CHICAGO--(BUSINESS WIRE)--
Equity Commonwealth (NYSE: EQC) today reported financial results for the
quarter and year ended December 31, 2017. All per share results are
reported on a diluted basis.
Financial results for the quarter ended December 31, 2017
Net loss attributable to common shareholders was $23.6 million, or $0.19
per share, for the quarter ended December 31, 2017. This compares to net
income attributable to common shareholders of $10.3 million, or $0.08
per share, for the quarter ended December 31, 2016. The decline in net
income was primarily due to losses from property sales and a smaller
portfolio.
Funds from Operations (FFO), as defined by the National Association of
Real Estate Investment Trusts, for the quarter ended December 31, 2017,
were $24.0 million, or $0.19 per share. This compares to FFO for the
quarter ended December 31, 2016 of $28.1 million, or $0.22 per share.
Normalized FFO was $22.6 million, or $0.18 per share. This compares to
Normalized FFO for the quarter ended December 31, 2016 of $29.6 million,
or $0.23 per share. The following items impacted Normalized FFO for the
quarter ended December 31, 2017, compared to the corresponding 2016
period:
-
($0.16) per share of income from properties sold;
- $0.07 per share of interest expense savings; and
- $0.04 per share of increase 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.
For the quarter ended December 31, 2017, the company’s balance of cash
and marketable securities was $2.6 billion or $21 per share. Total debt
outstanding was $849 million and availability under the company’s
revolving credit facility was $750 million.
The weighted average number of diluted common shares outstanding when
calculating net income or loss per share for the quarter ended December
31, 2017 was 124,293,289 shares, compared to 126,048,307 for the quarter
ended December 31, 2016. The weighted average number of diluted common
shares outstanding when calculating FFO or Normalized FFO per share for
the quarter ended December 31, 2017 was 124,931,908 shares, compared to
126,048,307 for the quarter ended December 31, 2016.
Same property results for the quarter ended December 31, 2017
The company’s same property portfolio at the end of the quarter
consisted of 16 properties totaling 8.7 million square feet, which
excluded one held for sale property. Operating results were as follows:
-
The same property portfolio was 91.9% leased as of December 31, 2017,
compared to 91.5% as of September 30, 2017, and 93.3% as of December
31, 2016.
-
The same property portfolio commenced occupancy was 89.2% as of
December 31, 2017, compared to 88.4% as of September 30, 2017, and
90.5% as of December 31, 2016.
-
Same property NOI decreased 1.0% when compared to the same period in
2016.
-
Same property cash NOI decreased 0.8% when compared to the same period
in 2016.
-
The company entered into leases for approximately 248,000 square feet,
including renewal leases for approximately 171,000 square feet and new
leases for approximately 77,000 square feet.
-
GAAP rental rates on new and renewal leases were 19.0% higher compared
to prior GAAP rental rates for the same space.
-
Cash rental rates on new and renewal leases were 6.8% higher compared
to prior cash rental rates for the same space.
The definitions and reconciliations of same property NOI and same
property cash NOI to 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, 2016
through December 31, 2017.
Significant events during the quarter ended December 31, 2017
-
The company completed dispositions totaling $106.9 million. The assets
sold during the quarter included:
-
A two-property, 15-building, 1,182,000 square foot, 75.6% leased,
office portfolio in Moon Township and Pittsburgh, Pennsylvania,
for a gross sale price of $71 million.
- 789 East Eisenhower Parkway, a 100% leased, 131,000 square foot
office building in Ann Arbor, Michigan, for a gross sale price of
$24.9 million.
- 33 Stiles Lane, a 25.1% leased, 175,000 square foot industrial
property in North Haven, Connecticut, for a gross sale price of
$10.5 million. In connection with the sale, the company repaid the
$2.0 million mortgage loan secured by the property, plus $0.2
million of prepayment costs.
-
A land parcel in Aurora, Illinois and mineral rights in Ft. Worth,
Texas for a combined gross sale price of $0.5 million.
