Reports Second Quarter Net Income of $0.08
Per Diluted Common Share
Reports Second Quarter FFO, Excluding
Certain Items, of $0.41 Per Diluted Common Share
Increases Outlook for 2017 FFO and FFO,
Excluding Certain Items
TIER REIT, Inc. (NYSE: TIER), a Dallas-based real estate
investment trust that specializes in owning and operating
best-in-class office properties in select U.S. markets, today
announced financial and operating results for the quarter ended
June 30, 2017.
Second Quarter 2017 Highlights
- Reported net income of $0.08 per
diluted common share for the quarter ended June 30, 2017, as
compared to a net loss of $0.20 per diluted common share for the
quarter ended June 30, 2016
- Reported Funds from Operations (FFO)
attributable to common stockholders of $0.39 per diluted common
share for the quarter ended June 30, 2017, as compared to
$0.38 per diluted common share for the quarter ended June 30,
2016
- Reported FFO, excluding certain items,
of $0.41 per diluted common share for the quarter ended
June 30, 2017, as compared to $0.43 per diluted common share
for the quarter ended June 30, 2016
- Reported Same Store Cash NOI of $24.7
million for the quarter ended June 30, 2017, as compared to
$23.4 million for the quarter ended June 30, 2016
“We are pleased to announce our strong quarter results,” stated
Scott Fordham, President & Chief Executive Officer of TIER
REIT. “In line with our strategic plan, our significant
accomplishments to date this year include disposing of
approximately $400 million in non-target assets, exiting five
non-target markets. Further, our recycling efforts have put that
capital to work into high-yielding development and strategic
acquisitions within Austin and Dallas. As a result of our efforts,
over 90% of the net operating income from our operating portfolio
is now derived from within our target markets.”
“Redeploying capital into our Austin developments has been
particularly exciting, given the market’s strong demand and
superior returns,” continued Mr. Fordham. “The Domain’s status as
‘Austin’s Second Downtown’ has many employers and employees
requiring a large presence there. TIER REIT is well positioned to
fill that need, with over 50% of the existing office space and
virtually all of the remaining land entitled for future office
space. We recently announced that development has begun on Domain
11, a 324,000 square foot office tower that will serve as the
global headquarters of Expedia’s HomeAway division, while interest
remains strong in our remaining land sites that can accommodate
approximately 1.1 million square feet of additional office
space.”
“Based on our performance and expectations for the remainder of
the year,” added Mr. Fordham, “we have revised and increased our
2017 guidance for FFO and FFO, excluding certain items, by $0.04
and $0.05 at the midpoint, respectively.”
Second Quarter Financial Results
Net income attributable to common stockholders was $4.0 million,
or $0.08 per diluted common share, for the quarter ended
June 30, 2017, as compared to a net loss of $9.4 million, or
$0.20 per diluted common share, for the quarter ended June 30,
2016.
NAREIT-defined FFO attributable to common stockholders for the
quarter ended June 30, 2017, was $18.7 million, or $0.39 per
diluted common share, as compared to $18.1 million, or $0.38 per
diluted common share, for the quarter ended June 30, 2016. FFO
attributable to common stockholders, excluding certain items, for
the quarter ended June 30, 2017, was $19.8 million, or $0.41
per diluted common share, as compared to $20.7 million, or $0.43
per diluted common share, for the quarter ended June 30,
2016.
Leasing Update
At June 30, 2017, the Company’s occupancy was 88.5%, a
decrease of 170 basis points from March 31, 2017.
During the second quarter of 2017, the Company leased 251,000
square feet, which included 154,000 square feet of renewals, 57,000
square feet of expansion space, and 40,000 square feet of new
leasing.
Real Estate Activity
On April 27, 2017, the Colorado Building and 1325 G Street (two
properties in which the Company held a 10% noncontrolling interest)
were sold for a combined contract sales price of $259.0 million (at
100%).
On June 23, 2017, the Company acquired Legacy District One for a
contract purchase price of $123.3 million. The 319,000 square foot
property is located in Plano, Texas, immediately adjacent to the
Company’s existing land parcels, on which the Company can develop
two additional office towers totaling 600,000 square feet.
