What changed in this filing

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Item 2. Management’s Discussion and Analysis

2020-07-30 compared with 2020-04-30 · 105 added, 77 removed, 197 unchanged (48% of the section changed)

13 unchanged sentences

As a part of this transaction, we issued $650 million in senior unsecured debt at a weighted average interest rate of 3.88%, which effectively replaced the majority of the TIER debt assumed in the Merger.

We believe that this merger creates a company with an attractive portfolio of trophy office assets balanced across the premier Sun Belt markets.

We believe that the Merger will enhance our position in our existing markets of Austin and Charlotte, provide a strategic entry into Dallas, and balance our exposure in Atlanta.

The Merger is also expected to enhance growth and to provide value-add opportunities as a result of TIER's active and attractive development portfolio and land bank.

As of March 31, 2020 , our portfolio of real estate assets consisted of interests in 35 operating properties (34 office and one mixed-use), containing 19.4 million square feet of space, and six projects (five office and one mixed-use) under active development.

During the first quarter of 2020 we completed sales of three operating office properties.

We sold Hearst Tower, a 966,000 square foot office building in Charlotte, North Carolina for gross proceeds of $455.5 million , recognizing a gain of $90.9 million on the sale.

We sold our interest in Charlotte Gateway Village, LLC, which owned a 1.1 million square foot office building in Charlotte, North Carolina, to our venture partner for a gross purchase price of $52.2 million , recognizing a gain of $44.9 million on the sale.

We sold Woodcrest, a non-strategic asset in Cherry Hill, New Jersey, for $25.3 million .

We acquired Woodcrest in the Merger with TIER and did not record any gain or loss on its sale.

We believe that this merger created a company with an attractive portfolio of trophy office assets balanced across the premier Sun Belt markets.

We believe that the Merger has enhanced our position in our existing markets of Austin and Charlotte, provided a strategic entry into Dallas, and balanced our exposure in Atlanta.

The Merger is also enhancing growth and providing value-add opportunities as a result of TIER's active and attractive development portfolio and land bank.

As of June 30, 2020, our portfolio of real estate assets consisted of interests in 35 operating properties (34 office and one mixed-use), containing 19.4 million square feet of space, and six projects (five office and one mixed-use) under active development.

During the second quarter of 2020, we purchased a 1,550 space parking garage in Charlotte, North Carolina for a gross purchase price of $85.0 million.

During the quarter, we leased or renewed 303,000 square feet of office space.

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For those leases that were previously occupied within the past year, net effective rent increased 31.8%.

Same property net operating income (defined below) for consolidated properties and our share of unconsolidated properties increased by 3.2% between the three months ended March 31, 2020 and 2019 .

Same property net operating income (defined below) for consolidated properties and our share of unconsolidated properties decreased by 2.4% between the three months ended June 30, 2020 and 2019.

The decrease in same property net operating income is primarily driven by decreases in parking revenue resulting from decreased physical occupancy at our properties during the quarter.

The change in same property net operating income, excluding parking, would have been an increase of 0.7%.

On a regular basis we review and, as appropriate, revise our corporate contingency plan, which addresses the steps necessary to respond to an unexpected interruption of business, including the unavailability of our corporate office space.

Since March 2020, in accordance with the advice of the CDC due to the threat presented by the ongoing COVID-19 pandemic, our tenants widely adopted teleworking for their office employees and we increased our janitorial cleaning protocols in our buildings.

The rental obligations under our leases have not been materially affected by the COVID-19 pandemic to date, and any requests for rent adjustments are addressed on a case-by-case basis.

We also have worked closely with essential vendors, including the contractors and others involved in our development projects, to assess potential impact of appropriate and necessary distancing measures upon our operations and our development delivery timelines.

Although the impact to our business of the COVID-19 pandemic has not been severe to date, the long-term impact of the pandemic on our tenants and the world-wide economy is uncertain and will depend on the scope, severity, and duration of the pandemic.