-
The company entered into a contract to sell its 84.7% leased, 826,000
square foot property at 1600 Market Street in Philadelphia,
Pennsylvania, for a gross sale price of $160 million. Proceeds after
credits for capital, contractual lease costs, and rent abatement are
expected to be approximately $157 million. The property was held for
sale as of December 31, 2017.
-
Moody’s Investors Service upgraded the company’s senior unsecured debt
rating to Baa2 from Baa3.
-
A common distribution was not required and the Board of Trustees
determined not to make a distribution for 2017.
Financial results for the year ended December 31, 2017
Net income attributable to common shareholders was $21.7 million, or
$0.17 per share, for the year ended December 31, 2017. This compares to
net income attributable to common shareholders of $205.3 million, or
$1.62 per share, for the year ended December 31, 2016. The decrease in
net income was primarily due to a decrease in gains from property sales
and a smaller portfolio.
FFO for the year ended December 31, 2017, was $115.4 million, or $0.92
per share. This compares to FFO for the year ended December 31, 2016 of
$143.7 million, or $1.13 per share.
Normalized FFO was $103.3 million, or $0.83 per share. This compares to
Normalized FFO for the year ended December 31, 2016 of $149.4 million,
or $1.18 per share. The following items impacted Normalized FFO for the
year ended December 31, 2017, compared to the corresponding 2016 period:
-
($0.81) per share of income from properties sold;
- $0.26 per share of interest expense savings;
- $0.13 per share of increase in interest income; and
- $0.08 per share of preferred distribution savings.
The weighted average number of diluted common shares outstanding for the
year ended December 31, 2017 was 125,128,772 shares, compared to
126,767,628 for the year ended December 31, 2016.
Same property results for the year ended December 31, 2017
The company’s same property portfolio at the end of the year consisted
of 16 properties totaling 8.7 million square feet, which excluded one
property held for sale. Operating results were as follows:
-
Same property NOI increased 0.8% when compared to the same period in
2016.
-
Same property cash NOI decreased 4.1% when compared to the same period
in 2016.
-
The company entered into leases for approximately 958,000 square feet,
including new leases for approximately 490,000 square feet and renewal
leases for approximately 468,000 square feet.
-
GAAP rental rates on new and renewal leases were 15.1% higher compared
to prior GAAP rental rates for the same space.
-
Cash rental rates on new and renewal leases were 7.5% higher compared
to prior cash rental rates for the same space.
The definitions and reconciliations of same property NOI and same
property cash NOI to 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, 2016
through December 31, 2017.
Significant events during the year ended December 31, 2017
-
The company sold 16 properties totaling 6,588,000 square feet, two
land parcels, and mineral rights for a gross sales price of $862.6
million at a weighted average cap rate in the mid-8% range. Proceeds
after credits for capital, contractual lease costs, and rent abatement
were $846.6 million.
-
The company repaid $293.3 million of debt with a weighted average
coupon of 6.5%.
Subsequent Events
-
In January 2018, the company entered into a contract to sell its 99.2%
leased, 1,561,000 square foot property at 600 West Chicago Avenue in
Chicago, Illinois, for a gross sale price of $510 million. Proceeds
after credits for capital costs, contractual lease costs, and rent
abatements are expected to be approximately $487 million. The closing
is scheduled to occur on or before March 23, 2018. This transaction is
subject to customary closing conditions and extensions, and there is
no certainty that it will close.
-
In January 2018, the company called for redemption at par, on March 7,
2018, all $175 million of its 5.75% Senior Unsecured Notes due August
1, 2042.
-
The company currently has 4 properties totaling 3.2 million square
feet in various stages of the sale process, including properties under
contract.
Earnings Conference Call & Supplemental Data
Equity Commonwealth will host a conference call to discuss fourth
quarter and full year results on Thursday, February 15, 2018, 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 2017 Supplemental Operating and Financial
Data is available for 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 December 31, 2017,
EQC’s same property portfolio comprised 16 properties and 8.7 million
square feet.
Regulation FD Disclosures
We intend to use any of the following to comply with our disclosure
obligations under Regulation FD: press releases, SEC filings, public
conference calls, or our website. We routinely post important
information on our website at www.eqcre.com,
including information that may be deemed to be material. We encourage
investors and others interested in the company to monitor these
distribution channels for material disclosures.
