Cousins Properties’ (CUZ) fourth-quarter 2023 funds from operations (FFO) per share of 65 cents were in line with the Zacks Consensus Estimate.Results reflect year-over-year growth in the top line, aided by healthy leasing activity, a rise in occupancy levels, and decent improvement in second-generation net rent per square foot. However, higher same-property rental property operating expenses are a headwind in the quarter. CUZ also issued its 2024 outlook for FFO per share.Quarterly rental property revenues ...

For the quarter ended December 2023, Cousins Properties (CUZ) reported revenue of $196.59 million, up 1.5% over the same period last year. EPS came in at $0.65, compared to $0.16 in the year-ago quarter.The reported revenue represents a surprise of -2.85% over the Zacks Consensus Estimate of $202.36 million. With the consensus EPS estimate being $0.65, the company has not delivered EPS surprise.While investors closely watch year-over-year changes in headline numbers -- revenue and earnings -- and how they c ...

Cousins Properties (CUZ) came out with quarterly funds from operations (FFO) of $0.65 per share, in line with the Zacks Consensus Estimate. This compares to FFO of $0.66 per share a year ago. These figures are adjusted for non-recurring items.A quarter ago, it was expected that this real estate company would post FFO of $0.65 per share when it actually produced FFO of $0.65, delivering no surprise.Over the last four quarters, the company has surpassed consensus FFO estimates two times.Cousins Properties, wh ...

30326-4802 (ZipCode) Washington, D.C. 20549 COUSINS PROPERTIES INCORPORATED Portions of the Registrant's proxy statement for the annual stockholders meeting to be held on April 23, 2024 are incorporated by reference into Part III of this Form 10-K. FORWARD-LOOKING STATEMENTS Suite 1800Atlanta (Addressofprincipalexecutiveoffices) SECURITIES AND EXCHANGE COMMISSION ☒ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the fiscal year ended December 31, 2023 or ☐ TRANSITION ...

Financial Data and Key Metrics Changes - The company reported a solid third quarter with FFO of $0.65 per share and a 4.6% increase in same-property net operating income on a cash basis [105][141] - Average net rent for the quarter was $33.94, with average net effective rent at $23.77, only about 2% below the last four-quarter run rate [137][141] - The company raised its full-year 2023 FFO guidance to between $2.60 and $2.64 per share, up from a previous midpoint of $2.61 [143] Business Line Data and Key Metrics Changes - The company completed 32 office leases totaling 548,000 square feet in Q3, with a weighted average lease term of 8.6 years [10] - Second-generation net rent growth improved to 9.8% on a cash basis, with cash net rent growth observed in every market [11][141] - In Atlanta, 257,000 square feet of leases were signed, with over 80% of the activity in Midtown and Buckhead [138] Market Data and Key Metrics Changes - The office market is experiencing a flight to quality, with properties built since 2010 accounting for significant positive net absorption, while older properties face negative absorption [5][37] - The company noted that its Austin portfolio was 94.6% leased, with a strong cash net rent roll-up of 24.9% [139] - The overall leasing activity in the Sun Belt markets remains robust, with a strong prospect list of over 140,000 square feet of active proposals [38] Company Strategy and Development Direction - The company focuses on premier lifestyle office and mixed-use properties in vibrant Sunbelt neighborhoods, differentiating itself from commodity office spaces [106][108] - The company is strategically positioned in the right Sun Belt markets with a fortress balance sheet and minimal near-term debt maturities [7] - The company is monitoring the evolving situation with WeWork and exploring various alternatives for its leases [34][110] Management's Comments on Operating Environment and Future Outlook - Management expressed realism about the potential negative impacts of higher interest rates but emphasized the company's ability to thrive in various economic cycles [7] - There is a growing trend of companies mandating in-person work, which is expected to continue, enhancing demand for office space [31] - The company remains patient and disciplined in its investment strategy, focusing on cash flow and maintaining a strong balance sheet [109][155] Other Important Information - The company has a strong liquidity position with only $144.5 million outstanding on its $1 billion unsecured credit facility [15] - The company has letters of credit in place for two leases with WeWork, covering all balance sheet exposure and lost revenue for the remainder of the year [119][135] - The company is seeing a bifurcation in the office market, with lifestyle office properties outperforming lower-quality office spaces [32][132] Q&A Session Summary Question: Can you break down the leasing pipeline between new and renewals? - The leasing pipeline consists of both new and renewal leases, with fluctuations driven by the expiration schedule [123] Question: What gives you confidence in the two remaining current leases with WeWork? - The situation is fluid, but the company is monitoring physical activity in the spaces and remains in dialogue with WeWork [84] Question: How are you addressing the challenges in the North Park and 111 Congress properties? - North Park has faced challenges, but 111 Congress is expected to see increased activity once the right customer is found [76][79] Question: What are your thoughts on the current investment sales market? - The investment sales market is currently frozen, with a meaningful bid/ask spread emerging due to rising interest rates [130] Question: How do you view the potential for redevelopment projects given high cost barriers? - The company is tracking opportunities and remains patient, waiting for the right time to engage in redevelopment projects [147][164]

Financial Performance - Net income available to common stockholders was $19361 thousand, or $013 per share, compared to $80639 thousand, or $053 per share, for third quarter 2022[34] - Funds From Operations (FFO) was $98972 thousand, or $065 per share, compared to $104410 thousand, or $069 per share, for third quarter 2022[34] - For nine months ended September 30, 2023, FFO was $300017 thousand, or $197 per share, compared to $308566 thousand, or $206 per share, for nine months ended September 30, 2022[34] - The company updated its full year 2023 FFO guidance to between $260 and $264 per share[27] Leasing Activity - The company executed 548000 square feet of office leases during the third quarter of 2023[11] - For the nine months ended September 30, 2023, the company executed 1241000 square feet of office leases[25] - Same property net operating income (NOI) on a cash-basis increased 46% for the third quarter of 2023[25] - Second generation net rent per square foot on a cash-basis increased 98% for the third quarter of 2023[25] - The office percent leased (period end) was 911%[35] Portfolio Statistics - Total rentable square feet was 19145 thousand as of September 30, 2023[35] - Equity market capitalization was $3092 million as of September 30, 2023[63] - Net debt/annualized EBITDAre was 502 as of September 30, 2023[64] - The company's share of debt maturities and principal payments is projected to be $429087 thousand in 2024, $758306 thousand in 2025, and $220127 thousand in 2026[122]

