Equity Commonwealth (NYSE: EQC) today reported financial results
for the quarter ended March 31, 2020 and provided an update on its
business due to COVID-19.
Equity Commonwealth is monitoring the COVID-19 pandemic and its
impact on our business. Our priority is the health and safety of
our employees, tenants and building staff. As a result of
government stay-at-home orders, the vast majority of our tenants
are working remotely. Our buildings are open, and we are working
with our tenants to ensure their safety as stay-at-home orders are
lifted and they return to the office. For the month of April, in
our same property portfolio, we collected 98% of contractual rents,
including 3% from the application of security deposits and letters
of credit.
Financial results for the quarter ended March 31,
2020
Net income attributable to common shareholders was $422.8
million, or $3.35 per diluted share, for the quarter ended March
31, 2020. This compares to net income attributable to common
shareholders of $208.5 million, or $1.67 per diluted share, for the
quarter ended March 31, 2019. The increase in net income was
primarily due to an increase in gains on sale of properties.
Funds from Operations, or FFO, as defined by the National
Association of Real Estate Investment Trusts, for the quarter ended
March 31, 2020, were $8.8 million, or $0.07 per diluted share. This
compares to FFO for the quarter ended March 31, 2019 of $23.8
million, or $0.19 per diluted share. The following items impacted
FFO for the quarter ended March 31, 2020, compared to the
corresponding 2019 period:
- ($0.13) per diluted share decrease in income from properties
sold;
- ($0.05) per diluted share decrease in interest income;
- $0.03 per diluted share decrease in interest expense;
- $0.01 per diluted share decrease in general and administrative
expense; and
- $0.01 per diluted share of decrease in income tax expense.
Normalized FFO was $10.5 million, or $0.08 per diluted share,
for the quarter ended March 31, 2020. This compares to Normalized
FFO for the quarter ended March 31, 2019 of $23.1 million, or $0.19
per diluted share. The following items impacted Normalized FFO for
the quarter ended March 31, 2020, compared to the corresponding
2019 period:
- ($0.12) per diluted share decrease inincome from properties
sold;
- ($0.05) per diluted share decrease in interest income;
- $0.03 per diluted share decrease in interest expense;
- $0.02 per diluted share decrease in general and administrative
expense, net of franchise tax related to property sales; and
- $0.01 per diluted share of decrease in income tax expense.
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 March 31, 2020, the company’s cash and
cash equivalents balance was $3.3 billion. Total debt outstanding
was $25.5 million.
Same property results for the quarter ended March 31,
2020
The company’s same property portfolio at the end of the quarter
consisted of 4 properties totaling 1.5 million square feet and
excluded one held for sale property. Operating results were as
follows:
- The same property portfolio was 90.8% leased as of March 31,
2020, compared to 91.5% as of December 31, 2019, and 88.2% as of
March 31, 2019.
- The same property portfolio commenced occupancy was 83.7% as of
March 31, 2020, compared to 87.2% as of December 31, 2019, and
86.7% as of March 31, 2019.
- Same property NOI decreased 3.4% when compared to the same
period in 2019.
- Same property cash NOI increased 1.0% when compared to the same
period in 2019.
- The company entered into leases for approximately 75,000 square
feet, including renewal leases for approximately 41,000 square feet
and new leases for approximately 34,000 square feet.
- GAAP rental rates on new and renewal leases were 15.9% higher
compared to prior GAAP rental rates for the same space.
- Cash rental rates on new and renewal leases were 1.3% 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 net income, determined in accordance with
GAAP, are included at the end of this press release. The same
property portfolio at the end of the quarter included properties
continuously owned from January 1, 2019 through March 31, 2020.
Properties classified as held for sale within the company’s
condensed consolidated balance sheet as of March 31, 2020 are
excluded.
Significant events during the quarter ended March 31,
2020
- The company sold 109 Brookline, a 286,000 square foot property
in Boston, MA for a gross sale price of $270 million. Proceeds
after credits, primarily for contractual lease costs, and transfer
taxes were $259.2 million.
- The company sold Tower 333, a 435,000 square foot office
property in Bellevue, WA, for a gross sale price of $401.5 million.
Proceeds after credits, primarily for contractual lease costs, and
transfer taxes were $316.7 million.
- The company entered into a contract to sell the
Georgetown-Green and Harris Buildings, a 240,000 square foot office
property in Washington, DC. The closing is scheduled to occur in
the second quarter of 2020. This transaction is subject to
customary closing conditions, and there is no certainty that the
transaction will close.
- The company repurchased approximately 711,000 of its common
shares at a weighted average price of $29.31 per share for a total
investment of $20.8 million. The company has $150 million
authorized for future share repurchases under its new
authorization.
