CommonWealth REIT (NYSE: CWH) today announced financial results
for the quarter ended March 31, 2014.
On March 18, 2014, Related Fund Management, LLC and Corvex
Management LP, or together, Related/Corvex, delivered written
consents to CWH which they represented were from a sufficient
number of holders of CWH’s outstanding common shares to remove,
without cause, the entire CWH Board of Trustees. On March 25, 2014,
the CWH Board of Trustees certified the results of the
Related/Corvex consent solicitation and the entire CWH Board of
Trustees was removed. The officers of CWH have called a special
meeting of shareholders to be held on May 23, 2014 for the purpose
of electing new Trustees of CWH.
Results for the Quarter Ended March 31, 2014:
Normalized funds from operations, or Normalized FFO, available
for CommonWealth REIT common shareholders for the quarter ended
March 31, 2014 was $71.6 million, or $0.60 per share basic and
diluted, compared to Normalized FFO available for CommonWealth REIT
common shareholders for the quarter ended March 31, 2013 of $77.1
million, or $0.82 per share basic and diluted.
Cash available for distribution, or CAD, for the quarter ended
March 31, 2014 was $38.5 million, or $0.33 per share, compared to
CAD for the quarter ended March 31, 2013 of $50.0 million, or $0.53
per share.
Both Normalized FFO and CAD exclude shareholder litigation costs
and related expenses totaling $3.9 million, or $0.03 per share, for
the quarter ended March 31, 2014 and $3.1 million, or $0.03 per
share, for the quarter ended March 31, 2013.
Net income available for CommonWealth REIT common shareholders
was $9.3 million for the quarter ended March 31, 2014, compared to
net income available for CommonWealth REIT common shareholders of
$14.5 million for the same period last year. Net income available
for CommonWealth REIT common shareholders per share, basic and
diluted (EPS), for the quarters ended March 31, 2014 and 2013 was
$0.08 and $0.15, respectively. Net income for the quarter ended
March 31, 2014 includes the reversal of a previously recorded asset
impairment charge of $4.8 million, or $0.04 per share, partially
offset by $3.9 million, or $0.03 per share, of shareholder
litigation costs and related expenses included in general and
administrative expenses and $6.2 million, or $0.05 per share, of
estimated incentive fees payable in CWH’s common shares based upon
common share total return. Net income for the quarter ended March
31, 2013 includes gains of $66.3 million, or $0.70 per share, from
the sale of an equity investment and $2.9 million, or $0.03 per
share, from the sale of properties, partially offset by losses of
$60.0 million, or $0.64 per share, from the early extinguishment of
debt, $3.9 million, or $0.04 per share, from asset impairment and
$3.1 million, or $0.03 per share, of shareholder litigation costs
and related expenses.
The weighted average number of basic and diluted common shares
outstanding for the quarters ended March 31, 2014 and 2013, was
118,399,846 and 94,154,068, respectively.
A reconciliation of net income attributable to CommonWealth
REIT, determined in accordance with U.S. generally accepted
accounting principles, or GAAP, to funds from operations, or FFO,
available for CommonWealth REIT common shareholders and Normalized
FFO available for CommonWealth REIT common shareholders, and a
reconciliation of Normalized FFO available for CommonWealth REIT
common shareholders to CAD for the quarters ended March 31, 2014
and 2013 appears later in this press release.
Operating Results (excluding CWH’s former consolidated
subsidiary, Select Income REIT, or SIR):
Because CWH’s entire Board of Trustees was removed during the
quarter ended March 31, 2014, CWH ceased to actively market two
central business district, or CBD, properties (two buildings) and
29 suburban properties (65 buildings) which it had classified as
held for sale as of December 31, 2013. Therefore, for this and
other reasons, these properties no longer meet the requirements
under GAAP for classification as held for sale, and the financial
information presented in this press release reflects the
reclassification of these properties from discontinued operations
to continuing operations for all periods presented.
As of March 31, 2014, 86.5% of CWH’s total square feet included
within continuing operations was leased, compared to 87.0% as of
December 31, 2013 and 88.0% as of March 31, 2013. During the
quarter ended March 31, 2014, CWH entered into leases for 673,000
square feet, including lease renewals for 459,000 square feet and
new leases for 214,000 square feet, and leases for 869,000 square
feet expired. Leases entered into during the quarter ended March
31, 2014 had weighted average cash rental rates that were
approximately 0.8% lower than prior rental rates for the same space
and weighted average GAAP rental rates that were approximately 3.0%
higher than prior rental rates for the same space.
