Equity Commonwealth (NYSE: EQC) today reported its financial
results for the quarter ended September 30, 2017. All per share
results are reported on a diluted basis.
Financial results for the quarter ended September 30,
2017
Net income attributable to common shareholders was $31.2
million, or $0.25 per share, for the quarter ended September 30,
2017. This compares to net income attributable to common
shareholders of $84.4 million, or $0.67 per share, for the quarter
ended September 30, 2016.
Funds from Operations (FFO), as defined by the National
Association of Real Estate Investment Trusts, for the quarter ended
September 30, 2017, were $27.0 million, or $0.22 per share. This
compares to FFO for the quarter ended September 30, 2016 of $31.1
million, or $0.25 per share.
Normalized FFO was $24.0 million, or $0.19 per share. This
compares to Normalized FFO for the quarter ended September 30, 2016
of $28.9 million, or $0.23 per share. The following items impacted
Normalized FFO for the quarter ended September 30, 2017, compared
to the corresponding 2016 period:
- ($0.16) per share of income from
properties sold as part of the company’s previously announced
repositioning plan;
- $0.08 per share of interest expense
savings; and
- $0.04 per share of additional interest
income.
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 outstanding
for the quarter ended September 30, 2017 was 125,174,651 shares,
compared to 126,568,096 for the quarter ended September 30,
2016.
Same property results for the quarter ended September 30,
2017
The company’s same property portfolio consisted of 20 properties
totaling 11.0 million square feet. Operating results were as
follows:
- The same property portfolio was 88.3%
leased as of September 30, 2017, compared to 87.7% as of June 30,
2017, and 89.6% as of September 30, 2016.
- The same property portfolio commenced
occupancy was 85.5% as of September 30, 2017, compared to 85.5% as
of June 30, 2017, and 87.0% as of September 30, 2016.
- Same property NOI increased 4.7% when
compared to the same period in 2016.
- Same property cash NOI decreased 4.4%
when compared to the same period in 2016.
- The company entered into leases for
approximately 273,000 square feet, including new leases for
approximately 192,000 square feet and renewal leases for
approximately 81,000 square feet.
- GAAP rental rates on new and renewal
leases were 7.8% higher compared to prior GAAP rental rates for the
same space.
- Cash rental rates on new and renewal
leases were 2.3% higher 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 July 1, 2016 through September 30, 2017 and
excludes land parcels.
Significant events during the quarter ended September 30,
2017
- The company redeemed at par its $250
million 6.65% Senior Unsecured Notes due in 2018.
- The company sold seven properties
totaling 3,401,000 square feet for a gross sales price of $544.1
million. The assets sold during the quarter include the following:
- 1500 Market, also known as Centre
Square, a 91.2% leased, 1,759,000 square foot office property in
Philadelphia, PA, for a gross sale price of $328 million. This
property was held for sale as of June 30, 2017.
- A five-property office and industrial
portfolio totaling 1,002,000 square feet located in Maryland,
Minnesota and Missouri, for a gross sale price of $84 million.
These properties were held for sale as of June 30, 2017.
- 6600 North Military Drive, a 100%
leased, 640,000 square foot office property in Boca Raton, FL, for
a gross sale price of $132.1 million.
- The company currently has seven
properties totaling 4.7 million square feet in various stages of
the sales process.
Earnings Conference Call & Supplemental Data
Equity Commonwealth will host a conference call to discuss third
quarter results on Wednesday, October 25, 2017, at 9:00 A.M. CDT.
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 Third 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. EQC’s
portfolio is comprised of 20 properties and 11 million square
feet.
Regulation FD Disclosures
We intend to use any of the following to comply with our
disclosure obligations under Regulation FD: press releases, SEC
filings, public conference calls, or our website. We post important
information on our website at www.eqcre.com, including information
that may be deemed to be material. We encourage investors and
others interested in the company to monitor these distribution
channels for material disclosures.
