Equity Commonwealth (NYSE: EQC) today reported financial results
for the quarter ended September 30, 2022.
Financial results for the quarter ended September 30,
2022
Net income attributable to common shareholders was $10.2
million, or $0.09 per diluted share, for the quarter ended
September 30, 2022. This compares to net loss attributable to
common shareholders of $4.8 million, or $0.04 per diluted share,
for the quarter ended September 30, 2021. The increase in net
income was primarily due to an increase in interest income from
higher average interest rates.
Funds from Operations, or FFO, as defined by the National
Association of Real Estate Investment Trusts, for the quarter ended
September 30, 2022, were $14.5 million, or $0.13 per diluted share.
This compares to FFO for the quarter ended September 30, 2021 of
$(0.3) million, or $(0.00) per diluted share. The following items
impacted FFO for the quarter ended September 30, 2022, compared to
the corresponding 2021 period:
- $0.12 per diluted share increase in interest and other income,
net; and
- $0.01 per diluted share increase in same property NOI.
Normalized FFO was $14.5 million, or $0.13 per diluted share,
for the quarter ended September 30, 2022. This compares to
Normalized FFO for the quarter ended September 30, 2021 of $(0.7)
million, or $(0.01) per diluted share. The following items impacted
Normalized FFO for the quarter ended September 30, 2022, compared
to the corresponding 2021 period:
- $0.12 per diluted share increase in interest and other income,
net; and
- $0.01 per diluted share increase in same property NOI.
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 (loss), determined in accordance with U.S. generally
accepted accounting principles, or GAAP, are included at the end of
this press release.
As of September 30, 2022, the company’s cash and cash
equivalents balance was $2.7 billion.
Same property results for the quarter ended September 30,
2022
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 83.4% leased as of September
30, 2022, compared to 84.8% as of June 30, 2022, and 82.5% as of
September 30, 2021.
- The same property portfolio commenced occupancy was 80.8% as of
September 30, 2022, compared to 82.9% as of June 30, 2022, and
78.6% as of September 30, 2021.
- Same property NOI increased 16.8% when compared to the same
period in 2021.
- Same property cash NOI increased 19.1% when compared to the
same period in 2021.
- The company entered into leases for approximately 55,000 square
feet, including renewal leases for approximately 30,000 square feet
and new leases for approximately 25,000 square feet, in the quarter
ended September 30, 2022.
- The GAAP rental rate on new and renewal leases was 2.2% higher
compared to the prior GAAP rental rate for the same space.
- The cash rental rate on new and renewal leases was 3.3% 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 (loss), 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 October 1, 2021 through
September 30, 2022.
Significant events during the quarter ended September 30,
2022
- On September 8, 2022, the company declared a special, one-time
cash distribution of $1.00 per common share, which was paid on
October 18, 2022 to shareholders of record on September 29,
2022.
- During the quarter ended September 30, 2022, the company
repurchased 590,271 of its common shares at a weighted average
price of $25.40 ($24.40 dividend-adjusted) per share, for a total
investment of $15.0 million.
Subsequent events
Subsequent to quarter-end, as of October 24, 2022, the company
repurchased 1,223,319 of its common shares at a weighted average
price of $23.99 per share for a total investment of $29.3 million.
The company has $120.4 million of remaining authorization available
under its share repurchase program, as of October 24, 2022.