On June 26, 2017, the Company sold its remaining Louisville
Portfolio for a contract sales price of $71.5 million. The
portfolio consisted of five properties located in Louisville,
Kentucky, containing 678,000 rentable square feet (combined).
Development began during the second quarter of 2017 on Domain
11. Domain 11 is located in Austin, Texas, and will contain 324,000
rentable square feet. HomeAway (a subsidiary of Expedia, Inc.) has
pre-leased 316,000 rentable square feet, which represents 100% of
the available office space and 98% of the total rentable square
feet.
Capital Markets Activity
On June 23, 2017, the Company assumed a mortgage loan with
outstanding borrowings of $66.0 million, secured by Legacy District
One. The loan is scheduled to mature in January 2023 and has a
fixed effective annual interest rate of 4.30%.
On June 30, 2017, the Company repaid (without penalty) the $80.0
million loan secured by Domain 2 and Domain 7. The loan was
scheduled to mature in April 2019 and had an effective annual
interest rate as of June 30, 2017, of 2.91%.
On June 30, 2017, the construction debt secured by Domain 8 (a
development property in which the Company owns a 50% interest) was
refinanced into a loan with available borrowings of up to $95.0
million (at 100%). The new loan is scheduled to mature in June 2020
and has a variable annual interest rate that as of June 30, 2017,
was 2.97%. As of June 30, 2017, outstanding borrowings were $81.9
million (at 100%).
For the second quarter of 2017, the Company’s board of directors
authorized a distribution in the amount of $0.18 per share on its
common stock to stockholders of record as of the close of business
on June 15, 2017, which was paid on June 30, 2017.
On August 2, 2017, the Company’s board of directors authorized a
distribution in the amount of $0.18 per share on its common stock
to stockholders of record as of the close of business on September
15, 2017, payable on September 29, 2017.
2017 Outlook
The Company has updated its 2017 outlook and assumptions, as
follows:
2017 Outlook Revised As Of 1Q’17
Revised As Of 2Q’17 Projected net income per basic
& diluted common share $2.06 - $2.16
$2.08 - $2.12
Adjustments: Real estate depreciation and amortization $1.75
$1.80
Gain on sale of depreciable real estate ($2.30)
($2.30)
Projected FFO per diluted common share
$1.51 - $1.61 $1.58 - $1.62 Adjustments: Gain on debt
restructuring / reversal of default interest ($0.14) ($0.14) Loss
on early extinguishment of debt $0.01 $0.01 Severance charges
- $0.01
Projected FFO, excluding
certain items, per diluted common share $1.38 - $1.48
$1.46 - $1.50 Assumptions used in 2017 outlook
above: Dispositions of non-target properties $400mm - $500mm
$400mm - $500mm Strategic acquisitions $100mm - $225mm $215mm Same
store cash NOI growth 2.0% - 3.0% 2.5% - 3.5% Same store NOI growth
0.0% - 1.0% 1.0% - 2.0% Straight line rent and lease incentive
revenue $6.5mm - $8.5mm $7.5mm - $8.5mm Lease termination fees
$1.0mm - $1.5mm $0.5mm - $1.0mm Above- and below-market rent
amortization $4.0mm - $5.0mm $3.5mm - $4.0mm General &
administrative expenses, excluding certain items $21.5mm - $22.5mm
$21.0mm - $22.0mm Year-end occupancy 88.0% - 90.0% 89.0% - 90.0%
Weighted average shares of common stock outstanding 48.1 million
47.7 million
Supplemental Information
A copy of the Company’s supplemental information regarding its
financial results and operations for the quarter ended
June 30, 2017, is available in the “Investor Relations”
section of the Company’s website at www.tierreit.com, or by
contacting the Investor Relations department by email at
ir@tierreit.com.
Conference Call
A conference call will be held on Tuesday, August 8, 2017, at
11:00 AM Eastern time / 10:00 AM Central time. TIER REIT will host
the conference call to discuss matters relating to this release. To
participate in the live telephone conference call, please dial in
at least five minutes prior to start time to 877.407.0789 (U.S.) or
201.689.8562 (International).