A prolonged economic downturn resulting from the pandemic could adversely affect many of our tenants, which could, in turn, adversely impact our business, financial condition, and results of operations.

On June 14, 2019, we restated and amended our articles of incorporation to effect a reverse stock split of the issued and outstanding shares of its common stock pursuant to which, (1) each four shares of our issued and outstanding common stock and preferred stock were combined into one share of our common stock or preferred stock, as applicable, and (2) the authorized number of our common stock was proportionally reduced to 175 million shares.

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Immediately thereafter, we further amended our articles of incorporation to increase the number of authorized shares of our common stock from 175 million to 300 million shares.

In light of the increasing reports regarding the threat presented by COVID-19, and in accordance with the advice of the CDC, we confirmed our readiness to adjust to teleworking if appropriate.

Throughout the month of March, our tenants widely adopted teleworking for their office employees, as we increased our janitorial cleaning protocols in our buildings.

The rental obligations under our space leases have not been materially affected by the COVID-19 pandemic to date, and any requests for rent adjustments are addressed on a case-by-case basis.

economic downturn resulting from the pandemic could adversely affect many of our tenants, which could, in turn, adversely impact our business, financial condition, and results of operations.

Results of Operations

Our financial results have been significantly affected by the Merger.

In addition, our results have been affected by a series of transactions we entered into on March 1, 2019 with Norfolk Southern Railway Company ("NS") whereby we executed an agreement to develop NS's corporate headquarters in Midtown Atlanta and purchased 1200 Peachtree, a 370,000 square foot office building in Midtown Atlanta, from NS that is 100% leased by NS.

Our results have also been affected by a series of transactions we entered into on March 1, 2019 with Norfolk Southern Railway Company ("NS") whereby we executed an agreement to develop NS's corporate headquarters in Midtown Atlanta and purchased 1200 Peachtree, a 370,000 square foot office building in Midtown Atlanta, from NS that is 100% leased by NS.

Additionally our results have been affected by various property acquisitions and dispositions, including the sale of the Hearst Tower and Woodcrest operating properties and sale of our interest in the Gateway and Wildwood joint ventures that occurred in the first quarter of 2020 and purchase of a parking garage in Charlotte in the second quarter of 2020.

Accordingly, our historical financial statements may not be indicative of future operating results.

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Our same property portfolio is comprised of office properties that have been fully operational in each of the comparable reporting periods.

A fully operational property is one that has achieved 90% economic occupancy or has been substantially completed and owned by us for each of the periods presented.

A fully operational property is one that has achieved 90% economic occupancy or has been substantially completed and owned by us for the entirety of each of the periods presented.

This information is presented for consolidated properties only and does not include net operating income from our unconsolidated joint ventures.

Three Months Ended March 31,

Three Months Ended June 30, Six Months Ended June 30,

2020 2019 $ Change % Change 2020 2019 $ Change % Change

Rental Property Revenues

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Other Non-Same Properties 10,315 8,826 1,489 16.9 % 25,385 16,095 9,290 57.7 %

Same property rental property operating expenses decreased in the three month period primarily due to a settlement that resulted in the recovery of previously incurred legal expenses at 3344 Peachtree.

Revenues and expenses for Legacy TIER properties represent amounts recorded for the properties acquired in the Merger.

Revenues and expenses of Other Non-Same Properties increased in the three month period primarily as a result of the addition of 1200 Peachtree in March 2019 and of Terminus, which was consolidated in October 2019 when we purchased our partner's interest in Terminus Office Holdings LLC ("TOH").

Fee income decreased $4.0 million ( 46% ) between the 2020 and 2019 three month period.

Total NOI $ 112,939 $ 88,038 $ 24,901 28.3 % $ 234,686 $ 167,896 $ 66,790 39.8 %

Same property rental property revenues decreased in the three and six month periods primarily due to a decrease in parking revenue earned at the properties.

Same property rental property operating expenses decreased in the three and six month per iods primarily due to a decrease in expenses at properties resulting from lower physical occupancy during the period.