Financial Performance - For the three months ended September 30, 2023, net income available to common stockholders was $19.4 million, down from $80.6 million in the same period of 2022, representing a decrease of 76.1%[117] - For the nine months ended September 30, 2023, net income available to common stockholders was $64.2 million, compared to $142.7 million for the same period in 2022, a decrease of 55.1%[117] - Funds From Operations (FFO) for the three months ended September 30, 2023, was $98,972,000, a decrease from $104,410,000 in the same period of 2022[134] - FFO per share for the three months ended September 30, 2023, was $0.65, compared to $0.69 for the same period in 2022[134] - Net income available to common stockholders for the three months ended September 30, 2023, was $19,361,000, down from $80,639,000 in 2022[134] Revenue and Income Sources - Total rental property revenues for the three months ended September 30, 2023, were $198.4 million, a 2.6% increase from $193.5 million in the same period of 2022[120] - Non-same property rental property revenues increased by 41.6% for the three months ended September 30, 2023, compared to the same period in 2022[120] - Same property net operating income (NOI) increased by 4.1% for the three months ended September 30, 2023, and by 5.3% for the nine months ended September 30, 2023, compared to the same periods in 2022[114][115] - Same property rental property revenues increased primarily due to an increase in economic occupancy at key office properties[120] - Income from unconsolidated joint ventures decreased by $52,000 (8.2%) to $582,000 for the three months ended September 30, 2023, and by $5,030,000 (71.5%) to $2,008,000 for the nine months ended September 30, 2023[129] - Net operating income from unconsolidated joint ventures fell by $1,255,000 (44.5%) to $1,564,000 for the three months ended September 30, 2023, and by $3,548,000 (43.9%) to $4,532,000 for the nine months ended September 30, 2023[129] Expenses and Costs - Interest expense increased by $8.6 million, or 46.9%, for the three months ended September 30, 2023, compared to the same period in 2022[125] - Fee income decreased by $1.4 million, or 81.0%, for the three months ended September 30, 2023, compared to the same period in 2022[124] - Tenant improvement and leasing costs for new leases increased to $12.64 per square foot in Q3 2023, compared to $12.33 in Q3 2022[150] - Capital expenditures decreased by $64.6 million to $198.3 million for the nine months ended September 30, 2023, compared to $262.8 million in 2022[149] Cash Flow and Liquidity - Net cash provided by operating activities increased by $5.2 million to $277.5 million for the nine months ended September 30, 2023, compared to $272.3 million in 2022[145] - Net cash used in investing activities decreased by $36.3 million to $212.1 million for the nine months ended September 30, 2023, compared to $248.4 million in 2022[146] - Cash flows used in financing activities increased by $36.3 million to $63.6 million for the nine months ended September 30, 2023, compared to $27.3 million in 2022[147] - The company expects to meet its liquidity needs through retained cash from operations and third-party capital sources[141] - The company expects to fund future quarterly common dividends with cash from operating activities and proceeds from investment property sales[152] Debt and Financing - The company had $161.7 million in unfunded tenant improvements and construction costs as of September 30, 2023[138] - The company had $144.5 million drawn under its credit facility with the ability to borrow an additional $855.5 million as of September 30, 2023[138] - The company had aggregate outstanding indebtedness to third parties of $282.9 million as of September 30, 2023, primarily from mortgage or construction loans[155] - 86% of the company's consolidated debt bears interest at a fixed rate, while 14% is based on SOFR[139] - The company monitors its common dividend payments in light of covenants under credit agreements, ensuring leverage remains below 60%[153] Operational Highlights - The company leased or renewed 548,000 square feet of office space during the quarter, with a straight-line basis net rent per square foot increase of 28.7% for those spaces leased within the past year[114] - The company expects a gradual increase in physical occupancy, which has already driven an increase in parking revenue and certain operating expenses[116] - Operating cash flows were positively impacted by increased physical occupancy at Domain and Buckhead Plaza properties[145] - Common dividends paid increased to $145.9 million for the nine months ended September 30, 2023, from $143.8 million in 2022[152]

Financial Data and Key Metrics Changes - The company reported a strong second quarter with FFO of $0.68 per share and a 3.7% increase in same property net operating income on a cash basis [17][49] - Average net effective rents reached $28.20, marking the second highest quarterly level in the company's history [127] - The weighted average occupancy increased by 0.5% to 87.7% [126] Business Line Data and Key Metrics Changes - The company executed 40 office leases totaling 435,000 square feet, with new and expansion leasing volume accounting for 79% of total activity [137] - In Atlanta, 21 leases totaling 147,000 square feet were signed, with significant activity in Midtown and Buckhead [13] - The Neuhoff mixed-use development in Nashville completed its first two office leases totaling just under 50,000 square feet [46] Market Data and Key Metrics Changes - The flight to quality in the office market is evident, with 75% of vacancy in Atlanta concentrated in just 20% of the inventory [7] - The U.S. office space inventory is projected to shrink in 2023 for the first time on record, indicating a rebalancing of supply and demand [8] - Austin ranks first nationally for projected job growth through 2027, supporting the company's optimistic outlook for its portfolio in that market [23] Company Strategy and Development Direction - The company is focusing on high-quality lifestyle office properties in the Sun Belt markets, which are expected to outperform the broader market [134][124] - The company plans to redevelop Hayden Ferry One following the lease rejection by SVB Financial, aiming to enhance the overall project [44][141] - The company maintains a strong balance sheet with minimal near-term debt maturities, positioning itself to capitalize on future investment opportunities [135][27] Management's Comments on Operating Environment and Future Outlook - Management acknowledges the potential impact of higher interest rates but believes the company is well-positioned to thrive in various economic cycles [19] - There is a noted increase in office utilization as companies bring employees back to work, which is reflected in the positive leasing momentum [20][129] - The company remains patient and disciplined in pursuing new investments, monitoring the market for attractive opportunities [43][113] Other Important Information - The company recognized $6.6 million in termination fees during the quarter, primarily from two customers, which have been backfilled at equal or higher rents [25] - Parking revenues increased over 6% compared to the prior quarter, indicating a recovery in physical utilization [26] - The company raised its FFO guidance for the full year 2023 to between $2.57 and $2.65 per share [156] Q&A Session Summary Question: What is the current state of AI and office leasing in Austin? - Management noted that while there is speculation about AI-related leasing in San Francisco, they expect similar activity to emerge in Austin over time [30][107] Question: Can you provide details on parking fees and potential increases? - Management confirmed that parking revenues have been a source of upside and there are opportunities to increase fees as more people return to work [31][108] Question: What is the breakdown of new leases versus renewals? - Management indicated that there is more activity on the renewal side, but new expansion activity remains encouraging [55][146] Question: How is the company addressing the NCR Corp sublease situation? - Management confirmed they are working with NCR as they restructure and sublease their space [79][80] Question: What gives the company confidence in increasing occupancy in 2024? - Management highlighted the positive leasing momentum and low upcoming lease expirations as key factors for confidence [178][165]