The weighted average lease term based on square feet for leases
entered into during the first quarter of 2014 was 6.3 years.
Commitments for tenant improvements, leasing commission costs and
concessions for leases entered into during the quarter ended March
31, 2014 totaled approximately $16.8 million, or $3.95 per square
foot per year of the lease term.
Same property occupancy for properties owned continuously since
January 1, 2013 decreased 1.5 percentage points from 88.0% as of
March 31, 2013, to 86.5% as of March 31, 2014. Same property
occupancy for CBD properties decreased 2.6 percentage points from
87.7% as of March 31, 2013 to 85.1% as of March 31, 2014. Same
property occupancy for suburban properties decreased 0.4 percentage
points from 88.3% as of March 31, 2013 to 87.9% as of March 31,
2014.
Same property cash basis net operating income, or Cash Basis
NOI, decreased by 4.2% during the quarter ended March 31, 2014,
which was driven by an 8.1% decrease in Cash Basis NOI at CBD
properties offset by a 3.0% increase in Cash Basis NOI at suburban
properties, primarily reflecting the expiration of free rent
periods. Same property net operating income, or NOI, decreased by
5.5% during the quarter ended March 31, 2014, which was driven by a
6.2% decrease in same property NOI at CBD properties and a 4.3%
decrease in same property NOI at suburban properties. The decline
in same property NOI reflects the decline in occupancy and an
increase in utility and snow removal costs related to the severe
winter season during the first quarter of 2014.
A reconciliation of NOI and Cash Basis NOI to net income,
determined according to GAAP, for the quarters ended March 31, 2014
and 2013 appears later in this press release.
Recent Acquisitions and Sales Activities:
Since January 1, 2014, CWH has not acquired or entered into any
agreements to purchase properties.
As of March 31, 2014, CWH had 14 properties (43 buildings) with
a combined 2,784,098 square feet classified as held for sale
pursuant to a sale agreement entered into prior to the removal of
CWH’s entire Board of Trustees.
Recent Financing Activities:
In March 2014, CWH prepaid $12.0 million of 4.95% mortgage debt
using cash on hand.
Presentation:
Information in this press release reflects the views, beliefs,
expectations and judgments of CWH’s current management and has not
been reviewed by a Board of Trustees or Audit Committee of CWH. A
new Board of Trustees or new management of CWH may have different
views, beliefs, expectations and judgments.
As of March 31, 2014, CWH owned approximately 44.1% of the
common shares of SIR, a publicly traded real estate investment
trust, or REIT, that primarily owns and invests in net leased,
single tenant office and industrial properties throughout the
United States and leased lands in Hawaii. On July 2, 2013, SIR
issued and sold to the public 10.5 million common shares in an
underwritten public offering. Prior to this offering, CWH’s 22.0
million common shares of SIR represented more than 50% of SIR's
outstanding common shares and SIR’s financial position and results
of operations were consolidated in CWH’s financial statements.
Beginning on July 2, 2013, CWH no longer consolidates its
investment in SIR, but instead accounts for its investment in SIR
under the equity method. Unless the context indicates otherwise,
the amounts reported in this press release include SIR’s financial
position and results of operations on a consolidated basis with CWH
for periods prior to July 2, 2013, when SIR was CWH’s consolidated
subsidiary.
For further information about SIR and its subsidiaries, please
see SIR’s periodic reports and other filings with the Securities
and Exchange Commission, or the SEC, which are available at the
SEC’s website at www.sec.gov. References in this press release to
SIR’s filings with the SEC are included to identify the source of
SIR information only, and the information in SIR’s filings with the
SEC is not incorporated by reference into this press release.
Supplemental Data:
A copy of CWH’s First Quarter 2014 Supplemental Operating and
Financial Data is available for download at CWH’s website,
www.cwhreit.com. CWH’s website is not incorporated as part of this
press release.
CommonWealth REIT is a REIT that primarily owns office
properties throughout the United States. CWH is headquartered in
Newton, MA.
