Equity Commonwealth (NYSE: EQC) today reported financial results
for the quarter ended June 30, 2015. All per share results are
reported on a fully diluted basis.
Results for the quarter ended June 30, 2015
Funds from Operations (FFO), as defined by the National
Association of Real Estate Investment Trusts, for the quarter ended
June 30, 2015 were $77.2 million, or $0.59 per share. This compares
to FFO for the quarter ended June 30, 2014 of $87.1 million, or
$0.70 per share.
Normalized FFO was $67.8 million, or $0.52 per share. This
compares to Normalized FFO for the quarter ended June 30, 2014 of
$81.3 million, or $0.66 per share. The following items impacted
Normalized FFO per share for the quarter ended June 30, 2015
compared to the corresponding 2014 period:
- approximately ($0.13) per share from
properties sold;
- approximately ($0.11) per share due to
the sale of the company’s entire interest in Select Income REIT
(SIR) in 2014;
- approximately $0.08 per share from
lower interest expense; and
- approximately $0.06 per share from
lower general & administrative (G&A) expense, excluding
shareholder litigation and transition expenses.
Normalized FFO begins with FFO and eliminates certain items
that, by their nature, are not comparable from period to period,
non-cash items, and items that tend to obscure the company’s
operating performance. Definitions of FFO and Normalized FFO and
reconciliations to net income, determined in accordance with U.S.
generally accepted accounting principles, or GAAP, are included at
the end of this press release.
Net income attributable to common shareholders was $5.6 million,
or $0.04 per share, for the quarter ended June 30, 2015. This
compares to a net loss attributable to common shareholders of $17.8
million, or $0.14 per share for the quarter ended June 30,
2014.
The weighted average number of diluted common shares outstanding
for the quarter ended June 30, 2015 was 130,537,044 shares,
compared to 123,811,937 for the quarter ended June 30, 2014.
Operating Highlights
As of June 30, 2015, the company’s same property portfolio,
which excludes properties held for sale, consisted of 86 properties
comprising 29.4 million square feet. For the quarter ended June 30,
2015, operating results were as follows:
- Same property NOI increased 6.3% when
compared to the same period in 2014.
- Same property cash NOI increased 1.3%
when compared to the same period in 2014.
- The same property portfolio was 90.6%
leased, compared to 89.5% as of March 31, 2015, and 90.5% as of
June 30, 2014.
- The company entered into leases for
approximately 1,030,000 square feet, including renewal leases for
approximately 518,000 square feet and new leases for approximately
512,000 square feet.
- Cash rental rates on new and renewal
leases were 1.9% lower compared to prior cash rental rates for the
same space.
- GAAP rental rates on new and renewal
leases were approximately 5.4% higher than prior GAAP rental rates
for the same space.
The definitions and reconciliations of same property NOI and
same property cash NOI to operating income, determined in
accordance with GAAP, are included at the end of this press
release. Same property NOI and same property cash NOI include
properties continuously owned from April 1, 2014 through June 30,
2015.
Significant Events for the quarter ended June 30,
2015
- During the quarter, the company sold 65
properties encompassing 10.3 million square feet for a gross sales
price of $1.1 billion. Proceeds were $968.8 million following
credits for contractual lease costs and $56.8 million of mortgage
debt repayments, including prepayment costs.
- On May 1, 2015, the company redeemed,
at par, the $138.8 million of outstanding 5.75% senior unsecured
notes due November 1, 2015.
- On May 22, 2015, the company completed
the consensual foreclosure of the $40.1 million mortgage loan
encumbering 225 Water Street.
- During the quarter, the company
classified two properties, Illinois Center in Chicago, IL and 16th
and Race in Philadelphia, PA, totaling 2.7 million square feet, as
held for sale.
Subsequent Events
- On August 4, 2015, the company closed
on the sale of Illinois Center for a gross sale price of $376.0
million. Proceeds from the sale were $211.2 million net of credits
for rent abatements and contractual lease costs and $147.2 million
of mortgage debt repayments, including prepayment costs.