Forward-Looking Statements
Some of the statements contained in this press release constitute
forward-looking statements within the meaning of the federal securities
laws, including, but not limited to, statements regarding marketing the
company’s properties for sale and consummating asset sales. Any
forward-looking statements contained in this press release are intended
to be made pursuant to the safe harbor provisions of Section 21E of the
Securities Exchange Act of 1934. 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, 2017 |
| December 31, 2016 |
| ASSETS |
|
|
|
|
|
Real estate properties:
| | |
| |
|
Land
| |
$
|
191,775
| | |
$
|
286,186
| |
|
Buildings and improvements
| |
1,555,836
|
| |
2,570,704
|
|
| |
1,747,611
| | |
2,856,890
| |
|
Accumulated depreciation
| |
(450,718
|
)
| |
(755,255
|
)
|
| |
1,296,893
| | |
2,101,635
| |
|
Properties held for sale
| |
97,688
| | |
—
| |
|
Acquired real estate leases, net
| |
23,847
| | |
48,281
| |
|
Cash and cash equivalents
| |
2,351,693
| | |
2,094,674
| |
|
Marketable securities
| |
276,928
| | |
—
| |
|
Restricted cash
| |
8,897
| | |
6,532
| |
|
Rents receivable, net of allowance for doubtful accounts of $4,771
and $5,105, respectively
| |
93,436
| | |
152,031
| |
|
Other assets, net
|
|
87,563
|
|
|
122,922
|
|
| Total assets |
| $ | 4,236,945 |
|
| $ | 4,526,075 |
|
|
|
|
|
|
|
| LIABILITIES AND EQUITY |
|
|
|
|
|
Revolving credit facility
| |
$
|
—
| | |
$
|
—
| |
|
Senior unsecured debt, net
| |
815,984
| | |
1,063,950
| |
|
Mortgage notes payable, net
| |
32,594
| | |
77,717
| |
|
Liabilities related to properties held for sale
| |
1,840
| | |
—
| |
|
Accounts payable and accrued expenses
| |
69,220
| | |
95,395
| |
|
Assumed real estate lease obligations, net
| |
1,001
| | |
1,946
| |
|
Rent collected in advance
| |
11,076
| | |
18,460
| |
|
Security deposits
|
|
4,735
|
|
|
8,160
|
|
| Total liabilities |
| $ | 936,450 |
|
| $ | 1,265,628 |
|
| | | |
|
|
Shareholders’ equity:
| | | | |
|
Preferred shares of beneficial interest, $0.01 par value: 50,000,000
shares authorized;
| | | | |
|
Series D preferred shares; 6 1/2% cumulative convertible; 4,915,196
shares issued and outstanding, aggregate liquidation preference of
$122,880 | |
$
|
119,263
| | |
$
|
119,263
| |
|
Common shares of beneficial interest, $0.01 par value: 350,000,000
shares authorized; 124,217,616 and 123,994,465 shares issued and
outstanding, respectively
| |
1,242
| | |
1,240
| |
|
Additional paid in capital
| |
4,380,313
| | |
4,363,177
| |
|
Cumulative net income
| |
2,596,259
| | |
2,566,603
| |
|
Cumulative other comprehensive loss
| |
(95
|
)
| |
(208
|
)
|
|
Cumulative common distributions
| |
(3,111,868
|
)
| |
(3,111,868
|
)
|
|
Cumulative preferred distributions
| |
(685,748
|
)
| |
(677,760
|
)
|
|
Total shareholders' equity
| |
3,299,366
| | |
3,260,447
| |
|
Noncontrolling interest
|
|
1,129
|
|
|
—
|
|
| Total equity |
| $ | 3,300,495 |
|
| $ | 3,260,447 |
|
| Total liabilities and equity |
| $ | 4,236,945 |
|
| $ | 4,526,075 |
|
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (amounts in thousands, except per share data) |