A live, listen-only webcast and subsequent replay will also be
available on the Company’s website
at www.tierreit.com under the “Investor Relations”
section.
About TIER REIT, Inc.
TIER REIT, Inc. is a publicly traded (NYSE: TIER), self-managed,
Dallas-based real estate investment trust focused on owning
quality, well-managed commercial office properties in dynamic
markets throughout the U.S. TIER REIT’s vision is to be the premier
owner and operator of best-in-class office properties in TIER1
submarkets, which are primarily higher density and amenity-rich
locations within select, high-growth metropolitan areas that offer
a walkable experience to various amenities. Our mission is to
provide unparalleled, TIER ONE Property Services to our tenants and
outsized total return through stock price appreciation and dividend
growth to our stockholders.
For additional information regarding TIER REIT, please visit
www.tierreit.com or call 972.483.2400.
Forward-Looking Statements
This press release contains forward-looking statements within
the meaning of the federal securities laws relating to the business
and financial outlook of TIER REIT that are based on our current
expectations, estimates, forecasts and projections and are not
guarantees of future performance. These forward-looking statements
include discussion and analysis of the financial condition of us
and our subsidiaries, including our ability to rent space on
favorable terms, our ability to address debt maturities and fund
our capital requirements, our intentions to acquire and sell
certain properties, our intentions with respect to development
activity, the value of our assets, our anticipated capital
expenditures, the amount and timing of any anticipated future cash
distributions to our stockholders, and other matters. Words such as
“may,” “will,” “anticipates,” “expects,” “intends,” “plans,”
“believes,” “seeks,” “estimates,” “outlook,” “would,” “could,”
“should,” “goals,” “vision,” “mission,” “opportunities,”
“position,” “objectives,” “strategies,” “goals,” “future,”
“assumptions,” and variations of these words and similar
expressions are intended to identify forward-looking
statements.
Actual results may differ materially from those expressed in
these forward-looking statements, and you should not place undue
reliance on any such statements. Factors that could cause actual
results to vary materially from those expressed in forward-looking
statements include changes in real estate conditions and in the
capital markets, as well as the risk factors included in our Annual
Report on Form 10-K for the fiscal year ended December 31, 2016.
Forward-looking statements in this press release speak only as of
the date on which such statements were made and, except as required
by law, we undertake no obligation to update any such statements
that may become untrue because of subsequent events.
TIER REIT, Inc.
Condensed Consolidated Balance Sheets (in thousands,
except share and per share amounts) (unaudited)
June 30,2017
December 31,2016
Assets Real estate Land $ 141,010 $ 143,537 Land held
for development 45,059 45,059 Buildings and improvements, net
1,145,496 1,043,641 Real estate under development 8,128
17,961
Total real estate 1,339,693
1,250,198 Cash and cash equivalents 28,763 14,884 Restricted cash
10,953 7,509 Accounts receivable, net 62,413 71,459 Prepaid
expenses and other assets 16,399 25,305 Investments in
unconsolidated entities 25,530 76,813 Deferred financing fees, net
2,089 2,395 Lease intangibles, net 93,090 61,844 Other intangible
assets, net 1,846 9,787 Assets associated with real estate held for
sale — 32,346
Total assets $
1,580,776 $ 1,552,540
Liabilities and equity
Liabilities Notes payable, net $ 779,244 $ 826,783 Accounts
payable and accrued liabilities 64,412 74,458 Acquired below-market
leases, net 20,653 6,886 Distributions payable — 8,601 Other
liabilities 9,606 14,353 Obligations associated with real estate
held for sale — 943
Total
liabilities 873,915 932,024
Commitments and contingencies Equity Preferred stock,
$.0001 par value per share; 17,500,000 shares authorized at June
30, 2017, and December 31, 2016, respectively, none outstanding — —