[FORWARD-LOOKING STATEMENTS](index=3&type=section&id=FORWARD-LOOKING%20STATEMENTS) This section outlines inherent uncertainties and risks associated with forward-looking statements, covering business strategy and financial performance - Forward-looking statements are subject to uncertainties and risks, including guidance, business strategy, future financings, acquisitions/dispositions, development opportunities, stock issuances, distributions, capital expenditures, market trends, interest rates, and operating performance[10](index=10&type=chunk)[12](index=12&type=chunk) - Actual results may vary due to factors such as capital availability and terms, ability to refinance debt, failure of contracts to close, inability to achieve anticipated benefits from transactions, potential dilutive effects of stock issuances, and changes in economic and real estate market conditions, particularly in key Sun Belt markets[12](index=12&type=chunk) - Other risks include public health crises, sociopolitical unrest, impairment charges, leasing risks (new tenants, renewals, declining rates), changes in tenant needs (co-working, less space per employee, remote work), tenant financial condition, volatility in interest/insurance rates, inflation, competition, development risks, cybersecurity breaches, changes in management, uninsured losses, regulatory non-compliance, joint venture disputes, debt covenant failures, REIT qualification changes, tax law changes, and other SEC-reported risks[12](index=12&type=chunk)[14](index=14&type=chunk) [PART I — FINANCIAL INFORMATION](index=5&type=section&id=PART%20I%E2%80%94FINANCIAL%20INFORMATION) This part presents the company's unaudited condensed consolidated financial statements and management's discussion of financial results [Item 1. Condensed Consolidated Financial Statements (Unaudited)](index=5&type=section&id=Item%201.%20Condensed%20Consolidated%20Financial%20Statements%20(Unaudited)) This section presents the company's unaudited condensed consolidated financial statements, including balance sheets, income, equity, and cash flow data [CONSOLIDATED BALANCE SHEETS](index=5&type=section&id=CONSOLIDATED%20BALANCE%20SHEETS) Consolidated Balance Sheet Highlights (June 30, 2023 vs. December 31, 2022, in thousands) | Metric | June 30, 2023 | December 31, 2022 | Change ($) | Change (%) | | :-------------------- | :------------ | :---------------- | :--------- | :--------- | | **Assets:** | | | | | | Total assets | $7,595,785 | $7,537,016 | $58,769 | 0.78% | | Operating properties, net | $6,740,557 | $6,738,354 | $2,203 | 0.03% | | Projects under development | $124,105 | $111,400 | $12,705 | 11.40% | | Cash and cash equivalents | $8,031 | $5,145 | $2,886 | 56.09% | | Investment in unconsolidated joint ventures | $138,992 | $112,839 | $26,153 | 23.18% | | **Liabilities:** | | | | | | Total liabilities | $2,991,487 | $2,890,067 | $101,420 | 3.51% | | Notes payable | $2,423,761 | $2,334,606 | $89,155 | 3.82% | | Deferred income | $172,552 | $128,636 | $43,916 | 34.14% | | **Equity:** | | | | | | Total equity | $4,604,298 | $4,646,949 | $(42,651) | -0.92% | [CONSOLIDATED STATEMENTS OF OPERATIONS](index=6&type=section&id=CONSOLIDATED%20STATEMENTS%20OF%20OPERATIONS) Consolidated Statements of Operations Highlights (Three Months Ended June 30, in thousands) | Metric | Q2 2023 | Q2 2022 | Change ($) | Change (%) | | :-------------------- | :----------- | :----------- | :--------- | :--------- | | Revenues: | | | | | | Rental property revenues | $203,954 | $183,174 | $20,780 | 11.35% | | Total revenues | $204,320 | $185,680 | $18,640 | 10.04% | | Expenses: | | | | | | Rental property operating expenses | $67,099 | $62,216 | $4,883 | 7.85% | | Interest expense | $25,972 | $16,549 | $9,423 | 56.94% | | Depreciation and amortization | $80,269 | $69,861 | $10,408 | 14.89% | | Total expenses | $181,996 | $156,724 | $25,272 | 16.12% | | Net income | $23,077 | $34,164 | $(11,087) | -32.46% | | Net income available to common stockholders | $22,621 | $34,052 | $(11,431) | -33.57% | | Net income per common share — basic | $0.15 | $0.23 | $(0.08) | -34.78% | | Net income per common share — diluted | $0.15 | $0.23 | $(0.08) | -34.78% | Consolidated Statements of Operations Highlights (Six Months Ended June 30, in thousands) | Metric | H1 2023 | H1 2022 | Change ($) | Change (%) | | :-------------------- | :----------- | :----------- | :--------- | :--------- | | Revenues: | | | | | | Rental property revenues | $404,030 | $366,401 | $37,629 | 10.27% | | Total revenues | $407,048 | $372,578 | $34,470 | 9.25% | | Expenses: | | | | | | Rental property operating expenses | $138,312 | $127,093 | $11,219 | 8.83% | | Interest expense | $51,002 | $32,074 | $18,928 | 59.01% | | Depreciation and amortization | $156,039 | $140,605 | $15,434 | 10.98% | | Total expenses | $363,039 | $316,514 | $46,525 | 14.70% | | Net income | $45,433 | $62,327 | $(16,894) | -27.11% | | Net income available to common stockholders | $44,817 | $62,036 | $(17,219) | -27.76% | | Net income per common share — basic | $0.30 | $0.42 | $(0.12) | -28.57% | | Net income per common share — diluted | $0.29 | $0.42 | $(0.13) | -30.95% | [CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME](index=7&type=section&id=CONSOLIDATED%20STATEMENTS%20OF%20COMPREHENSIVE%20INCOME) Consolidated Statements of Comprehensive Income Highlights (Three Months Ended June 30, in thousands) | Metric | Q2 2023 | Q2 2022 | Change ($) | | :------------------------------------ | :----------- | :----------- | :--------- | | Net income available to common stockholders | $22,621 | $34,052 | $(11,431) | | Other comprehensive income: | | | | | Unrealized gain on cash flow hedges | $5,936 | $— | $5,936 | | Amortization of cash flow hedges | $(908) | $— | $(908) | | Total other comprehensive income | $5,028 | $— | $5,028 | | Total comprehensive income | $27,649 | $34,052 | $(6,403) | Consolidated Statements of Comprehensive Income Highlights (Six Months Ended June 30, in thousands) | Metric | H1 2023 | H1 2022 | Change ($) | | :------------------------------------ | :----------- | :----------- | :--------- | | Net income available to common stockholders | $44,817 | $62,036 | $(17,219) | | Other comprehensive income: | | | | | Unrealized gain on cash flow hedges | $4,894 | $— | $4,894 | | Amortization of cash flow hedges | $(1,096) | $— | $(1,096) | | Total other comprehensive income | $3,798 | $— | $3,798 | | Total comprehensive income | $48,615 | $62,036 | $(13,421) | [CONSOLIDATED STATEMENTS OF EQUITY](index=8&type=section&id=CONSOLIDATED%20STATEMENTS%20OF%20EQUITY) Consolidated Statements of Equity Highlights (Three Months Ended June 30, 2023, in thousands) | Metric | Balance March 31, 2023 | Net Income | Other Comprehensive Income | Common Dividends | Balance June 30, 2023 | | :---------------------------- | :--------------------- | :--------- | :------------------------- | :--------------- | :-------------------- | | Common Stock | $154,256 | — | — | — | $154,336 | | Additional Paid-In Capital | $5,631,076 | — | — | — | $5,634,996 | | Treasury Stock | $(147,157) | — | — | — | $(147,157) | | Distributions in Excess of Net Income | $(1,039,694) | $22,621 | — | $(49,296) | $(1,066,369) | | Accumulated Other Comprehensive Income | $537 | — | $5,028 | — | $5,565 | | Total Stockholders' Investment | $4,599,018 | $22,621 | $5,028 | $(49,296) | $4,581,371 | | Total Equity | $4,621,036 | $23,077 | $5,028 | $(49,296) | $4,604,298 | Consolidated Statements of Equity Highlights (Six Months Ended June 30, 2023, in thousands) | Metric | Balance Dec 31, 2022 | Net Income | Other Comprehensive Income | Common Dividends | Balance June 30, 2023 | | :---------------------------- | :------------------- | :--------- | :------------------------- | :--------------- | :-------------------- | | Common Stock | $154,019 | — | — | — | $154,336 | | Additional Paid-In Capital | $5,630,327 | — | — | — | $5,634,996 | | Treasury Stock | $(147,157) | — | — | — | $(147,157) | | Distributions in Excess of Net Income | $(1,013,292) | $44,817 | — | $(97,894) | $(1,066,369) | | Accumulated Other Comprehensive Income | $1,767 | — | $3,798 | — | $5,565 | | Total Stockholders' Investment | $4,625,664 | $44,817 | $3,798 | $(97,894) | $4,581,371 | | Total Equity | $4,646,949 | $45,433 | $3,798 | $(97,894) | $4,604,298 | [CONSOLIDATED STATEMENTS OF CASH FLOWS](index=10&type=section&id=CONSOLIDATED%20STATEMENTS%20OF%20CASH%20FLOWS) Consolidated Statements of Cash Flows Highlights (Six Months Ended June 30, in thousands) | Metric | H1 2023 | H1 2022 | Change ($) | Change (%) | | :------------------------------------ | :----------- | :----------- | :--------- | :--------- | | Net cash provided by operating activities | $161,071 | $157,689 | $3,382 | 2.15% | | Net cash used in investing activities | $(149,671) | $(193,346) | $43,675 | -22.59% | | Net cash provided by (used in) financing activities | $(8,514) | $30,777 | $(39,291) | -127.69% | | NET INCREASE (DECREASE) IN CASH, CASH EQUIVALENTS, AND RESTRICTED CASH | $2,886 | $(4,880) | $7,766 | -159.14% | | CASH, CASH EQUIVALENTS, AND RESTRICTED CASH AT END OF PERIOD | $8,031 | $5,288 | $2,743 | 51.87% | [NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS](index=11&type=section&id=NOTES%20TO%20CONDENSED%20CONSOLIDATED%20FINANCIAL%20STATEMENTS) This section provides detailed disclosures and explanations for the condensed consolidated financial statements, covering business, real estate, debt, equity, and segment information [Note 1. DESCRIPTION OF BUSINESS AND BASIS OF PRESENTATION](index=11&type=section&id=Note%201.