cash flows as a measure of liquidity. All companies may not calculate NOI in the same manner. We consider NOI to be an appropriate supplemental measure to net income as it helps both management and investors understand the core operations of our operating assets. NOI excludes corporate general and administrative expenses, interest expense, depreciation and amortization, impairments, gains/loss on sales of real estate, and other non-operating items.
The following table reconciles NOI for consolidated properties to net income for each of the periods presented (in thousands):
| Three Months Ended June 30, | Six Months Ended June 30, | ||||||||||||||||||||||
| 2021 | 2020 | 2021 | 2020 | ||||||||||||||||||||
| Net income | $ | 28,060 | $ | 23,236 | $ | 57,371 | $ | 198,545 | |||||||||||||||
| Fee income | (4,803) | (4,690) | (9,332) | (9,422) | |||||||||||||||||||
| Termination fee income | (782) | (539) | (824) | (3,383) | |||||||||||||||||||
| Other income | (68) | (126) | (282) | (163) | |||||||||||||||||||
| Reimbursed expenses | 398 | 322 | 766 | 843 | |||||||||||||||||||
| General and administrative expenses | 7,313 | 8,543 | 14,046 | 14,195 | |||||||||||||||||||
| Interest expense | 16,656 | 13,993 | 33,864 | 29,897 | |||||||||||||||||||
| Depreciation and amortization | 71,456 | 72,868 | 142,326 | 144,482 | |||||||||||||||||||
| Transaction Costs | — | 63 | — | 428 | |||||||||||||||||||
| Other expenses | 824 | 552 | 1,414 | 1,118 | |||||||||||||||||||
| Income from unconsolidated joint ventures | (1,795) | (1,715) | (3,698) | (5,140) | |||||||||||||||||||
| Gain/loss on sale of investment in unconsolidated joint ventures | — | 231 | (39) | (45,999) | |||||||||||||||||||
| Gain/loss on investment property transactions | 9 | 201 | 26 | (90,715) | |||||||||||||||||||
| Net Operating Income | $ | 117,268 | $ | 112,939 | $ | 235,638 | $ | 234,686 | |||||||||||||||
Liquidity and Capital Resources
Our primary short-term and long-term liquidity needs include the following:
•property and land acquisitions;
•expenditures on development projects;
•building improvements, tenant improvements, and leasing costs;
•principal and interest payments on indebtedness;
•general and administrative costs; and
•common stock dividends and distributions to outside unitholders of CPLP.
We may satisfy these needs with one or more of the following:
•cash and cash equivalents on hand;
•net cash from operations;
•proceeds from the sale of assets;
•borrowings under our Credit Facility;
•proceeds from mortgage notes payable;
•proceeds from construction loans;
•proceeds from unsecured loans;
•proceeds from offerings of equity securities; and
•joint venture formations.
As of June 30, 2021, we had $32.0 million drawn under the Credit Facility and the ability to borrow the remaining $968.0 million, and $9.8 million of cash and cash equivalents. While we expect to have sufficient liquidity to meet our obligations for the foreseeable future, the COVID-19 pandemic and associated responses could adversely impact our future cash flows and financial condition.
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Contractual Obligations and Commitments
The following table sets forth information as of June 30, 2021 with respect to our outstanding contractual obligations and commitments (in thousands):
| Total | Less than 1 Year | 1-3 Years | 3-5 Years | More than 5 years | ||||||||||||||||||||||||||||
| Contractual Obligations: | ||||||||||||||||||||||||||||||||
| Company debt: | ||||||||||||||||||||||||||||||||
| Unsecured credit facility | $ | 32,000 | $ | — | $ | 32,000 | $ | — | $ | — | ||||||||||||||||||||||
| Unsecured senior notes | 1,000,000 | — | — | 250,000 | 750,000 | |||||||||||||||||||||||||||
Term loan | 350,000 | — | — | 350,000 | — | |||||||||||||||||||||||||||
| Mortgage notes payable | 669,791 | 8,267 | 355,557 | 85,840 | 220,127 | |||||||||||||||||||||||||||
| Interest commitments (1) | 327,721 | 57,496 | 103,015 | 87,822 | 79,388 | |||||||||||||||||||||||||||
| Ground leases | 213,694 | 2,978 | 5,523 | 5,369 | 199,824 | |||||||||||||||||||||||||||
| Other operating leases | 159 | 119 | 35 | 5 | — | |||||||||||||||||||||||||||
| Total contractual obligations | $ | 2,593,365 | $ | 68,860 | $ | 496,130 | $ | 779,036 | $ | 1,249,339 | ||||||||||||||||||||||
| Commitments: | ||||||||||||||||||||||||||||||||
Unfunded tenant improvements and construction obligations | $ | 258,871 | $ | 166,073 | $ | 92,798 | $ | — | $ | — | ||||||||||||||||||||||
| Performance bonds | 647 | 647 | — | — | — | |||||||||||||||||||||||||||
| Total commitments | $ | 259,518 | $ | 166,720 | $ | 92,798 | $ | — | $ | — | ||||||||||||||||||||||
(1)Interest on variable rate obligations is based on rates effective as of June 30, 2021.
