Equity Commonwealth (NYSE: EQC) today reported financial results
for the quarter ended June 30, 2020 and provided an update on its
business due to COVID-19.
Equity Commonwealth continues to monitor the COVID-19 pandemic
and its impact on its business. Our priority is the health and
safety of our employees, tenants and building staff. As a result of
the pandemic, the vast majority of our tenants continue to work
remotely. Our buildings are open, and we are working with our
tenants to ensure their safety as they return to the office. In our
same property portfolio, for the second quarter 2020, we collected
99% of contractual rents, including 5% from the application of
security deposits and letters of credit. In July 2020, to date we
have collected 97% of contractual rents, including 4% from the
application of security deposits and letters of credit.
Financial results for the quarter ended June 30, 2020
Net income attributable to common shareholders was $25.8
million, or $0.21 per diluted share, for the quarter ended June 30,
2020. This compares to net income attributable to common
shareholders of $240.3 million, or $1.93 per diluted share, for the
quarter ended June 30, 2019. The decline in net income was
primarily a result of a decrease in gains from property sales,
lower interest earned on cash balances, and property
dispositions.
Funds from Operations, or FFO, as defined by the National
Association of Real Estate Investment Trusts, for the quarter ended
June 30, 2020, were $3.1 million, or $0.03 per diluted share. This
compares to FFO for the quarter ended June 30, 2019 of $20.5
million, or $0.17 per diluted share. The following items impacted
FFO for the quarter ended June 30, 2020, compared to the
corresponding 2019 period:
- ($0.13) per diluted share decrease in interest income;
- ($0.08) per diluted share decrease in income from properties
sold;
- ($0.02) per diluted share decrease in same property termination
income;
- $0.05 per diluted share decrease in loss on debt
extinguishment;
- $0.03 per diluted share decrease in interest expense; and
- $0.01 per diluted share decrease in general and administrative
expense.
Normalized FFO was $3.7 million, or $0.03 per diluted share, for
the quarter ended June 30, 2020. This compares to Normalized FFO
for the quarter ended June 30, 2019 of $27.2 million, or $0.22 per
diluted share. The following items impacted Normalized FFO for the
quarter ended June 30, 2020, compared to the corresponding 2019
period:
- ($0.13) per diluted share decrease in interest income;
- ($0.08) per diluted share decrease in income from properties
sold;
- ($0.02) per diluted share decrease in same property termination
income;
- $0.03 per diluted share decrease in interest expense; and
- $0.01 per diluted share decrease in general and administrative
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 June 30, 2020, the company’s cash and cash
equivalents balance was $3.4 billion.
Same property results for the quarter ended June 30,
2020
The company’s same property portfolio at the end of the quarter
consisted of 4 properties totaling 1.5 million square feet.
Operating results were as follows:
- The same property portfolio was 90.1% leased as of June 30,
2020, compared to 90.8% as of March 31, 2020, and 85.7% as of June
30, 2019.
- The same property portfolio commenced occupancy was 83.9% as of
June 30, 2020, compared to 83.7% as of March 31, 2020, and 84.3% as
of June 30, 2019.
- Same property NOI decreased 23.9% when compared to the same
period in 2019. The decline was largely due to lease termination
fees received in 2019 and lower parking revenue due to
COVID-19.
- Same property cash NOI increased 1.5% when compared to the same
period in 2019.
- The company entered into a new lease for approximately 22,000
square feet.
- The GAAP rental rate on the new lease was 2.3% higher compared
to the prior GAAP rental rate for the same space.
- The cash rental rate on the new lease was 4.8% lower compared
to the prior cash rental rate 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 April 1, 2019 through June 30, 2020.
Significant events during the quarter ended June 30,
2020
- The company sold the Georgetown-Green and Harris Buildings, a
240,000 square foot office property in Washington, DC, for a gross
sale price of $85 million.
Subsequent Events
- The company repaid at par the outstanding $25.1 million, 5.7%
mortgage loan on 206 East 9th Street in Austin, Texas, as of July
5, 2020.