Convertible stock, $.0001 par value per share; 1,000 shares
authorized, none outstanding — — Common stock, $.0001 par value per
share; 382,499,000 shares authorized, 47,542,066 and 47,473,218
shares issued and outstanding at June 30, 2017, and December 31,
2016, respectively 5 5 Additional paid-in capital 2,608,260
2,606,098 Cumulative distributions and net loss attributable to
common stockholders (1,901,820 ) (1,986,515 ) Accumulated other
comprehensive loss (274 ) (1,042 )
Stockholders’
equity 706,171 618,546
Noncontrolling interests
690 1,970
Total equity 706,861
620,516
Total liabilities and equity $
1,580,776 $ 1,552,540
TIER
REIT, Inc. Condensed Consolidated Statements of Operations
and Comprehensive Income (Loss) (in thousands, except share
and per share amounts) (unaudited) Three
Months Ended June 30, 2017 June 30,
2016 Rental revenue $ 54,552 $ 64,267
Expenses Property operating expenses 13,930 19,805 Interest
expense 8,235 13,447 Real estate taxes 8,753 9,429 Property
management fees 72 226 General and administrative 5,626 5,820
Depreciation and amortization 22,652 30,797
Total expenses 59,268 79,524
Interest and other income 783 344
Loss before income taxes, equity in
operations of investments, and gains
(3,933 ) (14,913 ) Benefit (provision) for income taxes 149 (281 )
Equity in operations of investments 6,556 823
Income (loss) before gains 2,772
(14,371 ) Gain on sale of assets 1,262 5,010
Net income (loss) 4,034 (9,361 ) Noncontrolling
interests (3 ) 9
Net income (loss)
attributable to common stockholders $ 4,031 $ (9,352 )
Basic weighted average common shares outstanding 47,536,320
47,405,767
Diluted weighted average common shares
outstanding 47,875,418 47,405,767 Basic income (loss)
per common share $ 0.08 $ (0.20 ) Diluted income (loss) per common
share $ 0.08 $ (0.20 )
Distributions declared per common
share $ 0.18 $ 0.18
Comprehensive income (loss):
Net income (loss) $ 4,034 $ (9,361 ) Other comprehensive loss:
unrealized loss on interest rate derivatives (1,301 )
(2,532 )
Comprehensive income (loss) 2,733 (11,893 )
Comprehensive (income) loss attributable to noncontrolling
interests (2 ) 11
Comprehensive income
(loss) attributable to common stockholders $ 2,731 $
(11,882 )
Calculation of FFO and FFO,
excluding certain items (in thousands, except per share
amounts) Three Months Ended June 30, 2017
June 30, 2016 Net income (loss) $ 4,034 $
(9,361 ) Noncontrolling interests (3 ) 9 Net
income (loss) attributable to common stockholders 4,031 (9,352 )
Adjustments:
Real estate depreciation and amortization from consolidated
properties 22,557 30,519 Real estate depreciation and amortization
from unconsolidated properties 131 2,005 Gain on sale of
depreciable real estate (7,975 ) (5,010 ) Noncontrolling interests
(9 ) (18 ) FFO attributable to common stockholders
18,735 18,144 Severance charges 451 — Interest rate hedge
ineffectiveness expense (income) (1) (29 ) 1,941 Default interest
(2) 609 616 Noncontrolling interests — (1 )
FFO attributable to common stockholders, excluding certain items $
19,766 $ 20,700 Weighted average common shares
outstanding - basic 47,536 47,406 Weighted average common shares
outstanding - diluted (3) 47,875 47,826 Net income (loss) per
common share - diluted (3) $ 0.08 $ (0.20 ) FFO per common share -
diluted $ 0.39 $ 0.38 FFO, excluding certain items, per common
share - diluted $ 0.41 $ 0.43
______________________
(1) Interest rate swaps are adjusted to fair value through
other comprehensive income (loss). However, because our interest
rate swaps do not have a LIBOR floor while the hedged debt is
subject to a LIBOR floor, the portion of the change in fair value
of our interest rate swaps attributable to this mismatch is
reclassified to interest rate hedge ineffectiveness expense. (2) We
have a non-recourse loan in default which subjects us to incur
default interest at a rate that is 500 basis points higher than the
stated interest rate. Although there can be no assurance, we
anticipate that when this property is sold or when ownership of
this property is conveyed to the lender, this default interest will
be forgiven. (3) There are no dilutive securities for purposes of
calculating net loss per common share.
