# Cousins Properties Inc: Form 10-Q for the period ended Sep 30, 2024

- Company: [Cousins Properties Inc](/companies/cuz.md) (CIK 25232)
- Form: 10-Q
- Filed: 2024-10-24
- Accepted by EDGAR: Oct 24, 2024, 16:17 ET
- Period: 2024-09-30
- Accession: 0000025232-24-000057
- Inline XBRL: yes
- Main document: https://www.sec.gov/Archives/edgar/data/25232/000002523224000057/cuz-20240930.htm
- All documents and exhibits: https://www.sec.gov/Archives/edgar/data/25232/000002523224000057/

## Figures reported in this filing

Standardized XBRL line items for the period ended 2024-09-30.

| Line item | Period | Value | XBRL concept |
| --- | --- | ---: | --- |
| Revenue | 3 months, 2024-07-01 to 2024-09-30 | $209.2m | us-gaap:Revenues |
| Revenue | 9 months, 2024-01-01 to 2024-09-30 | $631.4m | us-gaap:Revenues |
| Cost of revenue | 3 months, 2024-07-01 to 2024-09-30 | $66.0m | us-gaap:CostOfGoodsAndServicesSold |
| Cost of revenue | 9 months, 2024-01-01 to 2024-09-30 | $207.7m | us-gaap:CostOfGoodsAndServicesSold |
| Operating income | 3 months, 2024-07-01 to 2024-09-30 | $142.1m | us-gaap:OperatingIncomeLoss |
| Operating income | 9 months, 2024-01-01 to 2024-09-30 | $422.0m | us-gaap:OperatingIncomeLoss |
| Interest expense | 3 months, 2024-07-01 to 2024-09-30 | $30.8m | us-gaap:InterestExpense |
| Interest expense | 9 months, 2024-01-01 to 2024-09-30 | $89.4m | us-gaap:InterestExpense |
| Net income | 3 months, 2024-07-01 to 2024-09-30 | $11.2m | us-gaap:NetIncomeLoss |
| Net income | 9 months, 2024-01-01 to 2024-09-30 | $32.3m | us-gaap:NetIncomeLoss |
| Diluted EPS | 3 months, 2024-07-01 to 2024-09-30 | $0.07 | us-gaap:EarningsPerShareDiluted |
| Diluted EPS | 9 months, 2024-01-01 to 2024-09-30 | $0.21 | us-gaap:EarningsPerShareDiluted |
| Basic EPS | 3 months, 2024-07-01 to 2024-09-30 | $0.07 | us-gaap:EarningsPerShareBasic |
| Basic EPS | 9 months, 2024-01-01 to 2024-09-30 | $0.21 | us-gaap:EarningsPerShareBasic |
| Diluted shares (weighted) | 3 months, 2024-07-01 to 2024-09-30 | 152,812,000 shares | us-gaap:WeightedAverageNumberOfDilutedSharesOutstanding |
| Diluted shares (weighted) | 9 months, 2024-01-01 to 2024-09-30 | 152,604,000 shares | us-gaap:WeightedAverageNumberOfDilutedSharesOutstanding |
| Operating cash flow | 9 months, 2024-01-01 to 2024-09-30 | $271.2m | us-gaap:NetCashProvidedByUsedInOperatingActivities |
| Dividends paid | 9 months, 2024-01-01 to 2024-09-30 | $146.7m | us-gaap:PaymentsOfDividendsCommonStock |
| Cash and equivalents | at 2024-09-30 | $76.1m | us-gaap:CashAndCashEquivalentsAtCarryingValue |
| Total assets | at 2024-09-30 | $7.77bn | us-gaap:Assets |
| Total liabilities | at 2024-09-30 | $3.33bn | us-gaap:Liabilities |
| Long-term debt | at 2024-09-30 | $2.66bn | us-gaap:LongTermDebt |
| Shareholders' equity | at 2024-09-30 | $4.42bn | us-gaap:StockholdersEquity |

## Management's discussion and analysis

As filed, 31,493 characters.

