COUSINS PROPERTIES INC 10-Q

Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations Overview: Cousins Properties Incorporated ("Cousins") (and collectively, with its subsidiaries, the "Company," "we," "our," or "us") is a publicly traded (NYSE: CUZ), self-administered, and self-managed real estate investment trust, or REIT. Cousins conducts substantially all of its business through Cousins Properties, LP ("CPLP"). Cousins owns over 99% of CPLP and consolidates CPLP. CPLP owns Cousins TSR Services LLC, a taxable entity which owns and manages its own real estate portfolio and performs certain real estate related services for other parties. Our strategy is to create value for our stockholders through ownership of the premier urban office portfolio in the Sun Belt markets, with a particular focus on Georgia, Texas, North Carolina, Arizona, and Florida. This strategy is based on a disciplined approach to capital allocation that includes strategic acquisitions, selective development projects, and timely dispositions of non-core assets. This strategy is also based on a simple, flexible, and low-leveraged balance sheet that allows us to pursue investment opportunities at the most advantageous points in the cycle. To implement this strategy, we leverage our strong local operating platforms within each of our major markets. Consistent with this strategy, on June 14, 2019, we merged with TIER REIT, Inc. ("TIER") in a stock-for-stock transaction (the "Merger"). As a result, we acquired interests in nine operating properties containing 5.8 million square feet of space, two office properties under development that are expected to add 620,000 square feet of space upon completion, and seven strategically located land parcels on which up to 2 million square feet of additional space may be developed. 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 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. The weighted average net effective rent of these leases, representing base rent less operating expense reimbursements and leasing costs, was $25.43 per square foot. 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 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. Fractional shares of common stock resulting from the reverse stock split were settled in cash. Fractional shares of preferred stock resulting from the reverse stock split were redeemed without payout. 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. 23 Table of Contents Results of Operations General Our financial results have been significantly affected by the Merger. 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. Rental Property Revenue, Rental Property Operating Expenses, and Net Operating Income The following table summarizes rental property revenues, rental property operating expenses, and net operating income ("NOI") for each of the periods presented, including our same property portfolio. NOI represents rental property revenue (excluding lease termination fees) less rental property operating expenses. 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 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 June 30, Six Months Ended June 30, 2020 2019 $ Change % Change 2020 2019 $ Change % Change Rental Property Revenues Same Property $ 108,547 $ 113,240 $ (4,693) (4.1) % $ 222,930 $ 226,708 $ (3,778) (1.7) % Legacy TIER Properties 51,668 9,651 42,017 435.4 % 102,679 9,651 93,028 963.9 % Other Non-Same Properties 14,884 12,042 2,842 23.6 % 38,619 22,439 16,180 72.1 % Total Rental Property Revenues $ 175,099 $ 134,933 $ 40,166 29.8 % $ 364,228 $ 258,798 $ 105,430 40.7 % Rental Property Operating Expenses Same Property $ 36,996 $ 40,259 $ (3,263) (8.1) % $ 75,229 $ 80,601 $ (5,372) (6.7) % Legacy TIER Properties 20,057 3,233 16,824 520.4 % 39,038 3,233 35,805 1,107.5 % Other Non-Same Properties 4,568 3,213 1,355 42.2 % 11,892 6,358 5,534 87.0 % Total Rental Property Operating Expenses $ 61,621 $ 46,705 $ 14,916 31.9 % $ 126,159 $ 90,192 $ 35,967 39.9 % Net Operating Income Same Property NOI $ 71,046 $ 72,793 $ (1,747) (2.4) % $ 145,768 $ 145,382 $ 386 0.3 % Legacy TIER Properties 31,578 6,419 25,159 391.9 % 63,533 6,419 57,114 889.8 % Other Non-Same Properties 10,315 8,826 1,489 16.9 % 25,385 16,095 9,290 57.7 % 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 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. 24 Table of Contents General and Administrative Expenses 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 $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 June 30, Six Months Ended June 30, 2020 2019 $ Change % Change 2020 2019 $ Change % Change Depreciation and Amortization Same Property $ 40,284 $ 40,480 $ (196) (0.5) % $ 80,637 $ 81,689 $ (1,052) (1.3) % Legacy TIER Properties 25,250 4,916 20,334 413.6 % 49,733 4,916 44,817 911.7 % Other Non-Same Properties 7,161 5,128 2,033 39.6 % 13,658 9,250 4,408 47.7 % Non-Real Estate Assets 173 380 (207) (54.5) % 454 910 (456) (50.1) % 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 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 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. Income from Unconsolidated Joint Ventures Income from unconsolidated joint ventures consisted of the Company's share of the following (in thousands): Three Months Ended June 30, Six Months Ended June 30, 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) % Termination fee income 2 4 (2) (50.0) % 3 7 (4) (57.1) % Other income, net 8 43 (35) (81.4) % 76 79 (3) (3.8) % Depreciation and amortization (2,106) (4,154) 2,048 (49.3) % (4,454) (7,408) 2,954 (39.9) % Interest expense (550) (1,633) 1,083 (66.3) % (1,199) (3,387) 2,188 (64.6) % 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 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 six months ended June 30, 2020 includes the sale of our interests in the Wildwood Associates and Gateway Village joint ventures. The capitalization rate of Gateway Village was not a determinant of the sales price as, per the joint venture agreement, our interest was valued at a 