Please see the pages attached hereto for a more detailed
statement of CWH’s operating results and financial condition, for
an explanation of CWH’s calculation of FFO, Normalized FFO, CAD,
NOI and Cash Basis NOI and for a reconciliation of those non-GAAP
amounts to net income and net income attributable to CommonWealth
REIT.
WARNING CONCERNING
FORWARD LOOKING STATEMENTS
THIS PRESS RELEASE CONTAINS STATEMENTS THAT CONSTITUTE FORWARD
LOOKING STATEMENTS WITHIN THE MEANING OF THE PRIVATE SECURITIES
LITIGATION REFORM ACT OF 1995 AND OTHER SECURITIES LAWS. ALSO,
WHENEVER CWH USES WORDS SUCH AS “BELIEVE”, “EXPECT”, “ANTICIPATE”,
“INTEND”, “PLAN”, “ESTIMATE” OR SIMILAR EXPRESSIONS, CWH IS MAKING
FORWARD LOOKING STATEMENTS. THESE FORWARD LOOKING STATEMENTS ARE
BASED UPON CWH’S PRESENT INTENT, BELIEFS OR EXPECTATIONS, BUT
FORWARD LOOKING STATEMENTS ARE NOT GUARANTEED TO OCCUR AND MAY NOT
OCCUR. THESE FORWARD LOOKING STATEMENTS REFLECT THE VIEWS, BELIEFS,
EXPECTATIONS AND JUDGMENTS OF CWH’S CURRENT MANAGEMENT. A NEW BOARD
OF TRUSTEES OR NEW MANAGEMENT OF CWH MAY HAVE DIFFERENT VIEWS,
BELIEFS, EXPECTATIONS AND JUDGMENTS. ACTUAL RESULTS MAY DIFFER
MATERIALLY FROM THOSE CONTAINED IN OR IMPLIED BY THESE FORWARD
LOOKING STATEMENTS AS A RESULT OF VARIOUS FACTORS. FOR EXAMPLE:
- THE REMOVAL OF CWH’S ENTIRE BOARD OF
TRUSTEES HAS CAUSED (1) DEFAULTS UNDER CWH’S REVOLVING CREDIT
FACILITY AND TERM LOAN AGREEMENTS AND AFFECTED CWH’S ABILITY TO
CONTINUE TO BORROW UNDER THE REVOLVING CREDIT FACILITY, (2)
ACTIVATION OF FUNDAMENTAL CHANGE CONVERSION RIGHTS UNDER CWH’S
SERIES D PREFERRED SHARES, (3) CWH TO FAIL TO MEET NEW YORK
STOCK EXCHANGE AND SEC REQUIREMENTS, AND (4) CWH TO BE UNABLE TO
AUTHORIZE THE PAYMENT OF FUTURE DISTRIBUTIONS TO ITS COMMON AND
PREFERRED SHAREHOLDERS UNTIL A NEW BOARD OF TRUSTEES IS
ELECTED,
- A NEW BOARD OF TRUSTEES OR NEW
MANAGEMENT MAY MATERIALLY CHANGE CWH’S BUSINESS PLANS, POLICIES AND
PRACTICES WITH RESPECT TO THE MATTERS DISCLOSED HEREIN, AND
- THIS PRESS RELEASE STATES THAT CWH HAS
ENTERED INTO AN AGREEMENT TO SELL PROPERTIES. THIS TRANSACTION IS
SUBJECT TO VARIOUS TERMS AND CONDITIONS. THESE CONDITIONS MAY NOT
BE MET. AS A RESULT, THIS TRANSACTION MAY NOT OCCUR, MAY BE DELAYED
OR ITS TERMS MAY CHANGE.
THE INFORMATION CONTAINED IN CWH’S FILINGS WITH THE SEC,
INCLUDING UNDER THE CAPTION “RISK FACTORS” IN CWH’S PERIODIC
REPORTS, OR INCORPORATED THEREIN, IDENTIFIES OTHER IMPORTANT
FACTORS THAT COULD CAUSE DIFFERENCES FROM CWH’S FORWARD LOOKING
STATEMENTS. CWH’S FILINGS WITH THE SEC ARE AVAILABLE ON THE SEC’S
WEBSITE AT WWW.SEC.GOV.
