Cousins Properties Inc: Form 10-Q for the period ended Mar 31, 2025

Overview of 2025 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 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 Austin, Atlanta, Charlotte, Tampa, Phoenix, 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.

During the quarter, we leased 539,000 square feet of office space. Straight-line basis net rent per square foot increased 18.3% 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 4.0% between the three months ended March 31, 2025 and 2024.

We believe the Sun Belt, and in particular the seven Sun Belt markets in which we own properties, 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 real estate environment.

Results of Operations For The Three Months Ended March 31, 2025

General

Net income available to common stockholders for the three months ended March 31, 2025 was $20.9 million. We detail below material changes in the components of net income available to common stockholders for the three months ended March 31, 2025 compared to 2024.

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 2025 versus 2024 comparison are from properties that were stabilized and owned as of January 1, 2024 through March 31, 2025.

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.

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

Consolidated rental property revenues, rental property operating expenses, and NOI changed between the 2025 and 2024 periods as follows ($ in thousands):

Same Property NOI represents Net Operating Income for those office properties that were stabilized and owned by us for the entirety of the 2025 and 2024 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 and NOI increased for the three months ended March 31, 2025 compared to the same period in the prior year primarily due to an increase in economic occupancy at our Promenade Tower, Buckhead Plaza, and Tempe Gateway office properties and increases in revenues recognized from tenant funded improvements owned by us. In addition, parking revenue from our Same Property portfolio increased for the three months ended March 31, 2025 compared to the same period in the prior year.

Non-Same Property Rental Property Revenues, operating expenses, and NOI increased for the three months ended March 31, 2025 compared to the same period in the prior year primarily due to the acquisitions of our Vantage South End and Sail Tower office properties in December 2024.

Termination fee income increased for the three months ended March 31, 2025 compared to the same period in the prior year and is recorded based on the timing of termination notices, negotiated agreements, and expected move outs.

The following table details consolidated NOI from properties aggregated by market ($ in thousands):

NOI for the Austin market increased $14.1 million, or 30.7%, between the three month periods ended March 31, 2025 and 2024 primarily due to the acquisition of Sail Tower in December 2024. NOI from the Charlotte market increased $6.5 million, or 62.4%, between the three month periods ended March 31, 2025 and 2024 primarily due to the acquisition of Vantage South End in December 2024.

Other Income

Other income increased $6.8 million between the three months ended March 31, 2025 and 2024 primarily due to the sale of our Silicon Valley Bank ("SVB") bankruptcy claim in the first quarter of 2025 and interest income from the two mezzanine loans acquired in the second quarter of 2024 and the Saint Ann Court mortgage loan acquired in the fourth quarter of 2024. These transactions are described in further detail in note 2 and note 11 to the consolidated financial statements in this Form 10-Q.

General and Administrative Expenses

General and administrative expenses increased $1.5 million, or 16.2%, between the three months ended March 31, 2025 and 2024, primarily due to increases in stock compensation expense.

Interest Expense

Interest expense, net of amounts capitalized, increased $7.9 million, or 27.2% between the three months ended March 31, 2025, and 2024, primarily due to the issuances of the $500 million and $400 million public unsecured senior notes in August and December of 2024, respectively.

Depreciation and Amortization

Depreciation and amortization changed between the 2025 and 2024 periods as follows ($ in thousands):

Same Property depreciation and amortization increased between the three months ended March 31, 2025 and 2024, primarily due to an increase of assets in service during the current period.

Non-Same Property depreciation and amortization increased between the three months ended March 31, 2025 and 2024, primarily due to the acquisitions of Sail Tower and Vantage South End in December 2024 and the completion of development at Domain 9, and changes in the estimated useful lives of buildings and improvements at some of our operating properties.

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):

The change in income (loss) from unconsolidated joint ventures was driven by increases in unconsolidated depreciation and amortization as well as unconsolidated interest expense. Unconsolidated depreciation and amortization expense increased between the three months ended March 31, 2025 and 2024, primarily due to development activities winding down and initial operations beginning at our joint venture's Neuhoff property in the fourth quarter of 2023 and due to the acquisition of Proscenium in August 2024. Unconsolidated interest expense increased between the three months ended March 31, 2025 and 2024, primarily due to a reduction in capitalized interest at our Neuhoff joint venture as portions of its development project were completed in 2024.

Non-Same Property NOI from unconsolidated joint ventures increased between the three months ended March 31, 2025 and 2024, primarily due to acquisition of Proscenium in August 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 as defined by the National Association of Real Estate Investment Trusts ("Nareit"), 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 our officers and other key employees.

