CHICAGO--(BUSINESS WIRE)--
Equity Commonwealth (NYSE: EQC) today reported financial results for the
quarter and year ended December 31, 2014. All per share results are
reported on a fully diluted basis.
Results for the quarter ended December 31, 2014
Funds from Operations (FFO), as defined by the National Association of
Real Estate Investment Trusts, for the quarter ended December 31, 2014
was $60.4 million, or $0.47 per share. This compares to FFO for the
quarter ended December 31, 2013 of $67.0 million, or $0.57 per share.
Normalized FFO for the quarter ended December 31, 2014 was $68.7
million, or $0.53 per share. This compares to Normalized FFO for the
quarter ended December 31, 2013 of $72.4 million, or $0.61 per share.
The following items impacted Normalized FFO per share for the quarter
ended December 31, 2014 compared to the corresponding 2013 period:
-
approximately ($0.10) per share due to the company’s sale of its
entire interest in Select Income REIT (SIR);
-
approximately $0.05 per share from higher same property cash net
operating income (NOI), which includes $0.02 per share from the
settlement of litigation with a former tenant;
-
approximately $0.05 per share from lower interest expense;
-
approximately ($0.04) per share from properties sold; and
-
a net impact of approximately ($0.02) per share due to dilution from
the conversion of series D preferred shares to common shares.
Normalized FFO begins with FFO and eliminates certain items that, by
their nature, are not comparable from period to period, non-cash items,
or items that tend to obscure the company’s operating performance.
Definitions and reconciliations of FFO and Normalized FFO to net loss
attributable to Equity Commonwealth, determined in accordance with U.S.
generally accepted accounting principles, or GAAP, are included at the
end of this press release.
Net loss attributable to common shareholders was $165.5 million, or
$1.28 per share, for the quarter ended December 31, 2014. This compares
to net loss attributable to common shareholders of $16.5 million, or
$0.14 per share for the quarter ended December 31, 2013.
Net loss attributable to common shareholders for the quarter ended
December 31, 2014 includes a loss on asset impairment of $167.1 million.
During the quarter, the company performed an asset-by-asset review which
contributed to the decision to market multiple properties for sale. This
decision shortened the anticipated holding period for these properties
and resulted in 34 assets meeting the criteria for impairment.
The weighted average number of common shares outstanding for the quarter
ended December 31, 2014 was 129,397,816 shares, compared to 118,387,388
shares for the quarter ended December 31, 2013.
Results for the year ended December 31, 2014
FFO for the year ended December 31, 2014 was $415.3 million, or $3.32
per share. This compares to FFO for the year ended December 31, 2013 of
$274.6 million, or $2.44 per share. FFO for the full year 2014 included
the company’s sale of its entire stake in SIR, for $704.8 million, which
generated a gain of $171.6 million, or $1.37 per share.
Normalized FFO for the year ended December 31, 2014 was $268.3 million,
or $2.14 per share. This compares to Normalized FFO for the year ended
December 31, 2013 of $284.3 million, or $2.53 per share. In addition to
other adjustments, Normalized FFO excludes the $171.6 million gain on
sale of the company’s stake in SIR in 2014 and the $66.3 million gain on
sale of the company’s stake in Government Properties Income Trust (GOV)
in 2013.
Net loss attributable to common shareholders was $24.3 million, or $0.19
per share, for the year ended December 31, 2014. This compares to net
loss attributable to common shareholders of $221.7 million, or $1.97 per
share for the year ended December 31, 2013.
The net loss attributable to common shareholders for the year ended
December 31, 2014 includes a loss on asset impairment for continuing and
discontinued operations of $187.3 million. The asset impairment for the
full year 2014 includes the impairment described above, for the quarter
ended December 31, 2014, and an impairment on an encumbered property
taken earlier in the year.
The weighted average number of common shares outstanding for the year
ended December 31, 2014 was 125,162,915 shares, compared to 112,377,732
shares for the year ended December 31, 2013.
Operating Results
As of December 31, 2014, the company’s results for its consolidated and
same property portfolio, which consisted of 156 properties and 42.9
million square feet, were as follows:
-
The overall portfolio was 85.8% leased, compared to 85.9% as of
September 30, 2014, and 87.0% as of December 31, 2013.
-
During the quarter, the company entered into leases for approximately
1,448,000 square feet, including lease renewals for approximately
1,173,000 square feet and new leases for approximately 275,000 square
feet.
-
During the quarter, cash rental rates on new and renewal leases were
approximately 1.2% higher than prior cash rental rates for the same
space, primarily due to a 210,000 square foot short-term lease
extension.
-
During the quarter, GAAP rental rates on new and renewal leases were
approximately 8.1% higher than prior GAAP rental rates for the same
space, primarily due to a 210,000 square foot short-term lease
extension.
