TIER Tier Reit, Inc.

Reports FFO Excluding Certain Items of $0.42 Per Diluted Share

TIER REIT, Inc. (NYSE: TIER), a Dallas-based real estate investment trust that specializes in acquiring, developing and operating office properties located in select U.S. markets, today announced financial results for the quarter ended September 30, 2015.

Highlights for the Quarter Ended September 30, 2015

• Reported FFO attributable to common stockholders of $18.9 million, or $0.39 per diluted share, an increase of 10.5% as compared to $17.1 million for the third quarter of 2014.
• Reported FFO attributable to common stockholders, excluding certain items of $20.7 million, or $0.42 per diluted share, an increase of 15.0% as compared to $18.0 million for the third quarter of 2014.
• Achieved Same Store GAAP NOI of $35.9 million, an increase of 10.2% as compared to $32.5 million for the third quarter of 2014.
• Reported a net loss attributable to common stockholders of $13.8 million, or $0.28 per diluted share, compared to a net loss attributable to common stockholders of $16.4 million, or $0.33 per diluted share, for the third quarter of 2014.
• Completed approximately 338,000 square feet of leasing, including approximately 163,000 square feet of new and expansion leasing.
• Acquired various real estate interests in The Domain (Austin, Texas) for a contract purchase price of $201.1 million, and subsequently sold certain non-office interests for a total of $37.0 million.
• Reduced weighted average borrowing cost by an additional 29 basis points to 4.14%.
• Completed the listing of the Company’s shares of common stock on the New York Stock Exchange (NYSE) under the ticker symbol “TIER.”

“Our high quality, diversified portfolio delivered strong results in the third quarter, highlighted by a 15.0% increase in FFO attributable to common stockholders, excluding certain items, and a 10.2% increase in Same Store GAAP NOI. In July, we successfully completed the listing of our shares on the NYSE, which we believe will provide us access to additional capital and allow us to execute our long term strategy,” stated Scott Fordham, Chief Executive Officer and President of TIER REIT. “Going forward, we intend to drive growth by leasing up our existing portfolio, selling assets in markets we consider non-strategic and redeploying the proceeds into best-in-class assets in our target, high growth markets as we identify strategic opportunities to create value for our stockholders. Additionally, we intend to continue to enhance our financial flexibility and lower our cost of capital by repaying higher priced CMBS debt as we did this quarter. We believe we have an unparalleled opportunity to create long term value for our stockholders.”

Financial Results

Funds from Operations (FFO) attributable to common stockholders for the quarter ended September 30, 2015, was $18.9 million, or $0.39 per diluted share, an increase of 10.5% as compared to $17.1 million, or $0.34 per diluted share, for the quarter ended September 30, 2014. FFO attributable to common stockholders, excluding certain items for the quarter ended September 30, 2015, was $20.7 million, or $0.42 per diluted share, an increase of 15.0%, as compared to $18.0 million, or $0.36 per diluted share, for the quarter ended September 30, 2014.

Net loss attributable to common stockholders was $13.8 million, or $0.28 per basic and diluted share for the quarter ended September 30, 2015, as compared to a net loss attributable to common stockholders of $16.4 million, or $0.33 per basic and diluted share, for the quarter ended September 30, 2014.

FFO attributable to common stockholders, excluding certain items, excludes costs associated with acquisition expenses, loss on early extinguishment of debt, default interest, and dilution of Series A Convertible Preferred Stock, as well as non-recurring items, such as fees paid to terminate third party property management and administrative services and costs associated with listing the Company’s shares of common stock on the NYSE and the related tender offer.

Leasing Update

During the third quarter of 2015, the Company entered into leases for 338,000 square feet with an average lease term of 6.8 years, which included 175,000 square feet of renewals, 41,000 square feet of expansion space, and 122,000 square feet of new leasing. Significant leases included a 63,000 square foot lease with Travelers Insurance at Lawson Commons, a 64,000 square foot lease with CohnReznick at 500 E. Pratt, and a 41,000 square foot lease with Carewise Health at Hurstbourne Park.

