Equity Commonwealth (NYSE: EQC) today reported financial results
for the quarter ended June 30, 2019. All per share results are
reported on a diluted basis.
Financial results for the quarter ended June 30, 2019
Net income attributable to common shareholders was $240.3
million, or $1.93 per share, for the quarter ended June 30, 2019.
This compares to net income attributable to common shareholders of
$35.0 million, or $0.29 per share, for the quarter ended June 30,
2018. The increase in net income was primarily due to gains from
property sales.
Funds from Operations (FFO), as defined by the National
Association of Real Estate Investment Trusts, for the quarter ended
June 30, 2019, were $20.5 million, or $0.17 per share. This
compares to FFO for the quarter ended June 30, 2018 of $20.8
million, or $0.17 per share. The following items impacted FFO for
the quarter ended June 30, 2019, compared to the corresponding 2018
period:
- ($0.08) per share of decrease in income from properties
sold;
- ($0.04) per share of loss on early extinguishment of debt;
- $0.07 per share of increase in interest and other income;
- $0.03 per share of increase in same property NOI; and
- $0.02 per of share of interest expense savings.
Normalized FFO was $27.2 million, or $0.22 per share. This
compares to Normalized FFO for the quarter ended June 30, 2018 of
$20.8 million, or $0.17 per share. The following items impacted
Normalized FFO for the quarter ended June 30, 2019, compared to the
corresponding 2018 period:
- ($0.08) per share of decrease in income from properties
sold;
- $0.07 per share of increase in interest and other income;
- $0.03 per share of increase in same property cash NOI and
termination income; and
- $0.02 per share of interest expense savings.
Normalized FFO begins with FFO and eliminates certain items that
we view as nonrecurring or impacting comparability from period to
period. 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, 2019, the company’s cash balance
was $3.2 billion. Total debt outstanding was $26.1 million.
The weighted average number of diluted common shares outstanding
when calculating net income per share for the quarter ended June
30, 2019 was 125,862,172 shares, compared to 122,649,382 for the
quarter ended June 30, 2018. The weighted average number of diluted
common shares outstanding when calculating FFO or Normalized FFO
per share for the quarter ended June 30, 2019 was 123,344,972
shares, compared to 122,692,289 for the quarter ended June 30,
2018.
Same property results for the quarter ended June 30,
2019
The company’s same property portfolio at the end of the quarter
consisted of 7 properties totaling 2.5 million square feet.
Operating results were as follows:
- The same property portfolio was 90.5% leased as of June 30,
2019, compared to 92.0% as of March 31, 2019, and 92.0% as of June
30, 2018.
- The same property portfolio commenced occupancy was 89.7% as of
June 30, 2019, compared to 91.1% as of March 31, 2019, and 88.5% as
of June 30, 2018.
- Same property NOI increased 22.5% when compared to the same
period in 2018.
- Same property cash NOI increased 11.0% when compared to the
same period in 2018.
- The company entered into leases for approximately 58,000 square
feet, including new leases for approximately 15,000 square feet and
renewal leases for approximately 43,000 square feet.
- GAAP rental rates on new and renewal leases were 14.5% higher
compared to prior GAAP rental rates for the same space.
- Cash rental rates on new and renewal leases were 9.1% 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 net income, determined in accordance with
GAAP, are included at the end of this press release. The same
property portfolio includes properties continuously owned from
April 1, 2018 through June 30, 2019 and excludes properties sold or
classified as held for sale at the end of the period.
Significant events during the quarter ended June 30,
2019
- The company redeemed, on June 28, 2019, all $250 million of its
5.875% Senior Unsecured Notes due September 15, 2020.
- The company sold 600 108th Avenue NE in Bellevue, WA, for a
gross price of $195 million. The property includes a 254,510 square
foot office building and additional development rights.
- The company sold Research Park in Austin, TX, for a gross price
of $165.5 million. The asset includes a 1,100,000 square foot flex
property on 188 acres.
Earnings Conference Call & Supplemental Data
Equity Commonwealth will host a conference call to discuss
second quarter results on Thursday, August 1, 2019, 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 Second Quarter 2019 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. As of July 31,
2019, EQC’s portfolio comprised 7 properties and 2.5 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 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,
consummating any sales, and future share repurchases. 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,” 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 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). 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 Annual Report on Form 10-K for the year ended
December 31, 2018.
