Equity Commonwealth (NYSE: EQC) today reported financial results
for the quarter ended September 30, 2018. All per share results are
reported on a diluted basis.
Financial results for the quarter ended September 30,
2018
Net income attributable to common shareholders was $30.8
million, or $0.25 per share, for the quarter ended September 30,
2018. This compares to net income attributable to common
shareholders of $31.2 million, or $0.25 per share, for the quarter
ended September 30, 2017.
Funds from Operations (FFO), as defined by the National
Association of Real Estate Investment Trusts, for the quarter ended
September 30, 2018, were $20.9 million, or $0.17 per share. This
compares to FFO for the quarter ended September 30, 2017 of $27.0
million, or $0.22 per share. The following items impacted FFO for
the quarter ended September 30, 2018, compared to the corresponding
2017 period:
- ($0.15) per share of income from
properties sold;
- $0.05 per share of interest expense
savings;
- $0.04 per of share of increase in
interest and other income (net of a $0.02 per share loss on the
sale of a mortgage receivable); and
- $0.01 per share of general &
administrative expense savings.
Normalized FFO was $21.6 million, or $0.18 per share. This
compares to Normalized FFO for the quarter ended September 30, 2017
of $24.0 million, or $0.19 per share. The following items impacted
Normalized FFO for the quarter ended September 30, 2018, compared
to the corresponding 2017 period:
- ($0.15) per share of income from
properties sold;
- $0.06 per of share of increase in
interest and other income;
- $0.05 per share of interest expense
savings;
- $0.02 per share of increase in same
property cash NOI; and
- $0.01 per share of general &
administrative expense savings.
Normalized FFO begins with FFO and eliminates certain items
that, by their nature, are not comparable from period to period,
non-cash items, and items that tend to obscure the company’s
operating performance. Definitions of FFO, Normalized FFO and
reconciliations to net income, determined in accordance with U.S.
generally accepted accounting principles, or GAAP, are included at
the end of this press release.
For the quarter ended September 30, 2018, the company’s balance
of cash and marketable securities net of distributions payable was
$2.6 billion. Total debt outstanding was $280 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 per share for the quarter ended
September 30, 2018 was 122,850,928 shares, compared to 125,174,651
for the quarter ended September 30, 2017. The weighted average
number of diluted common shares outstanding when calculating FFO or
Normalized FFO per share for the quarter ended September 30, 2018
was 122,896,648 shares, compared to 125,174,651 for the quarter
ended September 30, 2017.
Same property results for the quarter ended September 30,
2018
The company’s same property portfolio at the end of the quarter
consisted of 11 properties totaling 5.4 million square feet.
Operating results were as follows:
- The same property portfolio was 94.0%
leased as of September 30, 2018, compared to 91.8% as of June 30,
2018, and 91.1% as of September 30, 2017.
- The same property portfolio commenced
occupancy was 91.3% as of September 30, 2018, compared to 89.9% as
of June 30, 2018, and 87.5% as of September 30, 2017.
- Same property NOI increased 1.7% when
compared to the same period in 2017.
- Same property cash NOI increased 9.1%
when compared to the same period in 2017.
- The company entered into leases for
approximately 563,000 square feet, including new leases for
approximately 562,000 square feet and renewal leases for
approximately 1,000 square feet.
- GAAP rental rates on new and renewal
leases were 11.0% higher compared to prior GAAP rental rates for
the same space.
- Cash rental rates on new and renewal
leases were 1.2% lower 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 July 1, 2017 through September 30,
2018.
Significant events during the quarter ended September 30,
2018
- The company completed dispositions
totaling $170.5 million. The properties sold during the quarter
included:
- 777 East Eisenhower Parkway, a 39.8%
leased, 290,530 square foot office building in Ann Arbor, Michigan,
for a gross sale price of $29.5 million.
- 8750 Bryn Mawr Avenue, a 95.5% leased,
636,078 square foot, office property in Chicago, Illinois, for a
gross sale price of $141 million.
- The company announced a special,
one-time cash distribution of $2.50 per common share, which was
paid on October 23, 2018 to shareholders of record on October 9,
2018.
Subsequent Events
- The company currently has 4 properties
totaling 2.9 million square feet in various stages of the sale
process.