YOU SHOULD NOT PLACE UNDUE RELIANCE UPON FORWARD LOOKING
STATEMENTS IN THIS PRESS RELEASE.
EXCEPT AS REQUIRED BY LAW, CWH DOES NOT INTEND TO UPDATE OR
CHANGE ANY FORWARD LOOKING STATEMENTS AS A RESULT OF NEW
INFORMATION, FUTURE EVENTS OR OTHERWISE.
CommonWealth REIT
Condensed Consolidated Statements of
Operations, Funds from Operations and
Normalized Funds from
Operations
(amounts in thousands)
(unaudited)
Quarter Ended March 31, 2014 2013 Revenues: Rental income $
172,040 $ 211,300 Tenant reimbursements and other income
45,220 51,312 Total revenues 217,260 262,612
Expenses: Operating expenses 101,731 104,130 Depreciation
and amortization 51,649 62,570 General and administrative 24,848
16,663 Reversal of loss on asset impairment (4,761) - Acquisition
related costs 5 628 Total expenses 173,472
183,991 Operating income 43,788 78,621
Interest and other income 384 455 Interest expense (including net
amortization of debt discounts, premiums and deferred financing
fees of ($309) and $608, respectively) (37,935) (51,896) Loss on
early extinguishment of debt - (60,027) Gain on sale of equity
investment - 66,293 Gain on issuance of shares by an equity
investee 109 - Income from continuing operations before income tax
expense and equity in earnings of
investees 6,346 33,446 Income tax expense (555) (988) Equity in
earnings of investees 10,934 4,262 Income from
continuing operations 16,725 36,720 Discontinued operations: Income
(loss) from discontinued operations 4,011 (6) Loss on asset
impairment from discontinued operations (288) (3,946) Gain on sale
of properties from discontinued operations - 1,260
Income before gain on sale of properties 20,448 34,028 Gain on sale
of properties - 1,596 Net income 20,448 35,624 Net
income attributable to noncontrolling interest in consolidated
subsidiary - (9,957) Net income attributable to
CommonWealth REIT 20,448 25,667 Preferred distributions
(11,151) (11,151) Net income available for CommonWealth REIT
common shareholders $ 9,297 $ 14,516 Amounts
attributable to CommonWealth REIT common shareholders: Income from
continuing operations $ 5,574 $ 17,208 Income (loss) from
discontinued operations 4,011 (6) Loss on asset impairment from
discontinued operations (288) (3,946) Gain on sale of properties
from discontinued operations - 1,260 Net income $
9,297 $ 14,516 Note: 2013 includes SIR's results of
operations when SIR was CWH's consolidated subsidiary.
CommonWealth REIT
Condensed Consolidated Statements of
Operations, Funds from Operations and
Normalized Funds from Operations
(continued)
(amounts in thousands, except per share
data)
(unaudited)
Quarter Ended March 31, 2014 2013 Calculation of FFO:(1) Net
income attributable to CommonWealth REIT $ 20,448 $ 25,667 Plus:
depreciation and amortization from continuing operations 51,649
62,570 Plus: depreciation and amortization from discontinued
operations - 3,953 Plus: reversal of loss on asset impairment from
continuing operations (4,761) - Plus: loss on asset impairment from
discontinued operations 288 3,946 Plus: FFO from investees 14,940
4,742 Plus: net income attributable to noncontrolling interest -
9,957 Less: FFO attributable to noncontrolling interest - (12,889)
Less: gain on sale of properties - (1,596) Less: gain on sale of
properties from discontinued operations - (1,260) Less: equity in
earnings of investees (10,934) (4,262) FFO
attributable to CommonWealth REIT 71,630 90,828 Less: preferred
distributions (11,151) (11,151) FFO available for
CommonWealth REIT common shareholders $ 60,479 $ 79,677
Calculation of Normalized FFO:(1) FFO attributable to CommonWealth
REIT $ 71,630 $ 90,828 Plus: acquisition related costs from
continuing operations 5 628 Plus: normalized FFO from investees
15,978 4,747 Plus: loss on early extinguishment of debt from
continuing operations - 60,027 Plus: shareholder litigation costs
and related expenses 3,870 3,138 Plus: estimated business
management incentive fees(2) 6,229 196 Plus: average minimum rent
from direct financing lease 329 329 Plus: FFO attributable to
noncontrolling interest - 12,889 Less: normalized FFO attributable
to noncontrolling interest - (13,209) Less: FFO from investees
(14,940) (4,742) Less: interest earned from direct financing lease
(229) (313) Less: gain on sale of equity investment - (66,293)
Less: gain on issuance of shares by an equity investee (109)