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 and identifying future investment opportunities. 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)
September 30, 2017 December
31, 2016 ASSETS Real estate
properties: Land $ 216,957 $ 286,186 Buildings and improvements
1,841,230 2,570,704 2,058,187 2,856,890 Accumulated
depreciation (554,411 ) (755,255 ) 1,503,776 2,101,635 Acquired
real estate leases, net 28,108 48,281 Cash and cash equivalents
2,233,077 2,094,674 Marketable securities 279,626 — Restricted cash
7,657 6,532 Rents receivable, net of allowance for doubtful
accounts of $4,217 and $5,105, respectively 107,832 152,031 Other
assets, net 100,213 122,922
Total
assets $ 4,260,289 $
4,526,075
LIABILITIES AND EQUITY Revolving
credit facility $ — $ — Senior unsecured debt, net 815,577
1,063,950 Mortgage notes payable, net 34,999 77,717 Accounts
payable and accrued expenses 63,506 95,395 Assumed real estate
lease obligations, net 1,215 1,946 Rent collected in advance 14,355
18,460 Security deposits 5,938 8,160
Total liabilities $ 935,590
$ 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; 124,089,443 and 123,994,465 shares issued and
outstanding, respectively 1,241 1,240 Additional paid in capital
4,378,184 4,363,177 Cumulative net income 2,617,820 2,566,603
Cumulative other comprehensive income (loss) 2,671 (208 )
Cumulative common distributions (3,111,868 ) (3,111,868 )
Cumulative preferred distributions (683,751 ) (677,760 ) Total
shareholders’ equity 3,323,560 3,260,447 Noncontrolling interest
1,139 —
Total equity
$ 3,324,699 $ 3,260,447
Total liabilities and equity $
4,260,289 $ 4,526,075
CONDENSED CONSOLIDATED STATEMENTS OF
OPERATIONS
(amounts in thousands, except per share
data)
Three Months Ended
Nine Months Ended September 30, September 30,
2017 2016 2017
2016 Revenues: Rental income $ 61,091 $ 92,722
$ 215,648 $ 324,345 Tenant reimbursements and other income
16,707 21,910 53,300
72,789
Total revenues $ 77,798
$ 114,632 $
268,948 $ 397,134
Expenses: Operating expenses $ 32,380 $ 49,313 $ 110,751 $ 157,964
Depreciation and amortization 21,133 29,184 71,970 102,766 General
and administrative 11,689 13,277 35,727 38,766 Loss on asset
impairment — — 19,714
43,736
Total expenses $
65,202 $ 91,774
$ 238,162 $ 343,232
Operating income $ 12,596
$ 22,858 $
30,786 $ 53,902
Interest and other income 7,596 3,013 17,987 7,184 Interest expense
(including net amortization of debt discounts, premiums and
deferred financing fees of $784, $948, $2,346 and $2,880,
respectively) (11,510 ) (21,427 ) (41,387 ) (65,074
)
Loss on early extinguishment of debt (203 ) — (266 ) (118
)
Foreign currency exchange loss — —
—
(5
)
Gain on sale of properties, net 25,080 82,169 44,670
225,210 Income before income taxes 33,559 86,613
51,790 221,099 Income tax expense (335 ) (225 )
(555 ) (465
)
Net income $ 33,224
$ 86,388 $ 51,235
$ 220,634 Net income attributable to
noncontrolling interest (12 ) — (18 )
—
Net income attributable to Equity
Commonwealth $ 33,212
$ 86,388 $ 51,217
220,634 Preferred distributions (1,997 )
(1,997 ) (5,991 ) (15,959
)
Excess fair value of consideration paid over carrying value of
preferred shares (1) — — —
(9,609
)
Net income attributable to Equity Commonwealth common
shareholders $ 31,215
$ 84,391 $ 45,226
$ 195,066 Weighted average
common shares outstanding — basic (2) 124,089 125,533
124,068 125,627 Weighted average common shares
outstanding — diluted (2) 125,175 126,568 125,194
127,009 Earnings per common share attributable
to Equity Commonwealth common shareholders: Basic $ 0.25 $
0.67 $ 0.36 $ 1.55 Diluted $ 0.25 $
0.67 $ 0.36 $ 1.54 (1) On May 15, 2016,
we redeemed all of our 11,000,000 outstanding series E preferred
shares at a price of $25.00 per share, for a total of $275.0
million, plus any accrued and unpaid dividends. The redemption
payment occurred on May 16, 2016 (the first business day following
the redemption date). We recorded $9.6 million related to the
excess fair value of consideration paid over the carrying value of
the preferred shares as a reduction to net income attributable to
Equity Commonwealth common shareholders for the nine months ended
September 30, 2016. (2) As of September 30, 2017, we had
granted RSUs and LTIP Units to certain employees, officers, and
trustees. 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 September 30, 2017, and 2016, 1,085 and 1,035 common shares
would be issued, respectively. Using a weighted average basis,
1,086 and 1,035 common shares are reflected in diluted earnings per
share for the three months ended September 30, 2017 and 2016,
respectively, and 1,126 and 1,382 common shares are reflected in
diluted earnings per share for the nine months ended September 30,
2017 and 2016, respectively.