Earnings Conference Call & Supplemental Data
Equity Commonwealth will host a conference call to discuss first
quarter results on Tuesday, May 5, 2020, at 8:00 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 First Quarter 2020 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 May 4,
2020, EQC’s same property portfolio comprised 4 properties and 1.5
million square feet.
Regulation FD Disclosures
We 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
pertaining to the marketing of certain properties for sale and
consummating any sales, including our statements regarding the
overall impact of COVID-19 on the foregoing to the extent we make
any such statements. 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, as amended. 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 our current views about future events and are subject to
numerous known and unknown risks, uncertainties, assumptions and
changes in circumstances that may cause our 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). 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 our future results to differ
materially from any forward-looking statements, see the section
entitled “Risk Factors” in our most recent Annual Report on Form
10-K and subsequent quarterly reports on Form 10-Q.
CONDENSED CONSOLIDATED BALANCE
SHEETS
(Unaudited, amounts in thousands,
except share data)
March 31, 2020
December 31, 2019
ASSETS
Real estate properties:
Land
$
44,060
$
85,627
Buildings and improvements
351,880
576,494
395,940
662,121
Accumulated depreciation
(136,836
)
(202,700
)
259,104
459,421
Assets held for sale
55,941
—
Cash and cash equivalents
3,348,349
2,795,642
Restricted cash
3,174
5,003
Rents receivable
14,964
19,554
Other assets, net
22,525
39,757
Total assets
$
3,704,057
$
3,319,377
LIABILITIES AND EQUITY
Mortgage notes payable, net
$
25,487
$
25,691
Liabilities related to properties held for
sale
81
—
Accounts payable, accrued expenses and
other
25,966
37,153
Rent collected in advance
2,118
3,127
Distributions payable
5,791
7,534
Total liabilities
$
59,443
$
73,505
Shareholders’ equity:
Preferred shares of beneficial interest,
$0.01 par value: 50,000,000 shares authorized;
Series D preferred shares; 6.50%
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; 121,502,520 and
121,924,199 shares issued and outstanding, respectively
1,215
1,219
Additional paid in capital
4,285,266
4,313,831
Cumulative net income
3,788,413
3,363,654
Cumulative common distributions
(3,852,856
)
(3,851,666
)
Cumulative preferred distributions
(703,721
)
(701,724
)
Total shareholders’ equity
3,637,580
3,244,577
Noncontrolling interest
7,034
1,295
Total equity
$
3,644,614
$
3,245,872
Total liabilities and equity
$
3,704,057
$
3,319,377
CONDENSED CONSOLIDATED
STATEMENTS OF OPERATIONS
(Unaudited, amounts in thousands,
except per share data)
Three Months Ended
March 31,
2020
2019
Revenues:
Rental revenue
$
17,143
$
38,890
Other revenue
1,677
2,862
Total revenues
$
18,820
$
41,752
Expenses:
Operating expenses
$
8,761
$
15,780
Depreciation and amortization
5,114
8,585
General and administrative
10,604
12,096
Total expenses
$
24,479
$
36,461
Interest and other income, net
11,895
17,775
Interest expense (including net
amortization of debt discounts, premiums and deferred financing
fees of $(56) and $165, respectively)
(309)
(4,206)
Gain on sale of properties, net
419,620
193,037
Income before income taxes
425,547
211,897
Income tax expense
(40)
(1,300)
Net income
$
425,507
$
210,597
Net income attributable to noncontrolling
interest
(748)
(79)
Net income attributable to Equity
Commonwealth
$
424,759
$
210,518
Preferred distributions
(1,997)
(1,997)
Net income attributable to Equity
Commonwealth common shareholders
$
422,762
$
208,521
Weighted average common shares outstanding
— basic (1)
122,148
121,960
Weighted average common shares outstanding
— diluted (1) (2)
126,605
125,822
Earnings per common share attributable to
Equity Commonwealth common shareholders:
Basic
$
3.46
$
1.71
Diluted
$
3.35
$
1.67
(1)
Weighted average common shares outstanding
for the three months ended March 31, 2020 and 2019 includes 177 and
187 unvested, earned RSUs, respectively.
(2)
As of March 31, 2020, we had 4,915 series
D preferred shares outstanding. The series D preferred shares were
convertible into 2,857 common shares as of March 31, 2020, and
2,563 common shares as of March 31, 2019. The series D preferred
shares are dilutive for both periods presented.