%20DESCRIPTION%20OF%20BUSINESS%20AND%20BASIS%20OF%20PRESENTATION) This note describes the company's business as a fully integrated REIT focused on Class A office properties and mixed-use developments - Cousins Properties Incorporated operates as a fully integrated, self-administered, and self-managed REIT, conducting business primarily through Cousins Properties LP (CPLP), which it consolidates[36](index=36&type=chunk) - The Company develops, acquires, leases, manages, and owns primarily Class A office properties and opportunistic mixed-use developments in Sun Belt markets, including Atlanta, Austin, Tampa, Charlotte, Phoenix, Dallas, and Nashville[37](index=37&type=chunk) - As of June 30, 2023, the Company's real estate portfolio included **18.8 million square feet** of office space and **310,000 square feet** of multi-family space[37](index=37&type=chunk) [Note 2. REAL ESTATE](index=11&type=section&id=Note%202.%20REAL%20ESTATE) This note details the company's real estate transactions, impairment charges, and future impairment risks - The Company had no real estate transactions for the three and six months ended June 30, 2023[40](index=40&type=chunk) - No impairment charges were recorded for held-for-investment buildings, held-for-sale buildings, land, or projects under development during any periods presented[41](index=41&type=chunk)[42](index=42&type=chunk)[43](index=43&type=chunk) - Future impairment charges could be recorded if the economy or office industry weakens, operating results differ materially from forecasts, or the contemplated hold period for operating buildings shortens[44](index=44&type=chunk) [Note 3. INVESTMENT IN UNCONSOLIDATED JOINT VENTURES](index=12&type=section&id=Note%203.%20INVESTMENT%20IN%20UNCONSOLIDATED%20JOINT%20VENTURES) This note provides financial summaries and operational details for unconsolidated joint ventures, including debt refinancing and asset sales Summary of Financial Position for Unconsolidated Joint Ventures (in thousands) | Metric | June 30, 2023 | December 31, 2022 | | :-------------------- | :------------ | :---------------- | | Total Assets | $537,604 | $433,822 | | Total Debt | $248,624 | $178,796 | | Total Equity (Deficit)| $249,372 | $232,702 | | Company's Investment | $108,447 | $93,666 | Summary of Operations for Unconsolidated Joint Ventures (Six Months Ended June 30, in thousands) | Metric | H1 2023 | H1 2022 | | :-------------------- | :----------- | :----------- | | Total Revenues | $12,022 | $19,807 | | Net Income (Loss) | $3,968 | $11,441 | | Company's Income from Investment | $1,426 | $6,404 | - In May 2023, Crawford Long - CPI, LLC refinanced its mortgage loan for the Medical Offices at Emory Hospital property, securing a new **$83.0 million** interest-only mortgage at a fixed rate of **4.80%** maturing in June 2032, repaying the previous **$62.4 million** loan[46](index=46&type=chunk)[51](index=51&type=chunk) - Neuhoff Holdings LLC has a construction loan with a borrowing capacity up to **$312.7 million**, maturing September 2025, with an interest rate based on SOFR plus **3.45%** (minimum **3.60%**), replacing LIBOR-based rates prior to April 2023[47](index=47&type=chunk) - On June 30, 2022, HICO Victory Center LP sold a **3.0-acre** land parcel in Uptown Dallas for **$23.1 million**, with the Company's share of the gain being **$4.5 million**[52](index=52&type=chunk) [Note 4. INTANGIBLE ASSETS AND LIABILITIES](index=14&type=section&id=Note%204.%20INTANGIBLE%20ASSETS%20AND%20LIABILITIES) This note details the company's intangible assets and liabilities, including leases and goodwill, along with their amortization Intangible Assets (in thousands) | Intangible Asset | June 30, 2023 | December 31, 2022 | | :--------------- | :------------ | :---------------- | | In-place leases, net | $89,611 | $102,080 | | Below-market ground leases, net | $17,193 | $17,393 | | Above-market leases, net | $13,409 | $15,093 | | Goodwill | $1,674 | $1,674 | | Total | $121,887 | $136,240 | Intangible Liabilities (in thousands) | Intangible Liability | June 30, 2023 | December 31, 2022 | | :------------------- | :------------ | :---------------- | | Below-market leases, net | $46,511 | $52,280 | Amortization of Intangible Assets and Liabilities (Six Months Ended June 30, in thousands) | Amortization Type | H1 2023 | H1 2022 | | :---------------- | :----------- | :----------- | | Rental property revenues, net (Below-market and Above-market leases) | $4,084 | $3,464 | | Depreciation and amortization (In-place leases) | $12,470 | $14,390 | | Rental property operating and other expenses (Below-market ground leases) | $200 | $174 | [Note 5. OTHER ASSETS](index=15&type=section&id=Note%205.%20OTHER%20ASSETS) This note outlines other assets such as predevelopment costs, prepaid expenses, and lease inducements, detailing their nature Other Assets (in thousands) | Other Asset | June 30, 2023 | December 31, 2022 | | :---------- | :------------ | :---------------- | | Predevelopment costs | $54,501 | $50,009 | | Prepaid expenses and other assets | $16,633 | $6,438 | | Furniture, fixtures and equipment and other deferred costs, net | $10,997 | $11,824 | | Lease inducements, net | $7,922 | $8,091 | | Credit Facility deferred financing costs, net | $4,916 | $5,550 | | Total | $94,969 | $81,912 | - Predevelopment costs represent capitalized amounts for projects deemed probable of future development[56](index=56&type=chunk) - Lease inducements, such as moving costs and sublease arrangements, are amortized into rental revenues over the individual lease terms[57](index=57&type=chunk) [Note 6. NOTES PAYABLE](index=16&type=section&id=Note%206.%20NOTES%20PAYABLE) This note details the company's notes payable, including unsecured and secured debt, credit facility terms, and covenant compliance Notes Payable Outstanding (June 30, 2023 vs. December 31, 2022, in thousands) | Description | June 30, 2023 | December 31, 2022 | | :-------------------- | :------------ | :---------------- | | Unsecured Notes | $1,898,500 | $1,806,600 | | Secured Mortgage Notes| $531,141 | $535,241 | | Total Notes Payable | $2,423,761 | $2,334,606 | - The weighted average maturity of notes payable outstanding at June 30, 2023, was **3.5 years**[62](index=62&type=chunk) - The Company's Credit Facility allows borrowing up to **$1 billion**, with **$851.5 million** available capacity at June 30, 2023, with interest rates based on Adjusted SOFR plus a spread, and includes financial covenants[60](index=60&type=chunk)[61](index=61&type=chunk)[62](index=62&type=chunk) - The Company entered into floating-to-fixed interest rate swaps for **$200 million** of the 2022 Term Loan (fixed at **5.45%** as of June 30, 2023) and the **$350 million** 2021 Term Loan (fixed at **4.234%** SOFR)[62](index=62&type=chunk)[64](index=64&type=chunk)[65](index=65&type=chunk) - Unsecured senior notes total **$1.0 billion** across five tranches with fixed annual interest rates ranging from **3.78%** to **4.09%** and maturities between 2025 and 2029[67](index=67&type=chunk) - Secured mortgage notes total **$531.1 million**, with fixed interest rates, including a December 2022 refinancing of two Terminus properties to **$221.0 million** at **6.34%** interest, maturing January 2031[69](index=69&type=chunk)[70](index=70&type=chunk) - The Company is in compliance with all covenants related to its unsecured and secured debt, with the estimated fair value of notes payable being **$2.3 billion** at June 30, 2023[71](index=71&type=chunk)[72](index=72&type=chunk) Interest Expense (in thousands) | Metric | Q2 2023 | Q2 2022 | H1 2023 | H1 2022 | | :------------------ | :----------- | :----------- | :----------- | :----------- | | Total interest incurred | $30,977 | $20,140 | $61,098 | $39,116 | | Interest capitalized| $(5,005) | $(3,591) | $(10,096) | $(7,042) | | Total interest expense | $25,972 | $16,549 | $51,002 | $32,074 | [Note 7. DERIVATIVE FINANCIAL INSTRUMENTS](index=18&type=section&id=Note%207.