Reports Net Loss of $0.20 per Diluted
Share
Reports Second Quarter FFO, Excluding
Certain Items, of $0.43 Per Diluted Share
Increases 2016 Guidance for FFO, Excluding
Certain Items, Per Diluted Share
TIER REIT, Inc. (NYSE: TIER), a Dallas-based real estate
investment trust that specializes in owning and operating
best-in-class office properties in select U.S. markets, today
announced financial and operating results for the second quarter
ended June 30, 2016.
Second Quarter 2016 Highlights
- Reported net loss of $0.20 per diluted
share for the second quarter 2016, as compared to $0.02 per diluted
share for the second quarter 2015
- Reported Funds from Operations (FFO),
excluding certain items, for the second quarter 2016 of $0.43 per
diluted share, as compared to $0.34 per diluted share for the
second quarter 2015
- Announced Same Store Cash NOI for the
second quarter 2016 of $28.2 million, as compared to $26.5 million
for the second quarter 2015, an increase of 6.5%
- Sold FOUR40, a 39-story office building
in Chicago, Illinois, for $191 million, utilizing net proceeds to
pay off debt
“We are very pleased with our second quarter results as well as
our year to date progress on the strategic goals we have outlined,”
stated Scott Fordham, Chief Executive Officer and President of TIER
REIT. “We exited the Chicago market with our sale of FOUR40 in
June, utilizing the proceeds to repay debt, and we anticipate
completing additional dispositions outside of our target growth
markets totaling up to $250 million prior to year-end.”
“Our high quality portfolio is performing in line with our
expectations and we continue to make progress in addressing our
2017 Houston lease expirations,” added Mr. Fordham. “Year to date,
we have completed leases for over 120,000 square feet of space in
Houston that was otherwise set to expire in 2017. As a result of
our strong performance, we have increased our full year guidance
for FFO, excluding certain items, and remain on track to execute on
our strategy through the remaining half of 2016, which we believe
will yield meaningful benefits in the years to come.”
Second Quarter Financial Results
Net loss attributable to common stockholders was $9.4 million,
or $0.20 per diluted share for the quarter ended June 30,
2016, as compared to $1.2 million, or $0.02 per diluted share, for
the quarter ended June 30, 2015.
NAREIT-defined FFO attributable to common stockholders for the
quarter ended June 30, 2016, was $18.1 million, or $0.38 per
diluted share, as compared to $(18.1) million, or $(0.36) per
diluted share, for the quarter ended June 30, 2015. FFO
attributable to common stockholders, excluding certain items, for
the quarter ended June 30, 2016, was $20.7 million, or $0.43
per diluted share, as compared to $17.2 million, or $0.34 per
diluted share, for the quarter ended June 30, 2015.
Leasing Update
Occupancy was 90.4% at June 30, 2016, an increase of 150
basis points from March 31, 2016. The sale of FOUR40 increased
occupancy by 170 basis points, which was partially offset by an
expected decrease in occupancy in the remaining portfolio of 20
basis points due to known tenant move-outs.
During the second quarter of 2016, the Company leased 193,000
square feet, which included 61,000 square feet of renewals, 35,000
square feet of expansion space, and 97,000 square feet of new
leasing.
Dispositions
On June 17, 2016, FOUR40, a 39-story office building in Chicago,
Illinois, was sold for $191.0 million. The Company is entitled to
an additional payment of up to $12.5 million subject to future
performance of the property. The sale of FOUR40 marks the Company’s
exit from the Chicago market.
Financing and Capital Markets Activity
During the second quarter of 2016, the Company paid off (without
penalty) the $23.2 million loan secured by Plaza at MetroCenter
that was scheduled to mature in July 2016. This loan had an
effective interest rate of 6.14%. In addition, the Company paid off
$108.0 million outstanding balance on its revolving line of credit
with proceeds from the sale of FOUR40. As of June 30, 2016,
borrowings of $126.4 million were available under the credit
facility.
Subsequent to quarter end, the Company paid off (without
penalty) the $62.8 million loan secured by Three Parkway that was
scheduled to mature in November 2016. This loan had an effective
interest rate of 5.55%.
Distributions
For the second quarter of 2016, 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 June 30, 2016, which was paid on July 8, 2016.
