Equity Commonwealth (NYSE: EQC) today reported its financial
results for the quarter ended March 31, 2017. All per share results
are reported as available to common shareholders and unitholders on
a diluted basis, unless otherwise noted.
Financial results for the quarter ended March 31,
2017
Net income attributable to common shareholders was $21.8
million, or $0.17 per share, for the quarter ended March 31, 2017.
This compares to net income attributable to common shareholders of
$39.4 million, or $0.31 per share, for the quarter ended March 31,
2016. The decline was primarily due to property sales.
Funds from Operations (FFO), as defined by the National
Association of Real Estate Investment Trusts, for the quarter ended
March 31, 2017, were $33.3 million, or $0.27 per share. This
compares to FFO for the quarter ended March 31, 2016 of $38.8
million, or $0.30 per share.
Normalized FFO was $29.5 million, or $0.24 per share. This
compares to Normalized FFO for the quarter ended March 31, 2016 of
$37.3 million, or $0.29 per share. The following items impacted
Normalized FFO per share for the quarter ended March 31, 2017,
compared to the corresponding 2016 period:
- ($0.18) per share of income from
properties sold;
- $0.06 per share of interest expense
savings;
- $0.04 per share of preferred
distribution savings;
- $0.02 per share of interest income;
and
- $0.01 per share due to share count
reduction.
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, 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.
The weighted average number of diluted common shares and units
outstanding for the quarter ended March 31, 2017 was 125,150,337,
compared to 127,521,856 for the quarter ended March 31, 2016.
Same property results for the quarter ended March 31,
2017
The company’s same property portfolio consisted of 28 properties
totaling 14.6 million square feet, which excluded two properties
designated as held for sale at the end of the quarter that have
subsequently been sold. Operating results were as follows:
- The same property portfolio leased
occupancy was 89.0% as of March 31, 2017, compared to 91.3% as of
December 31, 2016, and 91.6% as of March 31, 2016.
- The same property portfolio commenced
occupancy was 86.3% as of March 31, 2017, compared to 88.6% as of
December 31, 2016, and 88.0% as of March 31, 2016.
- Same property NOI increased 3.4% when
compared to the same period in 2016.
- Same property cash NOI decreased 0.1%
when compared to the same period in 2016.
- The company entered into leases for
approximately 331,000 square feet, including renewal leases for
approximately 264,000 square feet and new leases for approximately
67,000 square feet.
- GAAP rental rates on new and renewal
leases were 21.6% higher compared to prior GAAP rental rates for
the same space.
- Cash rental rates on new and renewal
leases were 4.9% lower compared to prior cash 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. The same property portfolio includes properties
continuously owned from January 1, 2016 through March 31, 2017 and
excludes properties owned during this period that are designated as
held for sale and land parcels.
Significant events during the quarter ended March 31,
2017
- The company sold three properties
totaling 827,000 square feet and a land parcel for a gross sales
price of $113.1 million. The weighted average cap rate for the
three properties was in the low 6% range. The assets sold during
the quarter include the following:
- 111 Market Place, a 95.4% leased,
589,380 square feet office property in Baltimore, MD, for a gross
sale price of $60.1 million. Proceeds from the sale were $44.1
million net of credits for contractual lease costs, capital and
rent abatements.
- Two properties totaling 237,824 square
feet on Seton Center Parkway in Austin, TX, for a gross sale price
of $52.5 million. The properties were 95.6% leased.
- A vacant land parcel totaling 10.2
acres in Mansfield, MA, for a gross sale price of $575,000.
- The company amended its bylaws to
provide shareholders, in addition to the Board, the ability to
amend the bylaws by the affirmative vote of not less than a
majority of all the votes then outstanding and entitled to vote on
the matter.
- The Board of Trustees approved an
authorization to repurchase $150 million of the company’s common
shares.
Subsequent Events
- The company closed on the sale of
Parkshore Plaza, a 73.1% leased, 271,072 square foot office
property in Folsom, CA, for a gross sale price of $40.0 million. In
connection with the sale, the company repaid the $41.3 million
mortgage loan encumbering the property, which extinguished the $2.3
million guaranty on the loan. This property was held for sale as of
March 31, 2017.
- The company closed on the sale of 25 S.