%20DERIVATIVE%20FINANCIAL%20INSTRUMENTS) This note describes the company's use of interest rate swaps as cash flow hedges to manage interest rate exposure for its term loans - The Company uses interest rate swaps as cash flow hedges to stabilize interest expense and manage exposure to interest rate movements, specifically for the 2021 and 2022 Term Loans[76](index=76&type=chunk) - In April 2023, a floating-to-fixed interest rate swap was entered for **$200 million** of the 2022 Term Loan, fixing the underlying SOFR rate at **4.298%** through March 2025[74](index=74&type=chunk) - In September 2022, a floating-to-fixed interest rate swap was entered for the **$350 million** 2021 Term Loan, fixing the underlying SOFR rate at **4.234%** through August 2024[75](index=75&type=chunk) Effect of Derivative Financial Instruments on Consolidated Statements of Operations (in thousands) | Metric | Q2 2023 | Q2 2022 | H1 2023 | H1 2022 | | :------------------------------------------ | :----------- | :------ | :----------- | :------ | | Income recognized in AOCI on interest rate derivatives | $5,936 | $— | $4,894 | $— | | Income reclassified from AOCI into interest expense | $(908) | $— | $(1,096) | $— | [Note 8. OTHER LIABILITIES](index=19&type=section&id=Note%208.%20OTHER%20LIABILITIES) This note details other liabilities, including ground lease liabilities, prepaid rent, and security deposits Other Liabilities (in thousands) | Other Liability | June 30, 2023 | December 31, 2022 | | :-------------------- | :------------ | :---------------- | | Ground lease liability | $53,322 | $53,129 | | Prepaid rent | $37,660 | $33,165 | | Security deposits | $14,398 | $14,635 | | Restricted stock unit liability | $— | $1,048 | | Other liabilities | $1,720 | $1,465 | | Total | $107,100 | $103,442 | [Note 9. COMMITMENTS AND CONTINGENCIES](index=19&type=section&id=Note%209.%20COMMITMENTS%20AND%20CONTINGENCIES) This note outlines the company's outstanding performance bonds, future lease obligations, and legal proceedings - As of June 30, 2023, the Company had outstanding performance bonds totaling **$0.7 million** and future obligations under leases to fund tenant improvements and other construction totaling **$153.1 million**[82](index=82&type=chunk) - The Company is subject to various legal proceedings but does not expect them to have a material adverse effect on its liquidity, results of operations, business, or financial condition[83](index=83&type=chunk) [Note 10. STOCKHOLDERS' EQUITY](index=19&type=section&id=Note%2010.%20STOCKHOLDERS%27%20EQUITY) This note details the company's stockholders' equity, including its at-the-market stock offering program and common share issuances - The Company has an at-the-market stock offering program (ATM Program) allowing the sale of up to **$500 million** in common stock, including through forward equity sale agreements to align funding with capital needs[84](index=84&type=chunk) - In April 2022, the Company purchased its partner's **10%** joint venture interest in HICO Avalon, LLC and HICO Avalon II, LLC for **$43.4 million**, which included a promote related to fair value increases[85](index=85&type=chunk) - In June 2022, the Company issued **2.6 million** common shares under Forward Sales contracts for gross proceeds of **$105.1 million**, with no shares issued under the ATM Program during the six months ended June 30, 2023, and no Forward Sales contracts outstanding[86](index=86&type=chunk) [Note 11. REVENUE RECOGNITION](index=20&type=section&id=Note%2011.%20REVENUE%20RECOGNITION) This note explains the company's revenue recognition policies for rental property and fee income, including the impact of lease rejections Rental Property Revenues (in thousands) | Metric | Q2 2023 | Q2 2022 | H1 2023 | H1 2022 | | :-------------------- | :----------- | :----------- | :----------- | :----------- | | Total rental property revenues | $204,000 | $183,200 | $404,000 | $366,400 | | Variable rental revenue | $62,200 | $50,200 | $121,400 | $103,000 | Fee and Other Revenue (in thousands) | Metric | Q2 2023 | Q2 2022 | H1 2023 | H1 2022 | | :-------------------- | :----------- | :----------- | :----------- | :----------- | | Fee and other revenue | $366 | $2,500 | $3,000 | $6,200 | - Due to SVB Financial Group's bankruptcy and lease rejection, the Company recognized a **$1.6 million** reduction of revenue related to the write-down of net assets associated with the lease at Hayden Ferry property for the three and six months ended June 30, 2023[89](index=89&type=chunk) - Rental property revenues are recognized on a straight-line basis for contractual revenues, once specified sales targets are achieved for percentage rents, and include parking revenues, termination fees, and tenant reimbursements for operating expenses[90](index=90&type=chunk) [Note 12. STOCK-BASED COMPENSATION](index=21&type=section&id=Note%2012.%20STOCK-BASED%20COMPENSATION) This note describes the company's stock-based compensation plans, including restricted stock, RSUs, and the Employee Stock Purchase Plan - The Company offers stock-based compensation through restricted stock, restricted stock units (RSUs), and an Employee Stock Purchase Plan (ESPP), with a portion also provided to independent directors[91](index=91&type=chunk) Stock-Based Compensation Expense, Net of Forfeitures (in thousands) | Metric | Q2 2023 | Q2 2022 | H1 2023 | H1 2022 | | :------------------------------------ | :----------- | :----------- | :----------- | :----------- | | Total equity-classified award expense | $2,771 | $2,448 | $6,282 | $5,196 | | Total liability-classified award expense | $— | $(148) | $61 | $(1) | | Total stock-based compensation expense | $2,771 | $2,300 | $6,343 | $5,195 | - In June 2023, the Company granted **81,909 shares** of stock with a grant date value of **$1.6 million** to independent directors, which vested on the issuance date[93](index=93&type=chunk) [Note 13. EARNINGS PER SHARE](index=22&type=section&id=Note%2013.%20EARNINGS%20PER%20SHARE) This note provides detailed calculations for the company's basic and diluted earnings per common share Earnings Per Common Share (Three Months Ended June 30) | Metric | Q2 2023 | Q2 2022 | | :------------------------------------ | :----------- | :----------- | | Net income available to common stockholders | $22,621 | $34,052 | | Weighted average common shares - basic | 151,721 | 148,837 | | Net income per common share - basic | $0.15 | $0.23 | | Weighted average common shares - diluted | 152,126 | 149,142 | | Net income per common share - diluted | $0.15 | $0.23 | Earnings Per Common Share (Six Months Ended June 30) | Metric | H1 2023 | H1 2022 | | :------------------------------------ | :----------- | :----------- | | Net income available to common stockholders | $44,817 | $62,036 | | Weighted average common shares - basic | 151,650 | 148,788 | | Net income per common share - basic | $0.30 | $0.42 | | Weighted average common shares - diluted | 152,003 | 149,090 | | Net income per common share - diluted | $0.29 | $0.42 | [Note 14. CONSOLIDATED STATEMENTS OF CASH FLOWS - SUPPLEMENTAL INFORMATION](index=23&type=section&id=Note%2014.%20CONSOLIDATED%20STATEMENTS%20OF%20CASH%20FLOWS%20-%20SUPPLEMENTAL%20INFORMATION) This note provides supplemental cash flow information, including interest, taxes, dividends, and cash reconciliation Supplemental Cash Flow Information (Six Months Ended June 30, in thousands) | Metric | H1 2023 | H1 2022 | | :------------------------------------ | :----------- | :----------- | | Interest paid, net of amounts capitalized | $48,502 | $29,456 | | Income taxes paid | $— | $— | | Common stock dividends declared and accrued | $49,296 | $48,522 | | Tenant improvements funded by tenants | $41,240 | $4,360 | Reconciliation of Cash and Cash Equivalents (in thousands) | Metric | June 30, 2023 | December 31, 2022 | | :------------------------------------ | :------------ | :---------------- | | Cash and cash equivalents | $8,031 | $5,145 | [Note 15. REPORTABLE SEGMENTS](index=23&type=section&id=Note%2015.