Same
Store NOI and Same Store Cash NOI
(in thousands, except percentages)
Three Months Ended June 30, 2017
June 30, 2016 Same Store Revenue: Rental revenue $ 45,739 $
46,019 Less: Lease termination fees (92 ) (598 )
45,647 45,421 Same Store
Expenses: Property operating expenses (less tenant improvement
demolition costs) 12,136 12,862 Real estate taxes 7,374 7,123
Property management fees 31 49 Property
Expenses 19,541 20,034 Same Store NOI -
consolidated properties 26,106 25,387 Same Store NOI -
unconsolidated properties (at ownership %) 1,370
925 Same Store NOI $ 27,476 $ 26,312
Increase in Same Store NOI 4.4 % Same Store NOI -
consolidated properties $ 26,106 $ 25,387 Less: Straight-line rent
revenue adjustment (1,892 ) (1,666 ) Above- and below-market rent
amortization (670 ) (1,172 ) Same Store Cash NOI -
consolidated properties 23,544 22,549 Same Store Cash NOI -
unconsolidated properties (at ownership %) 1,134
824 Same Store Cash NOI $ 24,678 $ 23,373
Increase in Same Store Cash NOI 5.6 %
Reconciliation of net income (loss) to Same Store NOI and Same
Store Cash NOI Net income (loss) $ 4,034 $ (9,361 ) Adjustments:
Interest expense 8,235 13,447 Tenant improvement demolition costs
34 76 General and administrative 5,626 5,820 Depreciation and
amortization 22,652 30,797 Interest and other income (783 ) (344 )
Provision (benefit) for income taxes (149 ) 281 Equity in
operations of investments (6,556 ) (823 ) Gain on sale of assets
(1,262 ) (5,010 ) Net operating income of non-same store properties
(5,633 ) (8,898 ) Lease termination fees (92 ) (598 ) Same Store
NOI of unconsolidated properties (at ownership %) 1,370
925 Same Store NOI 27,476 26,312 Straight-line
rent revenue adjustment (1,892 ) (1,666 ) Above- and below-market
rent amortization (670 ) (1,172 ) Cash NOI adjustments for
unconsolidated properties (at ownership %) (236 )
(101 ) Same Store Cash NOI $ 24,678 $ 23,373
Operating properties (1) 18 Rentable square feet (% owned) 6,626
______________
(1) Excludes certain operating properties that were not
owned or not fully operational during the entirety of the
comparable periods. Our Domain 2 and Domain 7 properties (two
properties in which we acquired full ownership in January 2017) are
reflected above as unconsolidated and at their prior year ownership
percentage of 49.84% in both periods.
Non-GAAP Financial Measures
We compute our financial results in accordance with accounting
principles generally accepted in the United States of America
(GAAP). Although Funds from Operations and Funds from Operations,
excluding certain items, are non-GAAP financial measures, we
believe that these calculations are helpful to stockholders and
potential investors and are widely recognized measures of real
estate investment trust performance. We have provided a
reconciliation of the non-GAAP financial measures to the most
directly comparable GAAP measure in tables included in this press
release.
Funds from Operations (FFO)
Historical cost accounting for real estate assets in accordance
with GAAP implicitly assumes that the value of real estate
diminishes predictably over time. Since real estate values have
historically risen or fallen with market conditions, many industry
investors and analysts have considered the presentation of
operating results for real estate companies that use historical
cost accounting alone to be insufficient for evaluating operating
performance. FFO is a non-GAAP financial measure that is widely
recognized as a measure of a REIT’s operating performance. We use
FFO as defined by the National Association of Real Estate
Investment Trusts (NAREIT) in the April 2002 “White Paper on
Funds From Operations,” which is net income (loss), computed in
accordance with GAAP, excluding extraordinary items, as defined by
GAAP, gains (or losses) from sales of property and impairments of
depreciable real estate (including impairments of investments in
unconsolidated entities which resulted from measurable decreases in
the fair value of the depreciable real estate held by the
unconsolidated entity), plus depreciation and amortization of real
estate assets, and after related adjustments for unconsolidated
entities and noncontrolling interests. The determination of whether
impairment charges have been incurred is based partly on
anticipated operating performance and hold periods. Estimated
undiscounted cash flows from a property, derived from estimated
future net rental and lease revenues, net proceeds on the sale of
the property, and certain other ancillary cash flows, are taken
into account in determining whether an impairment charge has been
incurred. While impairment charges for depreciable real estate are
excluded from net income (loss) in the calculation of FFO as
described above, impairments reflect a decline in the value of the
applicable property that we may not recover.