Occupancy at the Company’s 35 operating office properties was 89.4% at September 30, 2015, compared to occupancy of 87.7% for those properties at September 30, 2014. Occupancy at the Company’s operating office properties in strategic markets was 91.9% at September 30, 2015. As of September 30, 2015, the Company had approximately 629,000 square feet of commenced leases that were in free rent, as well as approximately 93,000 square feet of executed leases yet to commence for currently vacant space.

Acquisition/Disposition Activity

In July 2015, the Company acquired various real estate interests in both existing operating properties and unimproved land in The Domain (Austin, Texas), a premier mixed-use development, for a contract purchase price of $201.1 million. The transaction included the acquisition of two Class A, creative-space office buildings totaling 332,000 square feet, a 49.84% interest in two additional Class A office buildings totaling 337,000 square feet, various land parcels totaling approximately 24 acres (exclusive of parcels sold) for future office development, land parcels zoned for multifamily development, and a deposit for an interest in a multifamily residential property. The Company subsequently sold the parcels zoned for multifamily development for approximately $22.0 million to an unrelated third party and completed the acquisition of the multifamily property for approximately $15.0 million and concurrently sold it to an unrelated third party for approximately $15.0 million.

Financing and Capital Markets Activity

In July 2015, the Company listed its shares of common stock on the NYSE under the ticker symbol “TIER.” In conjunction with the listing, the Company commenced a modified “Dutch Auction” tender offer, through which it purchased a total of approximately 2.63 million shares of common stock for an aggregate cost of approximately $50.0 million, excluding fees and expenses related to the tender offer. At September 30, 2015, the Company had 47.2 million shares of common stock outstanding.

During the third quarter of 2015, the Company paid off the $42.0 million loan secured by its Loop Central property and further reduced its weighted average interest rate by 29 basis points. As of September 30, 2015, the Company had $101.0 million outstanding under its credit facility with an additional $66.3 million of available borrowing capacity. At quarter end, the Company’s total debt (including the Company’s share of unconsolidated debt) was $1.2 billion, comprised of 84.0% fixed rate debt (including the effect of in-place interest rate swaps) and 16.0% variable rate debt, with a total weighted average effective interest rate of 4.14%.

Distributions

For the third quarter of 2015, the Company’s board of directors authorized a distribution in the amount of $0.18 per share on its common stock to stockholders of record as of the close of business on September 30, 2015, which was paid on October 8, 2015.

On November 3, 2015, the Company’s board of directors authorized a distribution for the fourth quarter of 2015 in the amount of $0.18 per share on its common stock to stockholders of record as of the close of business on December 30, 2015, payable on January 8, 2015.

2015 Outlook

The Company updated its outlook for 2015 FFO attributable to common stockholders at $0.77 to $0.79 per share and its outlook for 2015 FFO attributable to common stockholders, excluding certain items, at $1.52 to $1.54 per share. This outlook reflects management’s view of current and future market conditions, including assumptions such as rental rates, occupancy levels, operating and general and administrative expenses, weighted average diluted shares and units outstanding, interest rates, and the pending dispositions of Paces West (Atlanta, Georgia) and Fifth Third Center (Columbus, Ohio). This outlook does not include any effects related to other potential acquisitions and dispositions that may occur after the date of this release. Factors that could cause actual 2015 FFO attributable to common stockholders to differ materially from the Company’s current expectations are discussed below.