CONDENSED CONSOLIDATED BALANCE
SHEETS
(amounts in thousands, except
share data)
June 30, 2019
December 31, 2018
ASSETS
Real estate properties:
Land
$
85,627
$
135,142
Buildings and improvements
571,342
1,004,500
656,969
1,139,642
Accumulated depreciation
(193,166
)
(375,968
)
463,803
763,674
Acquired real estate leases, net
92
275
Cash and cash equivalents
3,180,548
2,400,803
Marketable securities
—
249,602
Restricted cash
2,310
3,298
Rents receivable
19,735
51,089
Other assets, net
35,683
62,031
Total assets
$
3,702,171
$
3,530,772
LIABILITIES AND EQUITY
Senior unsecured debt, net
$
—
$
248,473
Mortgage notes payable, net
26,091
26,482
Accounts payable, accrued expenses and
other
36,903
62,368
Rent collected in advance
3,554
9,451
Total liabilities
$
66,548
$
346,774
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; 121,922,120 and
121,572,155 shares issued and outstanding, respectively
1,219
1,216
Additional paid in capital
4,308,049
4,305,974
Cumulative net income
3,323,778
2,870,974
Cumulative other comprehensive loss
—
(342
)
Cumulative common distributions
(3,420,406
)
(3,420,548
)
Cumulative preferred distributions
(697,730
)
(693,736
)
Total shareholders’ equity
3,634,173
3,182,801
Noncontrolling interest
1,450
1,197
Total equity
$
3,635,623
$
3,183,998
Total liabilities and equity
$
3,702,171
$
3,530,772
CONDENSED CONSOLIDATED
STATEMENTS OF OPERATIONS
(amounts in thousands, except
per share data)
Three Months Ended
Six Months Ended
June 30,
June 30,
2019
2018
2019
2018
Revenues:
Rental revenue
$
30,574
$
45,569
$
69,464
$
100,842
Other revenue
2,794
3,067
5,656
6,382
Total revenues
$
33,368
$
48,636
$
75,120
$
107,224
Expenses:
Operating expenses
$
10,974
$
19,521
$
26,754
$
44,120
Depreciation and amortization
7,561
13,021
16,146
26,924
General and administrative
9,533
11,222
21,629
24,561
Loss on asset impairment
—
—
—
12,087
Total expenses
$
28,068
$
43,764
$
64,529
$
107,692
Interest and other income, net
20,695
12,668
38,470
18,448
Interest expense (including net
amortization of debt discounts, premiums and deferred financing
fees of $154, $645, $319 and $1,446, respectively)
(4,070
)
(6,350
)
(8,276
)
(16,465
)
Loss on early extinguishment of debt
(6,374
)
(1,536
)
(6,374
)
(6,403
)
Gain on sale of properties, net
227,166
26,937
420,203
232,148
Income before income taxes
242,717
36,591
454,614
227,260
Income tax (expense) benefit
(340
)
456
(1,640
)
(2,551
)
Net income
$
242,377
$
37,047
$
452,974
$
224,709
Net income attributable to noncontrolling
interest
(91
)
(14
)
(170
)
(77
)
Net income attributable to Equity
Commonwealth
$
242,286
$
37,033
$
452,804
$
224,632
Preferred distributions
(1,997
)
(1,997
)
(3,994
)
(3,994
)
Net income attributable to Equity
Commonwealth common shareholders
$
240,289
$
35,036
$
448,810
$
220,638
Weighted average common shares outstanding
— basic (1)
122,122
121,822
122,041
122,839
Weighted average common shares outstanding
— diluted (1)
125,862
122,649
125,841
126,027
Earnings per common share attributable to
Equity Commonwealth common shareholders:
Basic
$
1.97
$
0.29
$
3.68
$
1.80
Diluted
$
1.93
$
0.29
$
3.60
$
1.78
Certain reclassifications were made to conform the prior
period to our presentation of the condensed consolidated statements
of operations due to the impact of adopting ASU 2016-02. Amounts
that were previously disclosed as "Tenant reimbursements and other
income" are now included in "Rental revenue" and are no longer
presented as a separate line item. Parking revenues that do not
represent components of leases and were previously disclosed as
"Rental income" are now included in "Other revenue." Subsequent to
January 1, 2019, provisions for credit losses are included in
"Rental revenue." Provisions for credit losses prior to January 1,
2019 were disclosed as "Operating expenses" and were not
reclassified to conform prior periods to the current presentation.
