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
September 30, 2017.
Third Quarter 2017 Highlights
Our third quarter financial results were impacted by a $1.9
million rent abatement due to Hurricane Harvey that will be
reimbursed through insurance coverage (as discussed in more detail
below):
- Our net loss was $0.17 per diluted
common share
- Our Funds from Operations (FFO)
attributable to common stockholders was $0.33 per diluted common
share
- Our FFO, excluding certain items, was
$0.34 per diluted common share
“We continued to deliver on expectations during the third
quarter and have raised our guidance for FFO, excluding certain
items, for the remainder of the year,” stated Scott W. Fordham,
President & Chief Executive Officer. “We are particularly proud
of our leasing success with respect to our development projects
this past year and believe our strategic land sites uniquely
position us to create additional value and deliver outsized cash
flow growth as the developments come online.”
Mr. Fordham continued, “We recently completed, or are currently
developing, approximately 634,000 square feet of new office space
that is over 90% leased (at ownership share) to some of today’s
most recognizable tenants, including Amazon, Facebook and Expedia’s
HomeAway division. We believe these properties will offer an
increasing contribution to our net operating income predominantly
in 2019 and 2020 as tenants take occupancy, while our remaining
strategic land parcels in some of the most desired submarkets in
Austin and Dallas should provide further value creation
opportunities throughout this cycle.”
Third Quarter Financial Results
During the third quarter, One & Two Eldridge Place and Three
Eldridge Place (collectively known as the “Eldridge Properties”),
located in Houston, Texas, experienced flood-related damage as a
result of Hurricane Harvey and its aftermath. For the three months
ended September 30, 2017, we provided rent abatements of
approximately $1.9 million to tenants because the properties were
inaccessible for a portion of the quarter. While these rent
abatements will be fully recovered from insurance proceeds in
subsequent quarters, this timing difference had a negative impact
on our net loss; NAREIT-defined FFO; FFO, excluding certain items;
and same store results.
Net loss attributable to common stockholders was $8.0 million,
or $0.17 per diluted common share, for the quarter ended
September 30, 2017, as compared to a net loss of $1.0 million,
or $0.02 per diluted common share, for the quarter ended
September 30, 2016.
NAREIT-defined FFO attributable to common stockholders for the
quarter ended September 30, 2017, was $15.9 million, or $0.33
per diluted common share, as compared to $19.2 million, or $0.40
per diluted common share, for the quarter ended September 30,
2016. FFO attributable to common stockholders, excluding certain
items, for the quarter ended September 30, 2017, was $16.5
million, or $0.34 per diluted common share, as compared to $18.3
million, or $0.38 per diluted common share, for the quarter ended
September 30, 2016.
Same Store Cash NOI for the quarter ended September 30,
2017, was $22.2 million, as compared to $24.1 million for the
quarter ended September 30, 2016.
Property Results
Our occupancy at September 30, 2017, was 88.3%, a decrease
of 20 basis points from June 30, 2017.
During the third quarter of 2017, we leased 595,000 square feet,
which included 515,000 square feet of renewals and 80,000 square
feet of new leasing.
Real Estate Activity
Domain 8, a property in which we own a 50.0% interest, became
fully operational during the third quarter of 2017. Domain 8 is
located in Austin, Texas, and contains 291,000 rentable square
feet.
Domain 11, our development property located in Austin, Texas,
broke ground during the third quarter of 2017. Domain 11 is
expected to contain 324,000 rentable square feet when completed in
late 2018.
During the third quarter of 2017, 67% of our Third+Shoal
property was leased to Facebook, Inc. Third+Shoal is a development
property in which we own a 47.5% interest.
During the third quarter of 2017, Bank of America commenced a
21-month lease extension for 295,000 square feet that expires on
December 31, 2020 at our Bank of America Plaza property located in
Charlotte, North Carolina.
Capital Markets Activity
On August 2, 2017, our board of directors authorized a
distribution of $0.18 per share of common stock for the third
quarter of 2017, which was paid on September 29, 2017.
On November 3, 2017, our board of directors authorized a
distribution of $0.18 per share of common stock for the fourth
quarter of 2017, payable on December 29, 2017.
On October 27, 2017, a construction loan secured by Third+Shoal
was entered into with available borrowings of up to $103.8 million
(at 100%). The loan is scheduled to mature in October 2021, with
two one-year extension options, subject to certain conditions and
an extension fee, and has a stated variable annual interest rate
that as of October 27, 2017, was 4.74%.