The decrease in the six month period is also due to a settlement that resulted in the recovery of previously incurred legal expenses at 3344 Peachtree.

Revenues and expenses for Legacy TIER properties represent amounts recorded for the properties acquired in the Merger on June 14, 2019.

Revenues and expenses of Other Non-Same Properties increased in the three month and six month periods primarily as a result of the addition of 1200 Peachtree in March 2019 and of Terminus, which was consolidated in October 2019 when we purchased our partner's interest in Terminus Office Holdings LLC ("TOH"), partially offset by the sale of Hearst Tower in March of 2020.

Fee income decreased $2.4 million (34%) and $6.4 million (40.4%) between the 2020 and 2019 three and six month periods, respectively.

The decrease is primarily driven by fee income related to the 2019 transactions with NS.

General and Administrative Expenses

General and administrative expenses decreased $5.8 million ( 51% ) between the 2020 and 2019 three month period.

These decreases are primarily driven by long-term compensation expense decreases as a result of fluctuations in our common stock price for our liability-classified awards.

General and administrative expenses decreased $5.6 million (28.4%) between the 2020 and 2019 six month period.

This decrease is primarily driven by long-term compensation expense decreases as a result of fluctuations in our common stock price for our liability-classified awards.

Interest Expense

Interest expense, net of amounts capitalized, increased $5.1 million ( 47% ) between the 2020 and 2019 three month periods.

The increase in the three month periods is due to interest incurred on the unsecured senior notes that were issued on June 19, 2019 and an increase in the average outstanding balance on our credit facility.

Interest expense, net of amounts capitalized, increased $1.9 million (16%) and $7.0 million (30.7%) between the 2020 and 2019 three and six month periods, respectively.

The increase in the three month periods is due to interest incurred on the unsecured senior notes that were issued on June 19, 2019, partially offset by a decrease in the average outstanding balance on our credit facility and lower interest rates on our variable rate term loan.

The increase in the six month period is primarily due to interest incurred on the unsecured senior notes issued in 2019 and an increase in the average outstanding balance on our credit facility.

Depreciation and Amortization

Three Months Ended March 31,

Three Months Ended June 30, Six Months Ended June 30,

2020 2019 $ Change % Change 2020 2019 $ Change % Change

Depreciation and Amortization

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Total Depreciation and Amortization $ 72,868 $ 50,904 $ 21,964 43.1 % $ 144,482 $ 96,765 $ 47,717 49.3 %

Depreciation and amortization for Legacy TIER properties represent amounts recorded on the properties acquired in the Merger.

Depreciation and amortization of Other Non-Same Properties increased in the three month periods primarily as a result of addition of 1200 Peachtree in March 2019 and of Terminus, which was consolidated in the October 2019 when we purchased our partner's interest in TOH.

Depreciation and amortization for Legacy TIER properties represent amounts recorded on the properties acquired in the Merger on June 14, 2019.

Depreciation and amortization of Other Non-Same Properties increased in the three and six month periods primarily as a result of the addition of 1200 Peachtree in March 2019 and of Terminus, which was consolidated in October 2019 when we purchased our partner's interest in TOH, partially offset by the sale of Hearst Tower in March 2020.

Transaction Costs

Transaction costs for the three months ended March 31, 2020 and 2019 primarily relate to the Merger.

Transaction costs for the three and six months ended June 30, 2020 and 2019 primarily relate to the Merger.

These costs include financial advisory, legal, accounting, severance, and other costs of combining our operations with TIER.

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

Three Months Ended March 31,

Three Months Ended June 30, Six Months Ended June 30,

2020 2019 $ Change % Change 2020 2019 $ Change % Change

Net operating income $ 4,193 $ 9,379 $ (5,186) (55.3) % $ 10,228 $ 17,252 $ (7,024) (40.7) %

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Interest expense (550) (1,633) 1,083 (66.3) % (1,199) (3,387) 2,188 (64.6) %

Net gain on sale of investment property

Net gain (loss) on sale of investment property 168 (5) 173 (3,460.0) % 486 (5) 491 (9,820.0) %

Income from unconsolidated joint ventures $ 1,715 $ 3,634 $ (1,919) (52.8) % $ 5,140 $ 6,538 $ (1,398) (21.4) %

Net operating income, depreciation and amortization, and interest expense from unconsolidated joint ventures decreased between the three month periods primarily due to the consolidation of Terminus in October 2019 when we purchased our partner's interest in TOH.