-
The company received income from the settlement of litigation with a
former tenant of $2.7 million for the quarter ended December 31, 2014
and $8.8 million for the year ended December 31, 2014.
-
Same property NOI increased 3.6% for the quarter ended December 31,
2014 and increased 0.9% for the year ended December 31, 2014, when
compared to the same periods in 2013. Excluding the settlement of
litigation with a former tenant, same property NOI increased 1.2% for
the quarter ended December 31, 2014 and decreased 1.0% for the year
ended December 31, 2014, when compared to the same periods in 2013.
-
Same property cash NOI increased 5.9% for the quarter ended December
31, 2014 and increased 3.7% for the year ended December 31, 2014, when
compared to the same periods in 2013. Excluding the settlement of
litigation with a former tenant, same property cash NOI increased 3.5%
for the quarter ended December 31, 2014 and increased 1.8% for the
year ended December 31, 2014, when compared to the same periods in
2013.
The definitions and reconciliations of same property NOI and same
property cash NOI to operating income/loss, determined in accordance
with GAAP, are included at the end of this press release. Same property
NOI and same property cash NOI include properties continuously owned
from October 1, 2013 through December 31, 2014 for the quarter to date
periods and properties continuously owned from January 1, 2013 through
December 31, 2014 for the year to date periods. Same property NOI and
same property cash NOI also exclude amounts related to the settlement of
outstanding assets and liabilities of previously-disposed properties
that are reflected in the company’s consolidated results.
Significant Events for the year ended December 31, 2014
-
The company repaid a total of $805.0 million of debt during 2014,
including principal amortization, reducing total debt to total market
capitalization from 47.7% on December 31, 2013 to 37.2% on December
31, 2014.
-
On March 25, 2014, the company’s prior Board of Trustees was removed
following the delivery by Related Fund Management, LLC and Corvex
Management LP (Related/Corvex) of written consents of holders of more
than two-thirds of the company’s common shares.
-
During 2014, 10,264,503 series D preferred shares converted to
10,412,499 common shares.
-
On May 9, 2014, the company received $5.8 million in aggregate
proceeds from the sale of its interest in Affiliates Insurance Company
(AIC).
-
On May 23, 2014, the company’s shareholders elected all seven of the
nominees for the Board of Trustees proposed by Related/Corvex for
election at the company’s special meeting of shareholders. On July 31,
2014, the company’s shareholders re-elected all seven of the new
Trustees and elected four additional nominees to the Board of Trustees.
-
Additionally, on May 23, 2014, the Board accepted the resignations of
the company’s previous executive officers and appointed David Helfand
as the new President and Chief Executive Officer, Adam Markman as the
new Executive Vice President, Chief Financial Officer and Treasurer
(as of July 14, 2014), David Weinberg as the new Executive Vice
President and Chief Operating Officer, and Orrin Shifrin as the new
Executive Vice President, General Counsel and Secretary.
-
On June 5, 2014, the company made a number of improvements to its
corporate governance, including: adopting amended and restated bylaws,
new corporate governance guidelines, a new code of business conduct
and ethics, and new committee charters.
-
On June 13, 2014, a wholly-owned subsidiary of the company entered
into a Master Sub-Management Agreement, or the Sub-Management
Agreement, with CBRE Group, Inc. (CBRE). Under the terms of the
Sub-Management Agreement, CBRE acts as sub-manager for each of the
company’s current domestic properties and any additional domestic
properties the company may acquire in the future for an initial term
of two years, subject to automatic one-year renewal terms, unless
given 90 days advance notice of non-renewal.
-
On June 17, 2014, the company terminated its Renewed Rights Agreement,
commonly known as a “poison pill.”
-
On June 27, 2014, the company sold a portfolio of 14 properties with a
combined 2,784,098 square feet for an aggregate sales price of $215.9
million, excluding mortgage debt repayments and closing costs. In
connection with these property sales, the company repaid $19.7 million
of mortgage debt, along with prepayment costs of $2.8 million.
-
On July 9, 2014, the company sold its entire stake of 22.0 million
common shares of SIR. The company received approximately $704.8
million in cash, or $32.04 per share. As a result of the sale, the
company no longer holds any interest in SIR.
-
On July 31, 2014, the company’s shareholders approved various
amendments to the company’s Declaration of Trust that, among other
things, implemented best-practice corporate governance improvements.
-
Also on July 31, 2014, the company’s shareholders approved the
reimbursement to Related/Corvex of a maximum of $33.5 million of
expenses they incurred in connection with their consent solicitations
to remove the company’s prior Trustees and to elect a new slate of
nominees to serve on the company’s Board of Trustees. Approximately
$16.7 million was paid in the third quarter 2014. The remaining
payments in 2015 and 2016 are contingent on an average closing share
price of at least $26.00 in each year.
-
On August 1, 2014, the company changed its name to Equity
Commonwealth. The common shares of the company began trading on the
New York Stock Exchange under the new name and ticker symbol “EQC.”