Earnings Conference Call & Supplemental Operating and
Financial Information
Equity Commonwealth will host a conference call to discuss third
quarter results on Wednesday, October 26, 2022, 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 2022 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 four 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. 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. You can identify
forward-looking statements by the use of forward-looking
terminology, including but not limited to, “may,” “will,” “should,”
“could,” “would,” “expects,” “intends,” “plans,” “anticipates,”
“believes,” “estimates,” “predicts,” or “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, 2022
December 31, 2021
ASSETS
Real estate properties:
Land
$
44,060
$
44,060
Buildings and improvements
363,782
362,042
407,842
406,102
Accumulated depreciation
(166,379
)
(156,439
)
241,463
249,663
Cash and cash equivalents
2,692,354
2,800,998
Rents receivable
16,234
15,549
Other assets, net
18,469
15,173
Total assets
$
2,968,520
$
3,081,383
LIABILITIES AND EQUITY
Accounts payable, accrued expenses and
other
$
21,704
$
19,762
Rent collected in advance
2,637
3,986
Distributions payable
113,584
2,365
Total liabilities
$
137,925
$
26,113
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; 110,651,571 and
115,205,818 shares issued and outstanding, respectively
1,106
1,152
Additional paid in capital
4,005,125
4,128,656
Cumulative net income
3,814,940
3,798,552
Cumulative common distributions
(4,393,290
)
(4,281,195
)
Cumulative preferred distributions
(723,691
)
(717,700
)
Total shareholders’ equity
2,823,453
3,048,728
Noncontrolling interest
7,142
6,542
Total equity
$
2,830,595
$
3,055,270
Total liabilities and equity
$
2,968,520
$
3,081,383
CONDENSED CONSOLIDATED
STATEMENTS OF OPERATIONS
(Unaudited, amounts in thousands,
except per share data)
Three Months Ended
Nine Months Ended
September 30,
September 30,
2022
2021
2022
2021
Revenues:
Rental revenue
$
13,869
$
13,141
$
44,135
$
41,424
Other revenue (1)
1,257
740
3,218
2,183
Total revenues
$
15,126
$
13,881
$
47,353
$
43,607
Expenses:
Operating expenses
$
6,073
$
6,102
$
17,198
$
19,311
Depreciation and amortization
4,451
4,588
13,176
13,371
General and administrative
7,593
7,572
23,241
30,691
Total expenses
$
18,117
$
18,262
$
53,615
$
63,373
Interest and other income, net
15,145
1,599
22,682
5,068
Gain on sale of properties, net
90
—
90
—
Income (loss) before income taxes
12,244
(2,782
)
16,510
(14,698
)
Income tax expense
(23
)
(32
)
(81
)
(94
)
Net income (loss)
$
12,221
$
(2,814
)
$
16,429
$
(14,792
)
Net (income) loss attributable to
noncontrolling interest
(31
)
6
(41
)
30
Net income (loss) attributable to
Equity Commonwealth
$
12,190
$
(2,808
)
$
16,388
$
(14,762
)
Preferred distributions
(1,997
)
(1,997
)
(5,991
)
(5,991
)
Net income (loss) attributable to
Equity Commonwealth common shareholders
$
10,193
$
(4,805
)
$
10,397
$
(20,753
)
Weighted average common shares outstanding
— basic (2)
111,305
122,190
112,341
122,128
Weighted average common shares outstanding
— diluted (2)(3)
112,596
122,190
113,383
122,128
Earnings per common share attributable to
Equity Commonwealth common shareholders:
Basic
$
0.09
$
(0.04
)
$
0.09
$
(0.17
)
Diluted
$
0.09
$
(0.04
)
$
0.09
$
(0.17
)
(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, 2022 and 2021
includes 86 and 262 unvested, earned RSUs, respectively. Weighted
average common shares outstanding for the nine months ended
September 30, 2022 and 2021 includes 111 and 255 unvested, earned
RSUs, respectively.
(3)
As of September 30, 2022, we had
4,915 series D preferred shares outstanding. The series D preferred
shares were convertible into 3,365 common shares as of September
30, 2022 and 3,237 common shares as of September 30, 2021. The
series D preferred shares are anti-dilutive for GAAP EPS for the
three and nine months ended September 30, 2022 and 2021.
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,
2022
2021
2022
2021
Calculation of FFO
Net income (loss)
$
12,221
$
(2,814
)
$
16,429
$
(14,792
)
Real estate depreciation and
amortization
4,412
4,546
13,058
13,232
Gain on sale of properties, net
(90
)
—
(90
)
—
FFO attributable to Equity
Commonwealth
16,543
1,732
29,397
(1,560
)
Preferred distributions
(1,997
)
(1,997
)
(5,991
)
(5,991
)
FFO attributable to EQC common
shareholders and unitholders
$
14,546
$
(265
)
$
23,406
$
(7,551
)
Calculation of Normalized FFO
FFO attributable to EQC common
shareholders and unitholders
$
14,546
$
(265
)
$
23,406
$
(7,551
)
Straight-line rent adjustments
(61
)
(409
)
(151
)
(1,277
)
Executive severance expense
—
—
—
7,107
Normalized FFO attributable to EQC