Net operating income, depreciation and amortization, and interest expense from unconsolidated joint ventures decreased between the three and six month periods primarily due to the consolidation of Terminus in October 2019 when we purchased our partner's interest in TOH.

Gain on Sales of Investments in Unconsolidated Joint Ventures

The gain on sales of investments in unconsolidated joint ventures for the three months ended March 31, 2020 includes the sale of our interests in the Wildwood Associates and Gateway Village joint ventures.

The gain on sales of investments in unconsolidated joint ventures for the six months ended June 30, 2020 includes the sale of our interests in the Wildwood Associates and Gateway Village joint ventures.

The capitalization rate of Gateway Village was not a determinant of the sales price as, per the joint venture agreement, our interest was valued at a 17% internal rate of return on our invested capital.

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Gain on Investment Property Transactions

The gain on investment property transactions for the three months ended March 31, 2020 includes the sale of Hearst Tower.

The gain on investment property transactions for the six months ended June 30, 2020 includes the sale of Hearst Tower.

The combined sales prices of the Hearst Tower and Woodcrest dispositions represented a weighted average capitalization rate of 5.1%.

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The table below shows Funds from Operations (“FFO”) and the related reconciliation to net income available to common stockholders.

We calculate FFO in accordance with the National Association of Real Estate Investment Trusts’ (“NAREIT”) definition, which is net

income available to common stockholders (computed in accordance with GAAP), excluding extraordinary items, cumulative effect of change in accounting principle, and gains on sale or impairment losses on depreciable property, plus depreciation and amortization of real estate assets, and after adjustments for unconsolidated partnerships and joint ventures to reflect FFO on the same basis.

We calculate FFO in accordance with the National Association of Real Estate Investment Trusts’ (“NAREIT”) definition, which is net income available to common stockholders (computed in accordance with GAAP), excluding extraordinary items, cumulative effect of change in accounting principle, and gains on sale or impairment losses on depreciable property, plus depreciation and amortization of real estate assets, and after adjustments for unconsolidated partnerships and joint ventures to reflect FFO on the same basis.

FFO is used by industry analysts and investors as a supplemental measure of a REIT’s operating performance.

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Additionally, we use FFO, along with other measures, to assess performance in connection with evaluating and granting incentive compensation to its officers and other key employees.

The reconciliation of net income to FFO is as follows for the three months ended March 31, 2020 and 2019 (in thousands, except per share information):

Three Months Ended March 31,

Weighted Average Common Shares

Per Share Amount

Weighted Average Common Shares

Per Share Amount

The reconciliation of net income to FFO is as follows for the three and six months ended June 30, 2020 and 2019 (in thousands, except per share information):

Three Months Ended June 30,

Dollars Weighted Average Common Shares Per Share Amount Dollars Weighted Average Common Shares Per Share Amount

Net Income Available to Common Stockholders $ 23,101 148,548 $ 0.16 $ (22,409) 112,926 $ (0.20)

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Funds From Operations $ 97,959 148,580 $ 0.66 $ 31,869 114,670 $ 0.28

TIER transaction costs 63 — — 49,827 — 0.43

Funds From Operations before TIER transaction costs $ 98,022 $ 148,580 $ 0.66 $ 81,696 $ 114,670 $ 0.71

Six Months Ended June 30,

Dollars Weighted Average Common Shares Per Share Amount Dollars Weighted Average Common Shares Per Share Amount

Net Income Available to Common Stockholders $ 198,044 147,986 $ 1.34 $ 12,932 109,049 $ 0.12