2015 Outlook includes the following assumptions (in thousands, except share amounts and percentages):

    Low     High Same Store Cash NOI growth, excluding lease termination fees 2.8 % 3.3 % Same Store GAAP NOI growth, excluding lease termination fees 5.5 % 6.0 % Lease termination fees $ 2,800 $ 3,000 Straight-line rental income, at ownership share $ 12,800 $ 13,000 Above- and below-market rent amortization, at ownership share $ 6,400 $ 6,600 General and administrative expenses, including certain other items $ 42,200 $ 42,000 Dispositions $ 550,000 $ 600,000 Acquisitions $ 200,000 $ 200,000 Year-end occupancy 88.9 % 89.5 % Weighted average diluted shares and units outstanding (in millions) 49.2 49.2   Certain other items included in general and administrative expenses: BHT Advisors termination fee and HPT Management buyout fee $ 10,300 $ 10,300 Acquisition expenses $ 1,450 $ 1,450 Common stock listing and related tender offer expenses $ 5,550 $ 5,550   Certain other items not included in general and administrative expenses: Acquisition expenses $ 399 $ 399 Loss on early extinguishment of debt $ 21,700 $ 21,700  

Supplemental Information

A copy of the Company’s third quarter 2015 supplemental information regarding its financial results and operations for the quarter ended September 30, 2015, is available in the “Investor Relations” section of the Company’s website at www.tierreit.com. You may also obtain a copy by contacting the Investor Relations department by email to ir@tierreit.com.

Conference Call

A conference call will be held on Thursday, November 5, 2015, at 11:00 a.m. Eastern time/10:00 a.m. Central time. TIER REIT will host the conference call to discuss matters related to the Company’s financial results and operating performance, as well as business highlights and outlook. In addition, the Company may discuss business and financial developments and trends and other matters affecting the Company, some of which may not have been previously disclosed. A live audio webcast can be accessed through the Company’s website at www.tierreit.com under the “Investor Relations” section. A replay of the call will also be available on the website for 30 days.

To Participate in the Telephone Conference Call

Dial in at least five minutes prior to start time. Domestic Call-In Number: 1-855-327-6837 International Call-In Number: 1-631-891-4304  

Conference Call Playback

Call-in Number: 1-877-870-5176 International: 1-858-384-5517 Passcode: 116954 The audio playback can be accessed through November 19, 2015.  

About TIER REIT, Inc.

TIER REIT, Inc. is a self-managed, Dallas, Texas-based real estate investment trust focused on maximizing total return to stockholders through the combination of stock appreciation and income derived from a sustainable distribution. TIER REIT’s investment strategy is to acquire, develop and operate a portfolio of best-in-class office properties in select U.S. markets that consistently lead the nation in population and office-using employment growth.

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 sell certain properties, 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,” “anticipates,” “expects,” “intends,” “plans,” “believes,” “seeks,” “estimates,” “would,” “could,” “should,” “objectives,” “strategies,” “goals,” 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, 2014, and Form 10-Q for the fiscal quarter ended September 30, 2015. 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 30,2015

   

December 31,2014

Assets Real estate Land $ 184,318 $ 286,430 Land held for development 44,834 — Buildings and improvements, net   1,361,270     1,482,336   Total real estate 1,590,422 1,768,766 Cash and cash equivalents 7,769 31,442 Restricted cash 16,615 35,324 Accounts receivable, net 74,817 83,380 Prepaid expenses and other assets 22,875 7,129 Investments in unconsolidated entities 85,377 39,885 Deferred financing fees, net 12,826 10,783 Lease intangibles, net 85,869 94,690 Other intangible assets, net 10,185 2,144 Assets associated with real estate held for sale   —     137,640   Total assets $ 1,906,755   $ 2,211,183   Liabilities and equity Liabilities Notes payable $ 1,089,629 $ 1,194,085 Accounts payable 1,477 2,790 Payables to related parties 302 2,041 Accrued liabilities 72,719 77,375 Acquired below-market leases, net 13,321 16,984 Distributions payable 8,556 — Other liabilities 30,642 21,405 Obligations associated with real estate held for sale   —     108,343   Total liabilities   1,216,646     1,423,023   Commitments and contingencies Series A Convertible Preferred Stock 2,700 4,626 Equity Preferred stock, $.0001 par value per share; 17,490,000 shares authorized, 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, 47,241,851 and 49,877,350 shares issued and outstanding at September 30, 2015, and December 31, 2014, respectively (1) 5 5 Additional paid-in capital (1) 2,598,333 2,645,927 Cumulative distributions and net loss attributable to common stockholders (1,902,927 ) (1,862,555 )