-
On September 30, 2014, the company terminated its external management
agreements with RMR with the exception of the existing Australian
management agreement with RMR Australia which will remain in effect
until December 31, 2015, unless earlier terminated. RMR has agreed to
use best efforts to assist the company in the transition of the
company’s management and operations. The company has agreed to pay RMR
$1.2 million per month for transition services from October 1, 2014 to
February 28, 2015.
-
The company paid a $15.3 million incentive fee to RMR under the
now-terminated business management agreement. The incentive fee
relates to the business management agreement entered into prior to the
election of the company’s new Board of Trustees. There is no further
incentive fee obligation to RMR.
-
On October 1, 2014, the company assumed responsibility of its
operations from REIT Management & Research, LLC (RMR), the previous
external advisor, and completed the internalization of the company's
management with the move of corporate and business operations to
Chicago, IL. In addition, CBRE assumed day to day property management
responsibilities for the company’s US properties.
-
On October 28, 2014, the company established compensation terms for
executive management, including a long-term incentive plan (LTIP)
comprised of 33% time-based equity grants (RSA) and 67% time-based and
performance-based equity grants (RSU). The RSUs are earned based on
the company’s relative total shareholder return over a three-year
period and fully vest in the fourth year. One-time special equity
awards, similar to the LTIP awards described above, were granted on
October 28, 2014. Equity awards under the LTIP, for fiscal year 2014
performance, were granted on January 28, 2015.
Subsequent Events
-
On January 29, 2015, the company entered into a new $1.15 billion
Credit Agreement that reduced the interest rate and extended the term
of the company’s unsecured revolving credit facility and term loan.
The agreement is comprised of a $750 million revolving credit
facility, a $200 million five-year term loan, and a $200 million
seven-year term loan.
Strategic Update
The company is in the midst of transition, de-levering the balance sheet
and preparing to sell a significant portion of the portfolio. The
company intends to execute this plan over the next two to three years,
which may result in cash proceeds that the company intends to retain for
future investment opportunities. During this time, dividend decisions
will be deferred until we assess the company’s taxable gains and losses
at the end of the year. If required, or prudent, the company’s Board of
Trustees will then declare a dividend.
General and Administrative (G&A) Costs Update
The company expects to have incremental non-recurring G&A costs
resulting from shareholder litigation and transition related expenses of
approximately $6.5 million for the full-year 2015, excluding any of the
remaining Related/Corvex expense reimbursements.
In 2015, $8.4 million of the Related/Corvex expenses will be reimbursed
if the average closing price of the company’s common shares is at least
$26.00 during the one year period after July 31, 2014. The final $8.4
million will be reimbursed in 2016, if the average closing price of the
company’s common shares is at least $26.00 during the one year period
after July 31, 2015. Of this $16.8 million potential future obligation,
$6.6 million of expenses were accrued for the full year December 31,
2014.
The company anticipates total G&A costs will be approximately $61.5
million to $71.7 million in 2015. This estimate anticipates recurring
G&A expenses to be approximately $55 million, an additional $6.5 million
of expected non-recurring shareholder litigation and transition related
expenses, and up to $10.2 million of expense related to the potential
Related/Corvex reimbursement, as described above.
Earnings Conference Call & Supplemental Data
Equity Commonwealth will host a conference call on Thursday, February
19, 2015 at 8:00 a.m. Central Standard Time to discuss fourth quarter
2014 results. The conference call will be available via live audio
webcast on the Investor Relations section of the company’s website (www.eqcre.com).
In addition, a replay of the audio webcast will be available on the
Investor Relations section of the company’s website.
A copy of EQC’s Fourth Quarter 2014 Supplemental Operating and Financial
Data is available for download within the Investor Relations section of
EQC’s website at www.eqcre.com.
About Equity Commonwealth
Equity Commonwealth is an internally managed and self-advised REIT,
which primarily owns office buildings located in central business
districts and suburban locations across the country, with executive
offices in Chicago, IL.
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 marketing the
company’s properties for sale, potential payments to Related/Corvex,
transitioning management and operations from RMR, de-levering the
balance sheet, proceeds from asset sales, future investment
opportunities, expected G&A costs and the company’s dividend policy. 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
Private Securities Litigation Reform Act of 1995. 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).