- Normalized FFO attributable to CommonWealth REIT 82,763
88,225 Less: preferred distributions (11,151)
(11,151) Normalized FFO available for CommonWealth REIT common
shareholders $ 71,612 $ 77,074 Weighted average common
shares outstanding – basic and diluted(3) 118,400
94,154 Per common share: Income from continuing operations
attributable to CommonWealth REIT common shareholders – basic and
diluted $ 0.05 $ 0.18 Income (loss) from discontinued operations
attributable to CommonWealth REIT common shareholders – basic and
diluted $ 0.03 $ (0.03) Net income available for CommonWealth REIT
common shareholders – basic and diluted $ 0.08 $ 0.15 FFO available
for CommonWealth REIT common shareholders – basic and diluted $
0.51 $ 0.85 Normalized FFO available for CommonWealth REIT common
shareholders – basic and diluted $ 0.60 $ 0.82
(1) CWH calculates FFO and Normalized FFO as shown above. FFO is
calculated on the basis defined by The National Association of Real
Estate Investment Trusts, or NAREIT, which is net income,
calculated in accordance with GAAP, plus real estate depreciation
and amortization, loss on real estate asset impairment, net income
attributable to noncontrolling interest and FFO from equity
investees, excluding any gain or loss on sale of properties, equity
in earnings from investees and FFO attributable to noncontrolling
interests. CWH’s calculation of Normalized FFO differs from
NAREIT's definition of FFO because CWH excludes acquisition related
costs, estimated business management incentive fees, gains from
issuance of shares by equity investees, gain from sale of equity
investment, loss on early extinguishment of debt, shareholder
litigation costs and related expenses, the difference between
average minimum rent and interest earned from CWH’s direct
financing lease and the difference between FFO and Normalized FFO
from equity investees and noncontrolling interests. CWH considers
FFO and Normalized FFO to be appropriate measures of operating
performance for a REIT, along with net income, net income
attributable to CommonWealth REIT, net income available for
CommonWealth REIT common shareholders, operating income and cash
flow from operating activities. CWH believes that FFO and
Normalized FFO provide useful information to investors because by
excluding the effects of certain historical amounts, such as
depreciation expense, FFO and Normalized FFO may facilitate a
comparison of CWH’s operating performance between periods and with
other REITs. FFO and Normalized FFO were among the factors
considered by CWH’s former Board of Trustees when determining the
amount of distributions to CWH’s shareholders. FFO and Normalized
FFO do not represent cash generated by operating activities in
accordance with GAAP and should not be considered as alternatives
to net income, net income attributable to CommonWealth REIT, net
income available for CommonWealth REIT common shareholders,
operating income or cash flow from operating activities, determined
in accordance with GAAP, or as indicators of CWH’s financial
performance or liquidity, nor are these measures necessarily
indicative of sufficient cash flow to fund all of CWH’s needs.
These measures should be considered in conjunction with net income,
net income attributable to CommonWealth REIT, net income available
for CommonWealth REIT common shareholders, operating income and
cash flow from operating activities as presented in CWH’s Condensed
Consolidated Statements of Operations, Condensed Consolidated
Statements of Comprehensive Income and Condensed Consolidated
Statements of Cash Flows. Other REITs and real estate companies may
calculate FFO and Normalized FFO differently than CWH does.
(2) Amounts represent estimated incentive fees under CWH’s
business management agreement payable in CWH’s common shares after
the end of each calendar year calculated: (i) prior to 2014, based
upon increases in annual FFO per share (as defined), and (ii)
beginning in 2014, based upon common share total return. In
calculating net income in accordance with GAAP, CWH recognizes
estimated business management incentive fee expense each quarter.
Although CWH recognizes this expense each quarter for purposes of
calculating net income, CWH does not include these amounts in the
calculation of Normalized FFO until the fourth quarter, which is
when the actual expense amount for the year is determined.