The reconciliation of net income to FFO is as follows for the three months ended March 31, 2025 and 2024 (in thousands, except per share amounts):

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; and
• joint venture formations.

Our material capital expenditure commitments as of March 31, 2025 include $96.0 million of unfunded tenant improvements and construction costs. As of March 31, 2025, we had $38.7 million drawn under our credit facility with the ability to borrow the remaining $961.3 million, as well as $5.3 million of cash and cash equivalents. 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 $38.7 million outstanding as of March 31, 2025), we also have unsecured debt from two public unsecured senior notes totaling $900 million, two term loans totaling $650 million, and five tranches of privately placed unsecured senior notes totaling $1 billion. Our existing consolidated 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. 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. 87% of our consolidated debt bears interest at a fixed rate. The 13% 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, 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 also expect to continue to utilize cash retained from operations, as well as third-party sources of capital such as indebtedness, to fund future commitments and to utilize construction financing 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 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):

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 $16.5 million between the 2025 and 2024 three month periods primarily due to increased economic occupancy and the end of rent abatement periods at our Promenade Central, Domain 9, and Buckhead Plaza office properties; and the acquisitions of our Vantage South End and Sail Tower office properties in December 2024.

Cash Flows from Investing Activities. Cash flows provided by investing activities for the three months ended March 31, 2025 were $87.1 million compared to cash flows used in investing activities of $84.0 million for the same period in 2024 primarily due to the repayment of investments in real estate debt by the borrowers of the Radius mezzanine loan and Saint Ann mortgage loan in the first quarter of 2025.

Cash Flows from Financing Activities. Cash flows used in financing activities for the three months ended March 31, 2025 were $133.9 million compared to cash flows provided by financing activities of $55.1 million for the same period in 2024 primarily due an increase in net repayments on our credit facility.

Capital Expenditures. We incur capital expenditures for the development of new properties, the redevelopment of existing or newly purchased properties, building improvements, direct leasing costs for new or replacement tenants, and capitalized interest and salaries. Components of expenditures included in this line item for the three months ended March 31, 2025 and 2024 are as follows ($ in thousands):

Capital expenditures decreased $18.0 million between the 2025 and 2024 three month periods primarily due to (i) decreases in spending for projects under development for core construction costs at Domain 9, which commenced its initial operations in first quarter 2024, and initial leasing costs for other properties we have developed, (ii) decreases in spending on leasing costs for operating properties compared to 2024 driven primarily by timing of payments, and (iii) decreases in spending on operating property redevelopments compared to 2024 as redevelopment activities at our Briarlake Plaza property were substantially complete in the third quarter of 2024. These decreases are partially offset by increased spending on operating property building improvements.

The amounts of tenant improvement and leasing costs for our office portfolio on a per square foot basis for the three months ended March 31, 2025 and 2024 are as follows:

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 $54.6 million and $48.6 million in the three months ended March 31, 2025 and 2024, 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, 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 6 of the notes to consolidated financial statements in our Annual Report on Form 10-K for the year ended December 31, 2024 and in note 3 of the notes to condensed consolidated financial statements. 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 March 31, 2025, our unconsolidated joint ventures had aggregate outstanding indebtedness to third parties of $366.7 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.

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, 2024.

There have been no material changes in the market risk associated with our notes payable at March 31, 2025 compared to that as disclosed in our Annual Report on Form 10-K for the year ended December 31, 2024.

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 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, 2024. There have been no material changes in our risk factors from those previously disclosed in our Annual Report, except as set forth below. You should carefully consider the risks described herein and in our Annual Report, which could materially affect our business, financial condition, or future results. The risks described herein and 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.

Adverse U.S. and global economic conditions could have a negative effect on our business, results of operations and financial condition and liquidity.

A general slowdown in the U.S. or global economy, uncertainty and volatility in financial markets, efforts of governments to stimulate or stabilize the economy and other unfavorable changes in economic conditions, such as inflation, higher interest rates, tightening of the credit markets, recession or slowing growth, as well as an increase in trade tensions and related tariffs with U.S. trading partners, could negatively impact our business, financial condition and liquidity, and the business and operations of our tenants. Macroeconomic weakness and uncertainty may also make it more difficult to accurately forecast operating results and raise capital or refinance debt. Sustained uncertainty about, or worsening of, current global economic conditions and further tariffs and escalations of trade tensions between the U.S. and its trading partners and the decoupling of the global economies could result in an economic slowdown. Given this uncertainty, we cannot predict the impact, if any, of these conditions to our business.