While forward-looking statements reflect the company’s good faith
beliefs, they are not guarantees of future performance. 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
most recent Annual Report on Form 10-K and in the company’s Quarterly
Reports on Form 10-Q for subsequent quarters.
|
| |
| |
| Condensed Consolidated Balance Sheets |
| (amounts in thousands, except share data) |
|
|
| | | | | |
| | | | | |
|
| | | | December 31,
| | December 31,
|
| | | |
2014
| |
2013
|
|
ASSETS
| | | | |
|
Real estate properties:
| | | | |
|
Land
| |
$
|
714,238
| | |
$
|
699,135
| |
|
Buildings and improvements
| |
|
5,014,205
|
| |
|
4,838,030
|
|
| | | | |
5,728,443
| | | |
5,537,165
| |
|
Accumulated depreciation
| |
|
(1,030,445
|
)
| |
|
(895,059
|
)
|
| | | | |
4,697,998
| | | |
4,642,106
| |
|
Properties held for sale
| | |
-
| | | |
573,531
| |
|
Acquired real estate leases, net
| | |
198,287
| | | |
255,812
| |
|
Equity investments
| | |
-
| | | |
517,991
| |
|
Cash and cash equivalents
| | |
379,058
| | | |
222,449
| |
|
Restricted cash
| | |
17,715
| | | |
22,101
| |
|
Rents receivable, net of allowance for doubtful accounts
| | | | |
|
of $6,565 and $7,885, respectively
| | |
248,101
| | | |
223,769
| |
|
Other assets, net
| |
|
220,480
|
| |
|
188,675
|
|
|
Total assets
| |
$
|
5,761,639
|
| |
$
|
6,646,434
|
|
| | | | | |
|
|
LIABILITIES AND SHAREHOLDERS' EQUITY
| | | | |
|
Revolving credit facility
| |
$
|
-
| | |
$
|
235,000
| |
|
Senior unsecured debt, net
| | |
1,598,416
| | | |
1,855,900
| |
|
Mortgage notes payable, net
| | |
609,249
| | | |
914,510
| |
|
Liabilities related to properties held for sale
| | |
-
| | | |
28,734
| |
|
Accounts payable and accrued expenses
| | |
162,204
| | | |
165,855
| |
|
Assumed real estate lease obligations, net
| | |
26,784
| | | |
33,935
| |
|
Rent collected in advance
| | |
31,359
| | | |
27,553
| |
|
Security deposits
| | |
14,044
| | | |
11,976
| |
|
Distributions payable
| | |
-
| | | |
-
| |
|
Due to related persons
| |
|
-
|
| |
|
9,385
|
|
|
Total liabilities
| |
|
2,442,056
|
| |
|
3,282,848
|
|
| | | | | |
|
|
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;
| | | |
|
4,915,497 and 15,180,000 shares issued and outstanding, respectively,
| | | |
|
aggregate liquidation preference of $122,887 and $379,500,
respectively
| |
$
|
119,266
| | |
$
|
368,270
| |
|
Series E preferred shares; 7 1/4% cumulative redeemable on or after
| | | |
| May 15, 2016; 11,000,000 shares issued and outstanding,
| | | |
|
aggregate liquidation preference $275,000 | | |
265,391
| | | |
265,391
| |
|
Common shares of beneficial interest, $0.01 par value:
| | | | |
|
350,000,000 shares authorized; 129,607,279 and 118,386,918 shares
| | | |
|
issued and outstanding, respectively (including 710,182 and 130,914
unvested
| | | |
|
restricted shares)
| | |
1,296
| | | |
1,184
| |
|
Additional paid in capital
| | |
4,487,133
| | | |
4,213,474
| |
|
Cumulative net income
| | |
2,233,852
| | | |
2,209,840
| |
|
Cumulative other comprehensive loss
| | |
(53,216
|
)
| | |
(38,331
|
)
|
|
Cumulative common distributions
| | |
(3,111,868
|
)
| | |
(3,082,271
|
)
|
|
Cumulative preferred distributions
| |
|
(622,271
|
)
| |
|
(573,971
|
)
|
|
Total shareholders' equity
| |
|
3,319,583
|
| |
|
3,363,586
|
|
|
Total liabilities and shareholders' equity
| |
$
|
5,761,639
|
| |
$
|
6,646,434
|
|
| | | | | | | | |
|
| Condensed Consolidated Statements of Operations |
| (amounts in thousands, except per share data) |
|
| |
|
|
|
|
|
|
|
|
| | |
For the Three Months Ended
| |
For the Year Ended
|
| | | December 31,
| | December 31,
|
| | |
2014
| |
2013
| |
2014
| |
2013
|
|
Revenues
| | | | | | | | |
|
Rental income (1) | |
$
|
173,036
| | |
$
|
171,041
| | |
$
|
691,699
| | |
$
|
763,262
| |
|
Tenant reimbursements and other income
| |
|
39,772
|
| |
|
42,987
|
| |
|
170,158
|
| |
|
189,767
|
|
|
Total revenues
| |
|
212,808
|
| |
|
214,028
|
| |
|
861,857
|
| |
|
953,029
|
|
| | | | | | | | |
|
|
Expenses
| | | | | | | | |
|
Operating expenses
| | |
94,158
| | | |
99,460
| | | |
387,982
| | | |
410,045
| |
|
Depreciation and amortization
| | |
58,839
| | | |
51,908