Disposition Update
The company continues to pursue its previously announced plan to
sell $2 to $3 billion of assets through 2017, creating capacity for
future opportunities. As of August 5, 2015, the company has sold
$1.5 billion of assets at a weighted average cap rate in the mid 7%
range. In addition to one remaining property held for sale, the
company has 22 properties totaling over 5.5 million square feet in
various stages of marketing for sale.
As of June 30, 2015, the company had $1.3 billion in cash and
cash equivalents and net debt to annualized adjusted EBITDA of
1.6x.
The company continues to focus on strengthening its balance
sheet and improving the performance of its properties.
Earnings Conference Call & Supplemental Data
Equity Commonwealth will host a conference call on Thursday,
August 6, 2015, at 9:00 a.m. Central Daylight Time to discuss
second quarter 2015 results. The conference call will be available
via live audio webcast on the Investor Relations section of the
company’s website (www.eqcre.com). In addition, a replay of the
audio webcast will be available on the Investor Relations section
of the company’s website.
A copy of EQC’s Second Quarter 2015 Supplemental Operating and
Financial Data is available for download on the Investor Relations
section of EQC’s website at www.eqcre.com.
About Equity Commonwealth
Equity Commonwealth (NYSE: EQC) is an internally managed and
self-advised real estate investment trust (REIT) with commercial
office properties throughout the United States. EQC has a portfolio
comprising 86 properties and 29.4 million square feet with
executive offices in Chicago, IL.
FORWARD-LOOKING STATEMENTS
Some of the statements contained in this press release
constitute forward-looking statements within the meaning of the
federal securities laws, including, but not limited to, statements
regarding marketing the company’s properties for sale, consummating
asset sales, identifying future investment opportunities,
strengthening the balance sheet and improving property performance.
Any forward-looking statements contained in this press release are
intended to be made pursuant to the safe harbor provisions of
Section 21E of the Private Securities Litigation Reform Act of
1995. Forward-looking statements relate to expectations, beliefs,
projections, future plans and strategies, anticipated events or
trends and similar expressions concerning matters that are not
historical facts. In some cases, you can identify forward-looking
statements by the use of forward-looking terminology such as “may,”
“will,” “should,” “expects,” “intends,” “plans,” “anticipates,”
“believes,” “estimates,” “predicts,” or “potential” or the negative
of these words and phrases or similar words or phrases which are
predictions of or indicate future events or trends and which do not
relate solely to historical matters. You can also identify
forward-looking statements by discussions of strategy, plans or
intentions.
The forward-looking statements contained in this press release
reflect the company’s current views about future events and are
subject to numerous known and unknown risks, uncertainties,
assumptions and changes in circumstances that may cause the
company’s actual results to differ significantly from those
expressed in any forward-looking statement. We do not guarantee
that the transactions and events described will happen as described
(or that they will happen at all).
While forward-looking statements reflect the company’s good
faith beliefs, they are not guarantees of future performance. We
disclaim any obligation to publicly update or revise any
forward-looking statement to reflect changes in underlying
assumptions or factors, of new information, data or methods, future
events or other changes. For a further discussion of these and
other factors that could cause the company’s future results to
differ materially from any forward-looking statements, see the
section entitled “Risk Factors” in the company’s most recent Annual
Report on Form 10-K and in the company’s Quarterly Reports on Form
10-Q for subsequent quarters.
