Equity Commonwealth (NYSE: EQC) today reported financial results
for the quarter ended June 30, 2021.
Merger Update On May 4, 2021, the company announced that
Equity Commonwealth and Monmouth Real Estate Investment Corporation
(NYSE: MNR) entered into a definitive merger agreement by which
Equity Commonwealth will acquire Monmouth in an all-stock
transaction.
“We are working with the Monmouth team and have made substantial
progress on the integration of the two companies,” said David
Helfand, President and Chief Executive Officer. “The transaction
provides a compelling opportunity for Monmouth shareholders to
participate, with EQC, in the long-term growth of the industrial
sector.”
Financial results for the quarter ended June 30, 2021 Net
loss attributable to common shareholders was $3.9 million, or $0.03
per diluted share, for the quarter ended June 30, 2021. This
compares to net income attributable to common shareholders of $25.8
million, or $0.21 per diluted share, for the quarter ended June 30,
2020. The decline in net income was primarily a result of a
decrease in gains from property sales.
Funds from Operations, or FFO, as defined by the National
Association of Real Estate Investment Trusts, for the quarter ended
June 30, 2021, were $0.4 million, or $0.00 per diluted share. This
compares to FFO for the quarter ended June 30, 2020 of $3.1
million, or $0.03 per diluted share. The following items impacted
FFO for the quarter ended June 30, 2021, compared to the
corresponding 2020 period:
- ($0.02) per diluted share decrease in interest income;
- ($0.01) per diluted share decrease in NOI from properties sold;
and
- $0.01 per diluted share decrease in general and administrative
expense.
Normalized FFO was ($0.1) million, or ($0.00) per diluted share,
for the quarter ended June 30, 2021. This compares to Normalized
FFO for the quarter ended June 30, 2020 of $3.7 million, or $0.03
per diluted share. The following items impacted Normalized FFO for
the quarter ended June 30, 2021, compared to the corresponding 2020
period:
- ($0.02) per diluted share decrease in interest income;
- ($0.01) per diluted share decrease in cash NOI from properties
sold;
- ($0.01) per diluted share decrease in same property cash NOI;
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 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.
For the quarter ended June 30, 2021, the company’s cash and cash
equivalents balance was $3.0 billion.
Same property results for the quarter ended June 30, 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 83.1% leased as of June 30,
2021, compared to 85.6% as of March 31, 2021, and 90.1% as of June
30, 2020.
- The same property portfolio commenced occupancy was 79.6% as of
June 30, 2021, compared to 82.2% as of March 31, 2021, and 83.9 %
as of June 30, 2020.
- Same property NOI decreased 1.9% when compared to the same
period in 2020.
- Same property cash NOI decreased 12.8% when compared to the
same period in 2020.
- The company entered into leases for approximately 29,000 square
feet, including renewal leases for approximately 21,000 square feet
and new leases for approximately 8,000 square feet.
- The GAAP rental rate on renewal leases was 20.3% higher
compared to the prior GAAP rental rate for the same space.
- The Cash rental rate on renewal leases was 13.2% higher
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 April 1, 2020 through June 30, 2021.
Earnings Conference Call & Supplemental Information
Equity Commonwealth will host a conference call to discuss second
quarter results on Thursday, July 29, 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 Second Quarter 2021 Supplemental Operating and
Financial Information 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 portfolio is comprised of 4 properties
totaling 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 consummating
the merger, 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)
June 30, 2021
December 31, 2020
ASSETS
Real estate properties:
Land
$
44,060
$
44,060
Buildings and improvements
361,592
357,650
405,652
401,710
Accumulated depreciation
(150,754
)
(143,319
)
254,898
258,391
Cash and cash equivalents
2,965,788
2,987,225
Rents receivable
15,310
14,702
Other assets, net
20,272
17,353
Total assets
$
3,256,268
$
3,277,671
LIABILITIES AND EQUITY
Accounts payable, accrued expenses and
other
$
19,209
$
20,588