Noncontrolling interest related to unitholders 307 572 — 323 1,744 —

Conversion of stock options — 10 — — 29 —

Conversion of unvested restricted stock units — 2 — — — —

Net Income — Diluted 198,351 148,570 1.34 13,255 110,822 0.12

Depreciation and amortization of real estate assets:

Consolidated properties 144,100 — 0.97 95,855 — 0.86

Share of unconsolidated joint ventures 4,453 — 0.03 7,408 — 0.07

Partners' share of real estate depreciation (361) — — (195) — —

(Gain) loss on sale of depreciated properties:

Consolidated properties (90,715) — (0.61) 54 — —

Share of unconsolidated joint ventures (486) — — 5 — —

Investments in unconsolidated joint ventures (44,662) — (0.31) — — —

Funds From Operations $ 210,680 148,570 $ 1.42 $ 116,382 110,822 $ 1.05

TIER transaction costs 428 — — 49,830 — 0.45

Funds From Operations before TIER transaction costs $ 211,108 148,570 $ 1.42 $ 166,212 110,822 $ 1.50

Net Operating Income

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NOI excludes corporate general and administrative expenses, interest expense, depreciation and amortization, impairments, gains/loss on sales of real estate, and other non-operating items.

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

Three Months Ended March 31,

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

Three Months Ended June 30, Six Months Ended June 30,

2020 2019 2020 2019

Net income (loss) $ 23,236 $ (22,582) $ 198,545 $ 13,423

Fee income (4,690) (7,076) (9,422) (15,804)

Termination fee income (539) (190) (3,383) (710)

Other income (126) (11) (163) (151)

Reimbursed expenses 322 1,047 843 1,979

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Income from unconsolidated joint ventures (1,715) (3,634) (5,140) (6,538)

Gain on sale of investments in unconsolidated joint ventures

Gain on investment property transactions

(Gain) loss on sale of investments in unconsolidated joint ventures 231 — (45,999) —

(Gain) loss on investment property transactions 201 (1,304) (90,715) (14,415)

Net Operating Income $ 112,939 $ 88,038 $ 234,686 $ 167,896

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• principal and interest payments on indebtedness;

• general and administrative costs;

• common stock dividends.

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• joint venture formations.

As of March 31, 2020 , we had available to us the entire $1.0 billion borrowing capacity under our Credit Facility and $124.6 million of cash and cash equivalents.

As of June 30, 2020, we had available to us the entire $1.0 billion borrowing capacity under our Credit Facility and $28.3 million of cash and cash equivalents.

While we expect to have sufficient liquidity to meet our obligations for the foreseeable future, the COVID-19 outbreak and associated responses could adversely impact our future cash flows and financial condition.

Contractual Obligations and Commitments

The following table sets forth information as of March 31, 2020 with respect to our outstanding contractual obligations and commitments (in thousands):

Less than 1 Year

More than 5 years

The following table sets forth information as of June 30, 2020 with respect to our outstanding contractual obligations and commitments (in thousands):

Total Less than 1 Year 1-3 Years 3-5 Years More than 5 years

Contractual Obligations:

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Unsecured senior notes 1,000,000 — — — 1,000,000

250,000 — 250,000 — —

Mortgage notes payable 685,835 7,940 118,769 332,242 226,883

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Unfunded tenant improvements and construction obligations

$ 193,847 $ 150,989 $ 42,858 $ — $ —

Performance bonds 1,192 1,192 — — —

Total commitments $ 195,039 $ 152,181 $ 42,858 $ — $ —

As of March 31, 2020 , the entire $1.0 billion borrowing capacity was available to us under our Credit Facility.

Interest on variable rate obligations is based on rates effective as of March 31, 2020 .

(1) As of June 30, 2020, the entire $1.0 billion borrowing capacity was available to us under our Credit Facility.

(2) Interest on variable rate obligations is based on rates effective as of June 30, 2020.

In addition, we have several standing or renewable service contracts mainly related to the operation of buildings.

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Many of our non-recourse mortgages contain covenants which, if not satisfied, could result in acceleration of the maturity of the debt.