CONDENSED CONSOLIDATED BALANCE SHEETS (amounts in thousands,
except share data)
June 30,
2015
December 31,
2014
ASSETS Real estate properties: Land $ 456,614 $ 714,238
Buildings and improvements 3,834,855 5,014,205
4,291,469 5,728,443 Accumulated depreciation (913,303
) (1,030,445 ) 3,378,166 4,697,998 Properties held for sale
360,781 — Acquired real estate leases, net 121,912 198,287 Cash and
cash equivalents 1,286,902 364,516 Restricted cash 31,351 32,257
Rents receivable, net of allowance for
doubtful accounts of $10,008 and
$6,565, respectively
209,089 248,101 Other assets, net 159,845
220,480 Total assets $ 5,548,046 $ 5,761,639
LIABILITIES AND SHAREHOLDERS’ EQUITY Revolving credit
facility $ — $ — Senior unsecured debt, net 1,460,131 1,598,416
Mortgage notes payable, net 513,561 609,249 Liabilities related to
properties held for sale 20,336 — Accounts payable and accrued
expenses 128,590 162,204 Assumed real estate lease obligations, net
5,728 26,784 Rent collected in advance 21,860 31,359 Security
deposits 10,610 14,044 Total
liabilities 2,160,816 2,442,056
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; 4,915,196
and 4,915,497 shares issued and
outstanding, respectively,
aggregate liquidation preference of
$122,880 and $122,887,
respectively
119,263 119,266
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; 129,760,214 and
129,607,279 shares issued and
outstanding, respectively
1,298 1,296 Additional paid in capital 4,495,244 4,487,133
Cumulative net income 2,260,098 2,233,852 Cumulative other
comprehensive loss (5,963 ) (53,216 ) Cumulative common
distributions (3,111,868 ) (3,111,868 ) Cumulative preferred
distributions (636,233 ) (622,271 ) Total
shareholders’ equity 3,387,230 3,319,583
Total liabilities and shareholders’ equity $ 5,548,046
$ 5,761,639
CONDENSED CONSOLIDATED STATEMENTS OF
OPERATIONS (amounts in thousands, except per share data)
Three Months Ended June 30, Six Months
Ended June 30, 2015 2014 2015
2014 Revenues: Rental income (1) $ 163,697 $ 172,407
$ 331,669 $ 344,447 Tenant reimbursements and other income
39,997 42,787 85,080
88,007 Total revenues 203,694 215,194
416,749 432,454 Expenses:
Operating expenses 89,686 92,701 187,557 194,432 Depreciation and
amortization 53,637 59,831 116,336 111,480 General and
administrative 10,911 24,097 27,469 48,945 Loss on asset impairment
15,258 22,683 17,162 17,922 Acquisition related costs —
— — 5 Total
expenses 169,492 199,312 348,524
372,784 Operating income 34,202 15,882
68,225 59,670 Interest and other income 728 281 4,176 665
Interest expense (including net
amortization of debt discounts,
premiums and deferred financing fees of
$(177), $(300), $(148),
and $(609), respectively)
(27,973 ) (37,899 ) (57,815 ) (75,834 ) Gain on early
extinguishment of debt 10,426 — 9,998 — Loss on sale of equity
investment — (33 ) — (33 ) Gain on issuance of shares by an equity
investee — 16,911 — 17,020 Foreign currency exchange gain 856 — 856
— (Loss) gain on sale of properties (2,708 ) —
3,160 —
Income (loss) from continuing operations
before income taxes and
equity in earnings of investees
15,531 (4,858 ) 28,600 1,488 Income tax expense (2,915 ) (908 )
(2,354 ) (1,463 ) Equity in earnings of investees —
12,454 — 23,388 Income
from discontinued operations (1) 12,616 6,688 26,246 23,413
Discontinued operations: Income from discontinued operations —
4,114 — 8,125 Loss on asset impairment from discontinued operations
— (2,072 ) — (2,360 )
Loss on early extinguishment of debt from
discontinued
operations
— (3,345 ) — (3,345 ) Net
income 12,616 5,385 26,246 25,833 Preferred distributions (6,981 )
(6,982 ) (13,962 ) (18,133 )
Excess fair value of consideration over
carrying value of preferred
shares
— (16,205 ) — (16,205 )
Net income (loss) attributable to Equity
Commonwealth common
shareholders
$ 5,635 $ (17,802 ) $ 12,284 $ (8,505 )
Amounts attributable to Equity
Commonwealth common
shareholders:
Income (loss) from continuing operations $ 5,635 $ (16,499 ) $
12,284 $ (10,925 ) Income from discontinued operations (1) — 4,114
— 8,125