Adjustments were made to prior period amounts to conform to the
current period Normalized FFO calculation.
(3) Set forth below is the calculation of diluted net income
available for common shareholders, diluted FFO available for common
shareholders, diluted Normalized FFO available for common
shareholders and diluted weighted average common shares
outstanding.
CommonWealth REITCondensed
Consolidated Statements of Operations, Funds from Operations
andNormalized Funds from Operations
(continued)(amounts in thousands)(unaudited)
Quarter Ended March 31, 2014 2013 Net
income available for CommonWealth REIT common shareholders $ 9,297
$ 14,516 Add - Series D convertible preferred distributions
6,167 6,167 Net income available for CommonWealth REIT
common shareholders – diluted $ 15,464 $ 20,683 FFO
available for CommonWealth REIT common shareholders $ 60,479 $
79,677 Add - Series D convertible preferred distributions
6,167 6,167 FFO available for CommonWealth REIT common
shareholders – diluted $ 66,646 $ 85,844 Normalized FFO
available for CommonWealth REIT common shareholders $ 71,612 $
77,074 Add - Series D convertible preferred distributions
6,167 6,167 Normalized FFO available for CommonWealth REIT
common shareholders – diluted $ 77,779 $ 83,241 Weighted
average common shares outstanding – basic 118,400 94,154 Effect of
dilutive Series D preferred shares 7,298 7,298
Weighted average common shares outstanding – diluted 125,698
101,452
As of March 31, 2014, CWH had 15,180 series D cumulative
convertible preferred shares, or series D preferred shares,
outstanding that were convertible on that date and during the three
months then ended into 7,298 common shares. The effect of a
conversion of CWH’s convertible preferred shares on income from
continuing operations attributable to CommonWealth REIT common
shareholders per share was anti-dilutive to income, FFO and
Normalized FFO for all periods presented above. However, the
removal, without cause, of CWH’s entire Board of Trustees by
written consent effective March 25, 2014, triggered a Fundamental
Change Conversion Right of the series D preferred shares, as
defined in CWH’s articles supplementary setting forth the terms of
the series D preferred shares. Pursuant to such right, the holders
of series D preferred shares have the option to elect to convert
all or any portion of their series D preferred shares at any time
from April 9, 2014 until prior to the close of business on May 14,
2014 into a number of common shares per $25.00 liquidation
preference of the series D preferred shares equal to the sum of
such $25.00 liquidation preference plus accrued and unpaid
dividends to, but not including, May 14, 2014, divided by 98% of
the average of the closing sale prices of the common shares for the
five consecutive trading days ending on May 9, 2014. The issuance
of a large number of common shares as a result of the exercise of
this fundamental change conversion right may have a dilutive effect
on income from continuing operations attributable to CommonWealth
REIT common shareholders per share, FFO available for CommonWealth
REIT common shareholders and Normalized FFO available for
CommonWealth REIT common shareholders per share for future periods.
The information presented in the table above is as of March 31,
2014 and before any Fundamental Change Conversion.