### Overview of 2024 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 that owns and manages its own real estate portfolio and performs certain real estate related services. 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, Phoenix, Tampa, Charlotte, Dallas, and Nashville. This strategy is based on a disciplined approach to capital allocation that includes opportunistic acquisitions, selective developments, and timely dispositions of non-core assets with a goal of maintaining a portfolio of newer and more efficient properties with lower capital expenditure requirements. 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.

In the quarter, we leased or renewed 763,000 square feet of office space, including 611,000 of new and expansion leases representing 80% of the total leasing activity. Straight-line net rent per square foot increased 30.7% for those office spaces that were under lease within the past year. Same property net operating income (defined below) for consolidated properties and our share of unconsolidated properties increased 4.2% between the three months ended September 30, 2024 and 2023.

For the nine months ended September 30, 2024 we have leased or renewed 1,557,000 square feet of office space, including 1,137,000 of new and expansion leases representing 73% of the total leasing activity. Straight-line net rent per square foot increased by 29.9% for those office spaces that were under lease within the past year. Same property net operating income for consolidated properties and our share of unconsolidated properties increased 5.0% between the nine months ended September 30, 2024 and 2023.

We believe the Sun Belt, and in particular the seven Sun Belt markets in which we primarily operate, will continue to outperform the broader office sector evidenced by a clear bifurcation between Sun Belt and Gateway market fundamentals. In addition, as the flight to quality trend accelerates among office users, we believe our trophy portfolio is well positioned to benefit from, and ultimately outperform in, the current office real estate environment.

### Results of Operations For The Three and Nine Months Ended September 30, 2024

### General

Net income available to common stockholders for the three and nine months ended September 30, 2024 was $11.2 million and $32.3 million, respectively. For the three and nine months ended September 30, 2023, the net income available to common stockholders was $19.4 million and $64.2 million, respectively. We detail below material changes in the components of net income available to common stockholders for the three and nine months ended September 30, 2024 compared to 2023.

### 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 includes office properties that were stabilized and owned by us for the entirety of each comparable reporting period presented. Same Property amounts for the 2024 versus 2023 comparison are from properties that were stabilized and owned as of January 1, 2023 through September 30, 2024.

### Net Operating Income

Company management evaluates the performance of its property portfolio, 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. 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/losses on sales of real estate, and other non-operating items. As a result, we use only those income and expense items that are incurred at the property level to evaluate a property's performance. Same Property NOI allows analysts, investors, and management to analyze continuing operations and evaluate the growth trend of our portfolio.

The following table reconciles NOI for consolidated properties from net income for each of the periods presented ($ in thousands):

|  | Three Months Ended September 30, 2024 | 2023 | Nine Months Ended September 30, 2024 | 2023 |
| --- | ---: | ---: | ---: | ---: |
| **Net Income** | **$11,356** | $19,491 | **$32,768** | $64,924 |
| Fee income | **(495)** | (318) | **(1,280)** | (1,044) |
| Termination fee income | **(895)** | (271) | **(2,451)** | (6,977) |
| Other income | **(1,457)** | (101) | **(2,599)** | (2,393) |
| General and administrative expenses | **9,204** | 8,336 | **27,325** | 24,795 |
| Interest expense | **30,773** | 27,008 | **89,424** | 78,010 |
| Depreciation and amortization | **89,784** | 79,492 | **271,429** | 235,531 |
| Reimbursed expenses | **188** | 149 | **479** | 515 |
| Other expenses | **327** | 623 | **1,602** | 1,484 |
| Loss (income) from unconsolidated joint ventures | **1,575** | (582) | **788** | (2,008) |
| Gain on investment property transactions | **—** | (507) | **(98)** | (505) |
| **Net Operating Income** | **$140,360** | $133,320 | **$417,387** | $392,332 |