Accumulated other comprehensive loss

  (10,148 )   (788 ) Stockholders’ equity   685,263     782,589   Noncontrolling interests   2,146     945   Total equity   687,409     783,534   Total liabilities and equity $ 1,906,755   $ 2,211,183   (1)   Amounts have been adjusted retroactively to reflect a one-for-six reverse stock split effected June 2, 2015.     TIER REIT, Inc. Condensed Consolidated Statements of Operations and Comprehensive Loss (in thousands, except share and per share amounts)

(unaudited)

      Three Months Ended

September 30,2015

   

September 30,2014

Rental revenue $ 69,423   $ 72,157   Expenses Property operating expenses 21,290 22,464 Interest expense 12,765 16,706 Real estate taxes 9,670 11,272 Property management fees 342 2,229 General and administrative 10,123 4,515 Depreciation and amortization   31,446     29,885   Total expenses   85,636     87,071   Interest and other income 267 88 Loss on early extinguishment of debt   (30 )   —   Loss from continuing operations before income taxes, equity in operations of investments, and loss on sale of assets (15,976 ) (14,826 ) Provision for income taxes (36 ) (36 ) Equity in operations of investments   (159 )   431   Loss from continuing operations before loss on sale of assets   (16,171 )   (14,431 ) Discontinued operations Income (loss) from discontinued operations 21 (5,975 ) Gain on sale of discontinued operations   403     4,026   Discontinued operations   424     (1,949 ) Loss on sale of assets   (85 )   —   Net loss (15,832 ) (16,380 ) Noncontrolling interests in continuing operations 58 34 Noncontrolling interests in discontinued operations (1 ) (9 ) Dilution of Series A Convertible Preferred Stock   1,926     —   Net loss attributable to common stockholders $ (13,849 ) $ (16,355 ) Basic and diluted weighted average common shares outstanding (1) 48,842,711 49,877,350 Basic and diluted income (loss) per common share: (1) Continuing operations $ (0.29 ) $ (0.29 ) Discontinued operations   0.01     (0.04 ) Basic and diluted loss per common share $ (0.28 ) $ (0.33 )   Distributions declared per common share (1) $ 0.18   $ —     Net income (loss) attributable to common stockholders: Continuing operations $ (14,272 ) $ (14,397 ) Discontinued operations   423     (1,958 ) Net loss attributable to common stockholders $ (13,849 ) $ (16,355 ) Comprehensive loss: Net loss $ (15,832 ) $ (16,380 ) Other comprehensive loss: unrealized loss on interest rate derivatives   (10,966 )   —   Comprehensive loss (26,798 ) (16,380 ) Comprehensive loss attributable to noncontrolling interests   76     25   Comprehensive loss attributable to common stockholders $ (26,722 ) $ (16,355 ) (1)   Amounts have been adjusted retroactively to reflect a one-for-six reverse stock split effected June 2, 2015.    

TIER REIT, Inc.

Calculation of FFO and FAD (in thousands, except per share data)       Three Months Ended

Funds from operations (FFO)

30-Sep-15     30-Sep-14   Net loss $ (15,832 ) $ (16,380 ) Net loss attributable to noncontrolling interests 57 25 Dilution of Series A Convertible Preferred Stock 1,926 — Adjustments (1): Real estate depreciation and amortization - consolidated 31,217 36,245 Real estate depreciation and amortization - unconsolidated joint ventures 1,904 1,275 Real estate depreciation and amortization - noncontrolling interest (10 ) —

Gain on sale of depreciable real estate

(318 ) (4,026 )

Taxes associated with sale of depreciable real estate

(5 ) — Noncontrolling interests (OP units & vested restricted stock units) share of above adjustments   (56 )   (68 ) FFO attributable to common stockholders $ 18,883   $ 17,071    

