CHICAGO--(BUSINESS WIRE)--
Equity Commonwealth (NYSE: EQC) today reported its financial results for
the quarter ended March 31, 2016. All per share results are reported on
a diluted basis.
Financial results for the quarter ended March 31, 2016
Funds from Operations (FFO), as defined by the National Association of
Real Estate Investment Trusts, for the quarter ended March 31, 2016,
were $38.8 million, or $0.30 per share. This compares to FFO for the
quarter ended March 31, 2015 of $65.4 million, or $0.50 per share.
Normalized FFO was $37.3 million, or $0.29 per share. This compares to
Normalized FFO for the quarter ended March 31, 2015 of $72.0 million, or
$0.55 per share. The following items impacted Normalized FFO per share
for the quarter ended March 31, 2016, compared to the corresponding 2015
period:
-
($0.29) per share of income from properties sold as part of the
company’s previously announced repositioning plan;
-
($0.02) per share of same property cash NOI; and
- $0.06 per share of interest expense savings
Normalized FFO begins with FFO and eliminates certain items that, by
their nature, are not comparable from period to period, non-cash items,
and items that tend to obscure the company’s operating performance.
Definitions of FFO, Normalized FFO and reconciliations to net income,
determined in accordance with U.S. generally accepted accounting
principles, or GAAP, are included at the end of this press release.
Net income attributable to common shareholders was $39.4 million, or
$0.31 per share, for the quarter ended March 31, 2016. This compares to
net income attributable to common shareholders of $6.6 million, or $0.05
per share, for the quarter ended March 31, 2015.
The weighted average number of diluted common shares outstanding for the
quarter ended March 31, 2016 was 127,521,856 shares, compared to
129,873,801 for the quarter ended March 31, 2015.
Same property results for the quarter ended March 31, 2016
The company’s same property portfolio consisted of 60 properties
totaling 23.0 million square feet. There were two properties designated
as held for sale at the end of the quarter. Operating results were as
follows:
-
The same property portfolio was 91.4% leased as of March 31, 2016,
compared to 92.2% as of December 31, 2015, and 90.7% as of March 31,
2015.
-
The company entered into leases for approximately 1,853,000 square
feet, including renewal leases for approximately 1,569,000 square feet
and new leases for approximately 284,000 square feet.
-
Same property cash NOI decreased 3.8% when compared to the same period
in 2015.
-
Same property NOI increased 2.5% when compared to the same period in
2015.
-
Cash rental rates on new and renewal leases were 1.3% lower compared
to prior cash rental rates for the same space.
-
GAAP rental rates on new and renewal leases were 11.2% higher compared
to prior GAAP rental rates for the same space.
The definitions and reconciliations of same property NOI and same
property cash NOI to operating income, determined in accordance with
GAAP, are included at the end of this press release. The same property
portfolio includes properties continuously owned from January 1, 2015
through March 31, 2016 and excludes properties owned during this period
that are designated as held for sale.
Significant events during the quarter ended March 31, 2016
-
The company sold three properties totaling 857,000 square feet for a
gross sales price of $122.6 million at a weighted average cap rate in
the mid 3% range.
-
The company repurchased 983,789 of its common shares at an average
price of $25.94 per share, for a total investment of $25.5 million.
- The Board of Trustees authorized the repurchase of an additional $150
million of the company’s common shares. The company has $236.6 million
available for future share repurchases, including this new $150
million authorization.
-
The company redeemed, at par, the $139.1 million outstanding 6.25%
senior unsecured notes due August 2016.
-
The company purchased a $400 million interest rate cap with a LIBOR
strike price of 2.50% through March 1, 2019.
Subsequent Events
-
The company called for redemption all $275 million of its outstanding
7.25% Series E Cumulative Redeemable Preferred Shares on May 15, 2016.
-
The company closed on the sale of 633 Ahua Street, a self-storage
facility in Honolulu, HI, for a gross sale price of $29.0 million.