%20REPORTABLE%20SEGMENTS) This note details the company's reportable segments by property type and region, using Net Operating Income (NOI) for performance evaluation - The Company's reportable segments are classified by property type (Office and Non-Office) and geographical region (Atlanta, Austin, Charlotte, Dallas, Phoenix, Tampa, and other markets)[97](index=97&type=chunk) - Net Operating Income (NOI) is used to evaluate segment performance, representing rental property revenues (excluding termination fees) less rental property operating expenses, and excludes corporate G&A, interest, depreciation, and other non-operating items[98](index=98&type=chunk) Total Segment Revenues (Three Months Ended June 30, in thousands) | Segment | Q2 2023 | Q2 2022 | Change ($) | Change (%) | | :------------ | :----------- | :----------- | :--------- | :--------- | | Office | $203,917 | $184,346 | $19,571 | 10.62% | | Non-Office | $2,250 | $2,920 | $(670) | -22.95% | | Total segment revenues | $206,167 | $187,266 | $18,901 | 10.10% | Total Segment Net Operating Income (Three Months Ended June 30, in thousands) | Segment | Q2 2023 | Q2 2022 | Change ($) | Change (%) | | :------------ | :----------- | :----------- | :--------- | :--------- | | Office | $130,397 | $121,164 | $9,233 | 7.62% | | Non-Office | $1,447 | $1,887 | $(440) | -23.32% | | Total Net Operating Income | $131,844 | $123,051 | $8,793 | 7.15% | Total Segment Net Operating Income (Six Months Ended June 30, in thousands) | Segment | H1 2023 | H1 2022 | Change ($) | Change (%) | | :------------ | :----------- | :----------- | :--------- | :--------- | | Office | $259,101 | $238,984 | $20,117 | 8.42% | | Non-Office | $2,879 | $3,674 | $(795) | -21.64% | | Total Net Operating Income | $261,980 | $242,658 | $19,322 | 7.96% | [Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations](index=29&type=section&id=Item%202.%20Management%27s%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations) This section provides management's perspective on the company's financial performance, liquidity, and capital resources, discussing key trends and results [Overview of 2023 Performance and Company and Industry Trends](index=29&type=section&id=Overview%20of%202023%20Performance%20and%20Company%20and%20Industry%20Trends) This section outlines the company's strategic focus on premier urban office portfolios, highlighting leasing activity, NOI growth, and occupancy trends - The Company's strategy focuses on owning premier urban office portfolios in Sun Belt markets, employing disciplined capital allocation, opportunistic acquisitions, selective developments, and timely dispositions of non-core assets[106](index=106&type=chunk) - During Q2 2023, the Company leased or renewed **435,000 square feet** of office space, with straight-line basis net rent per square foot increasing by **19.6%** for recently leased office spaces[107](index=107&type=chunk) - Same property net operating income (NOI) for consolidated and unconsolidated properties increased by **6.3%** for the three months ended June 30, 2023, compared to the prior year[107](index=107&type=chunk) - The Company observes an increase in physical occupancy in H1 2023, driving higher parking revenue and operating expenses, and expects this gradual increase to continue, as customers prioritize collaboration and in-person work in high-quality, amenitized properties[108](index=108&type=chunk) [Results of Operations For The Three and Six Months Ended June 30, 2023](index=29&type=section&id=Results%20of%20Operations%20For%20The%20Three%20and%20Six%20Months%20Ended%20June%2030%2C%202023) This sub-section details changes in key financial metrics, including net income, revenues, expenses, and FFO for the three and six months ended June 30, 2023 [General](index=29&type=section&id=General) Net Income Available to Common Stockholders (in millions) | Period | 2023 | 2022 | Change ($) | Change (%) | | :-------------------- | :---------- | :---------- | :--------- | :--------- | | Three months ended June 30 | $22.6 | $34.1 | $(11.5) | -33.7% | | Six months ended June 30 | $44.8 | $62.0 | $(17.2) | -27.7% | [Rental Property Revenue, Rental Property Operating Expenses, and Net Operating Income](index=29&type=section&id=Rental%20Property%20Revenue%2C%20Rental%20Property%20Operating%20Expenses%2C%20and%20Net%20Operating%20Income) This section analyzes changes in rental property revenues, operating expenses, and Net Operating Income (NOI) for same-property and non-same-property portfolios - The "Same Property" portfolio includes stabilized office properties owned for the entirety of comparable reporting periods, with stabilization defined as **90%** economic occupancy or one year from major construction cessation[110](index=110&type=chunk) - Net Operating Income (NOI), a non-GAAP measure, is used to assess property operating performance by excluding non-property-level items like interest expense, depreciation, and gains/losses on sales[111](index=111&type=chunk) Consolidated Rental Property Performance (Three Months Ended June 30, in thousands) | Metric | Q2 2023 | Q2 2022 | Change ($) | Change (%) | | :---------------------------- | :----------- | :----------- | :--------- | :--------- | | Same Property Rental Property Revenues | $186,316 | $175,329 | $10,987 | 6.3% | | Non-Same Property Rental Property Revenues | $11,068 | $7,396 | $3,672 | 49.6% | | Termination Fee Income | $6,570 | $449 | $6,121 | 1363.2% | | Total Rental Property Revenues | $203,954 | $183,174 | $20,780 | 11.3% | | Same Property Operating Expenses | $63,794 | $60,089 | $3,705 | 6.2% | | Non-Same Property Operating Expenses | $3,305 | $2,127 | $1,178 | 55.4% | | Total Rental Property Operating Expenses | $67,099 | $62,216 | $4,883 | 7.8% | | Same Property NOI | $122,522 | $115,240 | $7,282 | 6.3% | | Non-Same Property NOI | $7,763 | $5,269 | $2,494 | 47.3% | | Total NOI | $130,285 | $120,509 | $9,776 | 8.1% | - Same Property Rental Property Revenues increased due to higher economic occupancy at Domain and Buckhead Plaza and increased tenant-funded improvements, while Same Property Operating Expenses rose due to higher real estate taxes and inflation-driven operating costs[112](index=112&type=chunk)[113](index=113&type=chunk) - Non-Same Property revenues, expenses, and NOI increased primarily from the stabilization of 100 Mill and Heights Union in 2022 and operations at Promenade Central after redevelopment, partially offset by a revenue write-down due to SVB Financial's bankruptcy and lease rejection[114](index=114&type=chunk) - Termination Fee income significantly increased due to negotiated early terminations, often contemporaneous with new leases for the same space[115](index=115&type=chunk) [Fee Income](index=31&type=section&id=Fee%20Income) Fee Income (in millions) | Period | 2023 | 2022 | Change ($) | Change (%) | | :-------------------- | :---------- | :---------- | :--------- | :--------- | | Three months ended June 30 | $0.35 | $2.31 | $(1.96) | -84.8% | | Six months ended June 30 | $0.73 | $3.69 | $(2.96) | -80.2% | - The decrease in fee income is primarily attributed to the completion of the Norfolk Southern transactions during the third quarter of 2022[19](index=19&type=chunk)[116](index=116&type=chunk) [Interest Expense](index=31&type=section&id=Interest%20Expense) Interest Expense, Net of Capitalized Amounts (in millions) | Period | 2023 | 2022 | Change ($) | Change (%) | | :-------------------- | :---------- | :---------- | :--------- | :--------- | | Three months ended June 30 | $26.0 | $16.5 | $9.5 | 57.6% | | Six months ended June 30 | $51.0 | $32.1 | $18.9 | 58.9% | - The increase in interest expense is primarily due to the issuance of the 2022 Term Loan in October 2022, refinancing of Terminus operating properties' mortgage loans in December 2022, higher interest rates on variable rate debt, and an increased average outstanding balance on the credit facility[19](index=19&type=chunk)[117](index=117&type=chunk) [Depreciation and Amortization](index=32&type=section&id=Depreciation%20and%20Amortization) Depreciation and Amortization (Three Months Ended