(1)
Weighted average common shares outstanding
for the three months ended June 30, 2019 and 2018 includes 220 and
362 unvested, earned RSUs, respectively. Weighted average common
shares outstanding for the six months ended June 30, 2019 and 2018
includes 203 and 335 unvested, earned RSUs, respectively.
CALCULATION OF FUNDS FROM
OPERATIONS (FFO) AND NORMALIZED FFO
(amounts in thousands, except
per share data)
Three Months Ended
Six Months Ended
June 30,
June 30,
2019
2018
2019
2018
Calculation of FFO
Net income
$
242,377
$
37,047
$
452,974
$
224,709
Real estate depreciation and
amortization
7,283
12,717
15,560
26,320
Loss on asset impairment
—
—
—
12,087
Gain on sale of properties, net
(227,166
)
(26,937
)
(420,203
)
(232,148
)
FFO attributable to Equity
Commonwealth
22,494
22,827
48,331
30,968
Preferred distributions
(1,997
)
(1,997
)
(3,994
)
(3,994
)
FFO attributable to EQC common
shareholders and unitholders
$
20,497
$
20,830
$
44,337
$
26,974
Calculation of Normalized FFO
FFO attributable to EQC common
shareholders and unitholders
$
20,497
$
20,830
$
44,337
$
26,974
Lease value amortization
(39
)
(18
)
(78
)
80
Straight line rent adjustments
(11
)
(1,022
)
(848
)
(2,550
)
Loss on early extinguishment of debt
6,374
1,536
6,374
6,403
Loss on sale of securities
—
—
—
4,987
Income taxes related to gains on property
sales, net
415
(496
)
565
2,473
Normalized FFO attributable to EQC
common shareholders and unitholders
$
27,236
$
20,830
$
50,350
$
38,367
Weighted average common shares and units
outstanding -- basic (1)
122,168
121,865
122,087
122,882
Weighted average common shares and units
outstanding -- diluted (1)
123,345
122,692
123,324
123,707
FFO attributable to EQC common
shareholders and unitholders per share and unit -- basic &
diluted
$
0.17
$
0.17
$
0.36
$
0.22
Normalized FFO attributable to EQC common
shareholders and unitholders per share and unit -- basic &
diluted
$
0.22
$
0.17
$
0.41
$
0.31
(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, 2019 and 2018
include 46 and 43 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, 2019 and 2018
include 46 and 43 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
(amounts in thousands)
For the Three Months
Ended
6/30/2019
3/31/2019
12/31/2018
9/30/2018
6/30/2018
Calculation of Same Property NOI and
Same Property Cash Basis NOI:
Rental revenue
$
30,574
$
38,890
$
39,756
$
43,770
$
45,569
Other revenue
2,794
2,862
3,169
3,103
3,067
Operating expenses
(10,974
)
(15,780
)
(15,539
)
(20,257
)
(19,521
)
NOI
$
22,394
$
25,972
$
27,386
$
26,616
$
29,115
Straight line rent adjustments
(11
)
(837
)
(986
)
(1,435
)
(1,022
)
Lease value amortization
(39
)
(39
)
(22
)
(4
)
(18
)
Lease termination fees
(2,188
)
—
(19
)
(395
)
(1,557
)
Cash Basis NOI
$
20,156
$
25,096
$
26,359
$
24,782
$
26,518
Cash Basis NOI from non-same properties
(1)
(2,666
)
(7,853
)
(10,273
)
(8,756
)
(10,767
)
Same Property Cash Basis NOI
$
17,490
$
17,243
$
16,086
$
16,026
$
15,751
Non-cash rental income and lease
termination fees from same properties
1,950
(165
)
(137
)
(180
)
113
Same Property NOI
$
19,440
$
17,078
$
15,949
$
15,846
$
15,864
Reconciliation of Same Property NOI to
GAAP Net Income:
Same Property NOI
$
19,440
$
17,078
$
15,949
$
15,846
$
15,864
Non-cash rental income and lease
termination fees from same properties
(1,950
)
165
137
180
(113
)
Same Property Cash Basis NOI
$
17,490
$
17,243
$
16,086
$
16,026
$
15,751
Cash Basis NOI from non-same properties
(1)
2,666
7,853
10,273
8,756
10,767
Cash Basis NOI
$
20,156
$
25,096
$
26,359
$
24,782
$
26,518
Straight line rent adjustments
11
837
986
1,435
1,022
Lease value amortization
39
39
22
4
18
Lease termination fees
2,188
—
19
395
1,557
NOI
$
22,394
$
25,972
$
27,386
$