On August 4, 2016, the Company’s board of directors authorized a
distribution for the third quarter of 2016 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, 2016, payable on October 7,
2016.
2016 Outlook
The Company is narrowing its 2016 outlook for NAREIT-defined FFO
as well as increasing its 2016 outlook for FFO, excluding certain
items. This updated outlook reflects management’s view of current
and future market conditions, including assumptions such as
disposition activity, rental rates, occupancy levels, operating and
general and administrative expenses, weighted average diluted
shares outstanding, and interest rates.
The Company’s updated 2016 outlook and assumptions are as
follows:
Previous 2016 Guidance
Updated 2016 Guidance NAREIT-defined FFO
$1.51 - $1.57 $1.52 -
$1.56 FFO, excluding certain items $1.51 -
$1.57 $1.56 - $1.60 Dispositions of
non-strategic properties $200 - $400 million
$300 - $500 million Same Store Cash NOI growth
1.0% - 3.0% 2.0% - 3.0%
Same Store GAAP NOI growth 1.0% - 3.0%
1.0% - 2.0% Straight line rent and lease incentive
revenue $11.0 - $13.0 million
$9.5 - $11.0 million Lease termination fees
$1.0 - $2.0 million $1.5 - $2.0 million
Above- and below-market rent amortization $4.4
- $5.0 million $4.4 - $5.0 million General
& administrative expenses, excluding certain items
$23.5 - $24.5 million $23.5 -
$24.5 million Year-end occupancy 89.5% - 90.5%
89.5% - 90.5% Weighted avg shares of common
stock outstanding 47.9 million
47.9 million
Supplemental Information
A copy of the Company’s supplemental information regarding its
financial results and operations for the quarter ended
June 30, 2016, is available in the “Investor Relations”
section of the Company’s website at www.tierreit.com. A copy may
also be obtained by contacting the Investor Relations department by
email to ir@tierreit.com.
Conference Call
A conference call will be held on Tuesday, August 9, 2016, at
11:00 AM Eastern time / 10:00 AM 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 CallDial in at
least five minutes prior to start time.Domestic Call-In
Number: 877.407.0789International Call-In Number:
201.689.8562
Conference Call PlaybackCall-in Number:
877.870.5176International: 858.384.5517Passcode: 13641377The audio
playback can be accessed through August 23, 2016.
About TIER REIT, Inc.
TIER REIT, Inc. is a self-managed, Dallas-based real estate
investment trust focused on delivering outsized stockholder return
through stock price appreciation and dividend growth while offering
unparalleled tenant service. 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 both population and office-using employment growth. Within these
markets, we target TIER1 submarkets, which are primarily urban and
amenity-rich locations. For additional information regarding TIER
REIT, please visit www.tierreit.com or call 972.483.2400.
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, our intentions with respect to development activity,
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,” “will,”
“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, 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)
June 30,2016
December 31,2015
Assets Real estate Land $ 159,736 $ 179,989 Land held
for development 45,059 45,059 Buildings and improvements, net
1,108,255 1,348,200 Real estate under development 7,725
—
Total real estate 1,320,775 1,573,248
Cash and cash equivalents 78,599 12,248 Restricted cash 10,778
10,712 Accounts receivable, net 66,328 76,228 Prepaid expenses and
other assets 5,356 6,712 Investments in unconsolidated entities
77,606 88,998 Deferred financing fees, net 2,999 3,111 Lease
intangibles, net 68,338 83,548 Other intangible assets, net
9,887 10,086
Total assets $ 1,640,666
$ 1,864,891
Liabilities and equity
Liabilities Notes payable, net $ 901,295 $ 1,071,571
Accounts payable and accrued liabilities 61,721 71,597 Payables to
related parties — 292 Acquired below-market leases, net 8,961
11,934 Distributions payable 8,601 8,596 Other liabilities
35,170 23,082
Total liabilities
1,015,748 1,187,072
Commitments and
contingencies Series A Convertible Preferred Stock —
2,700
Equity Preferred stock, $.0001 par value per share;
17,500,000 and 17,490,000 shares authorized at June 30, 2016, and
December 31, 2015, respectively, 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, 47,412,705 and 47,362,372 shares
issued and outstanding at June 30, 2016, and December 31, 2015,