Earnings Conference Call & Supplemental Data
Equity Commonwealth will host a conference call to discuss third
quarter results on Thursday, October 25, 2018, at 9:00 A.M. CT. 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 Third Quarter 2018 Supplemental Operating and
Financial Data is available 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 in the United States. As of September
30, 2018, EQC’s portfolio comprised 11 properties and 5.4 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 share repurchases, 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)
September 30, 2018 December 31,
2017 ASSETS
Real estate properties: Land $ 137,329 $ 191,775
Buildings and improvements 1,000,822 1,555,836
1,138,151 1,747,611 Accumulated depreciation (370,854 ) (450,718 )
767,297 1,296,893 Assets held for sale — 97,688 Acquired real
estate leases, net 596 23,847 Cash and cash equivalents 2,673,328
2,351,693 Marketable securities 248,838 276,928 Restricted cash
9,708 8,897 Rents receivable, net of allowance for doubtful
accounts of $5,816 and $4,771, respectively 50,103 93,436 Other
assets, net 63,858 87,563
Total assets $ 3,813,728
$ 4,236,945
LIABILITIES AND EQUITY
Revolving credit facility $ — $
— Senior unsecured debt, net 248,258 815,984 Mortgage notes
payable, net 31,643 32,594 Liabilities related to properties held
for sale — 1,840 Accounts payable, accrued expenses and other
46,896 74,956 Rent collected in advance 8,182 11,076 Distributions
payable 309,238 —
Total liabilities $ 644,217
$ 936,450
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; 121,482,673 and 124,217,616 shares
issued and outstanding, respectively 1,215 1,242 Additional paid in
capital 4,306,020 4,380,313 Cumulative net income 2,855,557
2,596,259 Cumulative other comprehensive loss (1,006 ) (95 )
Cumulative common distributions (3,418,995 ) (3,111,868 )
Cumulative preferred distributions (693,736 ) (685,748 ) Total
shareholders’ equity 3,168,318 3,299,366 Noncontrolling interest
1,193 1,129
Total
equity $ 3,169,511
$ 3,300,495 Total liabilities and
equity $ 3,813,728
$ 4,236,945
CONDENSED CONSOLIDATED STATEMENTS OF
OPERATIONS
(amounts in thousands, except per share
data)
Three
Months Ended Nine Months Ended
September 30, September 30, 2018
2017 2018 2017
Revenues: Rental income $ 34,138 $
61,091 $ 112,898 $ 215,648 Tenant reimbursements and other income
12,735 16,707
41,199 53,300
Total revenues
$ 46,873 $
77,798 $ 154,097
$ 268,948 Expenses: Operating
expenses $ 20,257 $ 32,380 $ 64,377 $ 110,751 Depreciation and
amortization 11,287 21,133 38,211 71,970 General and administrative
10,905 11,689 35,466 35,727 Loss on asset impairment
— — 12,087
19,714
Total expenses $
42,449 $ 65,202
$ 150,141 $
238,162
Operating
income $ 4,424
$ 12,596 $ 3,956
$ 30,786 Interest
and other income, net 12,626 7,596 31,074 17,987 Interest expense
(including net amortization of debt discounts, premiums and
deferred financing fees of $559, $784, $2,005 and $2,346,
respectively) (5,085 ) (11,510 ) (21,550 ) (41,387 ) Loss on early
extinguishment of debt — (203 ) (6,403 ) (266 ) Gain on sale of
properties, net 20,877 25,080 253,025
44,670 Income before income taxes 32,842 33,559 260,102
51,790 Income tax expense (65 ) (335 )
(2,616 ) (555 )
Net income
$ 32,777 $ 33,224
$ 257,486
$ 51,235 Net income attributable to
noncontrolling interest (13 ) (12 )
(90 ) (18 )
Net income attributable to
Equity Commonwealth $ 32,764
$ 33,212 $
257,396 $ 51,217
Preferred distributions (1,997 ) (1,997 )
(5,991 ) (5,991 )
Net income
attributable to Equity Commonwealth common shareholders
$ 30,767 $ 31,215
$ 251,405
$ 45,226 Weighted average common shares
outstanding — basic (1) 121,845 124,089 122,504
124,068 Weighted average common shares outstanding —
diluted (1) 122,851 125,175 123,389 125,194
Earnings per common share attributable to Equity
Commonwealth common shareholders: Basic $ 0.25 $ 0.25
$ 2.05
$
0.36 Diluted $ 0.25 $ 0.25 $ 2.04
$
0.36 Distributions declared per common share $ 2.50
$ — $ 2.50
$
—
(1) Weighted average common shares outstanding for
the three months ended September 30, 2018 and 2017 includes 362 and
0 unvested, earned RSUs, respectively. Weighted average common
shares outstanding for the nine months ended September 30, 2018 and
2017 includes 344 and 0 unvested, earned RSUs, respectively.