Consolidated rental property revenues, rental property operating expenses, and NOI changed between the 2024 and 2023 periods as follows ($ in thousands):

| Rental Property Revenues | Three Months Ended September 30, 2024 | 2023 | $ Change | % Change | Nine Months Ended September 30, 2024 | 2023 | $ Change | % Change |
| --- | ---: | ---: | ---: | ---: | ---: | ---: | ---: | ---: |
| Same Property | **$196,720** | $190,732 | $5,988 | 3.1% | **$597,993** | $576,714 | $21,279 | 3.7% |
| Non-Same Property | **9,645** | 7,426 | 2,219 | 29.9% | **27,108** | 18,768 | 8,340 | 44.4% |
|  | **206,365** | 198,158 | 8,207 | 4.1% | **625,101** | 595,482 | 29,619 | 5.0% |
| Termination Fee Income | **895** | 271 | 624 |  | **2,451** | 6,977 | (4,526) |  |
| **Total Rental Property Revenues** | **$207,260** | $198,429 | $8,831 |  | **$627,552** | $602,459 | $25,093 |  |
| **Rental Property Operating Expenses** |  |  |  |  |  |  |  |  |
| Same Property | **$62,973** | $62,509 | $464 | 0.7% | **$198,721** | $196,741 | $1,980 | 1.0% |
| Non-Same Property | **3,032** | 2,329 | 703 | 30.2% | **8,993** | 6,409 | 2,584 | 40.3% |
| **Total Rental Property Operating Expenses** | **$66,005** | $64,838 | $1,167 | 1.8% | **$207,714** | $203,150 | $4,564 | 2.2% |
| **Net Operating Income** |  |  |  |  |  |  |  |  |
| Same Property NOI | **$133,747** | $128,223 | $5,524 | 4.3% | **$399,272** | $379,973 | $19,299 | 5.1% |
| Non-Same Property NOI | **6,613** | 5,097 | 1,516 | 29.7% | **18,115** | 12,359 | 5,756 | 46.6% |
| **Total NOI** | **$140,360** | $133,320 | $7,040 | 5.3% | **$417,387** | $392,332 | $25,055 | 6.4% |

Same Property NOI represents Net Operating Income for those office properties that were stabilized and owned by the Company for the entirety of all comparable reporting periods presented. Same Property NOI allows analysts, investors, and management to analyze continuing operations and evaluate the growth trend of the Company's portfolio.

Same Property Rental Property Revenues increased for the three and nine months ended September 30, 2024 compared to the same periods in the prior year primarily due to an increase in economic occupancy at our BriarLake Plaza, San Jacinto Center, and Promenade Tower office properties and increases in revenues recognized from tenant funded improvements owned by us. In addition, parking revenue from our Same Property portfolio increased compared to the same period in the prior year.

Non-Same Property Rental Property Revenues, Rental Property Operating Expenses, and NOI increased for the three and nine months ended September 30, 2024 compared to the same period in the prior year primarily due to the commencement of operations at our Domain 9 building in the first quarter of 2024 and increased economic occupancy at our recently renovated Promenade Central operating property. This increase is partially offset by a full building redevelopment at our Hayden Ferry 1 building, which began in the fourth quarter of 2023.

### Interest Expense

Interest expense, net of amounts capitalized, increased $3.8 million, or 13.9%, and $11.4 million, or 14.6%, for the three and nine months ended September 30, 2024, respectively, compared to the same periods in the prior year. This increase is primarily due to decreases in capitalized interest as we finished construction on the core building and began operations at our Domain 9 building in the first quarter of 2024. In addition to the decreases in capitalized interest, increases are driven by higher variable interest rates and an increase in borrowings following the issuance of the public unsecured senior note, which were partially offset by the payment of $100.0 million on the 2021 Term Loan and a full repayment of the outstanding balance of the credit facility in the third quarter of 2024.

