Equity Commonwealth (NYSE: EQC) today reported financial results
for the quarter ended September 30, 2020 and provided an update on
our business due to COVID-19.
Equity Commonwealth continues to monitor the COVID-19 pandemic
and the impact on our business. Our priority is the health and
safety of our employees, tenants and building staff. As a result of
the pandemic, the vast majority of our tenants’ employees continue
to work remotely. Our buildings are open, and we are working with
our tenants to enhance their safety as they return to the office.
In our same property portfolio, for the third quarter 2020, we
collected 98% of contractual rents, including 3% from the
application of security deposits and letters of credit. In October
2020, to date we have collected 97% of contractual rents, including
1% from the application of security deposits and letters of
credit.
Financial results for the quarter ended September 30,
2020
Net loss attributable to common shareholders was $1.6 million,
or $0.01 per diluted share, for the quarter ended September 30,
2020. This compares to net income attributable to common
shareholders of $21.9 million, or $0.18 per diluted share, for the
quarter ended September 30, 2019. The decline in net income was
primarily a result of a decrease in interest earned on cash
balances and property dispositions.
Funds from Operations, or FFO, as defined by the National
Association of Real Estate Investment Trusts, for the quarter ended
September 30, 2020, were $3.3 million, or $0.03 per diluted share.
This compares to FFO for the quarter ended September 30, 2019 of
$25.6 million, or $0.21 per diluted share. The following items
impacted FFO for the quarter ended September 30, 2020, compared to
the corresponding 2019 period:
- ($0.14) per diluted share decrease in interest income and
other, net;
- ($0.06) per diluted share decrease in NOI from properties
sold;
- $0.01 per diluted share increase in same property NOI; and
- $0.01 per diluted share decrease in general and administrative
expense.
Normalized FFO was $3.4 million, or $0.03 per diluted share, for
the quarter ended September 30, 2020. This compares to Normalized
FFO for the quarter ended September 30, 2019 of $25.7 million, or
$0.21 per diluted share. The following items impacted Normalized
FFO for the quarter ended September 30, 2020, compared to the
corresponding 2019 period:
- ($0.13) per diluted share decrease in interest income;
- ($0.07) per diluted share decrease in cash NOI from properties
sold;
- $0.01 per diluted share increase in same property termination
income; and
- $0.01 per diluted share decrease in general and administrative
expense.
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 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.
For the quarter ended September 30, 2020, the company’s cash and
cash equivalents balance was $3.4 billion. Following the common
distribution paid on October 20, 2020, the company’s cash and cash
equivalents balance was $3.0 billion.
Same property results for the quarter ended September 30,
2020
The company’s same property portfolio at the end of the quarter
consisted of 4 properties totaling 1.5 million square feet.
Operating results were as follows:
- The same property portfolio was 87.7% leased as of September
30, 2020, compared to 90.1% as of June 30, 2020, and 89.5% as of
September 30, 2019.
- The same property portfolio commenced occupancy was 85.1% as of
September 30, 2020, compared to 83.9% as of June 30, 2020, and
85.8% as of September 30, 2019.
- Same property NOI increased 11.8% when compared to the same
period in 2019. The increase was largely due to an increase in
lease termination fees.
- Same property cash NOI decreased 7.1% when compared to the same
period in 2019. The decrease was largely due to lower parking
revenue due to COVID-19.
- The company entered into a renewal lease for approximately
6,000 square feet.
- The GAAP rental rate on the new lease was 3.2% higher compared
to the prior GAAP rental rate for the same space.
- The cash rental rate on the new lease was 0.4% lower compared
to the prior cash rental rate for the same space.
The definitions and reconciliations of same property NOI and
same property cash NOI to net income, determined in accordance with
GAAP, are included at the end of this press release. The same
property portfolio at the end of the quarter included properties
continuously owned from July 1, 2019 through September 30,
2020.
Significant events during the quarter ended September 30,
2020
- Ellen-Blair Chube was appointed to serve as a member of the
Board of Trustees until the next annual meeting of shareholders.
Ms. Chube will also serve as a member of the Nominating and
Corporate Governance Committee.
- The company declared a special, one-time cash distribution of
$3.50 per common share, which was paid on October 20, 2020 to
shareholders of record on October 1, 2020.
- The company repaid at par the outstanding $25.1 million, 5.7%
mortgage loan on 206 East 9th Street in Austin, Texas, as of July
5, 2020.
Earnings Conference Call & Supplemental Data
Equity Commonwealth will host a conference call to discuss third
quarter results on Thursday, October 29, 2020, at 9:00 A.M. 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 Third Quarter 2020 Supplemental Operating and
Financial Data is available 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 in the United States. EQC’s same
property portfolio is comprised of 4 properties and 1.5 million
square feet.