|
|
|
|
|
| | Three Months Ended |
| Year Ended |
| | December 31, | | December 31, |
| | 2017 |
| 2016 |
| 2017 |
| 2016 |
|
Revenues:
| | |
| | | |
| |
|
Rental income
| |
$
|
54,672
| | |
$
|
84,726
| | |
$
|
270,320
| | |
$
|
409,071
| |
|
Tenant reimbursements and other income
|
|
16,951
|
|
|
18,820
|
|
|
70,251
|
|
|
91,609
|
|
| Total revenues |
| $ | 71,623 |
|
| $ | 103,546 |
|
| $ | 340,571 |
|
| $ | 500,680 |
|
| | | | | | | |
|
|
Expenses:
| | | | | | | | |
|
Operating expenses
| |
$
|
30,674
| | |
$
|
42,742
| | |
$
|
141,425
| | |
$
|
200,706
| |
|
Depreciation and amortization
| |
18,738
| | |
29,040
| | |
90,708
| | |
131,806
| |
|
General and administrative
| |
12,033
| | |
11,490
| | |
47,760
| | |
50,256
| |
|
Loss on asset impairment
|
|
—
|
|
|
14,740
|
|
|
19,714
|
|
|
58,476
|
|
| Total expenses |
| $ | 61,445 |
|
| $ | 98,012 |
|
| $ | 299,607 |
|
| $ | 441,244 |
|
|
|
|
|
|
|
|
|
|
|
| Operating income |
| $ | 10,178 |
|
| $ | 5,534 |
|
| $ | 40,964 |
|
| $ | 59,436 |
|
| | | | | | | |
|
|
Interest and other income
| |
8,393
| | |
3,147
| | |
26,380
| | |
10,331
| |
|
Interest expense (including net amortization of debt discounts,
premiums and deferred financing fees of $789, $845, $3,135 and
$3,725, respectively)
| |
(10,796
|
)
| |
(19,255
|
)
| |
(52,183
|
)
| |
(84,329
|
)
|
|
Loss on early extinguishment of debt
| |
(227
|
)
| |
(2,562
|
)
| |
(493
|
)
| |
(2,680
|
)
|
|
Foreign currency exchange loss
| |
—
| | |
—
| | |
—
| | |
(5
|
)
|
|
(Loss) gain on sale of properties, net
| |
(29,172
|
)
| |
25,676
|
| |
15,498
|
| |
250,886
|
|
|
(Loss) income before income taxes
| |
(21,624
|
)
| |
12,540
| | |
30,166
| | |
233,639
| |
|
Income tax benefit (expense)
|
|
55
|
|
|
(280
|
)
|
|
(500
|
)
|
|
(745
|
)
|
| Net (loss) income |
| $ | (21,569 | ) |
| $ | 12,260 |
|
| $ | 29,666 |
|
| $ | 232,894 |
|
|
Net loss (income) attributable to noncontrolling interest
|
|
8
|
|
|
—
|
|
|
(10
|
)
|
|
—
|
|
| Net (loss) income attributable to Equity Commonwealth |
| (21,561 | ) |
| 12,260 |
|
| 29,656 |
|
| 232,894 |
|
|
Preferred distributions
| |
(1,997
|
)
| |
(1,997
|
)
| |
(7,988
|
)
| |
(17,956
|
)
|
|
Excess fair value of consideration paid over carrying value of
preferred shares (1) |
|
—
|
|
|
—
|
|
|
—
|
|
|
(9,609
|
)
|
| Net (loss) income attributable to Equity Commonwealth common
shareholders |
| $ | (23,558 | ) |
| $ | 10,263 |
|
| $ | 21,668 |
|
| $ | 205,329 |
|
| | | | | | | | | | | |
|
|
Weighted average common shares outstanding — basic (2) | |
124,293
|
| |
125,021
|
| |
124,125
|
| |
125,474
|
|
|
Weighted average common shares outstanding — diluted (2) | |
124,293
|
| |
126,048
|
| |
125,129
|
| |
126,768
|
|
| | | | | | | |
|
|
Earnings per common share attributable to Equity Commonwealth common
shareholders:
| | | | | | | | |
|
Basic
| |
$
|
(0.19
|
)
| |
$
|
0.08
|
| |
$
|
0.17
|
| |
$
|
1.64
|
|
|
Diluted
| |
$
|
(0.19
|
)
| |
$
|
0.08
|
| |
$
|
0.17
|
| |
$
|
1.62
|
|
|
(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 year ended December
31, 2016.