Loss on asset impairment from
discontinued
operations
— (2,072 ) — (2,360 ) Loss on early extinguishment of debt from
discontinued operations — (3,345 ) —
(3,345 ) Net income (loss) $ 5,635 $ (17,802 )
$ 12,284 $ (8,505 ) Weighted average common shares
outstanding — basic (2) 129,733 123,812
129,714 121,121 Weighted average common
shares outstanding — diluted (2) 130,537
123,812 130,205 121,121
Basic and diluted earnings per common
share attributable to Equity
Commonwealth common shareholders:
Income (loss) from continuing operations $ 0.04 $ (0.13 ) $
0.09 $ (0.09 ) (Loss) income from discontinued operations $
— $ (0.01 ) $ — $ 0.02 Net income (loss) $
0.04 $ (0.14 ) $ 0.09 $ (0.07 ) (1) Rental
income and income from discontinued operations include non-cash
straight line rent adjustments, and non-cash amortization of
intangible lease assets and liabilities. (2) As of June 30,
2015, we had 4,915 series D preferred shares outstanding that were
convertible into 2,363 of our common shares, which were
anti-dilutive for earnings per common share attributable to EQC
common shareholders for all periods presented. 803 common shares
(804 and 491 common shares on a weighted average basis for the
three and six months ended June 30, 2015, respectively) would be
issued to the RSU holders if the market-based vesting component of
the RSUs was measured as of June 30, 2015. No RSUs had been issued
as of June 30, 2014.
CALCULATION OF FUNDS FROM OPERATIONS (FFO)
AND NORMALIZED FFO (amounts in thousands, except per share
data)
For the Three Months Ended For
the Six Months Ended June 30, June 30,
2015 2014 2015 2014
Calculation of FFO Net income $ 12,616 $ 5,385 $ 26,246 $
25,833
Depreciation and amortization
53,637 59,831 116,336 111,480 Loss on asset impairment from
continuing operations 15,258 22,683 17,162 17,922 Loss on asset
impairment from discontinued operations — 2,072 — 2,360 FFO from
equity investees — 16,611 — 31,551 Loss (gain) on sale of
properties 2,708 — (3,160 ) — Equity in earnings of investees
— (12,454 ) — (23,388 )
FFO attributable to Equity Commonwealth 84,219
94,128 156,584 165,758 Preferred distributions
(6,981 ) (6,982 ) (13,962 ) (18,133 )
FFO attributable to EQC Common Shareholders $
77,238 $ 87,146 $
142,622 $ 147,625
Calculation of Normalized FFO FFO attributable to EQC common
shareholders $ 77,238 $ 87,146 $ 142,622 $ 147,625 Recurring
adjustments: Lease value amortization 1,793 4,166 3,267 6,418
Straight line rent from continuing operations (1,864 ) (1,079 )
(1,683 ) (6,975 ) Straight line rent from discontinued operations —
(145 ) — (226 ) Gain on early extinguishment of debt from
continuing operations (10,426 ) — (9,998 ) — Loss on early
extinguishment of debt from discontinued operations — 3,345 — 3,345
Minimum cash rent from direct financing lease (1) 2,032 2,032 4,064
4,064 Loss on sale of equity investments — 33 — 33 Gain on issuance
of shares by an equity investee — (16,911 ) — (17,020 ) Interest
earned from direct financing lease (119 ) (208 ) (260 ) (437 )
Normalized FFO from equity investees, net of FFO — (1,954 ) —
(3,353 ) Other items which affect comparability: Shareholder
litigation and transition related expenses (2) (215 ) 4,892 3,257
8,805 Transition services fee 180 — 2,415 — Acquisition related
costs — — — 5 Gain on sale of securities — — (3,080 ) — Foreign
currency exchange gain (856 ) — (856 )
—
Normalized FFO attributable to EQC Common
Shareholders $ 67,763 $
81,317 $ 139,748 $
142,284 Weighted average common shares
outstanding -- basic 129,733 123,812 129,714 121,121 Weighted
average common shares outstanding -- diluted 130,537 123,812
130,205 121,121 FFO attributable to EQC common shareholders
per share -- basic (3) $ 0.60 $ 0.70 $ 1.10 $
1.22 FFO attributable to EQC common shareholders per share
-- diluted (3) $ 0.59 $ 0.70 $ 1.10 $ 1.22
Normalized FFO attributable to EQC common shareholders per
share -- basic (3) $ 0.52 $ 0.66 $ 1.08 $ 1.17
Normalized FFO attributable to EQC common shareholders per
share -- diluted (3) $ 0.52 $ 0.66 $ 1.07 $