Regulation FD Disclosures
We 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 routinely 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
pertaining to the marketing of certain properties for sale and
consummating any sales, including our statements regarding the
overall impact of COVID-19 on the foregoing to the extent we make
any such statements. 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, as amended. 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 our current views about future events and are subject to
numerous known and unknown risks, uncertainties, assumptions and
changes in circumstances that may cause our 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). 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 our future results to differ
materially from any forward-looking statements, see the section
entitled “Risk Factors” in our most recent Annual Report on Form
10-K and subsequent quarterly reports on Form 10-Q.
CONDENSED CONSOLIDATED BALANCE
SHEETS
(Unaudited, amounts in thousands,
except share data)
September 30, 2020
December 31, 2019
ASSETS
Real estate properties:
Land
$
44,060
$
85,627
Buildings and improvements
355,877
576,494
399,937
662,121
Accumulated depreciation
(142,053
)
(202,700
)
257,884
459,421
Cash and cash equivalents
3,418,240
2,795,642
Restricted cash
—
5,003
Rents receivable
14,486
19,554
Other assets, net
18,164
39,757
Total assets
$
3,708,774
$
3,319,377
LIABILITIES AND EQUITY
Mortgage notes payable, net
$
—
$
25,691
Accounts payable, accrued expenses and
other
25,702
37,153
Rent collected in advance
1,861
3,127
Distributions payable
438,105
7,534
Total liabilities
$
465,668
$
73,505
Shareholders’ equity:
Preferred shares of beneficial interest,
$0.01 par value: 50,000,000 shares authorized;
Series D preferred shares; 6.50%
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; 121,524,510 and
121,924,199 shares issued and outstanding, respectively
1,215
1,219
Additional paid in capital
4,291,293
4,313,831
Cumulative net income
3,816,614
3,363,654
Cumulative common distributions
(4,284,050
)
(3,851,666
)
Cumulative preferred distributions
(707,715
)
(701,724
)
Total shareholders’ equity
3,236,620
3,244,577
Noncontrolling interest
6,486
1,295
Total equity
$
3,243,106
$
3,245,872
Total liabilities and equity
$
3,708,774
$
3,319,377
CONDENSED CONSOLIDATED
STATEMENTS OF OPERATIONS
(Unaudited, amounts in thousands,
except per share data)
Three Months Ended
Nine Months Ended
September 30,
September 30,
2020
2019
2020
2019
Revenues:
Rental revenue
$
15,742
$
23,995
$
48,133
$
93,459
Other revenue (1)
743
2,740
3,437
8,396
Total revenues
$
16,485
$
26,735
$
51,570
$
101,855
Expenses:
Operating expenses
$
6,444
$
9,923
$
21,882
$
36,677
Depreciation and amortization
5,137
5,939
14,649
22,085
General and administrative
7,191
8,523
26,097
30,152
Total expenses
$
18,772
$
24,385
$
62,628
$
88,914
Interest and other income, net
2,606
19,401
18,944
57,871
Interest expense (including net
amortization of debt discounts, premiums and deferred financing
fees of $(3), $(55), $(119) and $264, respectively)
(9
)
(321
)
(620
)
(8,597
)
Gain (loss) on early extinguishment of
debt
131
—
131
(6,374
)
Gain on sale of properties, net
—
1,945
446,536
422,148
Income before income taxes
441
23,375
453,933
477,989
Income tax (expense) benefit
(71
)
521
(170
)
(1,119
)
Net income
$
370
$
23,896
$
453,763
$
476,870
Net income attributable to noncontrolling
interest
(1
)
(10
)
(803
)
(180
)
Net income attributable to Equity
Commonwealth
$
369
$
23,886
$
452,960
$
476,690
Preferred distributions
(1,997
)
(1,997
)
(5,991
)
(5,991
)
Net (loss) income attributable to
Equity Commonwealth common shareholders
$
(1,628
)
$
21,889
$
446,969
$
470,699
Weighted average common shares outstanding
— basic (2)
121,673
122,140
121,824
122,075
Weighted average common shares outstanding
— diluted(2)(3)
121,673
123,564
126,282
125,938
Earnings per common share attributable to
Equity Commonwealth common shareholders:
Basic
$
(0.01
)
$
0.18
$
3.67
$
3.86
Diluted
$
(0.01
)
$
0.18
$
3.59
$
3.79
Distributions declared per common
share
$
3.50
$
3.50
$
3.50
$
3.50
(1)
Other revenue is primarily comprised of
parking revenue that does not represent a component of a lease.