2017 Outlook
We have revised our outlook and assumptions for 2017, as
follows:
2017 Outlook Prior Revised
Projected net income per basic & diluted common share
$2.08 - $2.12 $1.23 - $1.25
Adjustments: Real estate depreciation and amortization $1.80 $1.95
Gain on sale of depreciable real estate ($2.30)
($1.69)
Projected FFO per diluted common share $1.58 -
$1.62 $1.49 - $1.51 Adjustments: Gain on debt
restructuring ($0.19) - Reversal of default interest $0.05 $0.05
Loss on early extinguishment of debt $0.01 $0.01 Severance charges
$0.01 $0.01
Projected FFO, excluding certain
items, per diluted common share $1.46 - $1.50 $1.56 -
$1.58 Assumptions used in 2017 outlook above:
Dispositions of non-target properties $400mm - $500mm $400mm -
$500mm Strategic acquisitions $215mm $215mm Same store cash NOI
growth 2.5% - 3.5% 3.0% - 4.0% Same store NOI growth 1.0% - 2.0%
2.5% - 3.5% Straight line rent and lease incentive revenue $7.5mm -
$8.5mm $8.5mm - $9.5mm Lease termination fees $0.5mm - $1.0mm
$0.5mm - $1.0mm Above- and below-market rent amortization $3.5mm -
$4.0mm $3.5mm - $4.0mm General & administrative expenses,
excluding certain items $21.0mm - $22.0mm $21.0mm - $22.0mm
Year-end occupancy 89.0% - 90.0% 89.0% - 89.5% Weighted average
shares of common stock outstanding 47.7 million 47.7 million
Supplemental Information
A copy of our supplemental information regarding our financial
results and operations for the quarter ended September 30,
2017, is available in the “Investor Relations” section of our
website at www.tierreit.com, or by contacting our Investor
Relations department by email at ir@tierreit.com.
Conference Call
A conference call will be held on Thursday, November 9, 2017, at
11:00 AM Eastern time / 10:00 AM Central time 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 our 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. Our 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,
and in our other filings with the Securities and Exchange
Commission. 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)
September 30,2017
December 31,2016
Assets Real estate Land $ 140,959 $ 143,537 Land held
for development 45,059 45,059 Buildings and improvements, net
1,122,072 1,043,641 Real estate under development 17,446
17,961
Total real estate 1,325,536
1,250,198 Cash and cash equivalents 10,959 14,884 Restricted cash
13,323 7,509 Accounts receivable, net 82,737 71,459 Prepaid
expenses and other assets 20,115 25,305 Investments in
unconsolidated entities 33,977 76,813 Deferred financing fees, net
1,735 2,395 Lease intangibles, net 91,090 61,844 Other intangible
assets, net 1,816 9,787 Assets associated with real estate held for
sale — 32,346
Total assets $
1,581,288 $ 1,552,540
Liabilities and equity
Liabilities Notes payable, net $ 782,386 $ 826,783 Accounts
payable and accrued liabilities 78,174 74,458 Acquired below-market
leases, net 19,462 6,886 Distributions payable — 8,601 Other
liabilities 9,443 14,353 Obligations associated with real estate
held for sale — 943
Total
liabilities 889,465 932,024
Commitments and contingencies Equity Preferred stock,
$.0001 par value per share; 17,500,000 shares authorized at
September 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, 47,552,014 and
47,473,218 shares issued and outstanding at September 30, 2017, and
December 31, 2016, respectively 5 5 Additional paid-in capital
2,609,361 2,606,098 Cumulative distributions and net loss
attributable to common stockholders (1,918,473 ) (1,986,515 )
Accumulated other comprehensive income (loss) 257
(1,042 )
Stockholders’ equity 691,150 618,546
Noncontrolling interests 673 1,970
Total equity 691,823 620,516
Total liabilities and equity $ 1,581,288 $
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
September 30,2017
September 30,2016
Rental revenue $ 50,920 $ 55,998
Expenses Property operating expenses 13,170 16,315 Interest
expense 8,406 9,005 Real estate taxes 8,439 8,350 Property
management fees 49 210 Asset impairment losses — 4,151 General and
administrative 5,157 5,529 Depreciation and amortization
23,785 25,133
Total expenses
59,006 68,693 Interest and other income
170 248
Loss before income taxes, equity in
operations
of investments, and gains
(7,916 ) (12,447 ) Provision for income taxes (202 ) (4 ) Equity in
operations of investments 67 646
Loss before gains (8,051 ) (11,805 ) Gain on
sale of assets — 10,777
Net loss
(8,051 ) (1,028 ) Noncontrolling interests 10
3
Net loss attributable to common stockholders $
(8,041 ) $ (1,025 )
Basic weighted average common shares
