Equity Commonwealth (NYSE: EQC) today reported financial results
for the quarter ended March 31, 2023.
Financial results for the quarter ended March 31,
2023
Net income attributable to common shareholders was $20.7
million, or $0.19 per diluted share, for the quarter ended March
31, 2023. This compares to net loss attributable to common
shareholders of $0.7 million, or $0.01 per diluted share, for the
quarter ended March 31, 2022. The increase in net income was
primarily due to an increase in interest income from higher average
interest rates.
Funds from Operations, or FFO, as defined by the National
Association of Real Estate Investment Trusts, for the quarter ended
March 31, 2023, were $25.1 million, or $0.22 per diluted share.
This compares to FFO for the quarter ended March 31, 2022 of $3.7
million, or $0.03 per diluted share. The following items impacted
FFO for the quarter ended March 31, 2023, compared to the
corresponding 2022 period:
- $0.24 per diluted share increase in interest and other income,
net;
- $(0.02) per diluted share decrease in same property NOI;
- $(0.02) per diluted share decrease in NOI from properties sold;
and
- $(0.01) per diluted share increase in income tax expense.
Normalized FFO was $25.3 million, or $0.23 per diluted share,
for the quarter ended March 31, 2023. This compares to Normalized
FFO for the quarter ended March 31, 2022 of $3.7 million, or $0.03
per diluted share. The following items impacted Normalized FFO for
the quarter ended March 31, 2023, compared to the corresponding
2022 period:
- $0.24 per diluted share increase in interest and other income,
net;
- $(0.02) per diluted share decrease in same property NOI;
- $(0.02) per diluted share decrease in NOI from properties sold;
and
- $(0.01) per diluted share increase 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 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.
As of March 31, 2023, the company’s cash and cash equivalents
balance was $2.1 billion.
Same property results for the quarter ended March 31,
2023
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 81.6% leased as of March 31,
2023, compared to 82.8% as of December 31, 2022, and 83.3% as of
March 31, 2022.
- The same property portfolio commenced occupancy was 77.0% as of
March 31, 2023, compared to 78.7% as of December 31, 2022, and
79.5% as of March 31, 2022.
- Same property NOI decreased 20.5% when compared to the same
period in 2022, primarily due to the collection of $1.9 million of
a previously reserved receivable in the quarter ended March 31,
2022.
- Same property cash NOI decreased 17.0% when compared to the
same period in 2022, primarily due to the collection of the
previously reserved receivable described above.
- Excluding the collection of the previously reserved receivable,
same property NOI and same property cash NOI decreased 2.7% and
increased 2.3%, respectively, when compared to the same period in
2022.
- The company entered into leases for approximately 60,000 square
feet, including a renewal leases for approximately 37,000 square
feet and new leases for approximately 23,000 square feet.
- The GAAP rental rate on new and renewal leases was 13.8% higher
compared to the prior GAAP rental rate for the same space.
- The cash rental rate on new and renewal leases was 3.6% higher
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 January 1, 2022 through March 31, 2023.
Significant events during the quarter ended March 31,
2023
On February 13, 2023, the company declared a special, one-time
cash distribution of $4.25 per common share, which was paid on
March 9, 2023 to shareholders of record on February 23, 2023.
Earnings Conference Call & Supplemental Operating and
Financial Information
Equity Commonwealth will host a conference call to discuss first
quarter results on Thursday, May 4, 2023, 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 First Quarter 2023 Supplemental Operating and
Financial Information is available in 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 portfolio
is comprised of four properties totaling 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. 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. You can identify
forward-looking statements by the use of forward-looking
terminology, including but not limited to, “may,” “will,” “should,”
“could,” “would,” “expects,” “intends,” “plans,” “anticipates,”
“believes,” “estimates,” “predicts,” or “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, 2023
December 31, 2022
ASSETS
Real estate properties:
Land
$
44,060
$
44,060
Buildings and improvements
364,155
364,063
408,215
408,123
Accumulated depreciation
(171,379
)
(169,530
)
236,836
238,593
Cash and cash equivalents
2,128,688
2,582,222
Rents receivable
15,606
16,009
Other assets, net
18,194
18,061
Total assets
$
2,399,324
$
2,854,885
LIABILITIES AND EQUITY
Accounts payable, accrued expenses and
other
$
19,642
$
25,935
Rent collected in advance
2,815
2,355
Distributions payable
7,795
2,863
Total liabilities
$
30,252
$
31,153
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; 109,701,592 and
109,428,252 shares issued and outstanding, respectively
1,097
1,094
Additional paid in capital
3,976,643
3,979,566
Cumulative net income
3,858,500
3,835,815
Cumulative common distributions
(4,866,401
)
(4,393,522
)
Cumulative preferred distributions
(727,685
)
(725,688
)
Total shareholders’ equity
2,361,417
2,816,528
Noncontrolling interest
7,655
7,204
Total equity
$
2,369,072
$
2,823,732
Total liabilities and equity
$
2,399,324
$
2,854,885
CONDENSED CONSOLIDATED
STATEMENTS OF OPERATIONS
(Unaudited, amounts in thousands,
except per share data)
Three Months Ended
March 31,
2023
2022
Revenues:
Rental revenue
$
14,226
$
15,840
Other revenue (1)
1,350
846
Total revenues
$
15,576
$
16,686
Expenses:
Operating expenses
$
7,256
$
4,533
Depreciation and amortization
4,310
4,412
General and administrative
8,555
8,002
Total expenses
$
20,121
$
16,947
Interest and other income, net
28,376
1,574
Income before income taxes
23,831
1,313
Income tax expense
(1,080
)
(8
)
Net income
$
22,751
$
1,305
Net income attributable to noncontrolling
interest
(66
)
(3
)
Net income attributable to Equity
Commonwealth
$
22,685
$
1,302
Preferred distributions
(1,997
)
(1,997
)
Net income (loss) attributable to
Equity Commonwealth common shareholders
$
20,688
$
(695
)
Weighted average common shares outstanding
— basic (2)
109,720
113,740
Weighted average common shares outstanding
— diluted (2)(3)
111,300
113,740
Earnings per common share attributable to
Equity Commonwealth common shareholders:
Basic
$
0.19
$
(0.01
)
Diluted
$
0.19
$
(0.01
)
(1)
Other revenue is primarily comprised of
parking revenue that does not represent a component of a lease.