This property was held for sale as of March 31, 2016.
-
The company closed on the sale of 1525 Locust Street, a 98,009 square
foot boutique office property in Philadelphia, PA for a gross sale
price of $17.7 million. This property was held for sale as of March
31, 2016.
-
The company entered into a contract to sell its leasehold interest in
111 River Street, a 566,215 square foot property in Hoboken, NJ, for a
gross sales price of $235 million. Closing is subject to consents
required under the ground lease and customary closing conditions.
There is no certainty these conditions will be met or that this
transaction will close.
Disposition Update
The company continues to pursue its previously announced plan to sell
approximately $3.0 billion of assets, creating capacity for future
opportunities. As part of this plan, the company has sold $2.2 billion
of assets to date, at a weighted average cap rate of approximately 7%.
The company currently has 27 properties, including 111 River Street,
totaling approximately 9 million square feet in various stages of the
sale process.
Earnings Conference Call & Supplemental Data
Equity Commonwealth will host a conference call to discuss first quarter
results on Thursday, May 5, 2016, at 9:00 am 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 First Quarter 2016 Supplemental Operating and Financial
Data is available for download 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 throughout the United States. As of May 4, 2016, EQC’s
portfolio comprised 60 properties and 23.0 million square feet.
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 share
repurchases, marketing the company’s properties for sale, consummating
asset sales, identifying future investment opportunities, strengthening
the balance sheet, improving property performance, and the redemption of
the company’s Series E cumulative redeemable preferred shares. 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,”
“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) |
|
|
|
|
|
|
|
| March 31, 2016 |
| December 31, 2015 |
| ASSETS |
|
|
|
|
|
Real estate properties:
| | |
| |
|
Land
| |
$
|
372,714
| | |
$
|
389,410
| |
|
Buildings and improvements
| |
3,399,909
|
| |
3,497,942
|
|
| |
3,772,623
| | |
3,887,352
| |
|
Accumulated depreciation
| |
(880,678
|
)
| |
(898,939
|
)
|
| |
2,891,945
| | |
2,988,413
| |
|
Properties held for sale
| |
20,347
| | |
—
| |
|
Acquired real estate leases, net
| |
83,121
| | |
88,760
| |
|
Cash and cash equivalents
| |
1,742,128
| | |
1,802,729
| |
|
Restricted cash
| |
36,190
| | |
32,245
| |
|
Rents receivable, net of allowance for doubtful accounts of $4,193
and $7,715, respectively
| |
176,740
| | |
174,676
| |
|
Other assets, net
|
|
152,678
|
|
|
144,341
|
|
| Total assets |
| $ | 5,103,149 |
|
| $ | 5,231,164 |
|
|
|
|
|
|
|
| LIABILITIES AND SHAREHOLDERS’ EQUITY |
|
|
|
|
|
Revolving credit facility
| |
$
|
—
| | |
$
|
—
| |
|
Senior unsecured debt, net
| |
1,312,148
| | |
1,450,606
| |
|
Mortgage notes payable, net
| |
245,691
| | |
246,510
| |
|
Liabilities related to properties held for sale
| |
169
| | |
—
| |
|
Accounts payable and accrued expenses
| |
120,888
| | |
123,587
| |
|
Assumed real estate lease obligations, net
| |
3,624
| | |
4,296
| |
|
Rent collected in advance
| |
23,588
| | |
27,340
| |
|
Security deposits
|
|
9,670
|
|
|
10,338
|
|
| Total liabilities |
| $ | 1,715,778 |
|
| $ | 1,862,677 |
|
| | | |
|
|
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
| |
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(1) | |
265,391
| | |
265,391
| |
|
Common shares of beneficial interest, $0.01 par value: 350,000,000
shares authorized; 125,502,748 and 126,349,914 shares issued and
outstanding, respectively
| |
1,255
| | |
1,263
| |
|
Additional paid in capital
| |
4,393,409
| | |
4,414,611
| |
|
Cumulative net income
| |
2,380,111
| | |
2,333,709
| |
|
Cumulative other comprehensive loss
| |
(3,014
|
)
| |
(3,687
|
)
|
|
Cumulative common distributions
| |
(3,111,868
|
)
| |
(3,111,868
|
)
|
|
Cumulative preferred distributions
|
|
(657,176
|
)
|
|
(650,195
|
)
|
| Total shareholders’ equity |
| $ | 3,387,371 |
|
| $ | 3,368,487 |
|
| Total liabilities and shareholders’ equity |
| $ | 5,103,149 |
|
| $ | 5,231,164 |
|
|
(1)
|
|
On April 12, 2016, we sent notice for the redemption of our series E
preferred shares. The 11,000,000 series E preferred shares will be
redeemed at a price of $25.00 per share, plus any accrued and unpaid
dividends, on May 15, 2016. The redemption payment will occur on May
16, 2016 (the first business day following the redemption date).