17% internal rate of return on our invested capital. There was no capitalization rate associated with the sale of our interest in the Wildwood Associates joint venture as the underlying asset was land. 25 Table of Contents Gain on Investment Property Transactions 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%. Capitalization rates are calculated by dividing projected annualized NOI by the sales price. Funds From Operations The table below shows Funds from Operations (“FFO”) and the related reconciliation to net income available to common stockholders. We calculate FFO in accordance with the National Association of Real Estate Investment Trusts’ (“NAREIT”) definition, which is net income available to common stockholders (computed in accordance with GAAP), excluding extraordinary items, cumulative effect of change in accounting principle, and gains on sale or impairment losses on depreciable property, plus depreciation and amortization of real estate assets, and after adjustments for unconsolidated partnerships and joint ventures to reflect FFO on the same basis. FFO is used by industry analysts and investors as a supplemental measure of a REIT’s operating performance. Historical cost accounting for real estate assets implicitly assumes that the value of real estate assets diminishes predictably over time. Since real estate values instead have historically risen or fallen with market conditions, many industry investors and analysts have considered presentation of operating results for real estate companies that use historical cost accounting to be insufficient by themselves. Thus, NAREIT created FFO as a supplemental measure of REIT operating performance that excludes historical cost depreciation, among other items, from GAAP net income. The use of FFO, combined with the required primary GAAP presentations, has been fundamentally beneficial, improving the understanding of operating results of REITs among the investing public and making comparisons of REIT operating results more meaningful. Company management evaluates operating performance in part based on FFO. Additionally, we use FFO, along with other measures, to assess performance in connection with evaluating and granting incentive compensation to its officers and other key employees. The reconciliation of net income to FFO is as follows for the three and six months ended June 30, 2020 and 2019 (in thousands, except per share information): Three Months Ended June 30, 2020 2019 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) Noncontrolling interest related to unitholders 5 25 — (265) 1,744 — Conversion of stock options — 5 — — — — Conversion of unvested restricted stock units — 2 — — — — Net Income — Diluted 23,106 148,580 0.16 (22,674) 114,670 (0.20) Depreciation and amortization of real estate assets: Consolidated properties 72,694 — 0.49 50,450 — 0.44 Share of unconsolidated joint ventures 2,106 — 0.01 4,154 — 0.04 Partners' share of real estate depreciation (212) — — (99) — — (Gain) loss on sale of depreciated properties: Consolidated properties 201 — — 33 — — Share of unconsolidated joint ventures (168) — — 5 — — Investments in unconsolidated joint ventures 232 — — — — — 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 26 Table of Contents Six Months Ended June 30, 2020 2019 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 Company management evaluates the performance of its property portfolio in part based on NOI. NOI represents rental property revenues, less termination fees, less rental property operating expenses. NOI is not a measure of cash flows or operating results as measured by GAAP, is not indicative of cash available to fund cash needs, and should not be considered an alternative to cash flows as a measure of liquidity. All companies may not calculate NOI in the same manner. The Company considers NOI to be an appropriate supplemental measure to net income as it helps both management and investors understand the core operations of the Company's operating assets. NOI excludes 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 (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 General and administrative expenses 8,543 8,374 14,195 19,834 Interest expense 13,993 12,059 29,897 22,879 Depreciation and amortization 72,868 50,904 144,482 96,765 Transaction costs 63 49,827 428 49,830 Other expenses 552 624 1,118 804 Income from unconsolidated joint ventures (1,715) (3,634) (5,140) (6,538) (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 27 Table of Contents Liquidity and Capital Resources Our primary short-term and long-term liquidity needs include the following: • property and land acquisitions; • expenditures on development projects; • building improvements, tenant improvements, and leasing costs; • principal and interest payments on indebtedness; • general and administrative costs; and • common stock dividends. We may satisfy these needs with one or more of the following: • cash and cash equivalents on hand; • net cash from operations; • proceeds from the sale of assets; • borrowings under our credit facility; • proceeds from mortgage notes payable; • proceeds from construction loans; • proceeds from unsecured loans; • proceeds from offerings of equity securities; and • joint venture formations. As of June 30, 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 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: Company debt: Unsecured credit facility (1) $ — $ — $ — $ — $ — Unsecured senior notes 1,000,000 — — — 1,000,000 Term loan 250,000 — 250,000 — — Mortgage notes payable 685,835 7,940 118,769 332,242 226,883 Interest commitments (2) 366,210 60,856 110,666 97,473 97,215 Ground leases 216,906 3,213 5,812 5,347 202,534 Other operating leases 293 172 121 — — Total contractual obligations $ 2,519,244 $ 72,181 $ 485,368 $ 435,062 $ 1,526,633 Commitments: 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 $ — $ — (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. These contracts are in the ordinary course of business and are generally one year or less. These contracts are not included in the above table and are usually reimbursed in whole or in part by tenants. Other Debt Information Our existing mortgage debt is primarily non-recourse, fixed-rate mortgage notes secured by various real estate assets. 