CHICAGO--(BUSINESS WIRE)--
Equity Commonwealth (NYSE: EQC) today reported financial results for the
quarter and year ended December 31, 2016. All per share results are
reported on a diluted basis.
Financial results for the quarter ended December 31, 2016
Net income attributable to common shareholders was $10.3 million, or
$0.08 per share, for the quarter ended December 31, 2016. This compares
to net income attributable to common shareholders of $36.2 million, or
$0.28 per share, for the quarter ended December 31, 2015. The decline in
net income was primarily due to property sales and losses on asset
impairment.
Funds from Operations (FFO), as defined by the National Association of
Real Estate Investment Trusts, for the quarter ended December 31, 2016,
were $28.1 million, or $0.22 per share. This compares to FFO for the
quarter ended December 31, 2015 of $31.8 million, or $0.25 per share.
Normalized FFO was $29.6 million, or $0.23 per share. This compares to
Normalized FFO for the quarter ended December 31, 2015 of $34.4 million,
or $0.27 per share. The following items impacted Normalized FFO for the
quarter ended December 31, 2016, compared to the corresponding 2015
period:
-
($0.18) per share of income from properties sold;
- $0.04 per share of preferred distribution savings;
- $0.04 per share of interest expense savings;
- $0.03 per share of increases in lease termination fees; and
- $0.02 per share of increases in interest income.
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.
The weighted average number of diluted common shares outstanding for the
quarter ended December 31, 2016 was 126,048,307 shares, compared to
127,492,793 for the quarter ended December 31, 2015.
Same property results for the quarter ended December 31, 2016
The company’s same property portfolio consisted of 33 properties
totaling 16.1 million square feet. Operating results were as follows:
-
The same property portfolio was 91.1% leased as of December 31, 2016,
compared to 90.8% as of September 30, 2016, and 91.8% as of December
31, 2015.
-
The company entered into leases for approximately 1,411,000 square
feet, including renewal leases for approximately 1,190,000 square feet
and new leases for approximately 221,000 square feet.
-
GAAP rental rates on new and renewal leases were 20.2% higher compared
to prior GAAP rental rates for the same space.
-
Cash rental rates on new and renewal leases were 7.3% higher compared
to prior cash rental rates for the same space.
-
Same property NOI increased 13.9% when compared to 2015, which
included a $3.7 million increase in lease termination fee income.
-
Same property cash NOI increased 5.1% when compared to 2015.
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 October 1, 2015
through December 31, 2016.
Significant events during the quarter ended December 31, 2016
-
The company converted to an umbrella partnership real estate
investment trust, or UPREIT, structure.
- 625 Crane Street, in Aurora, IL, was removed from service and is now
designated as a land parcel.
-
The company sold 3 properties totaling 750,000 square feet for a gross
sales price of $117.5 million at a weighted average cap rate in the
mid-7% range.
-
The company prepaid at par the $167.8 million 5.66% mortgage loan on
1735 Market in Philadelphia, PA on November 10, 2016.
-
The company prepaid at par its $250 million 6.25% senior unsecured
notes due June 2017 on December 15, 2016.
-
The company repurchased approximately 1.5 million of its common shares
at an average price of $28.81 per share for a total investment of
$43.4 million. The company has $106.6 million authorized for future
share repurchases.
-
A common distribution was not required and the Board of Trustees
determined not to make a distribution in 2016.
Financial results for the year ended December 31, 2016
Net income attributable to common shareholders was $205.3 million, or
$1.62 per share, for the year ended December 31, 2016. This compares to
net income attributable to common shareholders of $71.9 million, or
$0.56 per share, for the quarter ended December 31, 2015. The increase
in net income was primarily due to an increase in gains from property
sales.
FFO for the year ended December 31, 2016, was $143.7 million, or $1.13
per share. This compares to FFO for the year ended December 31, 2015 of
$198.7 million, or $1.53 per share.
Normalized FFO was $149.4 million, or $1.18 per share. This compares to
Normalized FFO for the year ended December 31, 2015 of $220.6 million,
or $1.70 per share. The following items impacted Normalized FFO for the
quarter ended December 31, 2016, compared to the corresponding 2015
period:
-
($0.81) per share of income from properties sold;
- $0.18 per share of interest expense savings; and
- $0.08 per share of preferred distribution savings.