|
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (amounts in thousands, except per share data) |
|
|
|
| | Three Months Ended |
| | March 31, |
| | 2016 |
| 2015 |
|
Revenues
| | |
| |
|
Rental income
| |
$
|
109,888
| | |
$
|
167,972
| |
|
Tenant reimbursements and other income
|
|
27,247
|
|
|
45,083
|
|
| Total revenues |
| $ | 137,135 |
|
| $ | 213,055 |
|
| | | |
|
|
Expenses:
| | | | |
|
Operating expenses
| |
$
|
57,258
| | |
$
|
97,871
| |
|
Depreciation and amortization
| |
36,251
| | |
62,699
| |
|
General and administrative
| |
13,312
| | |
16,558
| |
|
Loss on asset impairment
|
|
—
|
|
|
1,904
|
|
| Total expenses |
| $ | 106,821 |
|
| $ | 179,032 |
|
|
|
|
|
|
|
| Operating income |
| $ | 30,314 |
|
| $ | 34,023 |
|
| | | |
|
|
Interest and other income
| |
1,967
| | |
3,448
| |
|
Interest expense (including net amortization of debt discounts,
premiums and deferred financing fees of $983 and $29, respectively)
| |
(22,347
|
)
| |
(29,842
|
)
|
|
Loss on early extinguishment of debt
| |
(118
|
)
| |
(428
|
)
|
|
Foreign currency exchange loss
| |
(5
|
)
| |
—
| |
|
Gain on sale of properties
| |
36,666
|
| |
5,868
|
|
|
Income before income taxes
| |
46,477
| | |
13,069
| |
|
Income tax (expense) benefit
|
|
(75
|
)
|
|
561
|
|
| Net income |
| $ | 46,402 |
|
| $ | 13,630 |
|
|
Preferred distributions
|
|
(6,981
|
)
|
|
(6,981
|
)
|
| Net income attributable to Equity Commonwealth common shareholders |
| $ | 39,421 |
|
| $ | 6,649 |
|
|
Weighted average common shares outstanding — basic (1) | |
125,840
|
| |
129,696
|
|
|
Weighted average common shares outstanding — diluted (1) | |
127,522
|
| |
129,874
|
|
| | | |
|
|
Earnings per common share attributable to Equity Commonwealth common
shareholders:
| | | | |
|
Basic
| |
$
|
0.31
|
| |
$
|
0.05
|
|
|
Diluted
| |
$
|
0.31
|
| |
$
|
0.05
|
|
|
(1)
|
|
As of March 31, 2016, we had granted RSUs to certain employees,
officers, and the Chairman of the Board of Trustees. The RSUs
contain both service and market-based vesting components. None of
the RSUs have vested. If the market-based vesting component was
measured as of March 31, 2016, and 2015, 1,754 and 254 common shares
would be issued to the RSU holders, respectively. Using a weighted
average basis, 1,682 and 178 common shares are reflected in diluted
earnings per common share for the three months ended March 31, 2016
and 2015, respectively.