We believe that the use of FFO, together with the required GAAP
presentations, is helpful in understanding our operating
performance because it excludes real estate-related depreciation
and amortization, gains and losses from property dispositions,
impairments of depreciable real estate assets, and extraordinary
items, and as a result, when compared period to period, reflects
the impact on operations from trends in occupancy rates, rental
rates, operating costs, development activities, general and
administrative expenses, and interest costs, which are not
immediately apparent from net income. Factors that impact FFO
include fixed costs, yields on cash held in accounts, income from
portfolio properties and other portfolio assets, interest rates on
debt financing, and operating expenses.
We also evaluate FFO, excluding certain items. The items
excluded relate to certain non-operating activities or certain
non-recurring activities that may create significant FFO volatility
and affect the comparability of FFO across periods. We believe it
is useful to evaluate FFO excluding these items because it provides
useful information in analyzing comparability between reporting
periods and in assessing the sustainability of our operating
performance.
FFO and FFO, excluding certain items, should not be considered
as alternatives to net income (loss), or as indicators of our
liquidity, nor are they indicative of funds available to fund our
cash needs, including our ability to make distributions.
Additionally, the exclusion of impairments limits the usefulness of
FFO and FFO, excluding certain items, as historical operating
performance measures since an impairment charge indicates that
operating performance has been permanently affected. FFO and FFO,
excluding certain items, are non-GAAP measurements and should be
reviewed in connection with other GAAP measurements. Our FFO and
FFO, excluding certain items, as presented may not be comparable to
amounts calculated by other REITs that do not define FFO in
accordance with the current NAREIT definition, or interpret it
differently, or that identify and exclude different items related
to non-operating activities or certain non-recurring
activities.
Same Store NOI and Same Store Cash NOI
Same Store NOI is equal to rental revenue, less lease
termination fee income, property operating expenses (excluding
tenant improvement demolition costs), real estate taxes, and
property management expenses for our same store properties and is
considered a non-GAAP financial measure. Same Store Cash NOI is
equal to Same Store NOI less non-cash revenue items including
straight-line rent adjustments and the amortization of above- and
below-market rent. The same store properties include our operating
office properties not held for sale and owned and operated for the
entirety of both periods being compared and include our comparable
ownership percentage in each period for properties in which we own
an unconsolidated interest that is accounted for using the equity
method. We view Same Store NOI and Same Store Cash NOI as important
measures of the operating performance of our properties because
they allow us to compare operating results of properties owned and
operated for the entirety of both periods being compared and
therefore eliminate variations caused by acquisitions or
dispositions during such periods.
Same Store NOI and Same Store Cash NOI presented by us may not
be comparable to Same Store NOI or Same Store Cash NOI reported by
other REITs that do not define Same Store NOI or Same Store Cash
NOI exactly as we do. We believe that in order to facilitate a
clear understanding of our operating results, Same Store NOI and
Same Store Cash NOI should be examined in conjunction with net
income (loss) as presented in our consolidated financial statements
and notes thereto. Same Store NOI and Same Store Cash NOI should
not be considered as an indicator of our ability to make
distributions, as alternatives to net income (loss) as an
indication of our performance, or as a measure of cash flows or
liquidity.
View source
version on businesswire.com: http://www.businesswire.com/news/home/20170807006001/en/
TIER REIT, Inc.Scott McLaughlin,
972-483-2465smclaughlin@tierreit.com
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