respectively 5 5 Additional paid-in capital 2,604,614 2,600,193
Cumulative distributions and net loss attributable to common
stockholders (1,961,968 ) (1,922,721 ) Accumulated other
comprehensive loss (19,262 ) (3,860 )
Stockholders’ equity 623,389 673,617
Noncontrolling
interests 1,529 1,502
Total
equity 624,918 675,119
Total
liabilities and equity $ 1,640,666 $ 1,864,891
TIER REIT, Inc. Condensed Consolidated
Statements of Operations and Comprehensive Income (Loss) (in
thousands, except share and per share amounts)
(unaudited) Three Months Ended
June 30, 2016 June 30, 2015 Rental
revenue $ 64,267 $ 70,038
Expenses
Property operating expenses 19,805 20,877 Interest expense 13,447
15,460 Real estate taxes 9,429 10,198 Property management fees 226
2,105 General and administrative 5,820 19,470 Depreciation and
amortization 30,797 31,081
Total
expenses 79,524 99,191 Interest and
other income 344 141 Loss on early extinguishment of debt —
(21,412 )
Loss from continuing operations before
income taxes, equity in operations of investments, and gain on sale
of assets
(14,913 ) (50,424 ) Provision for income taxes (281 ) (1,338 )
Equity in operations of investments 823 69
Loss from continuing operations before gain on sale of
assets (14,371 ) (51,693 )
Discontinued
operations Loss from discontinued operations — (121 ) Gain on
sale of discontinued operations — 6,077
Discontinued operations — 5,956
Gain on sale of assets 5,010 44,564
Net loss (9,361 ) (1,173 ) Noncontrolling interests in
continuing operations 9 33 Noncontrolling interests in discontinued
operations — (11 )
Net loss attributable to
common stockholders $ (9,352 ) $ (1,151 )
Basic and diluted
weighted average common shares outstanding 47,405,767
49,893,330
Basic and diluted earnings (loss) per common
share: Continuing operations $ (0.20 ) $ (0.14 ) Discontinued
operations — 0.12
Basic and diluted
loss per common share $ (0.20 ) $ (0.02 )
Distributions declared per common share $ 0.18 $ 0.18
Net income (loss) attributable to common
stockholders: Continuing operations $ (9,352 ) $ (7,096 )
Discontinued operations — 5,945
Net
loss attributable to common stockholders $ (9,352 ) $ (1,151 )
Comprehensive income (loss): Net loss $ (9,361 ) $ (1,173 )
Other comprehensive income (loss): unrealized income (loss) on
interest rate derivatives (2,532 ) 6,146
Comprehensive income (loss) (11,893 ) 4,973 Comprehensive
loss attributable to noncontrolling interests 11
11
Comprehensive income (loss) attributable to
common stockholders $ (11,882 ) $ 4,984
Calculation of FFO and FFO, excluding certain items (in
thousands, except per share amounts)
Three Months Ended June 30, 2016
June 30, 2015 Net loss $ (9,361 ) $ (1,173 ) Net loss
attributable to noncontrolling interests 9 22
Net loss attributable to common stockholders (9,352 ) (1,151
)
Adjustments
(1):
Real estate depreciation and amortization from consolidated
properties 30,519 31,081 Real estate depreciation and amortization
from unconsolidated properties 2,005 1,367 Gain on sale of
depreciable real estate (5,010 ) (50,641 ) Taxes associated with
sale of depreciable real estate — 1,264 Noncontrolling interests
(18 ) 29 FFO attributable to common
stockholders 18,144 (18,051 ) Acquisition expenses — 1,193
Tender offer and listing costs — 2,488 Interest rate hedge
ineffectiveness expense (2) 1,941 — Loss on early extinguishment of
debt — 21,412 Default interest (3) 616 — BHT Advisors termination
fee and HPT Management buyout fee — 10,200 Noncontrolling interests
(1 ) (61 ) FFO attributable to common stockholders,
excluding certain items $ 20,700 $ 17,181 Weighted
average common shares outstanding - basic 47,406 49,893 Weighted
average common shares outstanding - diluted (4) 47,826 50,085 Net
loss per common share - basic and diluted (4) $ (0.20 ) $ (0.02 )
FFO per common share - diluted $ 0.38 $ (0.36 ) FFO, excluding
certain items, per common share - diluted $ 0.43 $ 0.34
_______________________
(1) Reflects the adjustments of continuing operations, as
well as discontinued operations. (2)
Interest rate swaps are adjusted to fair
value through other comprehensive income (loss). However, because
our interest rate swaps do not have a LIBOR floor while the hedged
debt is subject to a LIBOR floor, the portion of the change in fair
value of our interest rate swaps attributable to this mismatch is
reclassified to interest rate hedge ineffectiveness expense.