|
CALCULATION OF FUNDS FROM OPERATIONS (FFO) AND NORMALIZED FFO (amounts in thousands, except per share data) |
|
|
|
| | Three Months Ended |
| | March 31, |
|
|
| 2016 |
| 2015 |
| Calculation of FFO |
|
|
|
|
|
Net income
| |
$
|
46,402
| |
|
$
|
13,630
| |
|
Real estate depreciation and amortization
| |
36,044
| | |
62,699
| |
|
Loss on asset impairment
| |
—
| | |
1,904
| |
|
Gain on sale of properties
| |
(36,666
|
)
| |
(5,868
|
)
|
|
FFO attributable to Equity Commonwealth | |
45,780
| | |
72,365
| |
|
Preferred distributions
|
|
(6,981
|
)
|
|
(6,981
|
)
|
| FFO attributable to EQC Common Shareholders |
| $ | 38,799 |
|
| $ | 65,384 |
|
|
|
|
|
|
|
| Calculation of Normalized FFO |
|
|
|
|
|
FFO attributable to EQC common shareholders
| |
$
|
38,799
| | |
$
|
65,384
| |
|
Recurring adjustments:
| | | | |
|
Lease value amortization
| |
1,121
| | |
1,474
| |
|
Straight line rent adjustments
| |
(3,831
|
)
| |
181
| |
|
Loss on early extinguishment of debt
| |
118
| | |
428
| |
|
Minimum cash rent from direct financing lease (1) | |
—
| | |
2,032
| |
|
Interest earned from direct financing lease
| |
—
| | |
(141
|
)
|
|
Other items which affect comparability:
| | | | |
|
Shareholder litigation and transition related expenses (2) | |
1,102
| | |
3,472
| |
|
Transition services fee
| |
—
| | |
2,235
| |
|
Gain on sale of securities
| |
—
| | |
(3,080
|
)
|
|
Foreign currency exchange loss
|
|
5
|
|
|
—
|
|
| Normalized FFO attributable to EQC Common Shareholders |
| $ | 37,314 |
|
| $ | 71,985 |
|
| | | |
|
|
Weighted average common shares outstanding -- basic (3) | |
125,840
|
| |
129,696
|
|
|
Weighted average common shares outstanding -- diluted (3) | |
127,522
|
| |
129,874
|
|
|
FFO attributable to EQC common shareholders per share -- basic (3) | |
$
|
0.31
|
| |
$
|
0.50
|
|
|
FFO attributable to EQC common shareholders per share -- diluted(3) | |
$
|
0.30
|
| |
$
|
0.50
|
|
|
Normalized FFO attributable to EQC common shareholders per share --
basic (3) | |
$
|
0.30
|
| |
$
|
0.56
|
|
|
Normalized FFO attributable to EQC common shareholders per share --
diluted (3) | |
$
|
0.29
|
| |
$
|
0.55
|
|
|
(1)
|
|
Amounts relate to contractual cash payments (including management
fees) from one tenant at Arizona Center. Arizona Center was sold
during the fourth quarter of 2015. Our calculation of Normalized FFO
reflects the cash payments received from this tenant. The terms of
this tenant's lease required 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 $141 for the three months ended March 31, 2015.
|
| |
|
|
(2)
| |
Shareholder litigation and transition related expenses within
general and administrative for the three months ended March 31, 2016
includes $1.1 million for the shareholder-approved liability for the
reimbursement of expenses incurred by Related/Corvex since February
2013 in connection with their consent solicitations to remove the
former Trustees, elect the new Board of Trustees and engage in
related litigation. Approximately $16.7 million was reimbursed to
Related/Corvex during 2014, and on August 4, 2015, we reimbursed
$8.4 million to Related/Corvex under the terms of the
shareholder-approved agreement. An additional $8.4 million will be
reimbursed only if the average closing price of our common shares is
at least $26.00 (as adjusted for any share splits or share
dividends) from August 1, 2015 through July 31, 2016. As of March
31, 2016, the fair value of this liability is $8.3 million. No
shareholder litigation related expenses were incurred during 2016.