Earnings Conference Call & Supplemental Data
Equity Commonwealth will host a conference call to discuss
second quarter results on Thursday, July 30, 2020, 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 Second 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. EQC’s same
property portfolio is comprised of 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)
June 30, 2020
December 31, 2019
ASSETS
Real estate properties:
Land
$
44,060
$
85,627
Buildings and improvements
353,665
576,494
397,725
662,121
Accumulated depreciation
(139,061
)
(202,700
)
258,664
459,421
Cash and cash equivalents
3,437,775
2,795,642
Restricted cash
4,103
5,003
Rents receivable
13,968
19,554
Other assets, net
18,645
39,757
Total assets
$
3,733,155
$
3,319,377
LIABILITIES AND EQUITY
Mortgage notes payable, net
$
25,281
$
25,691
Accounts payable, accrued expenses and
other
25,821
37,153
Rent collected in advance
2,521
3,127
Distributions payable
5,791
7,534
Total liabilities
$
59,414
$
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; 121,521,624 and
121,924,199 shares issued and outstanding, respectively
1,215
1,219
Additional paid in capital
4,288,245
4,313,831
Cumulative net income
3,816,245
3,363,654
Cumulative common distributions
(3,852,856
)
(3,851,666
)
Cumulative preferred distributions
(705,718
)
(701,724
)
Total shareholders’ equity
3,666,394
3,244,577
Noncontrolling interest
7,347
1,295
Total equity
$
3,673,741
$
3,245,872
Total liabilities and equity
$
3,733,155
$
3,319,377
CONDENSED CONSOLIDATED
STATEMENTS OF OPERATIONS
(Unaudited, amounts in thousands,
except per share data)
Three Months Ended
Six Months Ended
June 30,
June 30,
2020
2019
2020
2019
Revenues:
Rental revenue
$
15,248
$
30,574
$
32,391
$
69,464
Other revenue
1,017
2,794
2,694
5,656
Total revenues
$
16,265
$
33,368
$
35,085
$
75,120
Expenses:
Operating expenses
$
6,677
$
10,974
$
15,438
$
26,754
Depreciation and amortization
4,398
7,561
9,512
16,146
General and administrative
8,302
9,533
18,906
21,629
Total expenses
$
19,377
$
28,068
$
43,856
$
64,529
Interest and other income, net
4,443
20,695
16,338
38,470
Interest expense (including net
amortization of debt discounts, premiums and deferred financing
fees of $(60), $154, $(116) and $319, respectively)
(302
)
(4,070
)
(611
)
(8,276
)
Loss on early extinguishment of debt
—
(6,374
)
—
(6,374
)
Gain on sale of properties, net
26,916
227,166
446,536
420,203
Income before income taxes
27,945
242,717
453,492
454,614
Income tax expense
(59
)
(340
)
(99
)
(1,640
)
Net income
$
27,886
$
242,377
$
453,393
$
452,974
Net income attributable to noncontrolling
interest
(54
)
(91
)
(802
)
(170
)
Net income attributable to Equity
Commonwealth
$
27,832
$
242,286
$
452,591
$
452,804
Preferred distributions
(1,997
)
(1,997
)
(3,994
)
(3,994
)
Net income attributable to Equity
Commonwealth common shareholders
$
25,835
$
240,289
$
448,597
$
448,810
Weighted average common shares outstanding
— basic (1)
121,655
122,122
121,901
122,041
Weighted average common shares outstanding
— diluted(1)(2)
123,255
125,862
126,358
125,841
Earnings per common share attributable to
Equity Commonwealth common shareholders:
Basic
$
0.21
$
1.97
$
3.68
$
3.68
Diluted
$
0.21
$
1.93
$
3.58
$
3.60
(1)
Weighted average common shares outstanding
for the three months ended June 30, 2020 and 2019 includes 150 and
220 unvested, earned RSUs, respectively. Weighted average common
shares outstanding for the six months ended June 30, 2020 and 2019
includes 164 and 203 unvested, earned RSUs, respectively.
(2)
As of June 30, 2020, we had 4,915 series D
preferred shares outstanding. The series D preferred shares were
convertible into 2,857 common shares as of June 30, 2020, and 2,563
common shares as of June 30, 2019. The series D preferred shares
are antidilutive for GAAP EPS for the three months ended June 30,
2020. They are dilutive for GAAP EPS for all other periods
presented.