The weighted average number of diluted common shares outstanding for the
year ended December 31, 2016 was 126,767,628 shares, compared to
129,436,642 for the year ended December 31, 2015.
Same property results for the year ended December 31, 2016
-
The company entered into leases for approximately 3,163,000 square
feet, including renewal leases for approximately 2,299,000 square feet
and new leases for approximately 864,000 square feet.
-
GAAP rental rates on new and renewal leases were 11.2% higher compared
to prior GAAP rental rates for the same space.
-
Cash rental rates on new and renewal leases were 0.4% higher compared
to prior cash rental rates for the same space.
-
Same property NOI increased 3.0% when compared to 2015.
-
Same property cash NOI decreased 2.7% when compared to 2015.
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 December 31, 2016.
Significant events during the year ended December 31, 2016
-
The company sold 30 properties totaling 7,973,000 square feet for a
gross sales price of $1.3 billion at a weighted average cap rate in
the high 6% range. Proceeds after credits for rent abatements and
contractual lease costs were $1.2 billion.
-
The company repaid $556.9 mm of debt with a weighted average coupon of
6.1%.
-
The company redeemed all $275 million of its outstanding 7.25% Series
E Cumulative Redeemable Preferred Shares.
-
The company purchased a $400 million interest rate cap with a LIBOR
strike price of 2.50% through March 1, 2019.
-
The company repurchased 2,491,675 of its common shares at an average
price of $27.68 per share, for a total investment of $69.0 million.
Subsequent Events
-
The company closed on the sale of 111 Market Place, a 589,380 square
foot property in Baltimore, MD, for a gross sale price of $60.1
million. Proceeds from the sale were $44.1 million net of credits for
contractual lease costs, capital and rent abatements.
-
The company currently has 8 properties totaling 3.5 million square
feet in various stages of the sale process.
Earnings Conference Call & Supplemental Data
Equity Commonwealth will host a conference call to discuss fourth
quarter and full year results on Thursday, February 16, 2017, at 9:00
A.M. CST. 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 Fourth 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. EQC’s portfolio is
comprised of 32 properties and 15.5 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 the marketing the company’s
properties for sale, consummating asset sales and identifying future
investment opportunities. 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)
|
|
|
|
|
|
|
|
| December 31, 2016 |
| December 31, 2015 |
| ASSETS |
|
|
|
|
|
Real estate properties:
| | |
| |
|
Land
| |
$
|
286,186
| | |
$
|
389,410
| |
|
Buildings and improvements
| |
2,570,704
|
| |
3,497,942
|
|
| |
2,856,890
| | |
3,887,352
| |
|
Accumulated depreciation
| |
(755,255
|
)
| |
(898,939
|
)
|
| |
2,101,635
| | |
2,988,413
| |
|
Acquired real estate leases, net
| |
48,281
| | |
88,760
| |
|
Cash and cash equivalents
| |
2,094,674
| | |
1,802,729
| |
|
Restricted cash
| |
6,532
| | |
32,245
| |
|
Rents receivable, net of allowance for doubtful accounts of $5,105
and $7,715, respectively
| |
152,031
| | |
174,676
| |
|
Other assets, net
|
|
122,922
|
|
|
144,341
|
|
| Total assets |
| $ | 4,526,075 |
|
| $ | 5,231,164 |
|
|
|
|
|
|
|
| LIABILITIES AND SHAREHOLDERS’ EQUITY |
|
|
|
|
|
Revolving credit facility
| |
$
|
—
| | |
$
|
—
| |
|
Senior unsecured debt, net
| |
1,063,950
| | |
1,450,606
| |
|
Mortgage notes payable, net
| |
77,717
| | |
246,510
| |
|
Accounts payable and accrued expenses
| |
95,395
| | |
123,587
| |
|
Assumed real estate lease obligations, net
| |
1,946
| | |
4,296
| |
|
Rent collected in advance
| |
18,460
| | |
27,340
| |
|
Security deposits
|
|
8,160
|
|
|
10,338
|
|
| Total liabilities |
| $ | 1,265,628 |
|
| $ | 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, respectively, 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; 0 and 11,000,000 shares issued and outstanding,
respectively, aggregate liquidation preference $0 and $275,000,