CALCULATION OF FUNDS FROM
OPERATIONS (FFO) AND NORMALIZED FFO (amounts in thousands,
except per share data)
Three Months Ended Nine Months Ended September
30, September 30, 2017
2016 2017 2016 Calculation of
FFO Net
income $ 33,224 $ 86,388 $ 51,235 $ 220,634 Real
estate depreciation and amortization 20,842 28,907 71,077 102,015
Loss on asset impairment — — 19,714 43,736 Gain on sale of
properties, net (25,080 ) (82,169 ) (44,670 ) (225,210 ) FFO
attributable to Equity Commonwealth 28,986 33,126 97,356 141,175
Preferred distributions (1,997 ) (1,997 ) (5,991 ) (15,959 ) Excess
fair value of consideration paid over carrying value of preferred
shares (1) — — —
(9,609 )
FFO attributable to EQC common shareholders and
unitholders $ 26,989
$ 31,129 $ 91,365
$ 115,607
Calculation of Normalized
FFO FFO
attributable to EQC common shareholders and unitholders $ 26,989 $
31,129 $ 91,365 $ 115,607 Lease value amortization 388 882 1,479
5,870 Straight line rent adjustments (3,557 ) (2,954 ) (12,487 )
(12,384 ) Loss on early extinguishment of debt 203 — 266 118
Transition related expenses (2) — (138 ) — 999 Foreign currency
exchange loss — — — 5 Excess fair value of consideration paid over
carrying value of preferred shares (1) — —
— 9,609
Normalized FFO
attributable to EQC common shareholders and unitholders
$ 24,023 $ 28,919
$ 80,623 $ 119,824
Weighted average common shares and units outstanding
-- basic (3) 124,132 125,533 124,105 125,627
Weighted average common shares and units outstanding --
diluted (3) 125,175 126,568 125,194 127,009
FFO attributable to EQC common shareholders and unitholders
per share -- basic $ 0.22 $ 0.25 $ 0.74 $ 0.92
FFO attributable to EQC common shareholders and unitholders
per share -- diluted $ 0.22 $ 0.25 $ 0.73 $
0.91 Normalized FFO attributable to EQC common shareholders
and unitholders per share -- basic $ 0.19 $ 0.23 $
0.65 $ 0.95 Normalized FFO attributable to EQC common
shareholders and unitholders per share -- diluted $ 0.19 $
0.23 $ 0.64 $ 0.94 (1) On May 15, 2016,
we redeemed all of our 11,000,000 outstanding series E preferred
shares at a price of $25.00 per share, for a total of $275.0
million, plus any accrued and unpaid dividends. The redemption
payment occurred on May 16, 2016 (the first business day following
the redemption date). We recorded $9.6 million related to the
excess fair value of consideration paid over the carrying value of
the preferred shares as a reduction to net income attributable to
Equity Commonwealth common shareholders for the nine months ended
September 30, 2016. (2) 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. 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.