| | | |
227,532
| | | |
234,402
| |
|
General and administrative
| | |
16,760
| | | |
17,050
| | | |
113,155
| | | |
80,504
| |
|
Loss on asset impairment
| | |
167,145
| | | |
-
| | | |
185,067
| | | |
124,253
| |
|
Acquisition related costs
| |
|
-
|
| |
|
(19
|
)
| |
|
5
|
| |
|
318
|
|
|
Total expenses
| |
|
336,902
|
| |
|
168,399
|
| |
|
913,741
|
| |
|
849,522
|
|
| | | | | | | | |
|
|
Operating (loss) income
| | |
(124,094
|
)
| | |
45,629
| | | |
(51,884
|
)
| | |
103,507
| |
| | | | | | | | |
|
|
Interest and other income
| | |
490
| | | |
298
| | | |
1,561
| | | |
1,229
| |
|
Interest expense (including net amortization of debt discounts,
premiums and
| | | | | | |
|
deferred financing fees of $151, $(256), $(549), and $9,
respectively)
| | |
(32,151
|
)
| | |
(38,559
|
)
| | |
(143,230
|
)
| | |
(173,011
|
)
|
|
(Loss) gain on early extinguishment of debt
| | |
(1,790
|
)
| | |
(25
|
)
| | |
4,909
| | | |
(60,052
|
)
|
|
(Loss) gain on sale of equity investments
| | |
(160
|
)
| | |
-
| | | |
171,561
| | | |
66,293
| |
|
Gain on issuance of shares by an equity investee
| |
|
-
|
| |
|
-
|
| |
|
17,020
|
| |
|
-
|
|
|
(Loss) income from continuing operations before income tax expense
and
| | | | | | |
|
equity in earnings of investees
| | |
(157,705
|
)
| | |
7,343
| | | |
(63
|
)
| | |
(62,034
|
)
|
|
Income tax expense
| | |
(1,025
|
)
| | |
(107
|
)
| | |
(3,191
|
)
| | |
(2,634
|
)
|
|
Equity in earnings of investees
| |
|
-
|
| |
|
10,841
|
| |
|
24,460
|
| |
|
25,754
|
|
|
(Loss) income from continuing operations
| | |
(158,730
|
)
| | |
18,077
| | | |
21,206
| | | |
(38,914
|
)
|
|
Discontinued operations:
| | | | | | | | |
|
Income from discontinued operations (1) | | |
169
| | | |
4,661
| | | |
8,389
| | | |
6,393
| |
|
Loss on asset impairment from discontinued operations
| | |
-
| | | |
(1,507
|
)
| | |
(2,238
|
)
| | |
(102,869
|
)
|
|
Loss on early extinguishment of debt from discontinued operations
| | |
-
| | | |
(1,011
|
)
| | |
(3,345
|
)
| | |
(1,011
|
)
|
|
Net loss on sale of properties from discontinued operations
| |
|
-
|
| |
|
(25,521
|
)
| |
|
-
|
| |
|
(22,162
|
)
|
|
(Loss) income before gain on sale of properties
| | |
(158,561
|
)
| | |
(5,301
|
)
| | |
24,012
| | | |
(158,563
|
)
|
|
Gain on sale of properties
| |
|
-
|
| |
|
-
|
| |
|
-
|
| |
|
1,596
|
|
|
Net (loss) income
| | |
(158,561
|
)
| | |
(5,301
|
)
| | |
24,012
| | | |
(156,967
|
)
|
|
Net income attributable to noncontrolling interest in consolidated
subsidiary
| |
|
-
|
| |
|
-
|
| |
|
-
|
| |
|
(20,093
|
)
|
|
Net (loss) income attributable to Equity Commonwealth | | |
(158,561
|
)
| | |
(5,301
|
)
| | |
24,012
| | | |
(177,060
|
)
|
|
Preferred distributions
| | |
(6,981
|
)
| | |
(11,151
|
)
| | |
(32,095
|
)
| | |
(44,604
|
)
|
|
Distribution on conversion of preferred shares
| |
|
-
|
| |
|
-
|
| |
|
(16,205
|
)
| |
|
-
|
|
|
Net loss attributable to EQC common shareholders
| |
$
|
(165,542
|
)
| |
$
|
(16,452
|
)
| |
$
|
(24,288
|
)
| |
$
|
(221,664
|
)
|
| | | | | | | | |
|
|
Amounts attributable to EQC common shareholders:
| | | | | | | | |
|
(Loss) income from continuing operations
| |
$
|
(165,711
|
)
| |
$
|
6,926
| | |
$
|
(27,094
|
)
| |
$
|
(102,015
|
)
|
|
Income from discontinued operations
| | |
169
| | | |
4,661
| | | |
8,389
| | | |
6,393
| |
|
(Loss) gain on asset impairment from discontinued operations
| | |
-
| | | |
(1,507
|
)
| | |
(2,238
|
)
| | |
(102,869
|
)
|
|
Loss on early extinguishment of debt from discontinued operations
| | |
-
| | | |
(1,011
|
)
| | |
(3,345
|
)
| | |
(1,011
|
)
|
|
Net loss on sale of properties from discontinued operations
| |
|
-
|
| |
|
(25,521
|
)
| |
|
-
|
| |
|
(22,162
|
)
|
|
Net loss
| |
$
|
(165,542
|
)
| |
$
|
(16,452
|
)
| |
$
|
(24,288
|
)
| |
$
|
(221,664
|
)
|
| | | | | | | | |
|
|
Weighted average common shares outstanding - basic and diluted (2) | |
|
129,398
|
| |
|
118,387
|
| |
|
125,163
|
| |
|
112,378
|
|
| | | | | | | | |
|
|
Basic and diluted earnings per common share attributable to
| | | | | | | |
|
EQC common shareholders (1):
| | | | | | | | |
|
(Loss) income from continuing operations
| |
$
|
(1.28
|
)