FFO, excluding certain items

FFO attributable to common stockholders $ 18,883 $ 17,071 Adjustments (1): Acquisition expenses 642 4 Tender offer and listing costs 2,562 — Loss on early extinguishment of debt 127 946 Non-cash default interest (2) 355 — BHT Advisors termination fee and HPT Management buyout fee 101 — Noncontrolling interests (OP units & vested restricted stock units) share of above adjustments (7 ) (1 ) Dilution of Series A Convertible Preferred Stock   (1,926 )   —   FFO attributable to common stock holders, excluding certain items $ 20,737   $ 18,020    

Funds available for distribution (FAD)

FFO attributable to common stock holders $ 18,883 $ 17,071 Adjustments (1): Recurring capital expenditures (13,795 ) (16,056 ) Straight-line rent adjustments (2,525 ) (411 ) Above- and below-market rent amortization (2,139 ) (827 ) Amortization of deferred financing fees and mark to market 930 831 Amortization of restricted shares and units 505 369 Acquisition expenses 642 4 Tender offer and listing costs 2,562 — Loss on early extinguishment of debt 127 946 Default interest 355 — BHT Advisors termination fee and HPT Management buyout fee 101 — Depreciation and amortization - non-real estate assets 229 — Noncontrolling interests (OP units & vested restricted stock units) share of above adjustments 5 31 Dilution of Series A Convertible Preferred Stock   (1,926 )   —   FAD attributable to common stockholders $ 3,954   $ 1,958     Weighted average common shares outstanding - basic (3) 48,843 49,877 Weighted average common shares outstanding - diluted (3) 49,034 49,996  

Diluted FFO per common share (3)

$ 0.39 $ 0.34

Diluted FFO, excluding certain items per common share (3)

$ 0.42 $ 0.36

Diluted FAD per common share (3)

$ 0.08 $ 0.04

(1)

 

Adjustments represent our pro rata share of consolidated and unconsolidated amounts, including discontinued operations.

(2)

As of September 30, 2015, we had 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. Based on our previous experience, we anticipate that when ownership of the property is conveyed to the lender, this default interest will be forgiven.

(3)

All periods presented have been adjusted to reflect the one-for-six reverse stock split that occurred on June 2, 2015.

   

TIER REIT, Inc.

Calculation of Same-Store GAAP NOI and Same Store Cash NOI (in thousands)       Three Months Ended

September 30,2015

   

September 30,2014

Same Store Revenue: Rental revenue $ 63,394 $ 60,331 Less: Lease termination fees   (2,018 )   (919 )   61,376     59,412     Same Store Expenses: Property operating expenses (less tenant improvement demolition costs) 19,282 17,930 Real estate taxes 8,731 9,638 Property management fees   256     1,871   Property Expenses   28,269     29,439   Same Store GAAP NOI - consolidated properties 33,107 29,973 Same Store GAAP NOI - unconsolidated properties (at ownership %)   2,750     2,571   Same Store GAAP NOI 35,857 32,544   Less: Straight-line rent revenue adjustment (1,368 ) (618 ) Amortization of above- and below-market rents, net   (1,476 )   (572 ) Same Store Cash NOI consolidated properties $ 30,263 $ 28,783 Same Store Cash NOI - unconsolidated properties (at ownership %)   2,455     2,408   Same Store Cash NOI $ 32,718   $ 31,191       Reconciliation of net loss to Same Store GAAP NOI and Same Store Cash NOI Net loss $ (15,832 ) $ (16,380 ) Adjustments: Interest expense 12,765 16,706 Tenant improvement demolition costs 106 244 General and administrative 10,123 4,515 Depreciation and amortization 31,446 29,885 Interest and other income (267 ) (88 ) Loss on early extinguishment of debt 30 — Provision for income taxes 36 36 Equity in operations of investments 159 (431 ) (Income) loss from discontinued operations (21 ) 5,975 Gain on sale of discontinued operations (403 ) (4,026 ) Loss on sale of assets 85 — Net operating income of non-same store properties (3,102 ) (5,544 ) Lease termination fees (2,018 ) (919 ) Same store GAAP NOI unconsolidated properties (at ownership %)   2,750     2,571   Same Store GAAP NOI 35,857 32,544 Straight-line rent revenue adjustment (1,368 ) (618 ) Amortization of above- and below-market rents, net (1,476 ) (572 ) Cash NOI adjustments for unconsolidated properties (at ownership %)   (295 )   (163 ) Same Store Cash NOI $ 32,718   $ 31,191      