CommonWealth REIT
Calculation of Cash Available for
Distribution
(amounts in thousands, except per share
data)
(unaudited)
Quarter Ended March 31, 2014 2013 Calculation of CAD:(1)
Normalized FFO available for CommonWealth REIT common shareholders
$ 71,612 $ 77,074 Plus: lease value amortization from continuing
operations 2,252 2,764 Plus: lease value amortization from
discontinued operations - (235) Plus: amortization of prepaid
interest and debt discounts from continuing operations (309) 608
Plus: amortization of prepaid interest and debt discounts from
discontinued operations - 21 Plus: distributions from investees
10,120 4,279 Plus: non-cash general and administrative expenses
paid in common shares(2) 4,267 516 Plus: minimum cash rent from
direct financing lease 2,024 2,024 Plus: normalized FFO
attributable to noncontrolling interest - 13,209 Less: CAD
attributable to noncontrolling interest - (12,377) Less: average
minimum rent from direct financing lease (329) (329) Less: straight
line rent from continuing operations (5,896) (10,805) Less:
straight line rent from discontinued operations (81) (157) Less:
recurring capital expenditures (29,162) (21,852) Less: Normalized
FFO from investees (15,978) (4,747) CAD $ 38,520 $
49,993 Weighted average common shares outstanding - basic
118,400 94,154 CAD per share $ 0.33 $ 0.53
(1) CWH calculates CAD as shown above. CWH considers CAD to be
an appropriate measure of its operating performance, along with net
income, net income attributable to CommonWealth REIT, net income
available for CommonWealth REIT common shareholders, operating
income and cash flow from operating activities. CWH believes that
CAD provides useful information to investors because CAD may
facilitate a comparison of cash based operating performance between
periods and with other REITs. CAD does not represent cash generated
by operating activities in accordance with GAAP and should not be
considered as an alternative to net income, net income attributable
to CommonWealth REIT, net income available for CommonWealth REIT
common shareholders, operating income or cash flow from operating
activities, determined in accordance with GAAP, or as an indicator
of CWH’s financial performance or liquidity, nor is this measure
necessarily indicative of sufficient cash flow to fund all of CWH’s
needs. This measure should be considered in conjunction with net
income, net income attributable to CommonWealth REIT, net income
available for CommonWealth REIT common shareholders, operating
income and cash flow from operating activities as presented in
CWH’s Condensed Consolidated Statements of Operations, Condensed
Consolidated Statements of Comprehensive Income and Condensed
Consolidated Statements of Cash Flows. Other REITs and real estate
companies may calculate CAD differently than CWH does.
(2) Amounts represent the portion of business management fees
that are payable in CWH’s common shares as well as equity based
compensation for CWH’s and SIR’s trustees, officers and certain
employees of Reit Management & Research LLC (amounts for SIR
are only for the period when SIR was a consolidated subsidiary of
CWH).
CommonWealth REIT
Calculation of Property Net Operating
Income (NOI) and Cash Basis NOI
(amounts in thousands)
(unaudited)
Quarter Ended March 31, 2014 2013 Calculation
of NOI and Cash Basis NOI:(1) (2) Rental income $ 172,040 $ 211,300
Tenant reimbursements and other income 45,220 51,312 Operating
expenses (101,731) (104,130) Property net operating
income (NOI) 115,529 158,482 Non cash straight line rent
adjustments (5,896) (10,805) Lease value amortization 2,252 2,764
Lease termination fees (593) (345) Cash Basis NOI $
111,292 $ 150,096 Reconciliation of Cash Basis NOI to Net
Income: Cash Basis NOI $ 111,292 $ 150,096 Non cash straight line
rent adjustments 5,896 10,805 Lease value amortization (2,252)
(2,764) Lease termination fees 593 345 Property NOI
115,529 158,482 Depreciation and amortization (51,649) (62,570)
General and administrative (24,848) (16,663) Reversal of loss on
asset impairment 4,761 - Acquisition related costs (5)
(628) Operating income 43,788 78,621 Interest and
other income 384 455 Interest expense (37,935) (51,896) Loss on
early extinguishment of debt - (60,027) Gain on sale of equity
investment - 66,293 Gain on issuance of shares by an equity
investee 109 - Income from continuing operations before income tax
expense and equity in earnings of
investees 6,346 33,446 Income tax expense (555) (988) Equity in
earnings of investees 10,934 4,262 Income from
continuing operations 16,725 36,720 Discontinued operations: Income
(loss) from discontinued operations 4,011 (6) Loss on asset
impairment from discontinued operations (288) (3,946) Gain on sale
of properties from discontinued operations - 1,260
Income before gain on sale of properties 20,448 34,028 Gain on sale
of properties - 1,596 Net income $ 20,448 $ 35,624
(1) Excludes properties classified in discontinued operations as
of March 31, 2014.
(2) CWH calculates NOI on a GAAP and cash basis as shown above.