1.17 (1) Contractual cash payments (including
management fees) from one tenant at Arizona Center for the three
and six months ended June 30, 2015 and 2014 were $2,032 and $4,064,
respectively. These payments will decrease to approximately $515
per year beginning in 2016. Our calculation of Normalized FFO
reflects the cash payments received from this tenant. The terms of
this tenant's lease require us to classify the lease as a direct
financing (or capital) lease. As such, the revenue recognized on a
GAAP basis within our condensed consolidated statements of
operations was $119 and $208 for the three months ended June 30,
2015 and 2014, and $260 and $437 for the six months ended June 30,
2015 and 2014, respectively. This direct financing lease has an
expiration date in 2045. (2) Shareholder litigation and
transition related expenses within general and administrative for
the three and six months ended June 30, 2015 includes $(0.4)
million and $2.3 million, respectively, for the change in the fair
value of the shareholder-approved liability for the reimbursement
of expenses incurred by Related/Corvex since February 2013 in
connection with their consent solicitations to remove our former
Trustees, elect the new Board of Trustees and engage in related
litigation. On August 4, 2015, we reimbursed $8.4 million to
Related/Corvex under the terms of the shareholder-approved
agreement. An additional $8.4 million will be reimbursed only if
the average closing price of our common shares is at least $26.00
(as adjusted for any share splits or share dividends) from August
1, 2015 through July 31, 2016. As of June 30, 2015, the fair value
of this aggregate liability is $8.9 million, which includes the
fair value of the portion paid on August 4, 2015. (3) As of
June 30, 2015, we had 4,915 series D preferred shares outstanding
that were convertible into 2,363 of our common shares, which were
anti-dilutive for earnings per common share attributable to EQC
common shareholders for all periods presented. 803 common shares
(804 and 491 common shares on a weighted average basis for the
three and six months ended June 30, 2015, respectively) would be
issued to the RSU holders if the market-based vesting component of
the RSUs was measured as of June 30, 2015. No RSUs had been issued
as of June 30, 2014. We compute FFO in accordance with standards
established by the National Association of Real Estate Investment
Trusts (NAREIT). NAREIT defines FFO as net income (loss),
calculated in accordance with GAAP, excluding real estate
depreciation and amortization, gains (or losses) from sales of
depreciable property, impairment of depreciable real estate, and
our portion of these items related to equity investees and
noncontrolling interests. Our calculation of Normalized FFO differs
from NAREIT’s definition of FFO because we exclude certain items
that we view as nonrecurring or impacting comparability from period
to period. We consider FFO and Normalized FFO to be appropriate
measures of operating performance for a REIT, along with net
income, net income attributable to Equity Commonwealth common
shareholders, operating income and cash flow from operating
activities. We believe 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 our operating
performance between periods and with other REITs. FFO and
Normalized FFO are among the factors considered by our Board of
Trustees when determining the amount of distributions to our
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 Equity Commonwealth common shareholders, operating
income or cash flow from operating activities, determined in
accordance with GAAP, or as indicators of our financial performance
or liquidity, nor are these measures necessarily indicative of
sufficient cash flow to fund all of our needs. These measures
should be considered in conjunction with net income, net income
attributable to Equity Commonwealth common shareholders, operating
income and cash flow from operating activities as presented in our
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 we
do.