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 28 Table of Contents 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 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. If LIBOR is no longer widely available, or otherwise at our option, our variable-interest debt instruments, including our Credit Facility and term loan facilities, provide for alternate interest rate calculations. There can be no assurances as to what alternative interest rates may be and whether such interest rates will be more or less favorable than LIBOR and any other unforeseen impacts of the potential discontinuation of LIBOR. The Company intends to continue monitoring the developments with respect to the potential phasing out of LIBOR after 2021 and work with its lenders to ensure any transition away from LIBOR will have minimal impact on its financial condition, but can provide no assurances regarding the impact of the discontinuation of LIBOR. Future Capital Requirements To meet capital requirements for future investment activities over the long term, we intend to actively manage our portfolio of properties, generating internal cash flows, and strategically sell assets. We expect to continue to utilize indebtedness to fund future commitments, if available and under appropriate terms. We may also seek equity capital and capital from joint venture partners to implement our strategy. Our business model is dependent upon raising or recycling capital to meet obligations and to fund development and acquisition activity. If one or more sources of capital are not available when required, we may be forced to reduce the number of projects we acquire or develop and/or raise capital on potentially unfavorable terms, or we may be unable to raise capital, which could have an adverse effect on our financial position or results of operations. Cash Flows Summary We report and analyze our cash flows based on operating activities, investing activities, and financing activities. The following table sets forth the changes in cash flows (in thousands): Six Months Ended June 30, 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 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 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 $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 $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 . We incur costs related to our real estate assets that include acquisition of properties, development of new properties, redevelopment of existing or newly purchased properties, leasing costs for new or replacement tenants, and ongoing property repairs and maintenance. 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 29 Table of Contents cash basis. 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, 2020 2019 Acquisition of property $ 82,726 $ 82,120 Development 27,781 36,258 Operating — leasing costs 4,950 22,698 Operating — building improvements 84,925 24,678 Purchase of land held for investment 6,092 6,512 Capitalized interest 9,268 2,131 Capitalized personnel costs 3,155 3,276 Change in accrued capital expenditures 16,569 (8,973) Total property acquisition, development, and tenant asset expenditures $ 235,466 $ 168,700 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 June 30, 2020 and 2019 were as follows: 2020 2019 New leases $13.55 $7.55 Renewal leases $5.72 $6.92 Expansion leases $5.19 $9.02 The amounts of tenant improvement and leasing costs on a per square foot basis vary by lease and by market. 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. Dividends. 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. On a quarterly basis, we review the amount of the common dividend in light of current and projected future cash flows from the sources noted above and also consider the requirements needed to maintain our REIT status. In addition, we have certain covenants under credit agreements which could limit the amount of common dividends paid. In general, common dividends of any amount can be paid as long as leverage, as defined in our credit agreements, is less than 60% and we are not in default. Certain conditions also apply in which we can still pay common dividends if leverage is above that amount. We routinely monitor the status of our common dividend payments in light of the covenants of our credit agreements. Off Balance Sheet Arrangements General. We have a number of off balance sheet joint ventures with varying structures, as described in note 8 of our 2019 Annual Report on Form 10-K and note 5 of this Form 10-Q. The joint ventures in which we have an interest are involved in the ownership, acquisition, and/or development of real estate. A venture will fund capital requirements or operational needs with cash from operations or financing proceeds, if possible. If additional capital is deemed necessary, a venture may request a contribution from the partners, and we will evaluate such request. Debt. At June 30, 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. In addition, in certain instances, we provide “non-recourse carve-out guarantees” on these non-recourse loans. Certain of these loans have variable interest rates, which creates exposure to the ventures in the form of market risk from interest rate changes. 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. 30 Table of Contents Critical Accounting Policies There have been no material changes in the critical accounting policies from those disclosed in our Annual Report on Form 10-K for the year ended December 31, 2019. Item 3. Quantitative and Qualitative Disclosures About Market Risk. There have been no material changes in the market risk associated with our notes payable at June 30, 2020 compared to that as disclosed in our Annual Report on Form 10-K for the year ended December 31, 2019.