outstanding 47,549,635 47,412,705
Diluted weighted average
common shares outstanding 47,549,635 47,412,705 Basic
loss per common share $ (0.17 ) $ (0.02 ) Diluted loss per common
share $ (0.17 ) $ (0.02 )
Distributions declared per
common share $ 0.18 $ 0.18
Comprehensive income
(loss): Net loss $ (8,051 ) $ (1,028 ) Other comprehensive
income: unrealized income on interest rate derivatives 531
2,602
Comprehensive income (loss)
(7,520 ) 1,574 Comprehensive loss attributable to noncontrolling
interests 10 1
Comprehensive income
(loss) attributable to common stockholders $ (7,510 ) $ 1,575
Calculation of FFO and FFO, excluding certain
items (in thousands, except per share amounts)
Three Months Ended
September 30,2017
September 30,2016
Net loss $ (8,051 ) $ (1,028 ) Noncontrolling interests 10
3 Net loss attributable to common stockholders
(8,041 ) (1,025 )
Adjustments:
Real estate depreciation and amortization from consolidated
properties 23,653 25,062 Real estate depreciation and amortization
from unconsolidated properties 289 2,058 Impairment of depreciable
real estate — 4,151 Gain on sale of depreciable real estate —
(10,837 ) Taxes associated with sale of depreciable real estate —
(152 ) Noncontrolling interests (16 ) (18 ) FFO
attributable to common stockholders 15,885 19,239 Interest
rate hedge ineffectiveness expense (income) (1) 8 (1,534 ) Default
interest (2) 616 619 Noncontrolling interests (1 ) —
FFO attributable to common stockholders, excluding certain
items $ 16,508 $ 18,324 Weighted average common
shares outstanding - basic 47,550 47,413 Weighted average common
shares outstanding - diluted (3) 48,160 47,846 Net loss per common
share - diluted (3) $ (0.17 ) $ (0.02 ) FFO per common share -
diluted $ 0.33 $ 0.40 FFO, excluding certain items, per common
share - diluted $ 0.34 $ 0.38
______________________
Rent abatements of approximately $1.9 million were provided to
tenants at the Eldridge Properties during the third quarter of 2017
because the properties were inaccessible for a portion of the
quarter. We expect these losses to be recovered from insurance
proceeds in subsequent quarters.
(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
September 30,2017
September 30,2016
Same Store Revenue: Rental revenue (1) $ 42,553 $ 45,180 Less:
Lease termination fees (55 ) (256 ) 42,498
44,924 Same Store Expenses: Property
operating expenses (less tenant improvement
demolition costs)
11,843 12,132 Real estate taxes 6,905 7,642 Property management
fees 25 44 Property Expenses
18,773 19,818 Same Store NOI - consolidated
properties 23,725 25,106 Same Store NOI - unconsolidated properties
(at ownership %) 1,394 851 Same Store
NOI $ 25,119 $ 25,957 Decrease in Same Store
NOI (3.2 )% Same Store NOI - consolidated properties $
23,725 $ 25,106 Less: Straight-line rent revenue adjustment (1,990
) (677 ) Above- and below-market rent amortization (648 )
(1,035 ) Same Store Cash NOI - consolidated properties
21,087 23,394 Same Store Cash NOI - unconsolidated properties (at
ownership %) 1,116 725 Same Store Cash
NOI $ 22,203 $ 24,119 Decrease in Same Store
Cash NOI (7.9 )% Reconciliation of net loss to Same Store
NOI and Same Store Cash NOI Net loss $ (8,051 ) $ (1,028 )
Adjustments: Interest expense 8,406 9,005 Asset impairment losses —
4,151 Tenant improvement demolition costs 127 306 General and
administrative 5,157 5,529 Depreciation and amortization 23,785
25,133 Interest and other income (170 ) (248 ) Provision for income
taxes 202 4 Equity in operations of investments (67 ) (646 ) Gain
on sale of assets — (10,777 ) Net operating income of non-same
store properties (5,609 ) (6,067 ) Lease termination fees (55 )
(256 ) Same Store NOI of unconsolidated properties (at ownership %)
1,394 851 Same Store NOI 25,119 25,957
Straight-line rent revenue adjustment (1,990 ) (677 ) Above- and
below-market rent amortization (648 ) (1,035 )
Cash NOI adjustments for unconsolidated
properties (at ownership %)
(278 ) (126 ) Same Store Cash NOI $ 22,203 $
24,119 Operating properties (2) 18 Rentable square
feet (% owned) 6,626
______________
(1) Rent abatements of
approximately $1.9 million were provided to tenants at the Eldridge
Properties during the third quarter of 2017 because the properties
were inaccessible for a portion of the quarter. We expect these
losses to be recovered from insurance proceeds in subsequent
quarters.
(2) 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/20171108006502/en/
TIER REIT, Inc.Scott McLaughlin,
972-483-2465smclaughlin@tierreit.com
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