In addition, we have several standing or renewable service contracts mainly related to the operation of buildings. These contracts are in the ordinary course of business and are generally one year or less. These contracts are not included in the above table and are usually reimbursed in whole or in part by tenants.
Other Debt Information
In June 2021, we entered into an Amended and Restated Term Loan Agreement (the "New Term Loan") that amended the former term loan agreement. Under the New Term Loan, we have borrowed $350 million that matures on August 30, 2024, with options to, on up to four successive occasions, extend the maturity date for an additional 180 days. See note 7 of Notes to Condensed Consolidated Financial Statements in this Quarterly Report on Form 10-Q for additional information.
Our existing mortgage debt is non-recourse, fixed-rate mortgage notes secured by various real estate assets. We expect to either refinance our non-recourse mortgage loans at maturity or repay the mortgage loans with other capital resources, including our credit facility, unsecured debt, non-recourse mortgages, construction loans, the sale of assets, joint venture equity, the issuance of common stock, the issuance of preferred stock, or the issuance of units of CPLP. Many of our non-recourse mortgages contain covenants which, if not satisfied, could result in acceleration of the maturity of the debt. We expect to either refinance the non-recourse mortgages at maturity or repay mortgages with proceeds from asset sales, debt, or other capital sources. We are in compliance with all covenants of our existing non-recourse mortgages, Credit Facility, unsecured senior notes, and $350 million unsecured term loan.
81% of our debt bears interest at a fixed rate. Our variable-interest debt instruments, including our Credit Facility and New Term Loan, may use LIBOR as a benchmark for establishing the rate. LIBOR has been the subject of regulatory guidance and proposals for reform and in July 2017, the United Kingdom's Financial Conduct Authority ("FCA") (the authority that regulates LIBOR) announced it intends to stop compelling banks to submit rates for the calculation of LIBOR after 2021. In March 2021, the FCA announced that it now intends to cease the US dollar LIBOR setting on June 30, 2023. These reforms may cause LIBOR to no longer be provided or to perform differently than in the past. Recent proposals for LIBOR reforms may result in the establishment of new methods of calculating LIBOR or the establishment of one or more alternative benchmark rates. If LIBOR is no longer widely available, or otherwise at our option, our variable-interest debt instruments, including our Credit Facility and New Term Loan, provide for alternate interest rate calculations.
There can be no assurances as to what alternative interest rates may be and whether such interest rates will be more or less favorable than LIBOR and any other unforeseen impacts of the potential discontinuation of LIBOR. We intend to continue monitoring the developments with respect to the planned phasing out of US dollar LIBOR after 2023 and work with its lenders to ensure any transition away from LIBOR will have minimal impact on its financial condition, but can provide no assurances regarding the impact of the discontinuation of LIBOR.
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Future Capital Requirements
To meet capital requirements for future investment activities over the long-term, we intend to actively manage our portfolio of properties and strategically sell assets to exit our non-core holdings and reposition our portfolio geographically. We expect to continue to utilize cash retained from operations as well third-party sources of capital such as indebtedness to fund future commitments as well as utilize construction facilities for some development assets, if available and under appropriate terms.
We may also generate capital through the issuance of securities that include common or preferred stock, warrants, debt securities, depositary shares, or the issuance of CPLP limited partnership units.
Our business model is dependent upon raising or recycling capital to meet obligations and to fund development and acquisition activity. If one or more sources of capital are not available when required, we may be forced to reduce the number of projects we acquire or develop and/or raise capital on potentially unfavorable terms, or we may be unable to raise capital, which could have an adverse effect on our financial position or results of operations.