| |
$
|
0.06
|
| |
$
|
(0.21
|
)
| |
$
|
(0.91
|
)
|
|
(Loss) income from discontinued operations
| |
$
|
-
|
| |
$
|
(0.20
|
)
| |
$
|
0.02
|
| |
$
|
(1.06
|
)
|
|
Net loss
| |
$
|
(1.28
|
)
| |
$
|
(0.14
|
)
| |
$
|
(0.19
|
)
| |
$
|
(1.97
|
)
|
| (1) |
|
We report rental income on a straight line basis over the terms of
the respective leases; rental income and income from discontinued
operations include non-cash straight line rent adjustments. Rental
income and income from discontinued operations also include non-cash
amortization of intangible lease assets and liabilities.
|
| (2) | |
As of December 31, 2014, we had 4,915 series D preferred shares
outstanding that were convertible into 2,363 of our common shares,
which were anti-dilutive for earnings per common share attributable
to EQC common shareholders for all periods presented.
|
|
| |
| |
| |
| Calculation of Funds from Operations (FFO) and Normalized FFO |
| (amounts in thousands, except per share data) |
|
| |
| | | | | | | |
| | | |
For the Three Months Ended
| |
For the Year Ended
|
| | | | December 31,
| | December 31,
|
| | | |
2014
| |
2013
| |
2014
| |
2013
|
|
Calculation of FFO
| | | | | | | | |
|
Net (loss) income attributable to Equity Commonwealth | | $ (158,561) | | $ (5,301) | | $ 24,012 | | $ (177,060) |
|
Plus:
|
Depreciation and amortization from continuing operations
| |
58,839
| |
51,908
| |
227,532
| |
234,402
|
|
Depreciation and amortization from discontinued operations
| |
-
| |
825
| |
-
| |
12,550
|
|
Loss on asset impairment from continuing operations
| |
167,145
| |
-
| |
185,067
| |
124,253
|
|
Loss on asset impairment from discontinued operations
| |
-
| |
1,507
| |
2,238
| |
102,869
|
|
FFO from equity investees
| |
-
| |
14,568
| |
33,007
| |
33,564
|
|
Net income attributable to noncontrolling interest
| |
-
| |
-
| |
-
| |
20,093
|
|
Less:
|
FFO attributable to noncontrolling interest
| |
-
| |
-
| |
-
| |
(26,270)
|
|
Gain on sale of properties
| |
-
| |
-
| |
-
| |
(1,596)
|
|
Net loss on sale of properties from discontinued operations
| |
-
| |
25,521
| |
-
| |
22,162
|
|
Equity in earnings of investees
| |
-
| |
(10,841)
| |
(24,460)
| |
(25,754)
|
|
FFO attributable to Equity Commonwealth | |
67,423
| |
78,187
| |
447,396
| |
319,213
|
|
Less:
|
Preferred distributions
| |
(6,981)
| |
(11,151)
| |
(32,095)
| |
(44,604)
|
|
FFO attributable to EQC common shareholders
| | $ 60,442 | | $ 67,036 | | $ 415,301 | | $ 274,609 |
| | | | | | | | | |
|
|
Calculation of Normalized FFO
| | | | | | | | |
|
FFO attributable to EQC common shareholders
| | $ 60,442 | | $ 67,036 | | $ 415,301 | | $ 274,609 |
|
Recurring adjustments:
| | | | | | | | |
|
Lease value amortization from continuing operations
| |
2,133
| |
2,445
| |
10,650
| |
10,310
|
|
Lease value amortization from discontinued operations
| |
-
| |
(126)
| |
-
| |
(775)
|
|
Straight line rent from continuing operations
| |
(2,359)
| |
(5,511)
| |
(12,531)
| |
(31,791)
|
|
Straight line rent from discontinued operations
| |
-
| |
338
| |
(226)
| |
562
|
|
Loss (gain) on early extinguishment of debt from continuing
operations
| |
1,790
| |
25
| |
(4,909)
| |
60,052
|
|
Loss on early extinguishment of debt from discontinued operations
| |
-
| |
1,011
| |
3,345
| |
1,011
|
|
Minimum cash rent from direct financing lease (1) | |
2,032
| |
2,032
| |
8,128
| |
8,125
|
|
Loss (gain) on sale of equity investments
| |
160
| |
-
| |
(171,561)
| |
(66,293)
|
|
Gain on issuance of shares by an equity investee
| |
-
| |
-
| |
(17,020)
| |
-
|
|
Interest earned from direct financing lease
| |
(164)
| |
(251)
| |
(787)
| |
(1,128)
|
|
Normalized FFO from equity investees, net of FFO
| |
-
| |
(1,085)
| |
(3,353)
| |
(2,530)
|
|
Normalized FFO from noncontrolling interest, net of FFO
| |
-
| |
-
| |
-
| |
1,987
|
|
Other items which affect comparability:
| | | | | | | | |
|
Shareholder litigation and transition related expenses
| |
1,099
| |
6,475
| |
37,681
| |
29,874
|
|
Transition services fee (2) | |
3,600
| |
-
| |
3,600
| |
-
|
|
Acquisition related costs from continuing operations
| |
-
| |
(19)
| |
5
| |
318
|
|
Normalized FFO attributable to EQC common shareholders