|
|
(2)
| |
As of December 31, 2017, we had granted RSUs and LTIP Units to
certain employees, officers, and trustees. RSUs and LTIP Units
contain service and market-based vesting components. If the
market-based vesting component of these awards was measured as of
December 31, 2017, and 2016, 673 and 1,027 common shares would be
issued, respectively. These awards are anti-dilutive to GAAP EPS for
the three months ended December 31, 2017, and are dilutive to GAAP
EPS for all other periods presented. Using a weighted average basis,
1,027 common shares are reflected in diluted earnings per share for
the three months ended December 31, 2016, and 1,004 and 1,294 common
shares are reflected in diluted earnings per share for the year
ended December 31, 2017 and 2016, 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, |
|
|
| 2017 |
| 2016 |
| 2017 |
| 2016 |
| Calculation of FFO |
|
|
|
|
|
|
|
|
|
Net (loss) income
| |
$
|
(21,569
|
)
|
|
$
|
12,260
| | |
$
|
29,666
| |
|
$
|
232,894
| |
|
Real estate depreciation and amortization
| |
18,442
| | |
28,750
| | |
89,519
| | |
130,765
| |
|
Loss on asset impairment
| |
—
| | |
14,740
| | |
19,714
| | |
58,476
| |
|
Loss (gain) on sale of properties, net
| |
29,172
|
| |
(25,676
|
)
| |
(15,498
|
)
| |
(250,886
|
)
|
|
FFO attributable to Equity Commonwealth | |
26,045
| | |
30,074
| | |
123,401
| | |
171,249
| |
|
Preferred distributions
| |
(1,997
|
)
| |
(1,997
|
)
| |
(7,988
|
)
| |
(17,956
|
)
|
|
Excess fair value of consideration paid over carrying value of
preferred shares (1) |
|
—
|
|
|
—
|
|
|
—
|
|
|
(9,609
|
)
|
| FFO attributable to EQC common shareholders and unitholders |
| $ | 24,048 |
|
| $ | 28,077 |
|
| $ | 115,413 |
|
| $ | 143,684 |
|
|
|
|
|
|
|
|
|
|
|
| Calculation of Normalized FFO |
|
|
|
|
|
|
|
|
|
FFO attributable to EQC common shareholders and unitholders
| |
$
|
24,048
| | |
$
|
28,077
| | |
$
|
115,413
| | |
$
|
143,684
| |
|
Lease value amortization
| |
295
| | |
661
| | |
1,774
| | |
6,531
| |
|
Straight line rent adjustments
| |
(1,938
|
)
| |
(1,699
|
)
| |
(14,425
|
)
| |
(14,083
|
)
|
|
Loss on early extinguishment of debt
| |
227
| | |
2,562
| | |
493
| | |
2,680
| |
|
Transition-related expenses (2) | |
—
| | |
—
| | |
—
| | |
999
| |
|
Foreign currency exchange loss
| |
—
| | |
—
| | |
—
| | |
5
| |
|
Excess fair value of consideration paid over carrying value of
preferred shares (1) |
|
—
|
|
|
—
|
|
|
—
|
|
|
9,609
|
|
| Normalized FFO attributable to EQC common shareholders and
unitholders |
| $ | 22,632 |
|
| $ | 29,601 |
|
| $ | 103,255 |
|
| $ | 149,425 |
|
| | | | | | | |
|
|
Weighted average common shares and units outstanding -- basic (3) | |
124,336
|
| |
125,021
|
| |
124,163
|
| |
125,474
|
|
|
Weighted average common shares and units outstanding -- diluted (3) | |
124,932
|
| |
126,048
|
| |
125,129
|
| |
126,768
|
|
|
FFO attributable to EQC common shareholders and unitholders per
share and unit -- basic
| |
$
|
0.19
|
| |
$
|
0.22
|
| |
$
|
0.93
|
| |
$
|
1.15
|
|
|
FFO attributable to EQC common shareholders and unitholders per
share and unit -- diluted
| |
$
|
0.19
|
| |
$
|
0.22
|
| |
$
|
0.92
|
| |
$
|
1.13
|
|
|
Normalized FFO attributable to EQC common shareholders and
unitholders per share and unit -- basic
| |
$
|
0.18
|
| |
$
|
0.24
|
| |
$
|
0.83
|
| |
$
|
1.19
|
|
|
Normalized FFO attributable to EQC common shareholders and
unitholders per share and unit -- diluted
| |
$
|
0.18
|
| |
$
|
0.23
|
| |
$
|
0.83
|
| |
$
|
1.18
|
|
|
(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 year ended December
31, 2016.