(2)
Weighted average common shares outstanding
for the three months ended September 30, 2020 and 2019 includes 150
and 217 unvested, earned RSUs, respectively. Weighted average
common shares outstanding for the nine months ended September 30,
2020 and 2019 includes 159 and 208 unvested, earned RSUs,
respectively.
(3)
As of September 30, 2020, we had 4,915
series D preferred shares outstanding. The series D preferred
shares were convertible into 2,857 common shares as of September
30, 2020, and 2,563 common shares as of September 30, 2019. The
series D preferred shares are antidilutive for GAAP EPS for the
three months ended September 30, 2020 and 2019. They are dilutive
for GAAP EPS for the nine months ended September 30, 2020 and
2019.
CALCULATION OF FUNDS FROM
OPERATIONS (FFO) AND NORMALIZED FFO
(Unaudited, amounts in thousands,
except per share data)
Three Months Ended
Nine Months Ended
September 30,
September 30,
2020
2019
2020
2019
Calculation of FFO
Net income
$
370
$
23,896
$
453,763
$
476,870
Real estate depreciation and
amortization
4,917
5,683
13,972
21,243
Gain on sale of properties, net
—
(1,945
)
(446,536
)
(422,148
)
FFO attributable to Equity
Commonwealth
5,287
27,634
21,199
75,965
Preferred distributions
(1,997
)
(1,997
)
(5,991
)
(5,991
)
FFO attributable to EQC common
shareholders and unitholders
$
3,290
$
25,637
$
15,208
$
69,974
Calculation of Normalized FFO
FFO attributable to EQC common
shareholders and unitholders
$
3,290
$
25,637
$
15,208
$
69,974
Lease value amortization
—
(39
)
—
(117
)
Straight line rent adjustments
(367
)
499
346
(349
)
Sold property expense included in interest
and other income, net
515
—
515
—
(Gain) loss on early extinguishment of
debt
(131
)
—
(131
)
6,374
Taxes related to property sales included
in general and administrative
—
—
1,458
—
Taxes related to property sales, net
included in income tax expense
99
(423
)
178
142
Normalized FFO attributable to EQC
common shareholders and unitholders
$
3,406
$
25,674
$
17,574
$
76,024
Weighted average common shares and units
outstanding -- basic (1)
121,916
122,189
122,038
122,121
Weighted average common shares and units
outstanding -- diluted (1)
123,517
123,613
123,639
123,421
FFO attributable to EQC common
shareholders and unitholders per share and unit -- basic and
diluted
$
0.03
$
0.21
$
0.12
$
0.57
Normalized FFO attributable to EQC common
shareholders and unitholders per share and unit — basic and
diluted
$
0.03
$
0.21
$
0.14
$
0.62
(1)
Our calculations of FFO and Normalized FFO
attributable to EQC common shareholders and unitholders per
share and unit - basic for the three months ended September 30,
2020 and 2019 include 243 and 49 LTIP/Operating Partnership Units,
respectively, that are excluded from the calculation of basic
earnings per common share attributable to EQC common
shareholders (only). Our calculations of FFO and Normalized FFO
attributable to EQC common shareholders and unitholders per
share and unit - basic for the nine months ended September 30, 2020
and 2019 include 214 and 46 LTIP/Operating Partnership Units,
respectively, that are excluded from the calculation of basic
earnings per common share attributable to EQC common
shareholders (only).