(3) As of September 30, 2017, we had granted RSUs and LTIP
Units to certain employees, officers, and trustees. 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 September 30, 2017,
and 2016, 1,085 and 1,035 common shares would be issued,
respectively. Using a weighted average basis, 1,086 and 1,035
common shares are reflected in diluted FFO per common share, and
diluted Normalized FFO per common share for the three months ended
September 30, 2017 and 2016, respectively and 1,126 and 1,382
common shares are reflected in diluted FFO per common share and
diluted Normalized FFO per common for the nine months ended
September 30, 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 (loss), net income (loss) attributable to Equity
Commonwealth common shareholders, operating income (loss) 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 (loss), net income (loss)
attributable to Equity Commonwealth common shareholders, operating
income (loss) 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 (loss), net
income (loss) attributable to Equity Commonwealth common
shareholders, operating income (loss) 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 Nine Months Ended
September 30, September 30, 2017
2016 2017 2016 Calculation of
Same Property NOI and Same Property Cash Basis NOI:
Rental income $ 61,091 $ 92,722 $ 215,648 $ 324,345 Tenant
reimbursements and other income 16,707 21,910 53,300 72,789
Operating expenses (32,380 ) (49,313 )
(110,751 ) (157,964 )
NOI $
45,418 $ 65,319
$ 158,197 $ 239,170
Straight line rent adjustments (3,557 ) (2,954 ) (12,487 )
(12,384 ) Lease value amortization 388 882 1,479 5,870 Lease
termination fees (1,477 ) (1,825 ) (4,002 )
(19,569 )
Cash Basis NOI $
40,772 $ 61,422
$ 143,187 $ 213,087
Cash Basis NOI from non-same properties (1) (2,917 )
(21,810 ) (29,784 ) (93,796 )
Same Property
Cash Basis NOI $ 37,855
$ 39,612 $ 113,403
$ 119,291 Non-cash rental income and
lease termination fees from same properties 4,728
1,069 13,507 7,450
Same Property NOI $ 42,583
$ 40,681 $ 126,910
$ 126,741
Reconciliation of Same Property NOI to GAAP Operating
Income:
Same Property NOI $ 42,583
$ 40,681 $ 126,910
$ 126,741 Non-cash rental income
and lease termination fees from same properties (4,728 )
(1,069 ) (13,507 ) (7,450 )
Same Property
Cash Basis NOI $ 37,855
$ 39,612 $ 113,403
$ 119,291 Cash Basis NOI from non-same
properties (1) 2,917 21,810
29,784 93,796
Cash Basis NOI
$ 40,772 $ 61,422
$ 143,187 $
213,087 Straight line rent adjustments 3,557 2,954
12,487 12,384 Lease value amortization (388 ) (882 ) (1,479 )
(5,870 ) Lease termination fees 1,477 1,825
4,002 19,569
NOI
$ 45,418 $ 65,319
$ 158,197 $
239,170 Depreciation and amortization (21,133 )
(29,184 ) (71,970 ) (102,766 ) General and administrative (11,689 )
(13,277 ) (35,727 ) (38,766 ) Loss on asset impairment —
— (19,714 ) (43,736 )
Operating Income $ 12,596
$ 22,858 $ 30,786
$ 53,902 (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. 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 quarter-to-date same
property versions of these measures include the results of
properties continuously owned from July 1, 2016 through September
30, 2017. The year-to-date same property versions of these measures
include the results of properties continuously owned from January
1, 2016 through September 30, 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 (loss) 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 (loss), net income (loss) attributable to Equity
Commonwealth common shareholders, operating income (loss) 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 (loss), net income (loss) attributable
to Equity Commonwealth common shareholders, operating income (loss)
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/20171024006591/en/
Equity CommonwealthSarah Byrnes, Investor Relations(312)
646-2801ir@eqcre.com
Equity Commonwealth (NYSE:EQC)
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