Equity Commonwealth (NYSE: EQC) today reported financial results
for the quarter ended September 30, 2019. All per share results are
reported on a diluted basis.
Financial results for the quarter ended September 30,
2019
Net income attributable to common shareholders was $21.9
million, or $0.18 per share, for the quarter ended September 30,
2019. This compares to net income attributable to common
shareholders of $30.8 million, or $0.25 per share, for the quarter
ended September 30, 2018. The decrease in net income was primarily
a result of property dispositions and a decrease in gains from
property sales, partially offset by higher interest income and
lower interest expense.
Funds from Operations, or FFO, as defined by the National
Association of Real Estate Investment Trusts, for the quarter ended
September 30, 2019, were $25.6 million, or $0.21 per share. This
compares to FFO for the quarter ended September 30, 2018 of $20.9
million, or $0.17 per share. The following items impacted FFO for
the quarter ended September 30, 2019, compared to the corresponding
2018 period:
- ($0.09) per share of decrease in income and straight-line rent
from properties sold;
- $0.05 per share of increase in interest and other income,
net;
- $0.04 per share of interest expense savings;
- $0.02 per share of general & administrative expense
savings; and
- $0.01 per share of increase in same property NOI.
Normalized FFO was $25.7 million, or $0.21 per share. This
compares to Normalized FFO for the quarter ended September 30, 2018
of $21.6 million, or $0.18 per share. The following items impacted
Normalized FFO for the quarter ended September 30, 2019, compared
to the corresponding 2018 period:
- ($0.07) per share of decrease in income from properties
sold;
- $0.04 per share of increase in interest and other income;
- $0.04 per share of interest expense savings;
- $0.02 per share of general & administrative expense
savings; and
- $0.01 per share of increase in same property cash NOI and
termination income.
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 September 30, 2019, the company’s cash
balance net of distributions payable was $2.8 billion. Total debt
outstanding was $25.9 million.
Same property results for the quarter ended September 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 93.5% leased as of September
30, 2019, compared to 90.5% as of June 30, 2019, and 93.1% as of
September 30, 2018.
- The same property portfolio commenced occupancy was 88.2% as of
September 30, 2019, compared to 89.7% as of June 30, 2019, and
91.1% as of September 30, 2018.
- Same property NOI increased 5.2% when compared to the same
period in 2018.
- Same property cash NOI increased 6.9% when compared to the same
period in 2018.
- The company entered into leases for approximately 298,000
square feet, including new leases for approximately 116,000 square
feet and renewal leases for approximately 182,000 square feet.
- GAAP rental rates on new and renewal leases were 9.1% higher
compared to prior GAAP rental rates for the same space.
- Cash rental rates on new and renewal leases were 0.7% lower
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 July
1, 2018 through September 30, 2019 and excludes properties sold or
classified as held for sale at the end of the period.
Significant events during the quarter ended September 30,
2019
- The company announced a special, one-time cash distribution of
$3.50 per common share, which was paid on October 23, 2019 to
shareholders of record on October 7, 2019.
Earnings Conference Call & Supplemental Data
Equity Commonwealth will host a conference call to discuss third
quarter results on Wednesday, October 30, 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 Third 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 October
29, 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)
September 30, 2019
December 31, 2018
ASSETS
Real estate properties:
Land
$
85,627
$
135,142
Buildings and improvements
572,714
1,004,500
658,341
1,139,642
Accumulated depreciation
(197,847)
(375,968)
460,494
763,674
Cash and cash equivalents
3,205,775
2,400,803
Marketable securities
—
249,602
Restricted cash
4,456
3,298
Rents receivable
19,347
51,089
Other assets, net
41,271
62,306
Total assets
$
3,731,343
$
3,530,772
LIABILITIES AND EQUITY
Senior unsecured debt, net
$
—
$
248,473
Mortgage notes payable, net
25,896
26,482
Accounts payable, accrued expenses and
other
38,218
58,300
Rent collected in advance
3,533
9,451
Distributions payable
435,583
4,068
Total liabilities