We compute FFO in accordance with
standards established by 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 EQC
common shareholders 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 EQC common shareholders 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 EQC common
shareholders 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
(Unaudited, amounts in
thousands)
For the Three Months
Ended
9/30/2020
6/30/2020
3/31/2020
12/31/2019
9/30/2019
Calculation of Same Property NOI and
Same Property Cash Basis NOI:
Rental revenue
$
15,742
$
15,248
$
17,143
$
23,410
$
23,995
Other revenue (1)
743
1,017
1,677
2,585
2,740
Operating expenses
(6,444
)
(6,677
)
(8,761
)
(9,741
)
(9,923
)
NOI
$
10,041
$
9,588
$
10,059
$
16,254
$
16,812
Straight line rent adjustments
(367
)
515
198
(69
)
499
Lease value amortization
—
—
—
—
(39
)
Lease termination fees
(1,300
)
—
—
(16
)
(11
)
Cash Basis NOI
$
8,374
$
10,103
$
10,257
$
16,169
$
17,261
Cash Basis NOI from non-same properties
(2)
(218
)
(1,221
)
(1,399
)
(7,244
)
(8,485
)
Same Property Cash Basis NOI
$
8,156
$
8,882
$
8,858
$
8,925
$
8,776
Non-cash rental income and lease
termination fees from same properties
1,668
(408
)
(107
)
(124
)
10
Same Property NOI
$
9,824
$
8,474
$
8,751
$
8,801
$
8,786
Reconciliation of Same Property NOI to
GAAP Net Income:
Same Property NOI
$
9,824
$
8,474
$
8,751
$
8,801
$
8,786
Non-cash rental income and lease
termination fees from same properties
(1,668
)
408
107
124
(10
)
Same Property Cash Basis NOI
$
8,156
$
8,882
$
8,858
$
8,925
$
8,776
Cash Basis NOI from non-same properties
(2)
218
1,221
1,399
7,244
8,485
Cash Basis NOI
$
8,374
$
10,103
$
10,257
$
16,169
$
17,261
Straight line rent adjustments
367
(515
)
(198
)
69
(499
)
Lease value amortization
—
—
—
—
39
Lease termination fees
1,300
—
—
16
11
NOI
$
10,041
$
9,588
$
10,059
$
16,254
$
16,812
Depreciation and amortization
(5,137
)
(4,398
)
(5,114
)
(6,037
)
(5,939
)
General and administrative
(7,191
)
(8,302
)
(10,604
)
(8,290
)
(8,523
)
Interest and other income, net
2,606
4,443
11,895
14,521
19,401
Interest expense
(9
)
(302
)
(309
)
(311
)
(321
)
Gain on early extinguishment of debt
131
—
—
—
—
Gain on sale of properties, net
—
26,916
419,620
24
1,945
Income before income taxes
$
441
$
27,945
$
425,547
$
16,161
$
23,375
Income tax (expense) benefit
(71
)
(59
)
(40
)
(165
)
521
Net income
$
370
$
27,886
$
425,507
$
15,996
$
23,896
(1)
Other revenue is primarily comprised of
parking revenue that does not represent a component of a lease.
(2)
Cash Basis NOI from non-same properties
for all periods presented includes the operations of disposed
properties.
CALCULATION OF SAME PROPERTY
NET OPERATING INCOME (NOI) AND SAME PROPERTY CASH BASIS NOI
(Unaudited, amounts in
thousands)
For the Nine Months Ended
September 30,
2020
2019
Calculation of Same Property NOI and
Same Property Cash Basis NOI:
Rental revenue
$
48,133
$
93,459
Other revenue (1)
3,437
8,396
Operating expenses
(21,882
)
(36,677
)
NOI
$
29,688
$
65,178
Straight line rent adjustments
346
(349
)
Lease value amortization
—
(117
)
Lease termination fees
(1,300
)
(2,199
)
Cash Basis NOI
$
28,734
$
62,513
Cash Basis NOI from non-same properties
(2)
(2,838
)
(36,211
)
Same Property Cash Basis NOI
$
25,896
$
26,302
Non-cash rental income and lease
termination fees from same properties
1,153
2,689
Same Property NOI
$
27,049
$
28,991
Reconciliation of Same Property NOI to
GAAP Net Income:
Same Property NOI
$
27,049
$
28,991
Non-cash rental income and lease
termination fees from same properties
(1,153
)
(2,689
)
Same Property Cash Basis NOI
$
25,896
$
26,302
Cash Basis NOI from non-same properties
(2)
2,838
36,211
Cash Basis NOI
$
28,734
$
62,513
Straight line rent adjustments
(346
)
349
Lease value amortization
—
117
Lease termination fees
1,300
2,199
NOI
$
29,688
$
65,178
Depreciation and amortization
(14,649
)
(22,085
)
General and administrative
(26,097
)
(30,152
)
Interest and other income, net
18,944
57,871
Interest expense
(620
)
(8,597
)
Gain (loss) on early extinguishment of
debt
131
(6,374
)
Gain on sale of properties, net
446,536
422,148
Income before income taxes
$
453,933
$
477,989
Income tax expense
(170
)
(1,119
)
Net income
$
453,763
$
476,870
(1)
Other revenue is primarily comprised of
parking revenue that does not represent a component of a lease.
(2)
Cash Basis NOI from non-same properties
for all periods presented includes the operations of disposed
properties.
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, 2019 through September 30, 2020.
The year-to-date same property versions of these measures include
the results of properties continuously owned from January 1, 2019
through September 30, 2020. 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 may 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 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 EQC common
shareholders 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: https://www.businesswire.com/news/home/20201028005962/en/
Sarah Byrnes, Investor Relations (312) 646-2801 ir@eqcre.com
Equity Commonwealth (NYSE:EQC)
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