Non-GAAP Supplemental Financial Measures

We compute our financial results in accordance with generally accepted accounting principles (GAAP). Although Funds from Operations; Funds from Operations, excluding certain items; Funds Available for Distribution; Same Store GAAP NOI; and Same Store Cash NOI 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 which 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 attributable to common stockholders, excluding certain items. The items excluded relate to certain non-operating activities or certain non-recurring activities that create significant FFO volatility. 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 indications 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 not useful measures in evaluating net asset value because impairments are taken into account in determining net asset value but not in determining FFO and FFO, excluding certain items. 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, attributable to common stockholders 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 that interpret it differently.

Funds Available for Distribution (FAD)

FAD is a non-GAAP financial measure that we define as FFO, excluding fair value mark to market adjustments, non-real estate depreciation and amortization, non-cash stock-based compensation expense, accretion or dilution of Series A preferred stock, the amortization of financing costs, realized gains (losses) from the early extinguishment of derivatives, acquisition fees and expenses, straight-line rent amounts, amortization of above- or below-market intangible assets and liabilities, gains or losses on early extinguishment of debt, costs associated with our tender offer and NYSE listing, default interest incurred or forgiven, and other non-recurring charges, less recurring capital expenditures, each as adjusted for our pro rata share of consolidated and unconsolidated amounts. Recurring capital expenditures are those capital expenditures, tenant improvements, leasing commissions and deferred lease incentives that are incurred to maintain current in-place rents including the leasing costs incurred to replace tenants upon lease expiration. Recurring capital expenditures exclude non-recurring capital expenditures. Non-recurring capital expenditures are those capital expenditures (1) incurred to change the class or characterization of an asset, (2) identified as deferred capital needs at the acquisition of a property and were incurred within a reasonable period of time subsequent to the property’s acquisition, or (3) incurred for tenant improvements, leasing commissions, or deferred lease incentives within twelve months of acquisition to lease space that was vacant at acquisition and costs incurred to lease space that has been vacant for at least twelve months. Although our FAD may not be comparable to that of other REITs and real estate companies, we believe it provides a meaningful indicator of our ability to fund our cash needs and to make cash distributions to equity owners.

We believe that net income (loss) is the most directly comparable GAAP financial measure to FAD. FAD does not represent cash generated from operating activities in accordance with GAAP and should not be considered as an alternative to net income (loss) as an indication of our performance or to cash flows as a measure of liquidity or our ability to make distributions.

Same Store GAAP NOI and Same Store Cash NOI

Same Store GAAP 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 GAAP 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 properties owned and operated for the entirety of the current and comparable periods and include our current ownership percentage in each period for properties in which we own an unconsolidated interest. We view Same Store GAAP 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 the current and comparable periods and therefore eliminate variations caused by acquisitions or dispositions during the periods under review.

Same Store GAAP NOI and Same Store Cash NOI presented by us may not be comparable to Same Store GAAP NOI or Same Store Cash NOI reported by other REITs that do not define Same Store GAAP 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 GAAP 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 GAAP NOI and Same Store Cash NOI should not be considered as alternatives to net income (loss) as an indication of our performance or to cash flows as a measure of liquidity or our ability to make distributions.

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TIER REIT, Inc.Kelly Sargent, 972-483-2460ksargent@tierreit.com