respectively
| |
—
| | |
265,391
| |
|
Common shares of beneficial interest, $0.01 par value: 350,000,000
shares authorized; 123,994,465 and 126,349,914 shares issued and
outstanding, respectively
| |
1,240
| | |
1,263
| |
|
Additional paid in capital
| |
4,363,177
| | |
4,414,611
| |
|
Cumulative net income
| |
2,566,603
| | |
2,333,709
| |
|
Cumulative other comprehensive loss
| |
(208
|
)
| |
(3,687
|
)
|
|
Cumulative common distributions
| |
(3,111,868
|
)
| |
(3,111,868
|
)
|
|
Cumulative preferred distributions
|
|
(677,760
|
)
|
|
(650,195
|
)
|
| Total shareholders’ equity |
| $ | 3,260,447 |
|
| $ | 3,368,487 |
|
| Total liabilities and shareholders’ equity |
| $ | 4,526,075 |
|
| $ | 5,231,164 |
|
|
|
| CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS |
| (amounts in thousands, except per share data) |
|
|
|
|
|
| | Three Months Ended |
| Year Ended |
| | December 31, | | December 31, |
| | 2016 |
| 2015 |
| 2016 |
| 2015 |
|
Revenues
| | |
| | | |
| |
|
Rental income
| |
$
|
84,726
| | |
$
|
113,254
| | |
$
|
409,071
| | |
$
|
570,382
| |
|
Tenant reimbursements and other income
|
|
18,820
|
|
|
25,680
|
|
|
91,609
|
|
|
144,509
|
|
| Total revenues |
| $ | 103,546 |
|
| $ | 138,934 |
|
| $ | 500,680 |
|
| $ | 714,891 |
|
| | | | | | | |
|
|
Expenses:
| | | | | | | | |
|
Operating expenses
| |
$
|
42,742
| | |
$
|
63,820
| | |
$
|
200,706
| | |
$
|
324,948
| |
|
Depreciation and amortization
| |
29,040
| | |
37,143
| | |
131,806
| | |
194,001
| |
|
General and administrative
| |
11,490
| | |
13,739
| | |
50,256
| | |
57,457
| |
|
Loss on asset impairment
|
|
14,740
|
|
|
—
|
|
|
58,476
|
|
|
17,162
|
|
| Total expenses |
| $ | 98,012 |
|
| $ | 114,702 |
|
| $ | 441,244 |
|
| $ | 593,568 |
|
|
|
|
|
|
|
|
|
|
|
| Operating income |
| $ | 5,534 |
|
| $ | 24,232 |
|
| $ | 59,436 |
|
| $ | 121,323 |
|
| | | | | | | |
|
|
Interest and other income
| |
3,147
| | |
1,176
| | |
10,331
| | |
5,989
| |
|
Interest expense (including net amortization of debt discounts,
premiums and deferred financing fees of $845, $1,005, $3,725, and
$1,028, respectively)
| |
(19,255
|
)
| |
(24,390
|
)
| |
(84,329
|
)
| |
(107,316
|
)
|
|
(Loss) gain on early extinguishment of debt
| |
(2,562
|
)
| |
550
| | |
(2,680
|
)
| |
6,661
| |
|
Foreign currency exchange gain (loss)
| |
—
| | |
96
| | |
(5
|
)
| |
(8,857
|
)
|
|
Gain on sale of properties, net
| |
25,676
|
| |
41,468
|
| |
250,886
|
| |
84,421
|
|
|
Income before income taxes
| |
12,540
| | |
43,132
| | |
233,639
| | |
102,221
| |
|
Income tax (expense) benefit
|
|
(280
|
)
|
|
13
|
|
|
(745
|
)
|
|
(2,364
|
)
|
| Net income |
| $ | 12,260 |
|
| $ | 43,145 |
|
| $ | 232,894 |
|
| $ | 99,857 |
|
|
Preferred distributions
| |
(1,997
|
)
| |
(6,981
|
)
| |
(17,956
|
)
| |
(27,924
|
)
|
|
Excess fair value of consideration paid over carrying value of
preferred shares (1) |
|
—
|
|
|
—
|
|
|
(9,609
|
)
|
|
—
|
|
| Net income attributable to Equity Commonwealth common shareholders |
| $ | 10,263 |
|
| $ | 36,164 |
|
| $ | 205,329 |
|
| $ | 71,933 |
|
| | | | | | | | | | | |
|
|
Weighted average common shares outstanding — basic (2) | |
125,021
|
| |
126,350
|
| |
125,474
|
| |
128,621
|
|
|
Weighted average common shares outstanding — diluted (2) | |
126,048
|
| |
127,493
|
| |
126,768
|
| |
129,437
|
|
| | | | | | | |
|
|
Earnings per common share attributable to Equity Commonwealth common
shareholders:
| | | | | | | | |
|
Basic
| |
$
|
0.08
|
| |
$
|
0.29
|
| |
$
|
1.64
|
| |
$
|
0.56
|
|
|
Diluted
| |
$
|
0.08
|
| |
$
|
0.28
|
| |
$
|
1.62
|
| |
$
|
0.56
|
|
|
(1)
|
|
On May 15, 2016, we redeemed all of our 11,000,000 outstanding
series E preferred shares at a price of $25.00 per share, for a
total of $275.0 million, plus any accrued and unpaid dividends. The
redemption payment occurred on May 16, 2016 (the first business day
following the redemption date). We recorded $9.6 million related to
the excess fair value of consideration paid over the carrying value
of the preferred shares as a reduction to net income attributable to
Equity Commonwealth common shareholders for the twelve months ended
December 31, 2016.
