Equity Commonwealth (NYSE: EQC) today reported financial results
for the quarter ended March 31, 2021.
We continue to monitor the impact of COVID-19 on our business.
Our priority remains the health and safety of our tenants,
employees and building staff. For the first quarter 2021, we
collected 97% of contractual rents.
Financial results for the quarter ended March 31,
2021
Net loss attributable to common shareholders was $12 million, or
$0.10 per diluted share, for the quarter ended March 31, 2021. This
compares to net income attributable to common shareholders of
$422.8 million, or $3.35 per diluted share, for the quarter ended
March 31, 2020. The decline in net income was primarily a result of
a decrease in gains from property dispositions and a decrease in
interest and other income.
Funds from Operations, or FFO, as defined by the National
Association of Real Estate Investment Trusts, for the quarter ended
March 31, 2021, were ($7.7) million, or ($0.06) per diluted share.
This compares to FFO for the quarter ended March 31, 2020 of $8.8
million, or $0.07 per diluted share. The following items impacted
FFO for the quarter ended March 31, 2021, compared to the
corresponding 2020 period:
- ($0.08) per diluted share decrease in interest income and
other, net;
- ($0.04) per diluted share increase in general and
administrative expense due to severance; and
- ($0.01) per diluted share decrease in NOI from properties
sold.
Normalized FFO was ($0.9) million, or ($0.01) per diluted share,
for the quarter ended March 31, 2021. This compares to Normalized
FFO for the quarter ended March 31, 2020 of $10.5 million, or $0.08
per diluted share. The following items impacted Normalized FFO for
the quarter ended March 31, 2021, compared to the corresponding
2020 period:
- ($0.08) per diluted share decrease in interest income and
other, net; and
- ($0.01) per diluted share decrease in cash NOI from properties
sold.
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.
Same property results for the quarter ended March 31,
2021
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 85.6% leased as of March 31,
2021, compared to 85.7% as of December 31, 2020, and 90.8% as of
March 31, 2020.
- The same property portfolio commenced occupancy was 82.2% as of
March 31, 2021, compared to 81.7% as of December 31, 2020, and
83.7% as of March 31, 2020.
- Same property NOI decreased 7.4% when compared to the same
period in 2020. The decrease was largely due to lower parking
revenue.
- Same property cash NOI decreased 12% when compared to the same
period in 2020. The decrease was largely due to lower parking
revenue and a decrease in occupancy.
- The company entered into leases for approximately 27,000 square
feet, including renewal leases for approximately 16,000 square feet
and new leases for approximately 11,000 square feet.
- The GAAP rental rate on new and renewal leases was 10% lower
compared to the prior GAAP rental rate for the same space.
- The cash rental rate on new and renewal leases was 17% 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 January 1, 2020 through March 31, 2021.
Significant events during the quarter ended March 31,
2021
- Adam Markman stepped down from his role as Executive Vice
President, Chief Financial Officer and Treasurer, effective March
31, 2021. As a result, the company had $3.7 million of cash
severance expense and $3.4 million of expense related to the
acceleration of stock awards, including awards that remain subject
to performance-based vesting conditions.
- Bill Griffiths was appointed Senior Vice President, Chief
Financial Officer and Treasurer, effective April 1, 2021. Mr.
Griffiths previously served as Senior Vice President of Capital
Markets for the Company.
- Edward Glickman, James Lozier, and Kenneth Shea have chosen not
to stand for re-election to the Board of Trustees when their
current term expires on June 23, 2021. The size of the company’s
Board of Trustees will be reduced from eleven to eight trustees
following the Annual Meeting.