Charles Street, a 94.2% leased, 359,254 square foot office property
in Baltimore, MD, for a gross sale price of $24.5 million. This
property was held for sale as of March 31, 2017.
- The company currently has 11 properties
totaling 5.7 million square feet in various stages of the sale
process.
Earnings Conference Call & Supplemental Data
Equity Commonwealth will host a conference call to discuss first
quarter results on Thursday, May 4, 2017, at 9:00 am CT. The
conference call will be available via live audio webcast on the
Investor Relations section of the company’s website
(www.eqcre.com). A replay of the audio webcast will also be
available following the call.
A copy of EQC’s First Quarter 2017 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 a Chicago based, internally
managed and self-advised real estate investment trust (REIT) with
commercial office properties throughout the United States. As of
May 3, 2017, EQC’s portfolio comprised 28 properties and 14.6
million square feet.
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 share repurchases, marketing the company’s properties for
sale, and consummating asset sales. 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 Securities
Exchange Act of 1934. 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,”
“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)
March 31, 2017 December 31, 2016
ASSETS Real estate properties:
Land $ 269,062 $ 286,186 Buildings and improvements
2,395,748 2,570,704 2,664,810 2,856,890 Accumulated
depreciation (705,000 ) (755,255 ) 1,959,810 2,101,635 Properties
held for sale 64,396 — Acquired real estate leases, net 45,482
48,281 Cash and cash equivalents 1,888,537 2,094,674 Marketable
securities 275,597 — Restricted cash 6,155 6,532 Rents receivable,
net of allowance for doubtful accounts of $4,593 and $5,105,
respectively 152,081 152,031 Other assets, net 126,698
122,922
Total assets $
4,518,756 $ 4,526,075
LIABILITIES AND EQUITY
Revolving credit facility $ — $ —
Senior unsecured debt, net 1,064,450 1,063,950 Mortgage notes
payable, net 77,178 77,717 Liabilities related to properties held
for sale 1,013 — Accounts payable and accrued expenses 62,518
95,395 Assumed real estate lease obligations, net 1,630 1,946 Rent
collected in advance 18,485 18,460 Security deposits 6,957
8,160
Total liabilities $
1,232,231 $ 1,265,628
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 shares
issued and outstanding, aggregate liquidation preference of
$122,880 $ 119,263 $ 119,263 Common shares of beneficial interest,
$0.01 par value: 350,000,000 shares authorized; 124,064,195 and
123,994,465 shares issued and outstanding, respectively 1,240 1,240
Additional paid in capital 4,367,190 4,363,177 Cumulative net
income 2,590,417 2,566,603 Cumulative other comprehensive loss
(1,002 ) (208 ) Cumulative common distributions (3,111,868 )
(3,111,868 ) Cumulative preferred distributions (679,757 ) (677,760
) Total shareholders’ equity 3,285,483 3,260,447 Noncontrolling
interest 1,042 —
Total equity
$ 3,286,525 $
3,260,447 Total liabilities and equity
$ 4,518,756 $ 4,526,075
CONDENSED CONSOLIDATED STATEMENTS OF
OPERATIONS
(amounts in thousands, except per share
data)
Three Months Ended March 31,
2017 2016 Revenues: Rental income $
80,205 $ 109,888 Tenant reimbursements and other income
19,346 27,247
Total revenues
$ 99,551 $ 137,135
Expenses: Operating expenses $ 41,087 $ 57,258 Depreciation
and amortization 26,915 36,251 General and administrative (1)
12,078 13,312 Loss on asset impairment 1,286 —
Total expenses $ 81,366
$ 106,821
Operating income $ 18,185
$ 30,314 Interest and other
income 4,372 1,967 Interest expense (including net amortization of
debt discounts, premiums and deferred financing fees of $713 and
$983, respectively) (15,014 ) (22,347 ) Loss on early
extinguishment of debt — (118 ) Foreign currency exchange loss — (5
) Gain on sale of properties, net 16,454 36,666
Income before income taxes 23,997 46,477 Income tax expense
(175 ) (75 )
Net income $ 23,822
$ 46,402 Net income attributable
to noncontrolling interest (8 ) —
Net
income attributable to Equity Commonwealth $
23,814 $ 46,402 Preferred
distributions (1,997 ) (6,981 )
Net income
attributable to Equity Commonwealth common shareholders
$ 21,817 $ 39,421
Weighted average common shares outstanding — basic 124,047
125,840 Weighted average common shares outstanding —
diluted (2) 125,150 127,522 Earnings per
common share attributable to Equity Commonwealth common
shareholders: Basic $ 0.18 $ 0.31 Diluted $ 0.17
$ 0.31 (1) 2016 General and administrative
includes transition related expenses of $1.1 million. Transition
related expenses are primarily related to the shareholder-approved
liability for the reimbursement of expenses incurred by Related
Fund Management, LLC and Corvex Management LP (Related/Corvex)
beginning in February 2013 in connection with their consent
solicitations to remove the former Trustees, elect the new Board of
Trustees and engage in related litigation. Approximately $16.7
million was reimbursed to Related/Corvex during 2014, and in August
2016 and 2015, we reimbursed $8.2 million and $8.4 million,
respectively, to Related/Corvex under the terms of the
shareholder-approved agreement. No transition related expenses were
incurred during 2017. There is no future obligation to pay any
amounts under the shareholder-approved agreement to Related/Corvex.