|
| |
|
|
(2)
| |
As of December 31, 2016, we had granted RSUs to certain employees,
officers, and the Chairman of the Board of Trustees. The RSUs are
equity awards that contain both service and market-based vesting
components. None of the RSUs have vested. If the market-based
vesting component was measured as of December 31, 2016, and 2015,
1,027 and 1,143 common shares would be issued to the RSU holders,
respectively. Using a weighted average basis, 1,027 and 1,143 common
shares are reflected in diluted earnings per common share, diluted
FFO per common share, and diluted Normalized FFO per common share
for the three months ended December 31, 2016 and 2015, respectively,
and 1,294 and 816 common shares are reflected in these measures for
the year ended December 31, 2016 and 2015 respectively.
|
|
|
| CALCULATION OF FUNDS FROM OPERATIONS (FFO) AND NORMALIZED FFO |
| (amounts in thousands, except per share data) |
|
|
|
|
|
| | Three Months Ended |
| Year Ended |
| | December 31, | | December 31, |
|
|
| 2016 |
| 2015 |
| 2016 |
| 2015 |
| Calculation of FFO |
|
|
|
|
|
|
|
|
|
Net income
| |
$
|
12,260
| |
|
$
|
43,145
| | |
$
|
232,894
| |
|
$
|
99,857
| |
|
Real estate depreciation and amortization
| |
28,750
| | |
37,143
| | |
130,765
| | |
194,001
| |
|
Loss on asset impairment
| |
14,740
| | |
—
| | |
58,476
| | |
17,162
| |
|
Gain on sale of properties, net
| |
(25,676
|
)
| |
(41,468
|
)
| |
(250,886
|
)
| |
(84,421
|
)
|
|
FFO attributable to Equity Commonwealth | |
30,074
| | |
38,820
| | |
171,249
| | |
226,599
| |
|
Preferred distributions
| |
(1,997
|
)
| |
(6,981
|
)
| |
(17,956
|
)
| |
(27,924
|
)
|
|
Excess fair value of consideration paid over carrying value of
preferred shares (1) |
|
—
|
|
|
—
|
|
|
(9,609
|
)
|
|
—
|
|
| FFO attributable to EQC Common Shareholders |
| $ | 28,077 |
|
| $ | 31,839 |
|
| $ | 143,684 |
|
| $ | 198,675 |
|
|
|
|
|
|
|
|
|
|
|
| Calculation of Normalized FFO |
|
|
|
|
|
|
|
|
|
FFO attributable to EQC common shareholders
| |
$
|
28,077
| | |
$
|
31,839
| | |
$
|
143,684
| | |
$
|
198,675
| |
|
Lease value amortization
| |
661
| | |
1,482
| | |
6,531
| | |
7,515
| |
|
Straight line rent adjustments
| |
(1,699
|
)
| |
(1,744
|
)
| |
(14,083
|
)
| |
(5,328
|
)
|
|
Loss (gain) on early extinguishment of debt
| |
2,562
| | |
(550
|
)
| |
2,680
| | |
(6,661
|
)
|
|
Minimum cash rent from direct financing lease (2) | |
—
| | |
1,355
| | |
—
| | |
7,451
| |
|
Interest earned from direct financing lease
| |
—
| | |
(51
|
)
| |
—
| | |
(407
|
)
|
|
Shareholder litigation and transition related expenses (3) | |
—
| | |
2,138
| | |
999
| | |
10,869
| |
|
Transition services fee
| |
—
| | |
66
| | |
—
| | |
2,679
| |
|
Gain on sale of securities
| |
—
| | |
—
| | |
—
| | |
(3,080
|
)
|
|
Foreign currency exchange (gain) loss
| |
—
| | |
(96
|
)
| |
5
| | |
8,857
| |
|
Excess fair value of consideration paid over carrying value of
preferred shares (1) |
|
—
|
|
|
—
|
|
|
9,609
|
|
|
—
|
|
| Normalized FFO attributable to EQC Common Shareholders |
| $ | 29,601 |
|
| $ | 34,439 |
|
| $ | 149,425 |
|
| $ | 220,570 |
|
| | | | | | | |
|
|
Weighted average common shares outstanding -- basic (4) | |
125,021
|
| |
126,350
|
| |
125,474
|
| |
128,621
|
|
|
Weighted average common shares outstanding -- diluted (4) | |
126,048
|