### Depreciation and Amortization

Depreciation and amortization changed between the 2024 and 2023 periods as follows ($ in thousands):

| Depreciation and Amortization | Three Months Ended September 30, 2024 | 2023 | $ Change | % Change | Nine Months Ended September 30, 2024 | 2023 | $ Change | % Change |
| --- | ---: | ---: | ---: | ---: | ---: | ---: | ---: | ---: |
| Same Property | **$80,088** | $75,329 | $4,759 | 6.3% | **$243,140** | $223,839 | $19,301 | 8.6% |
| Non-Same Property | **9,579** | 4,050 | 5,529 | 136.5% | **27,941** | 11,361 | 16,580 | 145.9% |
| Non-Real Estate Assets | **117** | 113 | 4 | 3.5% | **348** | 331 | 17 | 5.1% |
| **Total Depreciation and Amortization** | **$89,784** | $79,492 | $10,292 | 12.9% | **$271,429** | $235,531 | $35,898 | 15.2% |

Same Property depreciation and amortization increased for the three and nine months ended September 30, 2024 compared to the same periods in the prior year due to an increase of assets in service during the current periods, primarily from tenant improvements.

Non-Same Property depreciation and amortization increased for the three and nine months ended September 30, 2024 compared to the same periods in the prior year primarily due to the completion of development at Domain 9 and a full building redevelopment at Promenade Central, as well as changes in the estimated useful lives of building and improvements at some of our operating properties. These increases were partially offset by our suspension of depreciation related to our full building redevelopment at our Hayden Ferry 1 building, which began in the fourth quarter of 2023.

### Income and Net Operating Income from Unconsolidated Joint Ventures

Income from unconsolidated joint ventures consisted of the Company's share of the following ($ in thousands):

|  | Three Months Ended September 30, 2024 | 2023 | $ Change | % Change | Nine Months Ended September 30, 2024 | 2023 | $ Change | % Change |
| --- | ---: | ---: | ---: | ---: | ---: | ---: | ---: | ---: |
| Income (loss) from unconsolidated joint ventures | **$(1,575)** | $582 | $(2,157) | (370.6)% | **$(788)** | $2,008 | $(2,796) | (139.2)% |
| Depreciation and amortization | **1,728** | 485 | 1,243 | 256.3% | **2,700** | 1,440 | 1,260 | 87.5% |
| Interest expense | **1,507** | 508 | 999 | 196.7% | **2,670** | 1,150 | 1,520 | 132.2% |
| Other expense | **118** | 24 | 94 | 391.7% | **164** | 44 | 120 | 272.7% |
| Other income | **(62)** | (35) | (27) | 77.1% | **(117)** | (110) | (7) | 6.4% |
| **Net operating income from unconsolidated joint ventures** | **$1,716** | $1,564 | $152 | 9.7% | **$4,629** | $4,532 | $97 | 2.1% |
| Net operating income: |  |  |  |  |  |  |  |  |
| Same Property | **1,098** | 1,235 | (137) | (11.1)% | **3,520** | 3,601 | (81) | (2.2)% |
| Non-Same Property | **618** | 329 | 289 | 87.8% | **1,109** | 931 | 178 | 19.1% |
| **Net operating income from unconsolidated joint ventures** | **$1,716** | $1,564 | $152 | 9.7% | **$4,629** | $4,532 | $97 | 2.1% |

Income from unconsolidated joint ventures decreased and interest from unconsolidated debt increased for the three and nine months ended September 30, 2024 compared to the same periods in the prior year primarily due to an increase in interest expense driven by the June 2023 refinancing of a mortgage by our Crawford Long joint venture and a reduction in capitalized interest and operating expenses related to the development at our Neuhoff joint venture as operations began in January 2024. Unconsolidated depreciation and amortization expense increased for the three and nine months ended September 30, 2024 compared to the same periods in the prior year primarily due to development activities winding down and operations beginning at our Neuhoff joint venture in January 2024.

### Funds From Operations

The table below shows Funds from Operations (“FFO”) and the related reconciliation from net income available to common stockholders. We calculate FFO in accordance with the 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 of depreciable property, and 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 our officers and other key employees.