Cash Flows
We report and analyze our cash flows based on operating activities, investing activities, and financing activities. The following table sets forth the changes in cash flows (in thousands):
| Six Months Ended June 30, | |||||||||||||||||
| 2021 | 2020 | Change | |||||||||||||||
| Net cash provided by operating activities | $ | 167,690 | $ | 133,588 | $ | 34,102 | |||||||||||
| Net cash provided by investing activities | 36,356 | 248,792 | (212,436) | ||||||||||||||
| Net cash used in financing activities | (199,136) | (369,786) | 170,650 | ||||||||||||||
The reasons for significant increases and decreases in cash flows between the periods are as follows:
Cash Flows from Operating Activities. Cash flows provided by operating activities increased $34.1 million between the 2021 and 2020 six month periods primarily due to the completed development of, and commencement of operations at, Domain 10, Domain 12, and 10000 Avalon in 2020, partially offset by operations at Hearst Tower and Woodcrest, which were sold in the first quarter of 2020 and Burnett Plaza which was sold in April of 2021.
Cash Flows from Investing Activities. Cash flows provided by investing activities decreased $212.4 million between the 2021 and 2020 six month periods primarily due to cash received from the sales of the Hearst Tower and Woodcrest operating properties, combined with the sales of our interests in the Gateway Village and Wildwood Associates joint ventures in 2020, partially offset by the capital distribution made by the Carolina Square Holdings LP joint venture and cash received from the sale of Burnett Plaza in 2021.
Cash Flows from Financing Activities. Cash flows used in financing activities decreased $170.7 million between the 2021 and 2020 six month periods primarily due to higher net repayments of debt from proceeds of sales of Hearst Tower and Gateway in 2020, partially offset by net repayments of debt from proceeds from the sale of Burnett Plaza in 2021.
Capital Expenditures. We incur costs related to our real estate assets that include acquisition of properties, development of new properties, redevelopment of existing or newly purchased properties, leasing costs for new or replacement tenants, and ongoing property repairs and maintenance.
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Capital expenditures for assets we develop or acquire and then hold and operate are included in the property acquisition, development, and tenant asset expenditures line item within investing activities on the consolidated statements of cash flows. Amounts accrued are removed from the table below (accrued capital adjustment) to show the components of these costs on a cash basis. Components of costs included in this line item for the three and six months ended June 30, 2021 and 2020 are as follows (in thousands):
| Six Months Ended June 30, | |||||||||||
| 2021 | 2020 | ||||||||||
| Development | $ | 38,428 | $ | 27,781 | |||||||
| Operating — building improvements | 35,369 | 71,432 | |||||||||
| Operating — leasing costs | 22,804 | 18,443 | |||||||||
| Purchase of land held for investment | 8,173 | 6,092 | |||||||||
| Capitalized personnel costs | 3,107 | 3,155 | |||||||||
| Capitalized interest | 2,730 | 9,268 | |||||||||
| Acquisition of property | — | 82,726 | |||||||||
| Change in accrued capital expenditures | 5,398 | 16,569 | |||||||||
| Total property acquisition, development, and tenant asset expenditures | $ | 116,009 | $ | 235,466 | |||||||
Capital expenditures decreased $119.5 million between the 2021 and 2020 periods primarily due to the acquisition of the College Street Garage in Charlotte in the second quarter of 2020.
The amounts of tenant improvement and leasing costs for our office portfolio on a per square foot basis for the three months ended June 30, 2021 and 2020 were as follows:
| 2021 | 2020 | |||||||||||||
| New leases | $8.52 | $13.55 | ||||||||||||
| Renewal leases | $6.66 | $5.72 | ||||||||||||
| Expansion leases | $11.13 | — | ||||||||||||
The amounts of tenant improvement and leasing costs on a per square foot basis vary by lease and by market. Average leasing costs decreased for new leases primarily due to a lease in Austin signed in the second quarter of 2020 with higher than average tenant improvement and leasing costs.
Dividends. We paid common dividends of $90.6 million and $87.1 million in the 2021 and 2020 six month periods, respectively. We expect to fund our future quarterly common dividends with cash provided by operating activities, also using proceeds from investment property sales, distributions from unconsolidated joint ventures, and indebtedness, if necessary.
On a quarterly basis, we review the amount of the common dividend in light of current and projected future cash flows from the sources noted above and also consider the requirements needed to maintain our REIT status. In addition, we have certain covenants under credit agreements which could limit the amount of common dividends paid. In general, common dividends of any amount can be paid as long as leverage, as defined in our credit agreements, is less than 60% and we are not in default. Certain conditions also apply in which we can still pay common dividends if leverage is above that amount. We routinely monitor the status of our common dividend payments in light of the covenants of our credit agreements.