CALCULATION OF FUNDS FROM
OPERATIONS (FFO) AND NORMALIZED FFO
(Unaudited, amounts in thousands,
except per share data)
Three Months Ended
Six Months Ended
June 30,
June 30,
2020
2019
2020
2019
Calculation of FFO
Net income
$
27,886
$
242,377
$
453,393
$
452,974
Real estate depreciation and
amortization
4,174
7,283
9,055
15,560
Gain on sale of properties, net
(26,916
)
(227,166
)
(446,536
)
(420,203
)
FFO attributable to Equity
Commonwealth
5,144
22,494
15,912
48,331
Preferred distributions
(1,997
)
(1,997
)
(3,994
)
(3,994
)
FFO attributable to EQC common
shareholders and unitholders
$
3,147
$
20,497
$
11,918
$
44,337
Calculation of Normalized FFO
FFO attributable to EQC common
shareholders and unitholders
$
3,147
$
20,497
$
11,918
$
44,337
Lease value amortization
—
(39
)
—
(78
)
Straight line rent adjustments
515
(11
)
713
(848
)
Loss on early extinguishment of debt
—
6,374
—
6,374
Taxes related to property sales included
in general and administrative
10
—
1,458
—
Taxes related to property sales, net
included in income tax expense
44
415
79
565
Normalized FFO attributable to EQC
common shareholders and unitholders
$
3,716
$
27,236
$
14,168
$
50,350
Weighted average common shares and units
outstanding -- basic (1)
121,889
122,168
122,100
122,087
Weighted average common shares and units
outstanding -- diluted (1)
123,489
123,345
123,700
123,324
FFO attributable to EQC common
shareholders and unitholders per share and unit -- basic and
diluted
$
0.03
$
0.17
$
0.10
$
0.36
Normalized FFO attributable to EQC common
shareholders and unitholders per share and unit -- basic
$
0.03
$
0.22
$
0.12
$
0.41
Normalized FFO attributable to EQC common
shareholders and unitholders per share and unit -- diluted
$
0.03
$
0.22
$
0.11
$
0.41
(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 June 30, 2020 and 2019 include 234 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). Our calculations of FFO and Normalized FFO
attributable to EQC common shareholders and unitholders per share and unit - basic for
the six months ended June 30, 2020 and 2019 include 199 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
6/30/2020
3/31/2020
12/31/2019
9/30/2019
6/30/2019
Calculation of Same Property NOI and
Same Property Cash Basis NOI:
Rental revenue
$
15,248
$
17,143
$
23,410
$
23,995
$
30,574
Other revenue
1,017
1,677
2,585
2,740
2,794
Operating expenses
(6,677
)
(8,761
)
(9,741
)
(9,923
)
(10,974
)
NOI
$
9,588
$
10,059
$
16,254
$
16,812
$
22,394
Straight line rent adjustments
515
198
(69
)
499
(11
)
Lease value amortization
—
—
—
(39
)
(39
)
Lease termination fees
—
—
(16
)
(11
)
(2,188
)
Cash Basis NOI
$
10,103
$
10,257
$
16,169
$
17,261
$
20,156
Cash Basis NOI from non-same properties
(1)
(1,221
)
(1,399
)
(7,244
)
(8,485
)
(11,401
)
Same Property Cash Basis NOI
$
8,882
$
8,858
$
8,925
$
8,776
$
8,755
Non-cash rental income and lease
termination fees from same properties
(408
)
(107
)
(124
)
10
2,387
Same Property NOI
$
8,474
$
8,751
$
8,801
$
8,786
$
11,142
Reconciliation of Same Property NOI to
GAAP Net Income:
Same Property NOI
$
8,474
$
8,751
$
8,801
$
8,786
$
11,142
Non-cash rental income and lease
termination fees from same properties
408
107
124
(10
)
(2,387
)
Same Property Cash Basis NOI
$
8,882
$
8,858
$
8,925
$
8,776
$
8,755
Cash Basis NOI from non-same properties
(1)
1,221
1,399
7,244
8,485
11,401
Cash Basis NOI
$
10,103
$
10,257
$
16,169
$
17,261
$
20,156
Straight line rent adjustments
(515
)
(198
)
69
(499
)