The reconciliation of net income to FFO is as follows for the three and nine months ended September 30, 2024 and 2023 ($ in thousands, except per share information):

|  | Three Months Ended September 30, 2024 Dollars | Weighted Average Common Shares | Per Share Amount | 2023 Dollars | Weighted Average Common Shares | Per Share Amount |
| --- | ---: | ---: | ---: | ---: | ---: | ---: |
| **Net Income Available to Common Stockholders** | **$11,198** | **152,140** | **$0.07** | $19,361 | 151,774 | $0.13 |
| Noncontrolling interest related to unitholders | **1** | **25** | **—** | 4 | 25 | — |
| Potentially dilutive common shares - ESPP | **—** | **5** | **—** | — | — | — |
| Conversion of unvested restricted stock units | **—** | **642** | **—** | — | 249 | — |
| **Net Income — Diluted** | **11,199** | **152,812** | **0.07** | 19,365 | 152,048 | 0.13 |
| Depreciation and amortization of real estate assets: |  |  |  |  |  |  |
| Consolidated properties | **89,667** | **—** | **0.59** | 79,379 | — | 0.52 |
| Share of unconsolidated joint ventures | **1,728** | **—** | **0.01** | 485 | **—** | — |
| Partners' share of real estate depreciation | **(260)** | **—** | **—** | (257) | — | — |
| **Funds From Operations** | **$102,334** | **152,812** | **$0.67** | $98,972 | 152,048 | $0.65 |

28

|  | Nine Months Ended September 30, 2024 Dollars | Weighted Average Common Shares | Per Share Amount | 2023 Dollars | Weighted Average Common Shares | Per Share Amount |
| --- | ---: | ---: | ---: | ---: | ---: | ---: |
| **Net Income Available to Common Stockholders** | **$32,326** | **152,060** | **$0.21** | $64,178 | 151,692 | $0.42 |
| Noncontrolling interest related to unitholders | **5** | **25** | **—** | 11 | 25 | — |
| Potentially dilutive common shares - ESPP | **—** | **2** | **—** | — | — | — |
| Conversion of unvested restricted stock units | **—** | **517** | **—** | — | 301 | — |
| **Net Income — Diluted** | **32,331** | **152,604** | **0.21** | 64,189 | 152,018 | 0.42 |
| Depreciation and amortization of real estate assets: |  |  |  |  |  |  |
| Consolidated properties | **271,082** | **—** | **1.78** | 235,199 | — | 1.55 |
| Share of unconsolidated joint ventures | **2,700** | **—** | **0.02** | 1,440 | **—** | — |
| Partners' share of real estate depreciation | **(836)** | **—** | **(0.01)** | (813) | — | — |
| Loss (gain) on sale of depreciated properties: |  |  |  |  |  |  |
| Consolidated properties | **(101)** | **—** | **—** | 2 | — | — |
| **Funds From Operations** | **$305,176** | **152,604** | **$2.00** | $300,017 | 152,018 | $1.97 |

### Liquidity and Capital Resources

Our primary short-term and long-term liquidity needs include the following:

- property operating expenses;
- property, land, and other real estate related acquisitions;
- expenditures on development and redevelopment 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, including through our ATM program;
- proceeds from offerings of debt securities; and
- joint venture formations.

Our material capital expenditure commitments as of September 30, 2024 include $114.8 million of unfunded tenant improvements and construction costs. As of September 30, 2024, we had no amounts drawn under our credit facility with the ability to borrow the full $1.0 billion, as well as $76.1 million of cash and cash equivalents on hand. We expect to have sufficient liquidity to meet our obligations for the foreseeable future.

#### Other Debt Information

In addition to our $1 billion unsecured Credit Facility (with no amount outstanding as of September 30, 2024), we also have unsecured debt from two term loans totaling $650 million, one public unsecured senior note of $500 million, and five tranches of privately place unsecured senior notes totaling $1 billion. Under our Credit Facility and our 2022 and 2021 Term Loans, the interest rates applicable vary according to the Company's leverage ratio and current applicable credit ratings (see note 7). In April 2024, the Company notified the administrative agent of the Credit Facility and the terms loans of corporate investment grade ratings received. These ratings reduced the Credit Facility's current applicable spread to 0.775% and 2022 and 2021 Term Loans' current applicable spreads to 0.85% and 1.00%, respectively. There can be no assurance that the Company will maintain any particular rating in the future and if our credit ratings decrease, then we may be subject to higher applicable spreads.