June 30, in thousands) | Metric | Q2 2023 | Q2 2022 | Change ($) | Change (%) | | :-------------------- | :----------- | :----------- | :--------- | :--------- | | Same Property | $72,431 | $66,826 | $5,605 | 8.4% | | Non-Same Property | $7,727 | $2,877 | $4,850 | 168.6% | | Non-Real Estate Assets | $111 | $158 | $(47) | -29.7% | | Total | $80,269 | $69,861 | $10,408 | 14.9% | - Same Property depreciation and amortization increased due to more tenant improvements being placed into service[118](index=118&type=chunk)[119](index=119&type=chunk) - Non-Same Property depreciation and amortization increased primarily due to the stabilization of 100 Mill and Heights Union in 2022 and the completion of the Promenade Central redevelopment in November 2022[120](index=120&type=chunk) [Income and Net Operating Income from Unconsolidated Joint Ventures](index=32&type=section&id=Income%20and%20Net%20Operating%20Income%20from%20Unconsolidated%20Joint%20Ventures) Income from Unconsolidated Joint Ventures (Three Months Ended June 30, in thousands) | Metric | Q2 2023 | Q2 2022 | Change ($) | Change (%) | | :------------------------------------ | :----------- | :----------- | :--------- | :--------- | | Income from unconsolidated joint ventures | $753 | $5,280 | $(4,527) | -85.7% | | Net operating income from unconsolidated joint ventures | $1,559 | $2,542 | $(983) | -38.7% | - Income from unconsolidated joint ventures decreased primarily due to the gain on sale of a land parcel by a joint venture in the prior year and a decrease in income and depreciation/amortization resulting from the sale of the Carolina Square joint venture interest in September 2022[121](index=121&type=chunk)[122](index=122&type=chunk) [Funds From Operations (FFO)](index=32&type=section&id=Funds%20From%20Operations%20(FFO)) - Funds From Operations (FFO) is a non-GAAP measure, calculated according to Nareit definition, used by industry analysts and investors as a supplemental measure of a REIT's operating performance, excluding historical cost depreciation and other items from GAAP net income[123](index=123&type=chunk)[124](index=124&type=chunk) Funds From Operations (Three Months Ended June 30, in thousands, except per share) | Metric | Q2 2023 | Q2 2022 | Change ($) | Change (%) | | :------------------------------------ | :----------- | :----------- | :--------- | :--------- | | Net Income Available to Common Stockholders | $22,621 | $34,052 | $(11,431) | -33.6% | | Depreciation and amortization of real estate assets | $80,634 | $70,661 | $9,973 | 14.1% | | Funds From Operations | $102,951 | $104,731 | $(1,780) | -1.7% | | FFO per share | $0.68 | $0.70 | $(0.02) | -2.9% | Funds From Operations (Six Months Ended June 30, in thousands, except per share) | Metric | H1 2023 | H1 2022 | Change ($) | Change (%) | | :------------------------------------ | :----------- | :----------- | :--------- | :--------- | | Net Income Available to Common Stockholders | $44,817 | $62,036 | $(17,219) | -27.8% | | Depreciation and amortization of real estate assets | $156,219 | $142,151 | $14,068 | 9.9% | | Funds From Operations | $201,045 | $204,156 | $(3,111) | -1.5% | | FFO per share | $1.32 | $1.37 | $(0.05) | -3.6% | [Net Operating Income (Reconciliation)](index=34&type=section&id=Net%20Operating%20Income%20(Reconciliation)) - Net Operating Income (NOI) for consolidated properties is reconciled from net income by adding back fee income, termination fee income, other income, general and administrative expenses, interest expense, depreciation and amortization, reimbursed expenses, other expenses, income from unconsolidated joint ventures, and adjusting for investment property transactions and debt extinguishment[126](index=126&type=chunk)[127](index=127&type=chunk) Reconciliation of Consolidated Net Operating Income from Net Income (in thousands) | Metric | Q2 2023 | Q2 2022 | H1 2023 | H1 2022 | | :------------------------------------ | :----------- | :----------- | :----------- | :----------- | | Net Income | $23,077 | $34,164 | $45,433 | $62,327 | | Adjustments (net) | $107,208 | $86,345 | $213,579 | $175,070 | | Net Operating Income | $130,285 | $120,509 | $259,012 | $237,397 | [Liquidity and Capital Resources](index=34&type=section&id=Liquidity%20and%20Capital%20Resources) This sub-section discusses the company's ability to meet financial obligations and fund future growth, detailing liquidity, capital sources, and debt structure [General Liquidity Needs and Sources](index=34&type=section&id=General%20Liquidity%20Needs%20and%20Sources) This section outlines the company's short-term and long-term liquidity needs and the various sources available to meet them - Primary short-term and long-term liquidity needs include property operating expenses, acquisitions, development/redevelopment, tenant improvements, debt payments, G&A costs, and dividends[128](index=128&type=chunk) - Liquidity needs may be met through cash on hand, net cash from operations, asset sales, credit facility borrowings, mortgage/unsecured loans, construction loans, equity offerings, and joint venture formations[128](index=128&type=chunk) - As of June 30, 2023, the Company had **$153.1 million** in unfunded tenant improvements and construction costs, **$148.5 million** drawn on its credit facility (with **$851.5 million** remaining capacity), and **$8.0 million** in cash and cash equivalents, expecting sufficient liquidity[128](index=128&type=chunk) [Other Debt Information](index=35&type=section&id=Other%20Debt%20Information) This section details the company's debt structure, including unsecured and secured debt, and compliance with covenants - The Company's debt structure includes a **$1 billion** unsecured Credit Facility (**$148.5 million** outstanding), **$750 million** in unsecured term loans, and **$1 billion** in unsecured senior notes[129](index=129&type=chunk) - Existing mortgage debt consists of non-recourse, fixed-rate mortgage notes secured by real estate assets, which the Company expects to refinance or repay at maturity using various capital resources[129](index=129&type=chunk) - **86%** of the Company's consolidated debt bears interest at a fixed rate, while the remaining **14%** bears interest at a floating rate based on SOFR, and the Company is in compliance with all debt covenants[129](index=129&type=chunk)[130](index=130&type=chunk) [Future Capital Requirements](index=35&type=section&id=Future%20Capital%20Requirements) This section outlines the company's plans to meet future investment capital requirements through portfolio management, asset sales, and funding sources - To meet future investment capital requirements, the Company plans to actively manage its property portfolio, strategically sell non-core assets, and reposition income-producing assets[131](index=131&type=chunk) - Capital will be generated from cash retained from operations, third-party sources (indebtedness, construction facilities), and the issuance of securities (common/preferred stock, warrants, debt, CPLP units)[131](index=131&type=chunk)[132](index=132&type=chunk) - If capital sources are unavailable, the Company may reduce project acquisitions/developments or raise capital on unfavorable terms, potentially impacting financial position and results[133](index=133&type=chunk) [Cash Flows](index=35&type=section&id=Cash%20Flows) Changes in Cash Flows (Six Months Ended June 30, in thousands) | Cash Flow Activity | H1 2023 | H1 2022 | Change ($) | | :---------------------------------- | :----------- | :----------- | :--------- | | Net cash provided by operating activities | $161,071 | $157,689 | $3,382 | | Net cash used in investing activities | $(149,671) | $(193,346) | $43,675 | | Net cash provided by (used in) financing activities | $(8,514) | $30,777 | $(39,291) | - Operating cash flows increased due to timing of prepaid rent receipts, higher physical occupancy at Domain and Buckhead Plaza, and stabilization of 100 Mill and Heights Union[134](index=134&type=chunk) - Investing cash flows decreased (less cash used) due to reduced capital expenditures from 2022 redevelopment activities (e.g., Promenade Central) and lower contributions to the Neuhoff Holdings LLC joint venture[135](index=135&type=chunk) - Financing cash flows decreased (more cash used) primarily due to cash