|
|
(2)
| |
Transition related expenses are primarily related to the
shareholder-approved liability for the reimbursement of expenses
incurred by Related/Corvex beginning in February 2013 in connection
with their consent solicitations to remove the former Trustees,
elect the new Board of Trustees and engage in related litigation. No
transition related expenses were incurred during 2017. There is no
future obligation to pay any amounts to Related/Corvex under the
shareholder-approved agreement.
|
|
(3)
| |
As of December 31, 2017, we had granted RSUs and LTIP Units to
certain employees, officers, and trustees. RSUs and LTIP Units
contain service and market-based vesting components. If the
market-based vesting component of these awards was measured as of
December 31, 2017, and 2016, 673 and 1,027 common shares would be
issued, respectively. Using a weighted average basis, our
calculations of FFO and Normalized FFO attributable to EQC common
shareholders and unitholders
per share and unit - basic for the three months and year ended
December 31, 2017 include 43 and 38 LTIP Units, respectively, that
are excluded from the calculation of basic earnings per common
share attributable to Equity Commonwealthcommon
shareholders (only). Using a weighted average basis,
596 and 1,027 common shares are reflected in diluted FFO and
Normalized FFO attributable to EQC common shareholders and
unitholders per share and unit - diluted for three months ended
December 31, 2017 and December 31, 2016, respectively, and 966 and
1,294 common shares are reflected in FFO and Normalized FFO
attributable to EQC common shareholders and unitholders per share
and unit - diluted for the year ended December 31, 2017 and 2016,
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 (loss), net income (loss)
attributable to Equity Commonwealth common shareholders, operating
income (loss) and cash flow from operating activities.
|
|
|
|
We believe that FFO and Normalized FFO provide useful information to
investors because by excluding the effects of certain historical
amounts, such as depreciation expense, FFO and Normalized FFO may
facilitate a comparison of our operating performance between periods
and with other REITs. FFO and Normalized FFO do not represent cash
generated by operating activities in accordance with GAAP and should
not be considered as alternatives to net income (loss), net income
(loss) attributable to Equity Commonwealth common shareholders,
operating income (loss) or cash flow from operating activities,
determined in accordance with GAAP, or as indicators of our
financial performance or liquidity, nor are these measures
necessarily indicative of sufficient cash flow to fund all of our
needs. These measures should be considered in conjunction with net
income (loss), net income (loss) attributable to Equity Commonwealth
common shareholders, operating income (loss) 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, |
| | 2017 |
| 2016 |
| 2017 |
| 2016 |
| Calculation of Same Property NOI and Same Property Cash Basis NOI: | | |
| | | |
| |
|
Rental income
| |
$
|
54,672
| | |
$
|
84,726
| | |
$
|
270,320
| | |
$
|
409,071
| |
|
Tenant reimbursements and other income
| |
16,951
| | |
18,820
| | |
70,251
| | |
91,609
| |
|
Operating expenses
|
|
(30,674
|
)
|
|
(42,742
|
)
|
|
(141,425
|
)
|
|
(200,706
|
)
|
| NOI |
| $ | 40,949 |