Our existing mortgage debt is comprised of 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. For each non-recourse mortgage loan, the Company provides a customary "non-recourse carve-out guaranty." Additional guarantees related to re-leasing costs may also apply. Many of our non-recourse mortgages contain covenants that, 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 the mortgages with proceeds from asset sales, debt, or other capital resources. The portion of our consolidated debt bearing interest at a fixed rate is 91%. The 9% of consolidated debt that bears interest at a floating rate is based on SOFR.

We are in compliance with all covenants of our existing unsecured and secured debt.

#### 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 of income-producing assets. We expect to continue to utilize cash retained from operations, as well as 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, or the issuance of CPLP limited partnership units. The Company and CPLP have filed a registration statement on Form S-3 with the SEC registering, among other securities, debt securities of CPLP, which are fully and unconditionally guaranteed by the Company. Separate Consolidated Financial Statements of CPLP have not been presented in accordance with the amendments to Rule 3-10 of Regulation S-X. Furthermore, as permitted under Rule 13-01(a)(4)(vi), the Company has excluded the summarized financial information for CPLP as the assets, liabilities and results of operations of the Company and the CPLP are not materially different than the corresponding amounts presented in the Consolidated Financial Statements of the Company, and management believes such summarized financial information would be repetitive and not provide incremental value to investors.

Our business model also includes raising or recycling capital, which can assist in meeting obligations and funding 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):

|  | Nine Months Ended September 30, 2024 | 2023 | Change |
| --- | ---: | ---: | ---: |
| Net cash provided by operating activities | **$271,195** | $277,518 | $(6,323) |
| Net cash used in investing activities | **(253,879)** | (212,094) | (41,785) |
| Net cash provided by (used in) financing activities | **52,780** | (63,643) | 116,423 |

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 decreased $6.3 million between the 2024 and 2023 nine month periods primarily due to the following: timing of receipt of prepaid rents from tenants and the suspension of operations related to our full building redevelopment of Hayden Ferry 1 that began in the fourth quarter of 2023 partially offset by rent abatement ending at our 100 Mill property and the commencement of operations in the first quarter of 2024 at our Domain 9 property.

**Cash Flows from Investing Activities.** Cash flows used in investing activities increased $41.8 million between the 2024 and 2023 nine month periods primarily due to the acquisition of investments in real estate debt in May and June of 2024, initial contributions related to the formation of our new joint venture to acquire the Proscenium operating property in August of 2024, and a return of capital distribution from our Crawford Long unconsolidated joint venture received in May 2023. These increases are partially offset by a decrease in contributions to our Neuhoff Holdings LLC ("Neuhoff") joint venture needed to fund our equity share of the development of the Nashville mixed-used project and a decrease in capital expenditures (see table below).

**Cash Flows from Financing Activities.** Cash flows from financing activities increased $116.4 million between the 2024 and 2023 nine month periods primarily due to the issuance of the $500 million public unsecured senior note in August of 2024, partially offset by the 2024 payoff of all amounts outstanding on our credit facility and a 2024 repayment of $100 million on our 2021 Term Loan.

**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 (including tenant improvements) for new or replacement tenants, and ongoing property repairs, maintenance, and improvements.