| |
127,493
|
| |
126,768
|
| |
129,437
|
|
|
FFO attributable to EQC common shareholders per share -- basic
| |
$
|
0.22
|
| |
$
|
0.25
|
| |
$
|
1.15
|
| |
$
|
1.54
|
|
|
FFO attributable to EQC common shareholders per share -- diluted
| |
$
|
0.22
|
| |
$
|
0.25
|
| |
$
|
1.13
|
| |
$
|
1.53
|
|
|
Normalized FFO attributable to EQC common shareholders per share --
basic
| |
$
|
0.24
|
| |
$
|
0.27
|
| |
$
|
1.19
|
| |
$
|
1.71
|
|
|
Normalized FFO attributable to EQC common shareholders per share --
diluted
| |
$
|
0.23
|
| |
$
|
0.27
|
| |
$
|
1.18
|
| |
$
|
1.70
|
|
|
(1)
|
|
On May 15, 2016, we redeemed all of our 11,000,000 outstanding
series E preferred shares at a price of $25.00 per share, for a
total of $275.0 million, plus any accrued and unpaid dividends.
The redemption payment occurred on May 16, 2016 (the first
business day following the redemption date). We recorded $9.6
million related to the excess fair value of consideration paid
over the carrying value of the preferred shares as a reduction to
FFO attributable to Equity Commonwealth common shareholders for
the year ended December 31, 2016.
|
| |
|
|
(2)
| |
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 $(281) for the three months ended December 31, 2015,
and $98 for the year ended December 31, 2015.
|
| |
|
|
(3)
| |
Shareholder litigation and transition related expenses within
general and administrative for the year ended December 31, 2016 is
primarily related to 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 in August 2016 and 2015, we
reimbursed $8.2 million and $8.4 million, respectively, to
Related/Corvex under the terms of the shareholder-approved
agreement. As of December 31, 2016, there is no future obligation to
pay any amounts under the shareholder-approved agreement to
Related/Corvex. No shareholder litigation related expenses were
incurred during 2016.
|
| |
|
|
(4)
| |
As of December 31, 2016, we had granted RSUs to certain employees,
officers, and the Chairman of the Board of Trustees. The RSUs are
equity awards that contain both service and market-based vesting
components. None of the RSUs have vested. If the market-based
vesting component was measured as of December 31, 2016, and 2015,
1,027 and 1,143 common shares would be issued to the RSU holders,
respectively. Using a weighted average basis, 1,027 and 1,143 common
shares are reflected in diluted earnings per common share, diluted
FFO per common share, and diluted Normalized FFO per common share
for the three months ended December 31, 2016 and 2015, respectively,
and 1,294 and 816 common shares are reflected in these measures for
the year ended December 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. 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, 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 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 |
| Year Ended |
| | December 31, | | December 31, |
| | 2016 |
| 2015 |
| 2016 |
| 2015 |
| Calculation of Same Property NOI and Same Property Cash Basis NOI: | | |
| | | |
| |
|
Rental income
| |
$
|
84,726
| | |
$
|
113,254
| | |
$
|
409,071
| | |
$
|
570,382
| |
|
Tenant reimbursements and other income
| |
18,820
| | |
25,680
| | |
91,609
| | |
144,509
| |
|
Operating expenses
|
|
(42,742
|
)
|
|
(63,820
|
)
|
|
(200,706
|
)
|
|