(2)
Weighted average common shares outstanding
for the three months ended March 31, 2023 and 2022 includes 113 and
162 unvested, earned RSUs, respectively.
(3)
As of March 31, 2023, we had 4,915 series
D preferred shares outstanding. The series D preferred shares were
convertible into 4,032 common shares as of March 31, 2023 and 3,237
common shares as of March 31, 2022. The series D preferred shares
are anti-dilutive for GAAP EPS for the three months ended March 31,
2023 and 2022.
CALCULATION OF FUNDS FROM
OPERATIONS (FFO) AND NORMALIZED FFO
(Unaudited, amounts in thousands,
except per share data)
Three Months Ended
March 31,
2023
2022
Calculation of FFO
Net income
$
22,751
$
1,305
Real estate depreciation and
amortization
4,299
4,373
FFO attributable to Equity
Commonwealth
27,050
5,678
Preferred distributions
(1,997
)
(1,997
)
FFO attributable to EQC common
shareholders and unitholders
$
25,053
$
3,681
Calculation of Normalized FFO
FFO attributable to EQC common
shareholders and unitholders
$
25,053
$
3,681
Straight-line rent adjustments
279
10
Normalized FFO attributable to EQC
common shareholders and unitholders
$
25,332
$
3,691
Weighted average common shares and units
outstanding — basic (1)
110,044
114,008
Weighted average common shares and units
outstanding — diluted (1)
111,624
114,468
FFO attributable to EQC common
shareholders and unitholders per share and unit — basic
$
0.23
$
0.03
FFO attributable to EQC common
shareholders and unitholders per share and unit — diluted
$
0.22
$
0.03
Normalized FFO attributable to EQC common
shareholders and unitholders per share and unit — basic
$
0.23
$
0.03
Normalized FFO attributable to EQC common
shareholders and unitholders per share and unit — diluted
$
0.23
$
0.03
(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, 2023 and 2022
include 324 and 268 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 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
3/31/2023
12/31/2022
9/30/2022
6/30/2022
3/31/2022
Calculation of Same Property NOI and
Same Property Cash Basis NOI:
Rental revenue
$
14,226
$
14,628
$
13,869
$
14,426
$
15,840
Other revenue (1)
1,350
1,159
1,257
1,115
846
Operating expenses
(7,256
)
(6,986
)
(6,073
)
(6,592
)
(4,533
)
NOI
$
8,320
$
8,801
$
9,053
$
8,949
$
12,153
Straight-line rent adjustments
279
389
(61
)
(100
)
10
Lease termination fees
(177
)
(743
)
(259
)
(177
)
(325
)
Cash Basis NOI
$
8,422
$
8,447
$
8,733
$
8,672
$
11,838
Cash Basis NOI from non-same properties
(2)
(4
)
14
48
27
(1,699
)
Same Property Cash Basis NOI
$
8,418
$
8,461
$
8,781
$
8,699
$
10,139
Non-cash rental income and lease
termination fees from same properties
(102
)
354
320
277
315
Same Property NOI
$
8,316
$
8,815
$
9,101
$
8,976
$
10,454
Reconciliation of Same Property NOI to
GAAP Net Income:
Same Property NOI
$
8,316
$
8,815
$
9,101
$
8,976
$
10,454
Non-cash rental income and lease
termination fees from same properties
102
(354
)
(320
)
(277
)
(315
)
Same Property Cash Basis NOI
$
8,418
$
8,461
$
8,781
$
8,699
$
10,139
Cash Basis NOI from non-same properties
(2)
4
(14
)
(48
)
(27
)
1,699
Cash Basis NOI
$
8,422
$
8,447
$
8,733
$
8,672
$
11,838
Straight-line rent adjustments
(279
)
(389
)
61
100
(10
)
Lease termination fees
177
743
259
177
325
NOI
$
8,320
$
8,801
$
9,053
$
8,949
$
12,153
Depreciation and amortization
(4,310
)
(4,634
)
(4,451
)
(4,313
)
(4,412
)
General and administrative
(8,555
)
(7,137
)
(7,593
)
(7,646
)
(8,002
)
Interest and other income, net
28,376
24,263
15,145
5,963
1,574
Gain on sale of properties, net
—
7
90
—
—
Income before income taxes
$
23,831
$
21,300
$
12,244
$
2,953
$
1,313
Income tax expense
(1,080
)
(372
)
(23
)
(50
)
(8
)
Net income
$
22,751
$
20,928
$
12,221
$
2,903
$
1,305
(1)
Other revenue is primarily comprised of
parking revenue that does not represent a component of a lease.
(2)
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 January 1, 2022 through March 31, 2023. The
year-to-date same property versions of these measures include the
results of properties continuously owned from January 1, 2022
through March 31, 2023. 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 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/20230503005700/en/
Bill Griffiths (312) 646-2801 ir@eqcre.com
Equity Commonwealth (NYSE:EQC)
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