CALCULATION OF SAME PROPERTY NET OPERATING INCOME (NOI) AND
SAME PROPERTY CASH BASIS NOI (amounts in thousands)
For the Three Months Ended For the
Six Months Ended June 30, June 30, Calculation
of Same Property NOI and Same Property Cash Basis NOI:
2015 2014 2015 2014 Rental income $
163,697 $ 172,407 $ 331,669 $ 344,447 Tenant reimbursements and
other income 39,997 42,787 85,080 88,007 Operating expenses
(89,686 ) (92,701 ) (187,557 ) (194,432 )
NOI 114,008 122,493 229,192
238,022 Straight line rent (1,864 ) (1,079 ) (1,683 ) (6,975
) Lease value amortization 1,793 4,166 3,267 6,418 Lease
termination fees (4,167 ) (1,145 ) (6,116 )
(1,738 )
Cash Basis NOI 109,770 124,435
224,660 235,727 Cash Basis NOI from non-same
properties (1) (17,410 ) (33,246 ) (43,469 )
(57,057 )
Same Property Cash Basis NOI 92,360
91,189 181,191 178,670 Non-cash rental and
termination income from same properties 558
(3,757 ) (1,785 ) (2,622 )
Same Property NOI
$ 92,918 $ 87,432
$ 179,406 $ 176,048
Reconciliation of Same Property NOI to GAAP Operating
Income Same Property NOI $ 92,918 $
87,432 $ 179,406 $ 176,048
Non-cash rental and termination income from same properties
(558 ) 3,757 1,785 2,622
Same Property Cash Basis NOI 92,360 91,189
181,191 178,670 Cash Basis NOI from non-same
properties (1) 17,410 33,246
43,469 57,057
Cash Basis NOI
109,770 124,435 224,660 235,727
Straight line rent 1,864 1,079 1,683 6,975 Lease value amortization
(1,793 ) (4,166 ) (3,267 ) (6,418 ) Lease termination fees
4,167 1,145 6,116 1,738
NOI 114,008 122,493 229,192
238,022 Depreciation and amortization (53,637 ) (59,831 )
(116,336 ) (111,480 ) General and administrative (10,911 ) (24,097
) (27,469 ) (48,945 ) Loss on asset impairment (15,258 ) (22,683 )
(17,162 ) (17,922 ) Acquisition related costs —
— — (5 )
Operating Income
$ 34,202 $ 15,882
$ 68,225 $ 59,670 (1)
Cash Basis NOI from non-same properties for all periods
presented includes the operations of properties disposed or
classified as held for sale during 2015. NOI is total revenues
minus operating expenses. Cash Basis NOI is NOI excluding the
effects of straight line rent adjustments, lease value
amortization, and lease termination fees. The quarter-to-date same
property versions of these measures include the results of
properties continuously owned from April 1, 2014 through June 30,
2015. The year-to-date same property versions of these measures
include the results of properties continuously owned from January
1, 2014 through June 30, 2015. Discontinued operations and
properties classified as held for sale are excluded from same
property results. We consider these measures to be
appropriate supplemental measures to net income because they may
help both investors and management to understand the operations of
our properties. We use these measures internally to evaluate
individual, regional and combined property level performance, and
we believe that they provide useful information to investors
regarding our results of operations because they reflect only those
income and expense items that are incurred at the property level
and may facilitate comparisons of our operating performance between
periods and with other REITs. These measures do 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 Equity Commonwealth common shareholders,
operating income or cash flow from operating activities, determined
in accordance with GAAP, or as indicators of our financial
performance or liquidity, nor are these measures necessarily
indicative of sufficient cash flow to fund all of our needs. These
measures should be considered in conjunction with net income, net
income attributable to Equity Commonwealth common shareholders,
operating income and cash flow from operating activities as
presented in our 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 these measures differently than
we do.
View source
version on businesswire.com: http://www.businesswire.com/news/home/20150805006708/en/
Equity CommonwealthSarah Byrnes, Investor
Relations312-646-2801www.eqcre.com
Equity Commonwealth (NYSE:EQC)
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