(324,948
|
)
|
| NOI |
| $ | 60,804 |
|
| $ | 75,114 |
|
| $ | 299,974 |
|
| $ | 389,943 |
|
|
Straight line rent adjustments
| |
(1,699
|
)
| |
(1,744
|
)
| |
(14,083
|
)
| |
(5,328
|
)
|
|
Lease value amortization
| |
661
| | |
1,482
| | |
6,531
| | |
7,515
| |
|
Lease termination fees
|
|
(3,803
|
)
|
|
(309
|
)
|
|
(23,372
|
)
|
|
(8,184
|
)
|
| Cash Basis NOI |
| $ | 55,963 |
|
| $ | 74,543 |
|
| $ | 269,050 |
|
| $ | 383,946 |
|
|
Cash Basis NOI from non-same properties (1) |
|
(1,126
|
)
|
|
(22,348
|
)
|
|
(50,139
|
)
|
|
(159,027
|
)
|
| Same Property Cash Basis NOI |
| $ | 54,837 |
|
| $ | 52,195 |
|
| $ | 218,911 |
|
| $ | 224,919 |
|
|
Non-cash rental and termination income from same properties
|
|
4,750
|
|
|
102
|
|
|
14,737
|
|
|
1,822
|
|
| Same Property NOI |
| $ | 59,587 |
|
| $ | 52,297 |
|
| $ | 233,648 |
|
| $ | 226,741 |
|
| | | | | | | |
|
| Reconciliation of Same Property NOI to GAAP Operating Income: |
|
|
|
|
|
|
|
|
| Same Property NOI |
| $ | 59,587 |
|
| $ | 52,297 |
|
| $ | 233,648 |
|
| $ | 226,741 |
|
|
Non-cash rental and termination income from same properties
|
|
(4,750
|
)
|
|
(102
|
)
|
|
(14,737
|
)
|
|
(1,822
|
)
|
| Same Property Cash Basis NOI |
| $ | 54,837 |
|
| $ | 52,195 |
|
| $ | 218,911 |
|
| $ | 224,919 |
|
|
Cash Basis NOI from non-same properties (1) |
|
1,126
|
|
|
22,348
|
|
|
50,139
|
|
|
159,027
|
|
| Cash Basis NOI |
| $ | 55,963 |
|
| $ | 74,543 |
|
| $ | 269,050 |
|
| $ | 383,946 |
|
|
Straight line rent adjustments
| |
1,699
| | |
1,744
| | |
14,083
| | |
5,328
| |
|
Lease value amortization
| |
(661
|
)
| |
(1,482
|
)
| |
(6,531
|
)
| |
(7,515
|
)
|
|
Lease termination fees
|
|
3,803
|
|
|
309
|
|
|
23,372
|
|
|
8,184
|
|
| NOI |
| $ | 60,804 |
|
| $ | 75,114 |
|
| $ | 299,974 |
|
| $ | 389,943 |
|
|
Depreciation and amortization
| |
(29,040
|
)
| |
(37,143
|
)
| |
(131,806
|
)
| |
(194,001
|
)
|
|
General and administrative
| |
(11,490
|
)
| |
(13,739
|
)
| |
(50,256
|
)
| |
(57,457
|
)
|
|
Loss on asset impairment
|
|
(14,740
|
)
|
|
—
|
|
|
(58,476
|
)
|
|
(17,162
|
)
|
| Operating Income |
| $ | 5,534 |
|
| $ | 24,232 |
|
| $ | 59,436 |
|
| $ | 121,323 |
|
|
(1)
|
|
Cash Basis NOI from non-same properties for all periods presented
includes the operations of properties disposed.
|
|
|
|
NOI is income from our real estate including lease termination fees
received from tenants less our property operating expenses. NOI
excludes amortization of capitalized tenant improvement costs and
leasing commissions and corporate level expenses. Cash Basis NOI is
NOI excluding the effects of straight line rent adjustments, lease
value amortization, and lease termination fees. The quarter-to-date
same property versions of these measures include the results of
properties continuously owned from October 1, 2015 through December
31, 2016. The year-to-date same property versions of these measures
include the results of properties continuously owned from January 1,
2015 through December 31, 2016. Land parcels and 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 because they 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, 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/20170215006243/en/
Equity Commonwealth
Sarah Byrnes, Investor Relations
(312)
646-2801
[email protected]
Source: Equity Commonwealth