common shareholders and unitholders
$
14,485
$
(674
)
$
23,255
$
(1,721
)
Weighted average common shares and units
outstanding — basic (1)
111,585
122,437
112,616
122,373
Weighted average common shares and units
outstanding — diluted (1)
112,876
122,437
113,658
122,373
FFO attributable to EQC common
shareholders and unitholders per share and unit — basic
$
0.13
$
(0.00
)
$
0.21
$
(0.06
)
FFO attributable to EQC common
shareholders and unitholders per share and unit — diluted
$
0.13
$
(0.00
)
$
0.21
$
(0.06
)
Normalized FFO attributable to EQC common
shareholders and unitholders per share and unit — basic
$
0.13
$
(0.01
)
$
0.21
$
(0.01
)
Normalized FFO attributable to EQC common
shareholders and unitholders per share and unit — diluted
$
0.13
$
(0.01
)
$
0.20
$
(0.01
)
(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, 2022 and 2021 include 280 and 247 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, 2022
and 2021 include 275 and 245 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 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
9/30/2022
6/30/2022
3/31/2022
12/31/2021
9/30/2021
Calculation of Same Property NOI and
Same Property Cash Basis NOI:
Rental revenue
$
13,869
$
14,426
$
15,840
$
13,503
$
13,141
Other revenue (1)
1,257
1,115
846
892
740
Operating expenses
(6,073
)
(6,592
)
(4,533
)
(6,582
)
(6,102
)
NOI
$
9,053
$
8,949
$
12,153
$
7,813
$
7,779
Straight-line rent adjustments
(61
)
(100
)
10
(130
)
(409
)
Lease termination fees
(259
)
(177
)
(325
)
(209
)
(7
)
Cash Basis NOI
$
8,733
$
8,672
$
11,838
$
7,474
$
7,363
Cash Basis NOI from non-same properties
(2)
48
27
(1,699
)
(111
)
12
Same Property Cash Basis NOI
$
8,781
$
8,699
$
10,139
$
7,363
$
7,375
Non-cash rental income and lease
termination fees from same properties
320
277
315
338
416
Same Property NOI
$
9,101
$
8,976
$
10,454
$
7,701
$
7,791
Reconciliation of Same Property NOI to
GAAP Net Income (Loss):
Same Property NOI
$
9,101
$
8,976
$
10,454
$
7,701
$
7,791
Non-cash rental income and lease
termination fees from same properties
(320
)
(277
)
(315
)
(338
)
(416
)
Same Property Cash Basis NOI
$
8,781
$
8,699
$
10,139
$
7,363
$
7,375
Cash Basis NOI from non-same properties
(2)
(48
)
(27
)
1,699
111
(12
)
Cash Basis NOI
$
8,733
$
8,672
$
11,838
$
7,474
$
7,363
Straight-line rent adjustments
61
100
(10
)
130
409
Lease termination fees
259
177
325
209
7
NOI
$
9,053
$
8,949
$
12,153
$
7,813
$
7,779
Depreciation and amortization
(4,451
)
(4,313
)
(4,412
)
(4,403
)
(4,588
)
General and administrative
(7,593
)
(7,646
)
(8,002
)
(6,753
)
(7,572
)
Interest and other income, net
15,145
5,963
1,574
1,732
1,599
Gain on sale of properties, net
90
—
—
—
—
Income (loss) before income
taxes
$
12,244
$
2,953
$
1,313
$
(1,611
)
$
(2,782
)
Income tax expense
(23
)
(50
)
(8
)
(26
)
(32
)
Net income (loss)
$
12,221
$
2,903
$
1,305
$
(1,637
)
$
(2,814
)
(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,
2022
2021
Calculation of Same Property NOI and
Same Property Cash Basis NOI:
Rental revenue
$
44,135
$
41,424
Other revenue (1)
3,218
2,183
Operating expenses
(17,198
)
(19,311
)
NOI
$
30,155
$
24,296
Straight-line rent adjustments
(151
)
(1,277
)
Lease termination fees
(761
)
(7
)
Cash Basis NOI
$
29,243
$
23,012
Cash Basis NOI from non-same properties
(2)
(1,624
)
(90
)
Same Property Cash Basis NOI
$
27,619
$
22,922
Non-cash rental income and lease
termination fees from same properties
912
1,284
Same Property NOI
$
28,531
$
24,206
Reconciliation of Same Property NOI to
GAAP Net Income (Loss):
Same Property NOI
$
28,531
$
24,206
Non-cash rental income and lease
termination fees from same properties
(912
)
(1,284
)
Same Property Cash Basis NOI
$
27,619
$
22,922
Cash Basis NOI from non-same properties
(2)
1,624
90
Cash Basis NOI
$
29,243
$
23,012
Straight-line rent adjustments
151
1,277
Lease termination fees
761
7
NOI
$
30,155
$
24,296
Depreciation and amortization
(13,176
)
(13,371
)
General and administrative
(23,241
)
(30,691
)
Interest and other income, net
22,682
5,068
Gain on sale of properties, net
90
—
Income (loss) before income
taxes
$
16,510
$
(14,698
)
Income tax expense
(81
)
(94
)
Net income (loss)
$
16,429
$
(14,792
)
(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 October 1, 2021 through September 30, 2022.
The year-to-date same property versions of these measures include
the results of properties continuously owned from January 1, 2021
through September 30, 2022. 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 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/20221025005910/en/
Bill Griffiths (312) 646-2801 ir@eqcre.com
Equity Commonwealth (NYSE:EQC)
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