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 condensed consolidated statements of cash flows. The change in amounts accrued are removed from the table below to show the components of these costs on a cash basis. Components of costs included in this line item for the nine months ended September 30, 2024 and 2023 are as follows ($ in thousands):

|  | Nine Months Ended September 30, 2024 | 2023 |
| --- | ---: | ---: |
| Projects under development (1) | **$22,127** | 44,138 |
| Operating properties—redevelopment | **29,911** | 34,148 |
| Operating properties—building improvements | **20,949** | 27,715 |
| Operating properties—leasing costs | **100,161** | 76,482 |
| Capitalized interest and salaries | **10,973** | 15,771 |
| Total property acquisition, development, and tenant asset expenditures | **$184,121** | $198,254 |
| (1) Includes initial leasing costs. |  |  |

Capital expenditures decreased $14.1 million between the 2024 and 2023 periods primarily due to decreases in development, redevelopment, and related capitalized interest and salaries due to the following: (i) the Domain 9 development commenced initial operations in the first quarter of 2024 primarily driving the decreased spending on projects under development and a related decrease in capitalized interest and salaries and (ii) spending on operating properties for redevelopments decreased compared to 2023 as the renovations at 3350 Peachtree and Promenade Central were substantially completed in 2023, offset by the commencement of a full building redevelopment of Hayden Ferry 1 in the fourth quarter of 2023. These decreases are partially offset by increased spending on leasing costs.

The amounts of tenant improvement and leasing costs for our office portfolio on a per square foot basis for the three months ended September 30, 2024 and 2023 were as follows:

|  | 2024 | 2023 |
| --- | ---: | ---: |
| New leases | $10.94 | $12.64 |
| Renewal leases | $8.65 | $9.12 |
| Expansion leases | $15.00 | $11.07 |

The amounts of tenant improvement and leasing costs on a per square foot basis vary by lease and by market.

**Dividends.** We paid common dividends of $146.7 million and $145.9 million in the nine months ended September 30, 2024 and 2023, respectively. We expect to fund our future quarterly common dividends with cash provided by operating activities, also using proceeds from any investment property sales, distributions from unconsolidated joint ventures, indebtedness, and proceeds from offerings of equity and other securities, 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 that 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 5 of the notes to consolidated financial statements in our Annual Report on Form 10-K for the year ended December 31, 2023 and in note 4 of the notes to condensed condensed consolidated financial statements for the three months ended September 30, 2024. 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 September 30, 2024, our unconsolidated joint ventures had aggregate outstanding indebtedness to third parties of $347.3 million. These loans are mortgage or construction loans, which are generally 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.

### 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, 2023.

## Market risk

As filed, 212 characters.

There have been no material changes in the market risk associated with our notes payable at September 30, 2024 compared to that as disclosed in our Annual Report on Form 10-K for the year ended December 31, 2023.

## Controls and procedures

As filed, 1,505 characters.

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 applies 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 controls over financial reporting.

## Risk factors

As filed, 7,414 characters.

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, 2023 and in Part II, "Item 1A. Risk Factors," of our Quarterly Report on Form 10-Q for the quarter ended June 30, 2024. There have been no material changes in our risk factors from those previously disclosed in our Annual Report and our Quarterly Report for the quarter ended June 30, 2024, except for the additional risk factors below. You should carefully consider the risks described below in conjunction with those risks disclosed in our Annual Report of our Quarterly Report on Form 10-Q for the quarter ended June 30, 2024, which could materially affect our business, financial condition, or future results. These risks 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.

### The mortgage loans in which we may invest are subject to delinquency, foreclosure and loss, which could result in losses

### to us.

Mortgage loans secured by commercial properties and are subject to risks of delinquency and foreclosure. The ability of a borrower to repay a loan secured by an income-producing property typically is dependent primarily upon the successful operation of such property rather than upon the existence of independent income or assets of the borrower. If the net operating income of the property is reduced, the borrower’s ability to repay the loan may be impaired. Net operating income of an income-producing property can be affected by, among other things: tenant mix and tenant bankruptcies, success of tenant businesses, property management decisions, including with respect to capital improvement, particularly in older building structures, property location and condition, competition from comparable types of properties offering the same or similar services, changes in laws that increase operating expenses or limit rents that may be charged, changes in interest rates, and in the state of the credit markets and the debt and equity capital markets, including diminished availability or lack of debt financing for commercial real estate, any need to address environmental contamination at the property, the occurrence of any uninsured casualty at the property, changes in national, regional or local economic conditions or specific industry segments, declines in regional or local real estate values, declines in regional or local rental or occupancy rates, increases in real estate tax rates, tax credits and other operating expenses, changes in governmental rules, regulations and fiscal policies, including environmental legislation, natural disasters, terrorism, social unrest and civil disturbances, and adverse changes in zoning laws.