provided by ATM Program forward contract settlements in June 2022, partially offset by cash used for a joint venture interest purchase in April 2022 and increased net borrowings on the credit facility[136](index=136&type=chunk) - Non-cash activities included a significant increase in tenant-funded capital improvements, recorded as assets and deferred income, as tenants invest in highly amenitized office spaces[137](index=137&type=chunk) [Capital Expenditures](index=36&type=section&id=Capital%20Expenditures) Components of Property Acquisition, Development, and Tenant Asset Expenditures (Six Months Ended June 30, in thousands) | Component | H1 2023 | H1 2022 | Change ($) | Change (%) | | :---------------------------- | :----------- | :----------- | :--------- | :--------- | | Operating — leasing costs | $63,120 | $23,722 | $39,398 | 166.1% | | Operating — building improvements | $37,365 | $76,207 | $(38,842) | -50.9% | | Capitalized interest | $10,096 | $7,041 | $3,055 | 43.4% | | Development | $7,622 | $57,815 | $(50,193) | -86.8% | | Capitalized personnel costs | $3,720 | $4,249 | $(529) | -12.5% | | Change in accrued capital expenditures | $12,356 | $3,172 | $9,184 | 289.5% | | Total property acquisition, development, and tenant asset expenditures | $134,279 | $172,206 | $(37,927) | -22.0% | - Total capital expenditures decreased by **$37.9 million**, primarily due to reduced spending on building improvements (e.g., 3350 Peachtree, Promenade Tower renovations) and the nearing completion of development activities at Domain 9 and 100 Mill[139](index=139&type=chunk) - This decrease was partially offset by an increase in leasing costs for commissions and tenant improvements[139](index=139&type=chunk) Tenant Improvement and Leasing Costs Per Square Foot for Office Portfolio (Three Months Ended June 30) | Lease Type | Q2 2023 | Q2 2022 | | :---------------- | :----------- | :----------- | | New leases | $13.83 | $11.86 | | Renewal leases | $11.91 | $7.17 | | Expansion leases | $2.24 | $9.17 | [Dividends](index=36&type=section&id=Dividends) Common Dividends Paid (in millions) | Period | 2023 | 2022 | Change ($) | Change (%) | | :-------------------- | :---------- | :---------- | :--------- | :--------- | | Six months ended June 30 | $97.3 | $93.7 | $3.6 | 3.8% | - Future quarterly common dividends are expected to be funded by operating cash flows, proceeds from investment property sales, joint venture distributions, indebtedness, and equity offerings, while adhering to REIT status requirements and credit agreement covenants[142](index=142&type=chunk)[143](index=143&type=chunk) [Off Balance Sheet Arrangements](index=36&type=section&id=Off%20Balance%20Sheet%20Arrangements) This section describes the company's off-balance sheet joint ventures and their financing arrangements, including non-recourse carve-out guarantees - The Company has off-balance sheet joint ventures involved in real estate ownership, acquisition, and development, which fund capital and operational needs through cash from operations or financing proceeds[144](index=144&type=chunk) - As of June 30, 2023, unconsolidated joint ventures had **$248.6 million** in aggregate outstanding third-party indebtedness, primarily non-recourse mortgage or construction loans, for which the Company may provide "non-recourse carve-out guarantees"[145](index=145&type=chunk)[146](index=146&type=chunk) [Critical Accounting Policies](index=37&type=section&id=Critical%20Accounting%20Policies) This section confirms no material changes to the company's critical accounting policies since the last annual report - There have been no material changes in the Company's critical accounting policies from those disclosed in its Annual Report on Form 10-K for the year ended December 31, 2022[147](index=147&type=chunk) [Item 3. Quantitative and Qualitative Disclosures About Market Risk](index=37&type=section&id=Item%203.%20Quantitative%20and%20Qualitative%20Disclosures%20About%20Market%20Risk) This section states no material changes in the company's market risk profile related to notes payable since its last annual report - No material changes in market risk associated with notes payable at June 30, 2023, compared to the disclosures in the Annual Report on Form 10-K for the year ended December 31, 2022[148](index=148&type=chunk) [Item 4. Controls and Procedures](index=37&type=section&id=Item%204.%20Controls%20and%20Procedures) This section confirms the effectiveness of disclosure controls and procedures and reports no material changes in internal control over financial reporting - Management, including the CEO and CFO, concluded that the Company's disclosure controls and procedures were effective as of June 30, 2023[150](index=150&type=chunk) - No changes in internal control over financial reporting occurred during the most recent fiscal quarter that have materially affected, or are reasonably likely to materially affect, internal controls[150](index=150&type=chunk) [PART II. OTHER INFORMATION](index=37&type=section&id=PART%20II.%20OTHER%20INFORMATION) This part contains other information not included in the financial statements, such as legal proceedings, risk factors, and exhibits [Item 1. Legal Proceedings](index=37&type=section&id=Item%201.%20Legal%20Proceedings) This section refers to Note 9 of the condensed consolidated financial statements for details on legal proceedings - Information regarding legal proceedings is described under the subheading "Litigation" in Note 9 of the notes to condensed consolidated financial statements[151](index=151&type=chunk) [Item 1A. Risk Factors](index=37&type=section&id=Item%201A.%20Risk%20Factors) This section states no material changes to the company's risk factors since its last annual report and advises investors to consider disclosed risks - There have been no material changes in the Company's risk factors from those previously disclosed in its Annual Report on Form 10-K for the year ended December 31, 2022[152](index=152&type=chunk) - Investors should carefully consider the risks described in the Annual Report, as additional unknown or immaterial risks could also adversely affect the business[152](index=152&type=chunk) [Item 2. Unregistered Sales of Equity Securities and Use of Proceeds](index=37&type=section&id=Item%202.%20Unregistered%20Sales%20of%20Equity%20Securities%20and%20Use%20of%20Proceeds) This section refers to Note 12 for equity compensation plans and confirms no unregistered sales or common share purchases in Q2 2023 - For information on equity compensation plans, refer to Note 15 of the notes to consolidated financial statements in the Annual Report on Form 10-K for the year ended December 31, 2022, and Note 12 of the notes to condensed consolidated financial statements[153](index=153&type=chunk) - The Company did not make any sales of unregistered securities or purchase any common shares during the second quarter of 2023[153](index=153&type=chunk) [Item 6. Exhibits](index=38&type=section&id=Item%206.%20Exhibits) This section lists all exhibits filed as part of the quarterly report, including corporate governance documents, certifications, and financial data - The report includes a list of exhibits, such as the Agreement and Plan of Merger, Restated and Amended Articles of Incorporation, Bylaws, certifications from the CEO and CFO, and financial information in inline XBRL format[155](index=155&type=chunk) [SIGNATURES](index=39&type=section&id=SIGNATURES) This section confirms the report's signing by the Executive Vice President and Chief Financial Officer on July 27, 2023 - The report was signed on July 27, 2023, by Gregg D. Adzema, Executive Vice President and Chief Financial Officer, as the duly authorized officer and principal financial officer[157](index=157&type=chunk)

BALANCE SHEET PRIMED FOR OPPORTUNITIES Leverage Below Peers with Substantial Liquidity NET DEBT/EBITDA1 14.0x $831MM 12.0x Liquidity² 10.0x 8.0x Avg = 7.3x 6.0x 5.1x 4.0x 2.0x 0.0x HPP PGRE BXP BDN ESRT OFC HIW KRC SLG VNO OPI DEA FSP CIO ARE cuz PDM Cousins 18 | --- | --- | --- | --- | --- | --- | --- | --- | |---------|-------|------------------------------|---------------------------------------------------------------------------|----------------------------------------------|-------------|-------|----- ...