CALCULATION OF FUNDS FROM
OPERATIONS (FFO) AND NORMALIZED FFO
(Unaudited, amounts in thousands,
except per share data)
Three Months Ended
March 31,
2020
2019
Calculation of FFO
Net income
$
425,507
$
210,597
Real estate depreciation and
amortization
4,881
8,277
Gain on sale of properties, net
(419,620
)
(193,037
)
FFO attributable to Equity
Commonwealth
10,768
25,837
Preferred distributions
(1,997
)
(1,997
)
FFO attributable to EQC common
shareholders and unitholders
$
8,771
$
23,840
Calculation of Normalized FFO
FFO attributable to EQC common
shareholders and unitholders
$
8,771
$
23,840
Lease value amortization
—
(39
)
Straight line rent adjustments
198
(837
)
Taxes related to property sales included
in general and administrative
1,448
—
Taxes related to property sales, net
included in income tax expense
35
150
Normalized FFO attributable to EQC
common shareholders and unitholders
$
10,452
$
23,114
Weighted average common shares and units
outstanding -- basic (1)
122,310
122,006
Weighted average common shares and units
outstanding -- diluted (1)
123,910
123,305
FFO attributable to EQC common
shareholders and unitholders per share and unit -- basic
$
0.07
$
0.20
FFO attributable to EQC common
shareholders and unitholders per share and unit -- diluted
$
0.07
$
0.19
Normalized FFO attributable to EQC common
shareholders and unitholders per share and unit -- basic
$
0.09
$
0.19
Normalized FFO attributable to EQC common
shareholders and unitholders per share and unit -- diluted
$
0.08
$
0.19
(1)
Our calculations of FFO and Normalized FFO
attributable to EQC common shareholders and unitholders per
share and unit - basic for the three months ended March 31, 2020
and 2019 include 162 and 46 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 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 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 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
(Unaudited, amounts in
thousands)
For the Three Months
Ended
3/31/2020
12/31/2019
9/30/2019
6/30/2019
3/31/2019
Calculation of Same Property NOI and
Same Property Cash Basis NOI:
Rental revenue
$
17,143
$
23,410
$
23,995
$
30,574
$
38,890
Other revenue
1,677
2,585
2,740
2,794
2,862
Operating expenses
(8,761
)
(9,741
)
(9,923
)
(10,974
)
(15,780
)
NOI
$
10,059
$
16,254
$
16,812
$
22,394
$
25,972
Straight line rent adjustments
198
(69
)
499
(11
)
(837
)
Lease value amortization
—
—
(39
)
(39
)
(39
)
Lease termination fees
—
(16
)
(11
)
(2,188
)
—
Cash Basis NOI
$
10,257
$
16,169
$
17,261
$
20,156
$
25,096
Cash Basis NOI from non-same properties
(1)
(1,399
)
(7,244
)
(8,485
)
(11,401
)
(16,325
)
Same Property Cash Basis NOI
$
8,858
$
8,925
$
8,776
$
8,755
$
8,771
Non-cash rental income and lease
termination fees from same properties
(107
)
(124
)
10
2,387
292
Same Property NOI
$
8,751
$
8,801
$
8,786
$
11,142
$
9,063
Reconciliation of Same Property NOI to
GAAP Net Income:
Same Property NOI
$
8,751
$
8,801
$
8,786
$
11,142
$
9,063
Non-cash rental income and lease
termination fees from same properties
107
124
(10
)
(2,387
)
(292
)
Same Property Cash Basis NOI
$
8,858
$
8,925
$
8,776
$
8,755
$
8,771
Cash Basis NOI from non-same properties
(1)
1,399
7,244
8,485
11,401
16,325
Cash Basis NOI
$
10,257
$
16,169
$
17,261
$
20,156
$
25,096
Straight line rent adjustments
(198
)
69
(499
)
11
837
Lease value amortization
—
—
39
39
39
Lease termination fees
—
16
11
2,188
—
NOI
$
10,059
$
16,254
$
16,812
$
22,394
$
25,972
Depreciation and amortization
(5,114
)
(6,037
)
(5,939
)
(7,561
)
(8,585
)
General and administrative
(10,604
)
(8,290
)
(8,523
)
(9,533
)
(12,096
)
Interest and other income, net
11,895
14,521
19,401
20,695
17,775
Interest expense
(309
)
(311
)
(321
)
(4,070
)
(4,206
)
Loss on early extinguishment of debt
—
—
—
(6,374
)
—
Gain on sale of properties, net
419,620
24
1,945
227,166
193,037
Income before income taxes
$
425,547
$
16,161
$
23,375
$
242,717
$
211,897
Income tax (expense) benefit
(40
)
(165
)
521
(340
)
(1,300
)
Net income
$
425,507
$
15,996
$
23,896
$
242,377
$
210,597
(1)
Cash Basis NOI from non-same properties
for all periods presented includes the operations of disposed
properties and properties classified as held for sale.
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 and year-to-date same property versions of these
measures include the results of properties continuously owned from
January 1, 2019 through March 31, 2020. 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
may 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 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 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/20200504005699/en/
Sarah Byrnes, Investor Relations (312) 646-2801 ir@eqcre.com
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