In the event of any default under a mortgage loan held directly by us, we will bear a risk of loss of principal to the extent of any deficiency between the value of the collateral and the principal and accrued interest of the mortgage loan, which could have a material adverse effect on our cash flow from operations and limit amounts available for distribution to our shareholders. In the event of the bankruptcy of a mortgage loan borrower, the mortgage loan to such borrower will be deemed to be secured only to the extent of the value of the underlying collateral at the time of bankruptcy (as determined by the bankruptcy court), and the lien securing the mortgage loan will be subject to the avoidance powers of the bankruptcy trustee or debtor-in-possession to the extent the lien is unenforceable under state law. Foreclosure of a mortgage loan can be an expensive and lengthy process, which could have a substantial negative effect on our anticipated return on the foreclosed mortgage loan.

**In addition, we are exposed to the risk of judicial proceedings with our borrowers, including bankruptcy or other litigation, as a strategy to avoid foreclosure or enforcement of other rights by us as a lender or investor. In the event that any of the properties or entities underlying or collateralizing our loans or investments experiences or continues to experience any of the other foregoing events or occurrences, the value of, and return on, such investments could be reduced, which would adversely affect our results of operations and financial condition.**

We may need to foreclose on certain of the loans we originate or acquire, which could result in losses that harm our results of operations and financial condition. We may find it necessary or desirable to foreclose on certain of the loans we originate or acquire, and the foreclosure process may be lengthy and expensive. If we foreclose on an asset, we may take title to the property securing that asset, and if we do not or cannot sell the property, we would then come to own and operate it as “real estate owned.” Owning and operating real property involves risks that are different (and in many ways more significant) than the risks faced in owning an asset secured by that property. The costs associated with operating and redeveloping a property, including any operating shortfalls and significant capital expenditures, could materially and adversely affect our results of operations, financial conditions and liquidity.

Whether or not we have participated in the negotiation of the terms of any such loans, we cannot assure you as to the adequacy of the protection of the terms of the applicable loan, including the validity or enforceability of the loan and the maintenance of the anticipated priority and perfection of the applicable security interests. Furthermore, claims may be asserted by lenders or borrowers that might interfere with enforcement of our rights. Borrowers may resist foreclosure actions by asserting numerous claims, counterclaims and defenses against us, including, without limitation, lender liability claims and defenses, even when the assertions may have no basis in fact, in an effort to prolong the foreclosure action and seek to force the lender into a modification of the loan or a favorable buy-out of the borrower’s position in the loan. Foreclosure actions in some U.S. states can take several years or more to litigate and may also be time consuming and expensive to complete in other U.S. states and foreign jurisdictions in which we do business. At any time prior to or during the foreclosure proceedings, the borrower may file for bankruptcy, which would have the effect of staying the foreclosure actions and further delaying the foreclosure process, and could potentially result in a reduction or discharge of a borrower’s debt. Foreclosure may create a negative public perception of the related property, resulting in a diminution of its value. Even if we are successful in foreclosing on a loan, the liquidation proceeds upon sale of the underlying real estate may not be sufficient to recover our cost basis in the loan, resulting in a loss to us. Furthermore, any costs or delays involved in the foreclosure of the loan or a liquidation of the underlying property will further reduce the net sale proceeds and, therefore, increase any such losses to us.

Filed Oct 24, 2024.
Source: SEC EDGAR, the filing index for accession 0000025232-24-000057. Last ingested by Listed: Oct 29, 2026, 16:44 ET. No prices; not investment advice.