Rent collected in advance
2,373
2,928
Distributions payable
2,850
10,991
Total liabilities
$
24,432
$
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; 121,940,355 and
121,522,555 shares issued and outstanding, respectively
1,219
1,215
Additional paid in capital
4,297,197
4,294,632
Cumulative net income
3,802,994
3,814,948
Cumulative common distributions
(4,281,670
)
(4,283,668
)
Cumulative preferred distributions
(713,706
)
(709,712
)
Total shareholders’ equity
3,225,297
3,236,678
Noncontrolling interest
6,539
6,486
Total equity
$
3,231,836
$
3,243,164
Total liabilities and equity
$
3,256,268
$
3,277,671
CONDENSED CONSOLIDATED
STATEMENTS OF OPERATIONS
(Unaudited, amounts in thousands,
except per share data)
Three Months Ended
Six Months Ended
June 30,
June 30,
2021
2020
2021
2020
Revenues:
Rental revenue
$
14,114
$
15,248
$
28,283
$
32,391
Other revenue (1)
761
1,017
1,443
2,694
Total revenues
$
14,875
$
16,265
$
29,726
$
35,085
Expenses:
Operating expenses
$
6,588
$
6,677
$
13,209
$
15,438
Depreciation and amortization
4,432
4,398
8,783
9,512
General and administrative
7,390
8,302
23,119
18,906
Total expenses
$
18,410
$
19,377
$
45,111
$
43,856
Interest and other income, net
1,626
4,443
3,469
16,338
Interest expense (including net
amortization of debt premiums and deferred financing fees of $—,
$(60), $—, and $(116), respectively)
—
(302
)
—
(611
)
Gain on sale of properties, net
—
26,916
—
446,536
(Loss) income before income taxes
(1,909
)
27,945
(11,916
)
453,492
Income tax expense
(31
)
(59
)
(62
)
(99
)
Net (loss) income
$
(1,940
)
$
27,886
$
(11,978
)
$
453,393
Net loss (income) attributable to
noncontrolling interest
4
(54
)
24
(802
)
Net (loss) income attributable to
Equity Commonwealth
$
(1,936
)
$
27,832
$
(11,954
)
$
452,591
Preferred distributions
(1,997
)
(1,997
)
(3,994
)
(3,994
)
Net (loss) income attributable to
Equity Commonwealth common shareholders
$
(3,933
)
$
25,835
$
(15,948
)
$
448,597
Weighted average common shares outstanding
— basic (2)
122,189
121,655
122,096
121,901
Weighted average common shares outstanding
— diluted(2)(3)
122,189
123,255
122,096
126,358
Earnings per common share attributable to
Equity Commonwealth common shareholders:
Basic
$
(0.03
)
$
0.21
$
(0.13
)
$
3.68
Diluted
$
(0.03
)
$
0.21
$
(0.13
)
$
3.58
(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 June 30, 2021 and 2020 includes 266 and
150 unvested, earned RSUs, respectively. Weighted average common
shares outstanding for the six months ended June 30, 2021 and 2020
includes 251 and 164 unvested, earned RSUs, respectively.
(3)
As of June 30, 2021, we had 4,915 series D
preferred shares outstanding. The series D preferred shares were
convertible into 3,237 common shares as of June 30, 2021 and 2,857
common shares as of June 30, 2020. The series D preferred shares
are antidilutive for GAAP EPS for the three and six months ended
June 30, 2021 and for the three months ended June 30, 2020. They
are dilutive for GAAP EPS for the six months ended June 30,
2020.
CALCULATION OF FUNDS FROM
OPERATIONS (FFO) AND NORMALIZED FFO
(Unaudited, amounts in thousands,
except per share data)
Three Months Ended
Six Months Ended
June 30,
June 30,
2021
2020
2021
2020
Calculation of FFO
Net (loss) income
$
(1,940
)
$
27,886
$
(11,978
)
$
453,393
Real estate depreciation and
amortization
4,385
4,174
8,686
9,055
Gain on sale of properties, net
—
(26,916
)
—
(446,536
)
FFO attributable to Equity
Commonwealth
2,445
5,144
(3,292
)
15,912
Preferred distributions
(1,997
)
(1,997
)
(3,994
)
(3,994
)
FFO attributable to EQC common
shareholders and unitholders
$
448
$
3,147
$
(7,286
)
$
11,918
Calculation of Normalized FFO
FFO attributable to EQC common
shareholders and unitholders
$
448
$
3,147
$
(7,286
)
$
11,918
Straight-line rent adjustments
(561
)
515
(868
)
713
Executive severance expense
—
—
7,107
—
Taxes related to property sales included
in general and administrative
—
10
—
1,458
Taxes related to property sales, net
included in income tax expense
—
44
—
79
Normalized FFO attributable to EQC
common shareholders and unitholders
$
(113
)
$
3,716
$
(1,047
)
$
14,168
Weighted average common shares and units
outstanding — basic FFO (1)
122,433
121,889
122,340
122,100
Weighted average common shares and units
outstanding — diluted FFO (1)
122,935
123,489
122,340
123,700
Weighted average common shares and units
outstanding — basic Normalized FFO (1)
122,433