Off Balance Sheet Arrangements
General. We have a number of off balance sheet joint ventures with varying structures, as described in note 8 of our 2020 Annual Report on Form 10-K and note 4 of this Form 10-Q. The joint ventures in which we have an interest are involved in the ownership, acquisition, and/or development of real estate. A venture will fund capital requirements or operational needs with cash from operations or financing proceeds, if possible. If additional capital is deemed necessary, a venture may request a contribution from the partners, and we will evaluate such request.
Debt. At June 30, 2021, our unconsolidated joint ventures had aggregate outstanding indebtedness to third parties of $290.9 million. These loans are generally mortgage or construction loans, which are non-recourse to us. In addition, in certain instances, we provide “non-recourse carve-out guarantees” on these non-recourse loans. Certain of these loans have variable interest rates, which creates exposure to the ventures in the form of market risk from interest rate changes.
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Critical Accounting Policies
There have been no material changes in the critical accounting policies from those disclosed in our Annual Report on Form 10-K for the year ended December 31, 2020.
Item 3. Quantitative and Qualitative Disclosures About Market Risk.
There have been no material changes in the market risk associated with our notes payable at June 30, 2021 compared to that as disclosed in our Annual Report on Form 10-K for the year ended December 31, 2020.
Item 4. Controls and Procedures.
We maintain disclosure controls and procedures that are designed to ensure that information required to be disclosed in our Exchange Act reports is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms, and that such information is accumulated and communicated to management, including the Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure. Management necessarily applied judgment in assessing the costs and benefits of such controls and procedures, which, by their nature, can provide only reasonable assurance regarding our control objectives.
As of the end of the period covered by this report, we carried out an evaluation, under the supervision and with the participation of management, including the Chief Executive Officer along with the Chief Financial Officer, of the effectiveness, design, and operation of our disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)). Based upon the foregoing, the Chief Executive Officer along with the Chief Financial Officer concluded that our disclosure controls and procedures were effective. In addition, based on such evaluation we have identified no changes in our internal control over financial reporting that occurred during the most recent fiscal quarter that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
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PART II. OTHER INFORMATION
Item 1. Legal Proceedings.
Information regarding legal proceedings is described under the subheading "Litigation" in note 9 to the unaudited condensed consolidated financial statements set forth in this Form 10-Q.
Item 1A. Risk Factors
Risk factors that affect our business and financial results are discussed in Part I, "Item 1A. Risk Factors," of our Annual Report on Form 10-K for the year ended December 31, 2020. There have been no material changes in our risk factors from those previously disclosed in our Annual Report. You should carefully consider the risks described in our Annual Report, which could materially affect our business, financial condition or future results. The risks described in our Annual Report are not the only risks we face. Additional risks and uncertainties not currently known to us or that we currently deem immaterial also may materially adversely affect our business, financial condition, and/or operating results. If any of the risks actually occur, our business, financial condition, and/or results of operations could be negatively affected.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.
For information on our equity compensation plans, see note 16 of our Annual Report on Form 10-K, and note 12 to the unaudited condensed consolidated financial statements set forth in this Form 10-Q. We did not make any sales of unregistered securities during the second quarter of 2021. We did not purchase any common shares during the first quarter of 2021.
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Item 6. Exhibits.
| † | ||||||||
| † | ||||||||
| † | ||||||||
| † | ||||||||
| † | ||||||||
| 101 | † | The following financial information for the Registrant, formatted in inline XBRL (Extensible Business Reporting Language): (i) the consolidated balance sheets, (ii) the consolidated statements of operations, (iii) the consolidated statements of equity, (iv) the consolidated statements of cash flows, and (v) the notes to condensed consolidated financial statements. | ||||||
| 104 | † | Cover page interactive data file (formatted as inline XBRL with applicable taxonomy extension information contained in Exhibit 101). | ||||||
| † | Filed herewith. | |||||||
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.
| COUSINS PROPERTIES INCORPORATED | |||||||||||
| /s/ Gregg D. Adzema | |||||||||||
| Gregg D. Adzema | |||||||||||
| Executive Vice President and Chief Financial Officer (Duly Authorized Officer and Principal Financial Officer) | |||||||||||
Date: July 29, 2021
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