| | $ 68,733 | | $ 72,370 | | $ 268,323 | | $ 284,331 |
| | | | | | | | | |
|
|
Weighted average common shares outstanding -- basic & diluted (3) | |
129,398
| |
118,387
| |
125,163
| |
112,378
|
|
FFO attributable to EQC common shareholders per share -- basic &
diluted (3) | | $ 0.47 | | $ 0.57 | | $ 3.32 | | $ 2.44 |
|
Normalized FFO available for EQC common shareholders per share --
basic & diluted (3) | | $ 0.53 | | $ 0.61 | | $ 2.14 | | $ 2.53 |
| (1) |
|
Contractual cash payments (including management fees) from one
tenant at Arizona Center for 2014 were $8,128 and will decrease to
approximately $515 beginning in 2016. Our calculation of Normalized
FFO reflects the cash payments received from this tenant. The terms
of this tenant's lease require us to classify the lease as a direct
financing (or capital) lease. As such, the revenue recognized on a
GAAP basis within our condensed consolidated statements of
operations was $172 and $257 for the quarters ended December 31,
2014 and 2013, respectively and $817 and $1,154 years ended December
31, 2014 and 2013, respectively. This direct financing lease has an
expiration date in 2045.
|
| (2) | |
EQC has agreed to pay RMR $1.2 million per month for transition
services from October 1, 2014 to February 28, 2015.
|
| (3) | |
As of December 31, 2014, we had 4,915 series D preferred shares
outstanding that were convertible into 2,363 of our common shares,
which were anti-dilutive for FFO and Normalized FFO per common share
for all periods presented.
|
We compute FFO in accordance with standards established by the
National Association of Real Estate Investment Trusts (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. Normalized FFO
begins with FFO and excludes lease value amortization, straight
line rent, gains and losses on early extinguishment of debt, gains
and losses on the sale of equity investments, gains and losses on
the issuance of shares by an equity investee, shareholder
litigation and transition-related expenses, acquisition related
costs, interest earned from a direct financing lease, and our
portion of these items related to equity investees and
noncontrolling interests. Normalized FFO also includes the minimum
cash rent from a direct financing lease. We consider FFO and
Normalized FFO to be appropriate measures of operating performance
for a REIT, along with net income, net income attributable to
Equity Commonwealth, net income attributable to EQC common
shareholders, operating income 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 are among the factors considered by our Board of
Trustees when determining the amount of distributions to our
shareholders. 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, net income
attributable to Equity Commonwealth, net income attributable to
EQC common shareholders, operating income 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, net income attributable to Equity
Commonwealth, net income attributable to EQC common shareholders,
operating income and cash flow from operating activities as
presented in our condensed consolidated statements of operations,
condensed consolidated statements of comprehensive income (loss)
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 Property Net Operating Income (NOI) |
| (amounts in thousands) |
|
| | | | | | | | | |
| | |
For the Three Months Ended
| |
For the Year Ended
|
| | | December 31,
| | December 31,
|
| | |
2014
| |
2013
| |
2014
| |
2013
|
|
Calculation of Same Property NOI and Same Property Cash Basis NOI
(1), (2):
| | | | | | | |
|
Rental income
| | $ 173,036 | | $ 171,041 | | $ 691,699 | | $ 763,262 |
|
Tenant reimbursements and other income
| |
39,772
| |
42,987
| |
170,158
| |
189,767
|
|
Operating expenses
| |
(94,158)
| |
(99,460)
| |
(387,982)
| |
(410,045)
|
|
NOI
| |
118,650
| |
114,568
| |
473,875
| |
542,984
|
|
Straight line rent adjustments
| |
(2,359)
| |
(5,511)
| |
(12,531)
| |
(31,791)
|
|
Lease value amortization
| |
2,133
| |
2,445
| |
10,650
| |
10,310
|
|
Lease termination fees
| |
(1,477)
| |
(1,063)
| |
(4,749)
| |
(2,786)
|
|
Cash Basis NOI
| |
116,947
| |
110,439
| |
467,245
| |