$
503,230
$
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; 121,924,199 and
121,572,155 shares issued and outstanding, respectively
1,219
1,216
Additional paid in capital
4,310,353
4,305,974
Cumulative net income
3,347,664
2,870,974
Cumulative other comprehensive loss
—
(342)
Cumulative common distributions
(3,851,947)
(3,420,548)
Cumulative preferred distributions
(699,727)
(693,736)
Total shareholders’ equity
3,226,825
3,182,801
Noncontrolling interest
1,288
1,197
Total equity
$
3,228,113
$
3,183,998
Total liabilities and equity
$
3,731,343
$
3,530,772
CONDENSED CONSOLIDATED
STATEMENTS OF OPERATIONS
(amounts in thousands, except
per share data)
Three Months Ended
Nine Months Ended
September 30,
September 30,
2019
2018
2019
2018
Revenues:
Rental revenue
$
23,995
$
43,770
$
93,459
$
144,612
Other revenue
2,740
3,103
8,396
9,485
Total revenues
$
26,735
$
46,873
$
101,855
$
154,097
Expenses:
Operating expenses
$
9,923
$
20,257
$
36,677
$
64,377
Depreciation and amortization
5,939
11,287
22,085
38,211
General and administrative
8,523
10,905
30,152
35,466
Loss on asset impairment
—
—
—
12,087
Total expenses
$
24,385
$
42,449
$
88,914
$
150,141
Interest and other income,
net
19,401
12,626
57,871
31,074
Interest expense (including net
amortization of debt discounts, premiums and deferred financing
fees of $(55), $559, $264 and $2,005, respectively)
(321
)
(5,085
)
(8,597
)
(21,550
)
Loss on early extinguishment of
debt
—
—
(6,374
)
(6,403
)
Gain on sale of properties,
net
1,945
20,877
422,148
253,025
Income before income taxes
23,375
32,842
477,989
260,102
Income tax benefit (expense)
521
(65
)
(1,119
)
(2,616
)
Net income
$
23,896
$
32,777
$
476,870
$
257,486
Net income attributable to
noncontrolling interest
(10
)
(13
)
(180
)
(90
)
Net income attributable to
Equity Commonwealth
$
23,886
$
32,764
$
476,690
$
257,396
Preferred distributions
(1,997
)
(1,997
)
(5,991
)
(5,991
)
Net income attributable to
Equity Commonwealth common shareholders
$
21,889
$
30,767
$
470,699
$
251,405
Weighted average common shares
outstanding — basic (1)
122,140
121,845
122,075
122,504
Weighted average common shares
outstanding — diluted (1)
123,564
122,851
125,938
123,389
Earnings per common share
attributable to Equity Commonwealth common shareholders:
Basic
$
0.18
$
0.25
$
3.86
$
2.05
Diluted
$
0.18
$
0.25
$
3.79
$
2.04
Distributions declared per common
share
$
3.50
$
2.50
$
3.50
$
2.50
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 September 30, 2019 and 2018 includes 217
and 362 unvested, earned RSUs, respectively. Weighted average
common shares outstanding for the nine months ended September 30,
2019 and 2018 includes 208 and 344 unvested, earned RSUs,
respectively.
CALCULATION OF FUNDS FROM
OPERATIONS (FFO) AND NORMALIZED FFO
(amounts in thousands, except
per share data)
Three Months Ended
Nine Months Ended
September 30,
September 30,
2019
2018
2019
2018
Calculation of FFO
Net income
$
23,896
$
32,777
$
476,870
$
257,486
Real estate depreciation and
amortization
5,683
10,978
21,243
37,298
Loss on asset impairment
—
—
—
12,087
Gain on sale of properties, net
(1,945)
(20,877)
(422,148)
(253,025)
FFO attributable to Equity
Commonwealth
27,634
22,878
75,965
53,846
Preferred distributions
(1,997)
(1,997)
(5,991)
(5,991)
FFO attributable to EQC common
shareholders and unitholders
$
25,637
$
20,881
$
69,974
$
47,855
Calculation of Normalized FFO
FFO attributable to EQC common
shareholders and unitholders
$
25,637
$
20,881
$
69,974
$
47,855
Lease value amortization
(39)
(4)
(117)
76
Straight line rent adjustments
499
(1,435)
(349)
(3,985)
Loss on early extinguishment of debt
—
—
6,374
6,403
Loss on sale of securities
—
—
—
4,987
Loss on sale of real estate mortgage
receivable
—
2,117
—
2,117
Income taxes related to gains on property
sales, net
(423)
25
142
2,498
Normalized FFO attributable to EQC
common shareholders and unitholders
$
25,674
$
21,584
$
76,024
$
59,951
Weighted average common shares and units
outstanding -- basic (1)
122,189
121,891
122,121
122,548
Weighted average common shares and units
outstanding -- diluted (1)
123,613
122,897
123,421
123,433
FFO attributable to EQC common
shareholders and unitholders per share and unit -- basic &
diluted
$
0.21
$
0.17
$
0.57
$
0.39
Normalized FFO attributable to EQC common
shareholders and unitholders per share and unit -- basic &
diluted
$
0.21
$
0.18
$
0.62
$
0.49
(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, 2019 and 2018 include 49 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). 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, 2019 and 2018 include 46 and 44