We expect to either refinance the non-recourse mortgages at maturity or repay the mortgages with proceeds from asset sales, debt, or other capital sources.

We expect to either refinance the non-recourse mortgages at maturity or repay the mortgages with proceeds from asset sales, debt, or other

capital sources.

We are in compliance with all covenants of our existing non-recourse mortgages, Credit Facility, unsecured senior notes, and Term Loan.

85% of our debt bears interest at a fixed rate.

Our variable-interest debt instruments, including our Credit Facility and $250 million term loan, may use London Interbank Offering Rate ("LIBOR") as a benchmark for establishing the rate.

LIBOR is the subject of recent regulatory guidance and proposals for reform and in July 2017, the Financial Conduct Authority (the authority that regulates LIBOR) announced it intends to stop compelling banks to submit rates for the calculation of LIBOR after 2021.

LIBOR has been the subject of recent regulatory guidance and proposals for reform and in July 2017, the Financial Conduct Authority (the authority that regulates LIBOR) announced it intends to stop compelling banks to submit rates for the calculation of LIBOR after 2021.

These reforms may cause LIBOR to no longer be provided or to perform differently than in the past.

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Our business model is dependent upon raising or recycling capital to meet obligations and to fund development and acquisition activity.

If one or more sources of capital are not available when required, we may be forced to reduce the number of projects we acquire

or develop and/or raise capital on potentially unfavorable terms, or we may be unable to raise capital, which could have an adverse effect on our financial position or results of operations.

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 Summary

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The following table sets forth the changes in cash flows (in thousands):

Three Months Ended March 31,

Six Months Ended June 30,

2020 2019 Change

Net cash provided by operating activities $ 133,588 $ 77,791 $ 55,797

Net cash provided by (used in) investing activities 248,792 (37,246) 286,038

Net cash provided by (used in) financing activities

Net cash used in financing activities (369,786) (29,173) (340,613)

The reasons for significant increases and decreases in cash flows between the periods are as follows:

Cash Flows from Operating Activities.

Cash flows from operating activities decreased $31.5 million between the 2020 and 2019 three month periods primarily due to a larger decrease in operating liabilities, specifically accrued property taxes and accrued interest, in 2020.

This is partially offset by an increase in net cash received from operations of properties acquired in the Merger in June 2019, of 1200 Peachtree, which was acquired in March 2019, and of Terminus, which was consolidated in the October 2019 when we purchased our partner's interest in TOH.

Cash flows from operating activities increased $55.8 million between the 2020 and 2019 six month periods primarily due to an increase in net cash received from operations of properties acquired in the Merger in June 2019, of 1200 Peachtree, which was acquired in March 2019, and of Terminus, which was consolidated in October 2019 when we purchased our partner's interest in TOH.

Cash Flows from Investing Activities.

Cash flows from investing activities increased $488.5 million between the 2020 and 2019 three month periods primarily due to cash received from the sales of the Hearst Tower and Woodcrest operating properties, combined with the sales of our interests in the Gateway Village and Wildwood Associates joint ventures.

Cash flows from investing activities increased $286.0 million between the 2020 and 2019 six month periods primarily due to cash received from the sales of the Hearst Tower and Woodcrest operating properties, combined with the sales of our interests in the Gateway Village and Wildwood Associates joint ventures.

Cash Flows from Financing Activities.

Cash flows from financing activities decreased $348.9 million between the 2020 and 2019 three month periods primarily due to a decrease in net borrowings on our Credit Facility in 2020, which has no outstanding balance as of March 31, 2020.

Cash flows from financing activities decreased $340.6 million between the 2020 and 2019 six month periods primarily due to a decrease in net borrowings on our Credit Facility in 2020, which has no outstanding balance as of June 30, 2020.

Capital Expenditures .

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Capital expenditures for assets we develop or acquire and then hold and operate are included in the property acquisition, development, and tenant asset expenditures line item within investing activities on the condensed consolidated statements of cash flows.