(2) As of March 31, 2017, we had granted RSUs and LTIP Units to
certain employees, officers, and the Chairman of the Board of
Trustees. The RSUs and LTIP Units contain service and market-based
vesting components. None of the RSUs or LTIP Units have vested. If
the market-based vesting component of these awards was measured as
of March 31, 2017, and 2016, 1,165 and 1,754 common shares would be
issued, respectively. Using a weighted average basis, 1,103 and
1,682 common shares are reflected in diluted earnings per share,
diluted FFO per common share, and diluted Normalized FFO per common
share for the three months ended March 31, 2017 and 2016,
respectively.
CALCULATION OF FUNDS FROM OPERATIONS
(FFO) AND NORMALIZED FFO
(amounts in thousands, except per share
data)
Three Months Ended March 31,
2017 2016 Calculation of FFO
Net income $ 23,822 $ 46,402
Real estate depreciation and amortization 26,616 36,044 Loss on
asset impairment 1,286 — Gain on sale of properties (16,454 )
(36,666 ) FFO attributable to Equity Commonwealth 35,270 45,780
Preferred distributions (1,997 ) (6,981 )
FFO
attributable to EQC common shareholders and unitholders
$ 33,273 $ 38,799
Calculation of Normalized
FFO FFO attributable to EQC common
shareholders and unitholders $ 33,273 $ 38,799 Lease value
amortization 573 1,121 Straight line rent adjustments (4,387 )
(3,831 ) Loss on early extinguishment of debt — 118 Transition
related expenses (1) — 1,102 Foreign currency exchange loss
— 5
Normalized FFO attributable to EQC
common shareholders and unitholders $
29,459 $ 37,314
Weighted average common shares and units outstanding -- basic (2)
124,076 125,840 Weighted average common shares and
units outstanding -- diluted (3) 125,150 127,522 FFO
attributable to EQC common shareholders and unitholders per share
-- basic $ 0.27 $ 0.31 FFO attributable to EQC common
shareholders and unitholders per share -- diluted $ 0.27 $
0.30 Normalized FFO attributable to EQC common shareholders
and unitholders per share -- basic $ 0.24 $ 0.30
Normalized FFO attributable to EQC common shareholders and
unitholders per share -- diluted $ 0.24 $ 0.29 (1)
Transition related expenses are primarily related to the
shareholder-approved liability for the reimbursement of expenses
incurred by Related/Corvex beginning in February 2013 in connection
with their consent solicitations to remove the former Trustees,
elect the new Board of Trustees and engage in related litigation.
Approximately $16.7 million was reimbursed to Related/Corvex during
2014, and in August 2016 and 2015, we reimbursed $8.2 million and
$8.4 million, respectively, to Related/Corvex under the terms of
the shareholder-approved agreement. No transition related expenses
were incurred during 2017. There is no future obligation to pay any
amounts under the shareholder-approved agreement to Related/Corvex.