(3) We have 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. Although there can be no assurance,
we anticipate that when this property is sold or when ownership of
this property is conveyed to the lender, this default interest will
be forgiven. (4) There are no dilutive securities for purposes of
calculating net loss or negative FFO per common share.
Same Store GAAP NOI and Same Store Cash NOI (in
thousands, except percentages) Three
Months Ended June 30, 2016 June 30,
2015 Same Store Revenue: Rental revenue $ 51,142 $ 51,168 Less:
Lease termination fees (667 ) (125 ) 50,475
51,043 Same Store Expenses: Property
operating expenses (less tenant improvement demolition costs)
15,053 13,648 Real estate taxes 7,148 7,090 Property management
fees 140 1,519 Property Expenses
22,341 22,257 Same Store GAAP NOI -
consolidated properties 28,134 28,786 Same Store GAAP NOI -
unconsolidated properties (at ownership %) 2,727
2,137 Same Store GAAP NOI 30,861 30,923
Increase (decrease) in Same Store GAAP NOI (0.2 )% Less:
Straight-line rent revenue adjustment (1,438 ) (2,652 )
Amortization of above- and below-market rents, net (852 )
(1,512 ) Same Store Cash NOI - consolidated properties
25,844 24,622 Same Store Cash NOI - unconsolidated properties (at
ownership %) 2,391 1,881 Same Store
Cash NOI $ 28,235 $ 26,503 Increase in Same
Store Cash NOI 6.5 % Reconciliation of net loss to
Same Store GAAP NOI and Same Store Cash NOI Net loss $ (9,361 ) $
(1,173 ) Adjustments: Interest expense 13,447 15,460 Tenant
improvement demolition costs 76 80 General and administrative 5,820
19,470 Depreciation and amortization 30,797 31,081 Interest and
other income (344 ) (141 ) Loss on early extinguishment of debt —
21,412 Provision for income taxes 281 1,338 Equity in operations of
investments (823 ) (69 ) Loss from discontinued operations — 121
Gain on sale of discontinued operations — (6,077 ) Gain on sale of
assets (5,010 ) (44,564 ) Net operating income of non-same store
properties (6,082 ) (8,027 ) Lease termination fees (667 ) (125 )
Same store GAAP NOI unconsolidated properties (at ownership %)
2,727 2,137 Same Store GAAP NOI 30,861
30,923 Straight-line rent revenue adjustment (1,438 ) (2,652 )
Amortization of above- and below-market rents, net (852 ) (1,512 )
Cash NOI adjustments for unconsolidated properties (at ownership %)
(336 ) (256 ) Same Store Cash NOI $ 28,235 $
26,503
Non-GAAP Financial Measures
We compute our financial results in accordance with accounting
principles generally accepted in the United States of America
(GAAP). Although Funds from Operations and Funds from Operations,
excluding certain items, 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, excluding certain items. The items
excluded relate to certain non-operating activities or certain
non-recurring activities that may 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 as indicators 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,
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 interpret it differently, or that identify and
exclude different items related to non-operating activities or
certain non-recurring activities.
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
office properties owned and operated for the entirety of both
periods being compared and include our comparable 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 both periods
being compared and therefore eliminate variations caused by
acquisitions or dispositions during such periods.
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 an indicator of our
ability to make distributions, as alternatives to net income (loss)
as an indication of our performance, or as a measure of cash flows
or liquidity.
View source
version on businesswire.com: http://www.businesswire.com/news/home/20160808006159/en/
TIER REIT, Inc.Scott McLaughlin,
972-483-2465smclaughlin@tierreit.com
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