Earnings Conference Call & Supplemental Operating and
Financial Information
Equity Commonwealth will host a conference call on Wednesday,
May 5, 2021, 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 First Quarter 2021 Supplemental Operating and
Financial Information is available in 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 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
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)
March 31, 2021
December 31, 2020
ASSETS
Real estate properties:
Land
$
44,060
$
44,060
Buildings and improvements
361,107
357,650
405,167
401,710
Accumulated depreciation
(147,034
)
(143,319
)
258,133
258,391
Cash and cash equivalents
2,971,052
2,987,225
Rents receivable
14,629
14,702
Other assets, net
16,862
17,353
Total assets
$
3,260,676
$
3,277,671
LIABILITIES AND EQUITY
Accounts payable, accrued expenses and
other
$
21,007
$
20,588
Rent collected in advance
2,979
2,928
Distributions payable
5,072
10,991
Total liabilities
$
29,058
$
34,507
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; 121,916,875 and
121,522,555 shares issued and outstanding, respectively
1,219
1,215
Additional paid in capital
4,295,226
4,294,632
Cumulative net income
3,804,930
3,814,948
Cumulative common distributions
(4,283,753
)
(4,283,668
)
Cumulative preferred distributions
(711,709
)
(709,712
)
Total shareholders’ equity
3,225,176
3,236,678
Noncontrolling interest
6,442
6,486
Total equity
$
3,231,618
$
3,243,164
Total liabilities and equity
$
3,260,676
$
3,277,671
CONDENSED CONSOLIDATED
STATEMENTS OF OPERATIONS
(Unaudited, amounts in thousands,
except per share data)
Three Months Ended
March 31,
2021
2020
Revenues:
Rental revenue
$
14,169
$
17,143
Other revenue (1)
682
1,677
Total revenues
$
14,851
$
18,820
Expenses:
Operating expenses
$
6,621
$
8,761
Depreciation and amortization
4,351
5,114
General and administrative
15,729
10,604
Total expenses
$
26,701
$
24,479
Interest and other income, net
1,843
11,895
Interest expense (including net
amortization of debt premiums and deferred financing fees of $— and
$(56), respectively)
—
(309
)
Gain on sale of properties, net
—
419,620
(Loss) income before income taxes
(10,007
)
425,547
Income tax expense
(31
)
(40
)
Net (loss) income
$
(10,038
)
$
425,507
Net loss (income) attributable to
noncontrolling interest
20
(748
)
Net (loss) income attributable to
Equity Commonwealth
$
(10,018
)
$
424,759
Preferred distributions
(1,997
)
(1,997
)
Net (loss) income attributable to
Equity Commonwealth common shareholders
$
(12,015
)
$
422,762
Weighted average common shares outstanding
— basic (2)
122,002
122,148
Weighted average common shares outstanding
— diluted(2)(3)
122,002
126,605
Earnings per common share attributable to
Equity Commonwealth common shareholders:
Basic
$
(0.10
)
$
3.46
Diluted
$
(0.10
)
$
3.35
(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 March 31, 2021 and 2020
includes 236 and 177 unvested, earned RSUs, respectively.
(3)
As of March 31, 2021, we had
4,915 series D preferred shares outstanding. The series D preferred
shares were convertible into 3,237 common shares as of March 31,
2021, and 2,857 common shares as of March 31, 2020. The series D
preferred shares are antidilutive for GAAP EPS for the three months
ended March 31, 2021. They are dilutive for GAAP EPS for the three
months ended March 31, 2020.