|
| |
|
|
(3)
| |
As of March 31, 2016, we had granted RSUs to certain employees,
officers, and the Chairman of the Board of Trustees. The RSUs
contain both service and market-based vesting components. None of
the RSUs have vested. If the market-based vesting component was
measured as of March 31, 2016, and 2015, 1,754 and 254 common shares
would be issued to the RSU holders, respectively. Using a weighted
average basis, 1,682 and 178 common shares are reflected in diluted
FFO per common share, and diluted Normalized FFO per common share
for the three months ended March 31, 2016 and 2015, respectively.
|
|
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. 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. 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 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 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 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 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 |
| | March 31, |
| | 2016 |
| 2015 |
| Calculation of Same Property NOI and Same Property Cash Basis NOI: | | |
| |
|
Rental income
| |
$
|
109,888
| | |
$
|
167,972
| |
|
Tenant reimbursements and other income
| |
27,247
| | |
45,083
| |
|
Operating expenses
|
|
(57,258
|
)
|
|
(97,871
|
)
|
| NOI |
| $ | 79,877 |
|
| $ | 115,184 |
|
|
Straight line rent adjustments
| |
(3,831
|
)
| |
181
| |
|
Lease value amortization
| |
1,121
| | |
1,474
| |
|
Lease termination fees
|
|
(311
|
)
|
|
(1,949
|
)
|
| Cash Basis NOI |
| $ | 76,856 |
|
| $ | 114,890 |
|
|
Cash Basis NOI from non-same properties (1) |
|
(2,769
|
)
|
|
(37,871
|
)
|
| Same Property Cash Basis NOI |
| $ | 74,087 |
|
| $ | 77,019 |
|
|
Non-cash rental and termination income from same properties
|
|
2,998
|
|
|
(1,805
|
)
|
| Same Property NOI |
| $ | 77,085 |
|
| $ | 75,214 |
|
| | | |
|
| Reconciliation of Same Property NOI to GAAP Operating Income: |
|
|
|
|
| Same Property NOI |
| $ | 77,085 |
|
| $ | 75,214 |
|
|
Non-cash rental and termination income from same properties
|
|
(2,998
|
)
|
|
1,805
|
|
| Same Property Cash Basis NOI |
| $ | 74,087 |
|
| $ | 77,019 |
|
|
Cash Basis NOI from non-same properties (1) |
|
2,769
|
|
|
37,871
|
|
| Cash Basis NOI |
| $ | 76,856 |
|
| $ | 114,890 |
|
|
Straight line rent adjustments
| |
3,831
| | |
(181
|
)
|
|
Lease value amortization
| |
(1,121
|
)
| |
(1,474
|
)
|
|
Lease termination fees
|
|
311
|
|
|
1,949
|
|
| NOI |
| $ | 79,877 |
|
| $ | 115,184 |
|
|
Depreciation and amortization
| |
(36,251
|
)
| |
(62,699
|
)
|
|
General and administrative
| |
(13,312
|
)
| |
(16,558
|
)
|
|
Loss on asset impairment
|
|
—
|
|
|
(1,904
|
)
|
| Operating Income |
| $ | 30,314 |
|
| $ | 34,023 |
|
|
(1)
|
|
Cash Basis NOI from non-same properties for all periods presented
includes the operations of properties disposed or classified as held
for sale.
|
|
NOI is total revenues minus operating 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 January 1, 2015 through March 31,
2016. Properties classified as held for sale within our condensed
consolidated balance sheets are excluded.
|
|
|
|
We consider these measures 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 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. 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, net income attributable
to Equity Commonwealth 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 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 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: http://www.businesswire.com/news/home/20160504006694/en/
Equity Commonwealth
Sarah Byrnes, Investor Relations
312-646-2801
[email protected]
Source: Equity Commonwealth