(2) Our calculations of FFO and Normalized FFO attributable to EQC
common shareholders and unitholders per share - basic for the three
months ended March 31, 2017 includes 29 LTIP Units that are
excluded from the calculation of basic GAAP EPS. (3) As of March
31, 2017, we had granted RSUs and LTIP Units to certain employees,
officers, and the Chairman of the Board of Trustees. The RSUs and
LTIP Units contain service and market-based vesting components.
None of the RSUs or LTIP Units have vested. If the market-based
vesting component of these awards was measured as of March 31,
2017, and 2016, 1,165 and 1,754 common shares would be issued,
respectively. Using a weighted average basis, 1,103 and 1,682
common shares are reflected in diluted earnings per share, diluted
FFO per common share, and diluted Normalized FFO per common share
for the three months ended March 31, 2017 and 2016, respectively.
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. FFO and Normalized FFO are
supplemental non-GAAP financial measures. 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 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)
Three Months Ended March 31,
2017 2016 Calculation of Same Property NOI
and Same Property Cash Basis NOI: Rental income $ 80,205
$ 109,888 Tenant reimbursements and other income 19,346 27,247
Operating expenses (41,087 ) (57,258 )
NOI
$ 58,464 $ 79,877
Straight line rent adjustments (4,387 ) (3,831 ) Lease value
amortization 573 1,121 Lease termination fees (1,711 )
(311 )
Cash Basis NOI $ 52,939
$ 76,856 Cash Basis NOI from
non-same properties (1) (3,160 ) (27,004 )
Same
Property Cash Basis NOI $ 49,779
$ 49,852 Non-cash rental income and
lease termination fees from same properties 4,057
2,215
Same Property NOI $
53,836 $ 52,067
Reconciliation of Same Property NOI to GAAP Operating
Income: Same Property NOI
$ 53,836 $ 52,067
Non-cash rental income and lease termination fees from same
properties (4,057 ) (2,215 )
Same Property Cash
Basis NOI $ 49,779 $
49,852 Cash Basis NOI from non-same properties (1)
3,160 27,004
Cash Basis NOI
$ 52,939 $ 76,856
Straight line rent adjustments 4,387 3,831 Lease value
amortization (573 ) (1,121 ) Lease termination fees 1,711
311
NOI $ 58,464
$ 79,877 Depreciation and
amortization (26,915 ) (36,251 ) General and administrative (2)
(12,078 ) (13,312 ) Loss on asset impairment (1,286 )
—
Operating Income $ 18,185
$ 30,314 (1) Cash Basis
NOI from non-same properties for all periods presented includes the
operations of properties disposed or classified as held for sale
and land parcels. (2) 2016 General and administrative includes
transition related expenses of $1.1 million. Transition related
expenses are primarily related to the shareholder-approved
liability for the reimbursement of expenses incurred by
Related/Corvex beginning in February 2013 in connection with their
consent solicitations to remove the former Trustees, elect the new
Board of Trustees and engage in related litigation. Approximately
$16.7 million was reimbursed to Related/Corvex during 2014, and in
August 2016 and 2015, we reimbursed $8.2 million and $8.4 million,
respectively, to Related/Corvex under the terms of the
shareholder-approved agreement. No transition related expenses were
incurred during 2017. There is no future obligation to pay any
amounts under the shareholder-approved agreement to Related/Corvex.
NOI is income from our real estate including lease termination fees
received from tenants less our property operating expenses. NOI
excludes amortization of capitalized tenant improvement costs and
leasing commissions and corporate level expenses. Cash Basis NOI is
NOI excluding the effects of straight line rent adjustments, lease
value amortization, and lease termination fees. The same property
versions of these measures include the results of properties
continuously owned from January 1, 2016 through March 31, 2017.
Land parcels and properties classified as held for sale within our
condensed consolidated balance sheets are excluded from the same
property versions of these measures. We consider these
supplemental non-GAAP financial measures to be appropriate
supplemental measures to net income because they help to understand
the operations of our properties. We use these measures internally
to evaluate 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. Cash Basis NOI is among the factors considered with
respect to acquisition, disposition and financing decisions. 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/20170503006559/en/
Equity CommonwealthSarah Byrnes, Investor Relations(312)
646-2801ir@eqcre.com
Equity Commonwealth (NYSE:EQC)
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