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
9/30/2019
6/30/2019
3/31/2019
12/31/2018
9/30/2018
Calculation of Same Property NOI and
Same Property Cash Basis NOI:
Rental revenue
$
23,995
$
30,574
$
38,890
$
39,756
$
43,770
Other revenue
2,740
2,794
2,862
3,169
3,103
Operating expenses
(9,923)
(10,974)
(15,780)
(15,539)
(20,257)
NOI
$
16,812
$
22,394
$
25,972
$
27,386
$
26,616
Straight line rent adjustments
499
(11)
(837)
(986)
(1,435)
Lease value amortization
(39)
(39)
(39)
(22)
(4)
Lease termination fees
(11)
(2,188)
—
(19)
(395)
Cash Basis NOI
$
17,261
$
20,156
$
25,096
$
26,359
$
24,782
Cash Basis NOI from non-same properties
(1)
(135)
(2,666)
(7,853)
(10,273)
(8,756)
Same Property Cash Basis NOI
$
17,126
$
17,490
$
17,243
$
16,086
$
16,026
Non-cash rental income and lease
termination fees from same properties
(449)
1,950
(165)
(137)
(180)
Same Property NOI
$
16,677
$
19,440
$
17,078
$
15,949
$
15,846
Reconciliation of Same Property NOI to
GAAP Net Income:
Same Property NOI
$
16,677
$
19,440
$
17,078
$
15,949
$
15,846
Non-cash rental income and lease
termination fees from same properties
449
(1,950)
165
137
180
Same Property Cash Basis NOI
$
17,126
$
17,490
$
17,243
$
16,086
$
16,026
Cash Basis NOI from non-same properties
(1)
135
2,666
7,853
10,273
8,756
Cash Basis NOI
$
17,261
$
20,156
$
25,096
$
26,359
$
24,782
Straight line rent adjustments
(499)
11
837
986
1,435
Lease value amortization
39
39
39
22
4
Lease termination fees
11
2,188
—
19
395
NOI
$
16,812
$
22,394
$
25,972
$
27,386
$
26,616
Depreciation and amortization
(5,939)
(7,561)
(8,585)
(10,830)
(11,287)
General and administrative
(8,523)
(9,533)
(12,096)
(8,973)
(10,905)
Interest and other income, net
19,401
20,695
17,775
15,741
12,626
Interest expense
(321)
(4,070)
(4,206)
(5,035)
(5,085)
Loss on early extinguishment of debt
—
(6,374)
—
(719)
—
Gain (loss) on sale of properties, net
1,945
227,166
193,037
(1,608)
20,877
Income before income taxes
$
23,375
$
242,717
$
211,897
$
15,962
$
32,842
Income tax benefit (expense)
521
(340)
(1,300)
(540)
(65)
Net income
$
23,896
$
242,377
$
210,597
$
15,422
$
32,777
Same Property capitalized external
legal costs(2)
N/A
N/A
N/A
$
—
$
14
(1)
Cash Basis NOI from non-same properties
for all periods presented includes the operations of disposed
properties.
(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 Nine Months Ended
September 30,
2019
2018
Calculation of Same Property NOI and
Same Property Cash Basis NOI:
Rental revenue
$
93,459
$
144,612
Other revenue
8,396
9,485
Operating expenses
(36,677)
(64,377)
NOI
$
65,178
$
89,720
Straight line rent adjustments
(349)
(3,985)
Lease value amortization
(117)
76
Lease termination fees
(2,199)
(2,917)
Cash Basis NOI
$
62,513
$
82,894
Cash Basis NOI from non-same properties
(1)
(10,654)
(35,777)
Same Property Cash Basis NOI
$
51,859
$
47,117
Non-cash rental income and lease
termination fees from same properties
1,336
256
Same Property NOI
$
53,195
$
47,373
Reconciliation of Same Property NOI to
GAAP Net Income:
Same Property NOI
$
53,195
$
47,373
Non-cash rental income and lease
termination fees from same properties
(1,336)
(256)
Same Property Cash Basis NOI
$
51,859
$
47,117
Cash Basis NOI from non-same properties
(1)
10,654
35,777
Cash Basis NOI
$
62,513
$
82,894
Straight line rent adjustments
349
3,985
Lease value amortization
117
(76)
Lease termination fees
2,199
2,917
NOI
$
65,178
$
89,720
Depreciation and amortization
(22,085)
(38,211)
General and administrative
(30,152)
(35,466)
Loss on asset impairment
—
(12,087)
Interest and other income, net
57,871
31,074
Interest expense
(8,597)
(21,550)
Loss on early extinguishment of debt
(6,374)
(6,403)
Gain on sale of properties, net
422,148
253,025
Income before income taxes
$
477,989
$
260,102
Income tax expense
(1,119)
(2,616)
Net income
$
476,870
$
257,486
Same Property capitalized external
legal costs(2)
N/A
$
190
(1)
Cash Basis NOI from non-same properties
for all periods presented includes the operations of disposed
properties.
(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 July 1, 2018 through September
30, 2019. The year-to-date same property versions of these measures
include the results of properties continuously owned from January
1, 2018 through September 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/20191029006059/en/
Sarah Byrnes, Investor Relations (312) 646-2801 ir@eqcre.com
Equity Commonwealth (NYSE:EQC)
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