CALCULATION OF FUNDS FROM OPERATIONS (FFO) AND NORMALIZED
FFO (amounts in thousands, except per share data)
Three Months Ended
Nine Months Ended September 30,
September 30, 2018
2017 2018 2017
Calculation of FFO
Net income $ 32,777 $ 33,224 $
257,486 $ 51,235 Real estate depreciation and amortization
10,978 20,842 37,298 71,077 Loss on asset impairment — — 12,087
19,714 Gain on sale of properties, net (20,877 ) (25,080 ) (253,025
) (44,670 ) FFO attributable to Equity Commonwealth 22,878 28,986
53,846 97,356 Preferred distributions (1,997 )
(1,997 ) (5,991 ) (5,991 )
FFO attributable
to EQC common shareholders and unitholders
$ 20,881 $ 26,989
$ 47,855 $
91,365
Calculation of Normalized
FFO
FFO attributable to EQC common shareholders and
unitholders $ 20,881 $ 26,989 $ 47,855 $ 91,365 Lease value
amortization (4 ) 388 76 1,479 Straight line rent adjustments
(1,435 ) (3,557 ) (3,985 ) (12,487 ) Loss on early extinguishment
of debt — 203 6,403 266 Loss on sale of securities — — 4,987 — Loss
on sale of real estate mortgage receivable 2,117 — 2,117 — Income
taxes related to gains on property sales 25
— 2,498 —
Normalized FFO attributable to EQC common shareholders and
unitholders $ 21,584
$ 24,023 $ 59,951
$ 80,623 Weighted average
common shares and units outstanding -- basic (1) 121,891
124,132 122,548 124,105 Weighted average
common shares and units outstanding -- diluted (1) 122,897
125,175 123,433 125,194 FFO
attributable to EQC common shareholders and unitholders per share
and unit -- basic $ 0.17 $ 0.22 $ 0.39 $ 0.74
FFO attributable to EQC common shareholders and unitholders
per share and unit -- diluted $ 0.17 $ 0.22 $ 0.39
$ 0.73 Normalized FFO attributable to EQC common
shareholders and unitholders per share and unit -- basic $ 0.18
$ 0.19 $ 0.49 $ 0.65 Normalized FFO
attributable to EQC common shareholders and unitholders per share
and unit -- diluted $ 0.18 $ 0.19 $ 0.49 $
0.64
(1)
Our calculations of FFO and Normalized FFO
attributable to EQC common shareholders and unitholders per share and unit - basic
for the three and nine months ended September 30, 2018 include 46
and 44 LTIP/Operating Partnership Units, respectively, that are
excluded from the calculation of basic earnings per common share
attributable to EQC common shareholders
(only). Our calculations of FFO and Normalized FFO
attributable to EQC common shareholders and unitholders per share and unit - basic
for the three and nine months ended September 30, 2017 include 43
and 37 LTIP/Operating Partnership Units, respectively, that are
excluded from the calculation of basic earnings per common share
attributable to EQC common shareholders
(only).