518,717
|
|
Cash Basis NOI from non-same properties
| |
11
| |
1
| |
(266)
| |
(68,470)
|
|
Same Property Cash Basis NOI
| |
116,958
| |
110,440
| |
466,979
| |
450,247
|
|
Non-cash rental and termination income from same properties
| |
1,704
| |
4,129
| |
6,629
| |
19,064
|
|
Same Property NOI
| | $ 118,662 | | $ 114,569 | | $ 473,608 | | $ 469,311 |
| | | | | | | | |
|
|
Reconciliation of Same Property NOI to GAAP Operating (Loss) Income
| | | | | | | |
|
Same Property NOI
| | $ 118,662 | | $ 114,569 | | $ 473,608 | | $ 469,311 |
|
Non-cash rental and termination income from same properties
| |
(1,704)
| |
(4,129)
| |
(6,629)
| |
(19,064)
|
|
Same Property Cash Basis NOI
| |
116,958
| |
110,440
| |
466,979
| |
450,247
|
|
Cash Basis NOI from non-same properties
| |
(11)
| |
(1)
| |
266
| |
68,470
|
|
Cash Basis NOI
| |
116,947
| |
110,439
| |
467,245
| |
518,717
|
|
Straight line rent adjustments
| |
2,359
| |
5,511
| |
12,531
| |
31,791
|
|
Lease value amortization
| |
(2,133)
| |
(2,445)
| |
(10,650)
| |
(10,310)
|
|
Lease termination fees
| |
1,477
| |
1,063
| |
4,749
| |
2,786
|
|
NOI
| |
118,650
| |
114,568
| |
473,875
| |
542,984
|
|
Depreciation and amortization
| |
(58,839)
| |
(51,908)
| |
(227,532)
| |
(234,402)
|
|
General and administrative
| |
(16,760)
| |
(17,050)
| |
(113,155)
| |
(80,504)
|
|
Loss on asset impairment
| |
(167,145)
| |
-
| |
(185,067)
| |
(124,253)
|
|
Acquisition related costs
| |
-
| |
19
| |
(5)
| |
(318)
|
|
Operating Income (Loss)
| | $ (124,094) | | $ 45,629 | | $ (51,884) | | $ 103,507 |
| (1) |
|
Properties classified as discontinued operations are excluded.
Quarter-to-date same property results include properties
continuously owned from October 1, 2013 through December 31, 2014.
Year-to-date same property results include properties continuously
owned from January 1, 2013 through December 31, 2014. Amounts
related to the settlement of outstanding assets and liabilities of
previously-disposed properties that are reflected in our
consolidated results are excluded from same property results.
|
| (2) | |
2014 results include income from the settlement of litigation with a
former tenant of $2.7 million and $8.8 million for the three months
and year ended December 31, 2014, respectively.
|
|
We define NOI as income from our real estate including lease
termination fees received from tenants less our property operating
expenses, which expenses include property marketing costs. NOI
excludes amortization of capitalized tenant improvement costs and
leasing commissions. We define Cash Basis NOI as NOI less non cash
straight line rent adjustments, lease value amortization and lease
termination fees.
|
|
| |
|
We consider NOI and Cash Basis NOI to be appropriate supplemental
measures to net income because they may help both investors and
management to understand the operations of our properties. We use
NOI and Cash Basis NOI internally to evaluate individual, regional
and combined property level performance, and we believe that NOI and
Cash Basis NOI 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. The calculations of NOI and Cash Basis NOI
exclude certain components of net income in order to provide results
that are more closely related to our properties' results of
operations. NOI and Cash Basis NOI do not represent cash generated
by operating activities in accordance with GAAP, and should not be
considered as alternatives to net income, net income attributable to
Equity Commonwealth, net income attributable to EQC common
shareholders, operating income 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, net income attributable to Equity Commonwealth, net income
attributable to EQC common shareholders, operating income and cash
flow from operating activities as presented in our condensed
consolidated statements of operations, condensed consolidated
statements of comprehensive income (loss) and condensed consolidated
statements of cash flows. Other REITs and real estate companies may
calculate NOI and Cash Basis NOI differently than we do.
|
|
|
Equity Commonwealth
Sarah Byrnes, Investor Relations
(312)
646-2801
www.eqcre.com
Source: Equity Commonwealth