26,616
$
29,115
Depreciation and amortization
(7,561
)
(8,585
)
(10,830
)
(11,287
)
(13,021
)
General and administrative
(9,533
)
(12,096
)
(8,973
)
(10,905
)
(11,222
)
Interest and other income, net
20,695
17,775
15,741
12,626
12,668
Interest expense
(4,070
)
(4,206
)
(5,035
)
(5,085
)
(6,350
)
Loss on early extinguishment of debt
(6,374
)
—
(719
)
—
(1,536
)
Gain (loss) on sale of properties, net
227,166
193,037
(1,608
)
20,877
26,937
Income before income taxes
$
242,717
$
211,897
$
15,962
$
32,842
$
36,591
Income tax (expense) benefit
(340
)
(1,300
)
(540
)
(65
)
456
Net income
$
242,377
$
210,597
$
15,422
$
32,777
$
37,047
Same Property capitalized external
legal costs(2)
N/A
N/A
$
—
$
14
$
75
(1)
Cash Basis NOI from non-same
properties for all periods presented includes the operations of
properties disposed or classified as held for sale at the end of
the period.
(2)
Effective January 1, 2019, with
the adoption of ASU 2016-02, we no longer capitalize external legal
costs incurred when we enter into leases. We did not recast the
comparative prior periods presented for the external legal leasing
costs capitalized in those periods.
CALCULATION OF SAME PROPERTY NET
OPERATING INCOME (NOI) AND SAME PROPERTY CASH BASIS NOI
(amounts in thousands)
For the Six Months Ended June
30,
2019
2018
Calculation of Same Property NOI and
Same Property Cash Basis NOI:
Rental revenue
$
69,464
$
100,842
Other revenue
5,656
6,382
Operating expenses
(26,754
)
(44,120
)
NOI
$
48,366
$
63,104
Straight line rent adjustments
(848
)
(2,550
)
Lease value amortization
(78
)
80
Lease termination fees
(2,188
)
(2,522
)
Cash Basis NOI
$
45,252
$
58,112
Cash Basis NOI from non-same properties
(1)
(10,519
)
(27,021
)
Same Property Cash Basis NOI
$
34,733
$
31,091
Non-cash rental income and lease
termination fees from same properties
1,785
435
Same Property NOI
$
36,518
$
31,526
Reconciliation of Same Property NOI to
GAAP Net Income:
Same Property NOI
$
36,518
$
31,526
Non-cash rental income and lease
termination fees from same properties
(1,785
)
(435
)
Same Property Cash Basis NOI
$
34,733
$
31,091
Cash Basis NOI from non-same properties
(1)
10,519
27,021
Cash Basis NOI
$
45,252
$
58,112
Straight line rent adjustments
848
2,550
Lease value amortization
78
(80
)
Lease termination fees
2,188
2,522
NOI
$
48,366
$
63,104
Depreciation and amortization
(16,146
)
(26,924
)
General and administrative
(21,629
)
(24,561
)
Loss on asset impairment
—
(12,087
)
Interest and other income, net
38,470
18,448
Interest expense
(8,276
)
(16,465
)
Loss on early extinguishment of debt
(6,374
)
(6,403
)
Gain on sale of properties, net
420,203
232,148
Income before income taxes
$
454,614
$
227,260
Income tax expense
(1,640
)
(2,551
)
Net income
$
452,974
$
224,709
Same Property capitalized external
legal costs(2)
N/A
$
176
(1)
Cash Basis NOI from non-same properties
for all periods presented includes the operations of properties
disposed or classified as held for sale at the end of the
period.
(2)
Effective January 1, 2019, with the
adoption of ASU 2016-02, we no longer capitalize external legal
costs incurred when we enter into leases. We did not recast the
comparative prior periods presented for the external legal leasing
costs capitalized in those periods.
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, 2018 through June 30,
2019. The year-to-date same property versions of these measures
include the results of properties continuously owned from January
1, 2018 through June 30, 2019. 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/20190731005851/en/
Sarah Byrnes, Investor Relations (312) 646-2801 ir@eqcre.com
Equity Commonwealth (NYSE:EQC)
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