121,889
122,340
122,100
Weighted average common shares and units
outstanding — diluted Normalized FFO (1)
122,433
123,489
122,340
123,700
FFO attributable to EQC common
shareholders and unitholders per share and unit — basic and
diluted
$
0.00
$
0.03
$
(0.06
)
$
0.10
Normalized FFO attributable to EQC common
shareholders and unitholders per share and unit — basic
$
(0.00
)
$
0.03
$
(0.01
)
$
0.12
Normalized FFO attributable to EQC common
shareholders and unitholders per share and unit — diluted
$
(0.00
)
$
0.03
$
(0.01
)
$
0.11
(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 June 30, 2021 and
2020 include 244 and 234 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 six months ended June 30, 2021 and
2020 include 244 and 199 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
6/30/2021
3/31/2021
12/31/2020
9/30/2020
6/30/2020
Calculation of Same Property NOI and
Same Property Cash Basis NOI:
Rental revenue
$
14,114
$
14,169
$
14,001
$
15,742
$
15,248
Other revenue (1)
761
682
707
743
1,017
Operating expenses
(6,588
)
(6,621
)
(6,976
)
(6,444
)
(6,677
)
NOI
$
8,287
$
8,230
$
7,732
$
10,041
$
9,588
Straight-line rent adjustments
(561
)
(307
)
(6
)
(367
)
515
Lease termination fees
—
—
(10
)
(1,300
)
—
Cash Basis NOI
$
7,726
$
7,923
$
7,716
$
8,374
$
10,103
Cash Basis NOI from non-same properties
(2)
22
(124
)
(415
)
(218
)
(1,221
)
Same Property Cash Basis NOI
$
7,748
$
7,799
$
7,301
$
8,156
$
8,882
Non-cash rental income and lease
termination fees from same properties
561
307
16
1,668
(408
)
Same Property NOI
$
8,309
$
8,106
$
7,317
$
9,824
$
8,474
Reconciliation of Same Property NOI to
GAAP Net (Loss) Income:
Same Property NOI
$
8,309
$
8,106
$
7,317
$
9,824
$
8,474
Non-cash rental income and lease
termination fees from same properties
(561
)
(307
)
(16
)
(1,668
)
408
Same Property Cash Basis NOI
$
7,748
$
7,799
$
7,301
$
8,156
$
8,882
Cash Basis NOI from non-same properties
(2)
(22
)
124
415
218
1,221
Cash Basis NOI
$
7,726
$
7,923
$
7,716
$
8,374
$
10,103
Straight-line rent adjustments
561
307
6
367
(515
)
Lease termination fees
—
—
10
1,300
—
NOI
$
8,287
$
8,230
$
7,732
$
10,041
$
9,588
Depreciation and amortization
(4,432
)
(4,351
)
(4,680
)
(5,137
)
(4,398
)
General and administrative
(7,390
)
(15,729
)
(7,136
)
(7,191
)
(8,302
)
Interest and other income, net
1,626
1,843
2,284
2,606
4,443
Interest expense
—
—
—
(9
)
(302
)
Gain on early extinguishment of debt
—
—
—
131
—
Gain on sale of properties, net
—
—
208
—
26,916
(Loss) income before income
taxes
$
(1,909
)
$
(10,007
)
$
(1,592
)
$
441
$
27,945
Income tax expense
(31
)
(31
)
(78
)
(71
)
(59
)
Net (loss) income
$
(1,940
)
$
(10,038
)
$
(1,670
)
$
370
$
27,886
(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 Six Months Ended June
30,
2021
2020
Calculation of Same Property NOI and
Same Property Cash Basis NOI:
Rental revenue
$
28,283
$
32,391
Other revenue (1)
1,443
2,694
Operating expenses
(13,209
)
(15,438
)
NOI
$
16,517
$
19,647
Straight-line rent adjustments
(868
)
713
Cash Basis NOI
$
15,649
$
20,360
Cash Basis NOI from non-same properties
(2)
(102
)
(2,620
)
Same Property Cash Basis NOI
$
15,547
$
17,740
Non-cash rental income and lease
termination fees from same properties
868
(515
)
Same Property NOI
$
16,415
$
17,225
Reconciliation of Same Property NOI to
GAAP Net (Loss) Income:
Same Property NOI
$
16,415
$
17,225
Non-cash rental income and lease
termination fees from same properties
(868
)
515
Same Property Cash Basis NOI
$
15,547
$
17,740
Cash Basis NOI from non-same properties
(2)
102
2,620
Cash Basis NOI
$
15,649
$
20,360
Straight-line rent adjustments
868
(713
)
NOI
$
16,517
$
19,647
Depreciation and amortization
(8,783
)
(9,512
)
General and administrative
(23,119
)
(18,906
)
Interest and other income, net
3,469
16,338
Interest expense
—
(611
)
Gain on sale of properties, net
—
446,536
(Loss) income before income
taxes
$
(11,916
)
$
453,492
Income tax expense
(62
)
(99
)
Net (loss) income
$
(11,978
)
$
453,393
(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 April 1, 2020 through June 30, 2021. The
year-to-date same property versions of theses measures include the
results of properties continuously owned from January 1, 2020
through June 30, 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/20210728005942/en/
Sarah Byrnes, Investor Relations (312) 646-2801 ir@eqcre.com
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