CWH defines NOI as income from CWH’s real estate including lease
termination fees received from tenants less CWH’s property
operating expenses, which expenses include property marketing
costs. NOI excludes amortization of capitalized tenant improvement
costs and leasing commissions. CWH defines Cash Basis NOI as NOI
less non cash straight line rent adjustments, lease value
amortization and lease termination fees. CWH considers NOI and Cash
Basis NOI to be appropriate supplemental measures to net income
because they may help both investors and management to understand
the operations of CWH’s properties. CWH uses NOI and Cash Basis NOI
internally to evaluate individual, regional and companywide
property level performance, and CWH believes that NOI and Cash
Basis NOI provide useful information to investors regarding CWH’s
results of operations because they reflect only those income and
expense items that are incurred at the property level and may
facilitate comparisons of CWH’s operating performance between
periods and with other REITs. The calculation of NOI and Cash Basis
NOI exclude certain components of net income in order to provide
results that are more closely related to CWH’s properties' results
of operations. NOI and Cash Basis NOI do not represent cash
generated by operating activities in accordance with GAAP, and
should not be considered as alternatives to net income, net income
attributable to CommonWealth REIT, net income available for
CommonWealth REIT common shareholders, operating income or cash
flow from operating activities, determined in accordance with GAAP,
or as indicators of CWH’s financial performance or liquidity, nor
are these measures necessarily indicative of sufficient cash flow
to fund all of CWH’s needs. These measures should be considered in
conjunction with net income, net income attributable to
CommonWealth REIT, net income available for CommonWealth REIT
common shareholders, operating income and cash flow from operating
activities as presented in CWH’s Condensed Consolidated Statements
of Operations, Condensed Consolidated Statements of Comprehensive
Income and Condensed Consolidated Statements of Cash Flows. Other
REITs and real estate companies may calculate NOI and Cash Basis
NOI differently than CWH does.
CommonWealth REIT
Condensed Consolidated Balance
Sheets
(amounts in thousands, except share
data)
(unaudited)
March 31, December 31, 2014 2013
ASSETS
Real estate properties: Land $ 747,181 $ 699,135 Buildings and
improvements 5,168,335 4,838,030 5,915,516 5,537,165
Accumulated depreciation (934,776) (895,059)
4,980,740 4,642,106 Properties held for sale 214,677 573,531
Acquired real estate leases, net 244,634 255,812 Equity investments
518,934 517,991 Cash and cash equivalents 177,555 222,449
Restricted cash 17,441 22,101 Rents receivable, net of allowance
for doubtful accounts of $7,462 and $7,885, respectively 239,766
223,769 Other assets, net 206,967 188,675 Total
assets $ 6,600,714 $ 6,646,434
LIABILITIES AND
SHAREHOLDERS' EQUITY
Revolving credit facility $ 235,000 $ 235,000 Senior unsecured
debt, net 1,856,135 1,855,900 Mortgage notes payable, net 898,804
914,510 Liabilities related to properties held for sale 23,066
28,734 Accounts payable and accrued expenses 136,482 165,855
Assumed real estate lease obligations, net 33,064 33,935 Rent
collected in advance 29,618 27,553 Security deposits 13,682 11,976
Due to related persons 15,793 9,385 Total liabilities
3,241,644 3,282,848 Shareholders' equity:
Preferred shares of beneficial interest, $0.01 par value:
50,000,000 shares authorized; Series D preferred shares; 6 1/2%
cumulative convertible; 15,180,000 shares issued and outstanding,
aggregate liquidation preference $379,500 368,270 368,270 Series E
preferred shares; 7 1/4% cumulative redeemable on or after May 15,
2016; 11,000,000 shares issued and outstanding, aggregate
liquidation preference $275,000 265,391 265,391 Common shares of
beneficial interest, $0.01 par value: 350,000,000 shares
authorized; 118,413,730 and 118,386,918 shares issued and
outstanding, respectively 1,184 1,184 Additional paid in capital
4,217,651 4,213,474 Cumulative net income 2,230,288 2,209,840
Cumulative other comprehensive loss (26,724) (38,331) Cumulative
common distributions (3,111,868) (3,082,271) Cumulative preferred
distributions (585,122) (573,971) Total shareholders'
equity 3,359,070 3,363,586 Total liabilities and
shareholders' equity $ 6,600,714 $ 6,646,434
A Maryland Real Estate Investment Trust with
transferable shares of beneficial interest listed on the New York
Stock Exchange. No shareholder, Trustee or officer is personally
liable for any act or obligation of the Trust.
CommonWealth REITTimothy A. Bonang, 617-796-8222Vice President,
Investor RelationsorJason Fredette, 617-796-8222Director, Investor
Relationswww.cwhreit.com
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