|
| $ | 60,804 |
|
| $ | 199,146 |
|
| $ | 299,974 |
|
|
Straight line rent adjustments
| |
(1,938
|
)
| |
(1,699
|
)
| |
(14,425
|
)
| |
(14,083
|
)
|
|
Lease value amortization
| |
295
| | |
661
| | |
1,774
| | |
6,531
| |
|
Lease termination fees
|
|
(942
|
)
|
|
(3,803
|
)
|
|
(4,944
|
)
|
|
(23,372
|
)
|
| Cash Basis NOI |
| $ | 38,364 |
|
| $ | 55,963 |
|
| $ | 181,551 |
|
| $ | 269,050 |
|
|
Cash Basis NOI from non-same properties (1) |
|
(4,719
|
)
|
|
(22,045
|
)
|
|
(51,067
|
)
|
|
(133,058
|
)
|
| Same Property Cash Basis NOI |
| $ | 33,645 |
|
| $ | 33,918 |
|
| $ | 130,484 |
|
| $ | 135,992 |
|
|
Non-cash rental income and lease termination fees from same
properties
|
|
2,778
|
|
|
2,875
|
|
|
17,340
|
|
|
10,700
|
|
| Same Property NOI |
| $ | 36,423 |
|
| $ | 36,793 |
|
| $ | 147,824 |
|
| $ | 146,692 |
|
| | | | | | | |
|
| Reconciliation of Same Property NOI to GAAP Operating Income: |
|
|
|
|
|
|
|
|
| Same Property NOI |
| $ | 36,423 |
|
| $ | 36,793 |
|
| $ | 147,824 |
|
| $ | 146,692 |
|
|
Non-cash rental income and termination fees from same properties
|
|
(2,778
|
)
|
|
(2,875
|
)
|
|
(17,340
|
)
|
|
(10,700
|
)
|
| Same Property Cash Basis NOI |
| $ | 33,645 |
|
| $ | 33,918 |
|
| $ | 130,484 |
|
| $ | 135,992 |
|
|
Cash Basis NOI from non-same properties (1) |
|
4,719
|
|
|
22,045
|
|
|
51,067
|
|
|
133,058
|
|
| Cash Basis NOI |
| $ | 38,364 |
|
| $ | 55,963 |
|
| $ | 181,551 |
|
| $ | 269,050 |
|
|
Straight line rent adjustments
| |
1,938
| | |
1,699
| | |
14,425
| | |
14,083
| |
|
Lease value amortization
| |
(295
|
)
| |
(661
|
)
| |
(1,774
|
)
| |
(6,531
|
)
|
|
Lease termination fees
|
|
942
|
|
|
3,803
|
|
|
4,944
|
|
|
23,372
|
|
| NOI |
| $ | 40,949 |
|
| $ | 60,804 |
|
| $ | 199,146 |
|
| $ | 299,974 |
|
|
Depreciation and amortization
| |
(18,738
|
)
| |
(29,040
|
)
| |
(90,708
|
)
| |
(131,806
|
)
|
|
General and administrative
| |
(12,033
|
)
| |
(11,490
|
)
| |
(47,760
|
)
| |
(50,256
|
)
|
|
Loss on asset impairment
|
|
—
|
|
|
(14,740
|
)
|
|
(19,714
|
)
|
|
(58,476
|
)
|
| Operating Income |
| $ | 10,178 |
|
| $ | 5,534 |
|
| $ | 40,964 |
|
| $ | 59,436 |
|
|
(1)
|
|
Cash Basis NOI from non-same properties for all periods presented
includes the operations of properties disposed or classified as held
for sale and land parcels.
|
|
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, 2016 through December
31, 2017. The year-to-date same property versions of these measures
include the results of properties continuously owned from January 1,
2016 through December 31, 2017. 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 (loss) 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 (loss), net income (loss) attributable
to Equity Commonwealth common shareholders, operating income (loss)
or cash flow from operating activities, determined in accordance
with GAAP, or as indicators of our financial performance or
liquidity, nor are these measures necessarily indicative of
sufficient cash flow to fund all of our needs. These measures should
be considered in conjunction with net income (loss), net income
(loss) attributable to Equity Commonwealth common shareholders,
operating income (loss) 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/20180214006300/en/
Equity Commonwealth
Sarah Byrnes, Investor Relations
(312)
646-2801
[email protected]
Source: Equity Commonwealth