CALCULATION OF FUNDS FROM
OPERATIONS (FFO) AND NORMALIZED FFO
(Unaudited, amounts in thousands,
except per share data)
Three Months Ended
March 31,
2021
2020
Calculation of FFO
Net (loss) income
$
(10,038
)
$
425,507
Real estate depreciation and
amortization
4,301
4,881
Gain on sale of properties, net
—
(419,620
)
FFO attributable to Equity
Commonwealth
(5,737
)
10,768
Preferred distributions
(1,997
)
(1,997
)
FFO attributable to EQC common
shareholders and unitholders
$
(7,734
)
$
8,771
Calculation of Normalized FFO
FFO attributable to EQC common
shareholders and unitholders
$
(7,734
)
$
8,771
Straight-line rent adjustments
(307
)
198
Executive severance expense
7,107
—
Taxes related to property sales included
in general and administrative
—
1,448
Taxes related to property sales, net
included in income tax expense
—
35
Normalized FFO attributable to EQC
common shareholders and unitholders
$
(934
)
$
10,452
Weighted average common shares and units
outstanding — basic (1)
122,245
122,310
Weighted average common shares and units
outstanding — diluted (1)
122,245
123,910
FFO attributable to EQC common
shareholders and unitholders per share and unit — basic and
diluted
$
(0.06
)
$
0.07
Normalized FFO attributable to EQC common
shareholders and unitholders per share and unit — basic
$
(0.01
)
$
0.09
Normalized FFO attributable to EQC common
shareholders and unitholders per share and unit — diluted
$
(0.01
)
$
0.08
(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 March 31, 2021 and 2020
include 243 and 162 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
3/31/2021
12/31/2020
9/30/2020
6/30/2020
3/31/2020
Calculation of Same Property NOI and
Same Property Cash Basis NOI:
Rental revenue
$
14,169
$
14,001
$
15,742
$
15,248
$
17,143
Other revenue (1)
682
707
743
1,017
1,677
Operating expenses
(6,621
)
(6,976
)
(6,444
)
(6,677
)
(8,761
)
NOI
$
8,230
$
7,732
$
10,041
$
9,588
$
10,059
Straight-line rent adjustments
(307
)
(6
)
(367
)
515
198
Lease termination fees
—
(10
)
(1,300
)
—
—
Cash Basis NOI
$
7,923
$
7,716
$
8,374
$
10,103
$
10,257
Cash Basis NOI from non-same properties
(2)
(124
)
(415
)
(218
)
(1,221
)
(1,399
)
Same Property Cash Basis NOI
$
7,799
$
7,301
$
8,156
$
8,882
$
8,858
Non-cash rental income and lease
termination fees from same properties
307
16
1,668
(408
)
(107
)
Same Property NOI
$
8,106
$
7,317
$
9,824
$
8,474
$
8,751
Reconciliation of Same Property NOI to
GAAP Net (Loss) Income:
Same Property NOI
$
8,106
$
7,317
$
9,824
$
8,474
$
8,751
Non-cash rental income and lease
termination fees from same properties
(307
)
(16
)
(1,668
)
408
107
Same Property Cash Basis NOI
$
7,799
$
7,301
$
8,156
$
8,882
$
8,858
Cash Basis NOI from non-same properties
(2)
124
415
218
1,221
1,399
Cash Basis NOI
$
7,923
$
7,716
$
8,374
$
10,103
$
10,257
Straight-line rent adjustments
307
6
367
(515
)
(198
)
Lease termination fees
—
10
1,300
—
—
NOI
$
8,230
$
7,732
$
10,041
$
9,588
$
10,059
Depreciation and amortization
(4,351
)
(4,680
)
(5,137
)
(4,398
)
(5,114
)
General and administrative
(15,729
)
(7,136
)
(7,191
)
(8,302
)
(10,604
)
Interest and other income, net
1,843
2,284
2,606
4,443
11,895
Interest expense
—
—
(9
)
(302
)
(309
)
Gain on early extinguishment of debt
—
—
131
—
—
Gain on sale of properties, net
—
208
—
26,916
419,620
(Loss) income before income
taxes
$
(10,007
)
$
(1,592
)
$
441
$
27,945
$
425,547
Income tax expense
(31
)
(78
)
(71
)
(59
)
(40
)
Net (loss) income
$
(10,038
)
$
(1,670
)
$
370
$
27,886
$
425,507
(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 same property versions of these
measures include the results of properties continuously owned from
January 1, 2020 through March 31, 2021. 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/20210504006210/en/
Sarah Byrnes, Investor Relations (312) 646-2801 ir@eqcre.com
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