Amounts accrued are removed from the table below (accrued capital adjustment) to show the components of these costs on a cash basis.

Components of costs included in this line item for the three months ended March 31, 2020 and 2019 are as follows (in thousands):

Three Months Ended March 31,

Amounts accrued are removed from the table below (accrued capital adjustment) to show the components of these costs on a

Components of costs included in this line item for the six months ended June 30, 2020 and 2019 are as follows (in thousands):

Six Months Ended June 30,

Acquisition of property $ 82,726 $ 82,120

Development 27,781 36,258

Operating — leasing costs 4,950 22,698

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Total property acquisition, development, and tenant asset expenditures $ 235,466 $ 168,700

Capital expenditures decreased $55.7 million between the 2020 and 2019 three month periods primarily due to the purchase of 1200 Peachtree and the purchase of land in the first quarter of 2019.

This is partially offset by increases in spending for projects under development, tenant improvements, and leasing commissions and by increased capitalized interest related to the Domain development projects.

Capital expenditures increased $66.8 million between the 2020 and 2019 six month periods primarily due to the continued building and tenant improvements at Domain 12, which began recognizing income in the second quarter of 2020, and due to tenant improvements at Terminus, Northpark, and Corporate Center.

Tenant improvements and leasing costs, as well as related capitalized personnel costs, are a function of the number and size of newly executed leases or renewals of existing leases.

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, 2020 and 2019 were as follows:

The amounts of tenant improvement and leasing costs for our office portfolio on a per square foot basis for the three months ended June 30, 2020 and 2019 were as follows:

New leases $13.55 $7.55

Renewal leases $5.72 $6.92

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

During the first quarter of 2019, the Company executed a new full-building lease at 1200 Peachtree with NS that had lower than average tenant improvement and leasing costs.

We paid common dividends of $42.6 million and $27.3 million in the 2020 and 2019 three month periods, respectively.

Average leasing costs during the second quarter of 2020 increased for new leases primarily due to a lease in Austin signed in the second quarter of 2020 with higher than average tenant improvement and leasing costs, which were largely offset by the previous tenant's termination fees, and a large long term lease in Charlotte signed in the second quarter of 2019 with lower than average leasing costs.

We paid common dividend s of $87.1 million and $57.8 million in the 2020 and 2019 six month periods, respectively.

We expect to fund our future quarterly common dividends with cash provided by operating activities, also using proceeds from investment property sales, distributions from unconsolidated joint ventures, and indebtedness, if necessary.

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If additional capital is deemed necessary, a venture may request a contribution from the partners, and we will evaluate such request.

At March 31, 2020 , our unconsolidated joint ventures had aggregate outstanding indebtedness to third parties of $185.8 million .

At June 30, 2020, our unconsolidated joint ventures had aggregate outstanding indebtedness to third parties of $197.5 million.

These loans are generally mortgage or construction loans, most of which are non-recourse to us except as described in the paragraph below.

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Certain of these loans have variable interest rates, which creates exposure to the ventures in the form of market risk from interest rate changes.

We guarantee 12.5% of the loan amount related to the Carolina Square construction loan, which has a lending capacity of $79.8 million, and an outstanding balance of $76.1 million as of March 31, 2020 .

At March 31, 2020 , we guaranteed $9.5 million of the amount outstanding.

Following the April 2020 amendment, we no longer guarantee 12.5% of the loan amount related to the Carolina Square construction loan, which has a lending capacity of $79.8 million, and an outstanding balance of $76.3 million as of June 30, 2020.

Critical Accounting Policies

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Quantitative and Qualitative Disclosures About Market Risk.

There have been no material changes in the market risk associated with our notes payable at March 31, 2020 compared to that as disclosed in our Annual Report on Form 10-K for the year ended December 31, 2019 .

There have been no material changes in the market risk associated with our notes payable at June 30, 2020 compared to that as disclosed in our Annual Report on Form 10-K for the year ended December 31, 2019.

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-Q

Item 2. Management’s Discussion and Analysis