We compute FFO in accordance with standards established by
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 EQC 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 EQC 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 EQC 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
9/30/2018 6/30/2018
3/31/2018 12/31/2017
9/30/2017 Calculation of Same Property NOI and Same
Property Cash Basis NOI:
Rental income $ 34,138 $ 35,211 $ 43,549 $
54,672 $ 61,091 Tenant reimbursements and other income 12,735
13,425 15,039 16,951 16,707 Operating expenses
(20,257 ) (19,521 ) (24,599 )
(30,674 ) (32,380 )
NOI
$ 26,616 $ 29,115
$ 33,989
$ 40,949 $ 45,418
Straight line rent adjustments (1,435 ) (1,022 ) (1,528 )
(1,938 ) (3,557 ) Lease value amortization (4 ) (18 ) 98 295 388
Lease termination fees (395 ) (1,557 )
(965 ) (942 ) (1,477 )
Cash Basis NOI $ 24,782
$ 26,518 $
31,594 $ 38,364
$ 40,772 Cash Basis NOI from
non-same properties (1) (58 ) (1,856 )
(7,579 ) (14,905 )
(18,110 )
Same Property Cash Basis NOI
$ 24,724 $ 24,662
$ 24,015
$ 23,459 $ 22,662
Non-cash rental income and lease termination fees from same
properties 1,120 1,107
1,084 1,192
2,745
Same Property NOI $
25,844 $ 25,769
$ 25,099 $
24,651 $ 25,407
Reconciliation of Same Property NOI to GAAP Operating
Income:
Same Property
NOI $ 25,844
$ 25,769 $ 25,099
$ 24,651
$ 25,407 Non-cash rental income and lease
termination fees from same properties (1,120 )
(1,107 ) (1,084 ) (1,192 )
(2,745 )
Same Property Cash Basis NOI
$ 24,724 $
24,662 $ 24,015
$ 23,459 $
22,662 Cash Basis NOI from non-same properties (1)
58 1,856
7,579 14,905 18,110
Cash Basis NOI $ 24,782
$ 26,518
$ 31,594 $ 38,364
$ 40,772 Straight line
rent adjustments 1,435 1,022 1,528 1,938 3,557 Lease value
amortization 4 18 (98 ) (295 ) (388 ) Lease termination fees
395 1,557 965
942 1,477
NOI $ 26,616
$ 29,115 $
33,989 $ 40,949
$ 45,418 Depreciation and
amortization (11,287 ) (13,021 ) (13,903 ) (18,738 ) (21,133 )
General and administrative (10,905 ) (11,222 ) (13,339 ) (12,033 )
(11,689 ) Loss on asset impairment —
— (12,087 ) —
—
Operating Income (Loss)
$ 4,424 $ 4,872
$ (5,340 )
$ 10,178 $ 12,596
(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.
CALCULATION OF SAME PROPERTY NET
OPERATING INCOME (NOI) AND SAME PROPERTY CASH BASIS NOI
(amounts in thousands)
For the Nine Months Ended September
30, 2018 2017 Calculation
of Same Property NOI and Same Property Cash Basis NOI:
Rental income $ 112,898 $ 215,648 Tenant
reimbursements and other income 41,199 53,300 Operating expenses
(64,377 ) (110,751 )
NOI
$ 89,720
$ 158,197 Straight line rent adjustments
(3,985 ) (12,487 ) Lease value amortization 76 1,479 Lease
termination fees (2,917 ) (4,002
)
Cash Basis NOI $ 82,894
$ 143,187 Cash Basis NOI
from non-same properties (1) (9,493 )
(78,164 )
Same Property Cash Basis NOI
$ 73,401 $
65,023 Non-cash rental income and lease termination
fees from same properties 3,311
10,011
Same Property NOI
$ 76,712 $
75,034 Reconciliation of Same Property NOI
to GAAP Operating Income:
Same Property NOI $
76,712 $ 75,034
Non-cash rental income and lease termination fees from same
properties (3,311 ) (10,011 )
Same Property Cash Basis NOI $
73,401 $ 65,023
Cash Basis NOI from non-same properties (1)
9,493 78,164
Cash Basis
NOI $ 82,894
$ 143,187 Straight line rent
adjustments 3,985 12,487 Lease value amortization (76 ) (1,479 )
Lease termination fees 2,917
4,002
NOI $ 89,720
$ 158,197
Depreciation and amortization (38,211 ) (71,970 ) General and
administrative (35,466 ) (35,727 ) Loss on asset impairment
(12,087 ) (19,714 )
Operating
Income $ 3,956
$ 30,786 (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 operations 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 July 1, 2017 through September 30, 2018. The year-to-date same
property versions of these measures include the results of
properties continuously owned from January 1, 2017 through
September 30, 2018. 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 EQC 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 EQC 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: https://www.businesswire.com/news/home/20181024005826/en/
Equity CommonwealthSarah Byrnes, Investor Relations(312)
646-2801ir@eqcre.com
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