11
Lease value amortization
—
—
—
39
39
Lease termination fees
—
—
16
11
2,188
NOI
$
9,588
$
10,059
$
16,254
$
16,812
$
22,394
Depreciation and amortization
(4,398
)
(5,114
)
(6,037
)
(5,939
)
(7,561
)
General and administrative
(8,302
)
(10,604
)
(8,290
)
(8,523
)
(9,533
)
Interest and other income, net
4,443
11,895
14,521
19,401
20,695
Interest expense
(302
)
(309
)
(311
)
(321
)
(4,070
)
Loss on early extinguishment of debt
—
—
—
—
(6,374
)
Gain on sale of properties, net
26,916
419,620
24
1,945
227,166
Income before income taxes
$
27,945
$
425,547
$
16,161
$
23,375
$
242,717
Income tax (expense) benefit
(59
)
(40
)
(165
)
521
(340
)
Net income
$
27,886
$
425,507
$
15,996
$
23,896
$
242,377
(1)
Cash Basis NOI from non-same properties
for all periods presented includes the operations of disposed
properties.
CALCULATION OF SAME PROPERTY
NET OPERATING INCOME (NOI) AND SAME PROPERTY CASH BASIS NOI
(Unaudited, amounts in
thousands)
For the Six Months Ended June
30,
2020
2019
Calculation of Same Property NOI and
Same Property Cash Basis NOI:
Rental revenue
$
32,391
$
69,464
Other revenue
2,694
5,656
Operating expenses
(15,438
)
(26,754
)
NOI
$
19,647
$
48,366
Straight line rent adjustments
713
(848
)
Lease value amortization
—
(78
)
Lease termination fees
—
(2,188
)
Cash Basis NOI
$
20,360
$
45,252
Cash Basis NOI from non-same properties
(1)
(2,620
)
(27,726
)
Same Property Cash Basis NOI
$
17,740
$
17,526
Non-cash rental income and lease
termination fees from same properties
(515
)
2,679
Same Property NOI
$
17,225
$
20,205
Reconciliation of Same Property NOI to
GAAP Net Income:
Same Property NOI
$
17,225
$
20,205
Non-cash rental income and lease
termination fees from same properties
515
(2,679
)
Same Property Cash Basis NOI
$
17,740
$
17,526
Cash Basis NOI from non-same properties
(1)
2,620
27,726
Cash Basis NOI
$
20,360
$
45,252
Straight line rent adjustments
(713
)
848
Lease value amortization
—
78
Lease termination fees
—
2,188
NOI
$
19,647
$
48,366
Depreciation and amortization
(9,512
)
(16,146
)
General and administrative
(18,906
)
(21,629
)
Interest and other income, net
16,338
38,470
Interest expense
(611
)
(8,276
)
Loss on early extinguishment of debt
—
(6,374
)
Gain on sale of properties, net
446,536
420,203
Income before income taxes
$
453,492
$
454,614
Income tax expense
(99
)
(1,640
)
Net income
$
453,393
$
452,974
(1)
Cash Basis NOI from non-same properties
for all periods presented includes the operations of disposed
properties.
NOI is income from our real estate
including lease termination fees received from tenants less our
property operating expenses. NOI excludes amortization of
capitalized tenant improvement costs and leasing commissions and
corporate level expenses. Cash Basis NOI is NOI excluding the
effects of straight line rent adjustments, lease value amortization
and lease termination fees. The quarter-to-date same property
versions of these measures include the results of properties
continuously owned from April 1, 2019 through June 30, 2020. The
year-to-date same property versions of these measures include the
results of properties continuously owned from January 1, 2019
through June 30, 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/20200729005870/en/
Sarah Byrnes, Investor Relations (312) 646-2801 ir@eqcre.com
Equity Commonwealth (NYSE:EQC)
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Equity Commonwealth (NYSE:EQC)
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