Reports Net Loss of $0.02 Per Diluted Common
Share
Reports Third Quarter FFO, Excluding Certain
Items, of $0.38 Per Diluted Common Share
Increases 2016 Guidance for FFO & FFO,
excluding certain items
Announces Domain 8 Development Approximately
94% Pre-Leased
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 third quarter
ended September 30, 2016.
Third Quarter 2016 Highlights
- Reported a net loss of $0.02 per
diluted common share for the third quarter 2016, as compared to a
net loss of $0.28 per diluted common share for the third quarter
2015
- Reported Funds from Operations (FFO),
excluding certain items, for the third quarter 2016 of $0.38 per
diluted common share, as compared to $0.42 per diluted common share
for the third quarter 2015
- Announced Same Store Cash NOI for the
third quarter 2016 of $27.3 million, as compared to $26.9 million
for the third quarter 2015, an increase of 1.4%
- Sold Hurstbourne Business Center in
Louisville, Kentucky, for $41.0 million, utilizing net proceeds to
pay off debt
“We continue to execute on key components of our strategic plan,
disposing of properties located outside of our target growth
markets and utilizing proceeds to strengthen our balance sheet,”
stated Scott Fordham, Chief Executive Officer and President of TIER
REIT. “This includes the recent sales of Hurstbourne Business
Center in Louisville and FOUR40 in Chicago and the repayment of
approximately $133 million of higher-rate mortgage debt during and
subsequent to the third quarter.”
“In addition, our Domain 8 development property, located in the
premier live-work-play submarket of Austin, is now approximately
94% pre-leased to two high-quality, Fortune 200 companies,”
continued Mr. Fordham. “By early 2017, we expect to deliver Domain
8 and substantially complete the strengthening phase of our
strategic plan. Through future asset sales, we will look to recycle
capital into our target growth markets, provided we see a clear
path to long-term value creation.”
“As a result of our strong performance to date and outlook for
the remainder of the year, we are increasing our 2016 guidance for
NAREIT-defined FFO and FFO, excluding certain items,” added Mr.
Fordham.
Third Quarter Financial Results
Net loss attributable to common stockholders was $1.0 million,
or $0.02 per diluted share for the quarter ended September 30,
2016, as compared to $13.8 million, or $0.28 per diluted share, for
the quarter ended September 30, 2015.
NAREIT-defined FFO attributable to common stockholders for the
quarter ended September 30, 2016, was $19.2 million, or $0.40
per diluted share, as compared to $18.9 million, or $0.39 per
diluted share, for the quarter ended September 30, 2015. FFO
attributable to common stockholders, excluding certain items, for
the quarter ended September 30, 2016, was $18.3 million, or
$0.38 per diluted share, as compared to $20.7 million, or $0.42 per
diluted share, for the quarter ended September 30, 2015.
Leasing Update
Occupancy was 89.8% at September 30, 2016, a decrease of 60
basis points from June 30, 2016. The sale of Hurstbourne Place and
Hurstbourne Park increased occupancy by 30 basis points, which was
offset by a decrease in the Company’s remaining operating portfolio
of 90 basis points, primarily due to known tenant move-outs during
the quarter.
During the third quarter of 2016, the Company leased 263,000
square feet, which included 82,000 square feet of renewals, 58,000
square feet of expansion space, and 123,000 square feet of new
leasing.
In addition, the Company has signed pre-lease agreements for
approximately 94% of the total 291,000 square feet at its Domain 8
development property in Austin, Texas. The Company owns 50% of
Domain 8, with an anticipated shell delivery in first quarter
2017.
Dispositions
On September 30, 2016, Hurstbourne Business Center in
Louisville, Kentucky was sold for a combined contract sales price
of approximately $41.0 million. Hurstbourne Business Center is
comprised of Hurstbourne Park and Hurstbourne Place, both office
buildings, and Hurstbourne Plaza, a retail center.
On October 27, 2016, the Company sold 801 Thompson in Rockville,
Maryland for $4.9 million.
Financing and Capital Markets Activity
During the third quarter of 2016, 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%.
On October 11, 2016, the Company paid off (without penalty) the
$70.0 million loan secured by One & Two Eldridge Place that was
scheduled to mature in January 2017. This loan had an effective
interest rate of 5.49%.
Distributions
For the third 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 September 30, 2016, which was paid on October 7, 2016.
On November 7, 2016, the Company’s board of directors authorized
a distribution for the fourth 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 December 28, 2016, payable on January 6,
2017.
2016 Outlook
The Company is updating its 2016 outlook to reflect 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 Updated
2016 Guidance Guidance NAREIT-defined FFO
$1.52 - $1.56 $1.55 - $1.57 FFO, excluding certain items $1.56 -
$1.60 $1.62 - $1.64 Dispositions of non-strategic properties $300 -
$500 million $305 - $450 million Same Store Cash NOI growth 2.0% -
3.0% 3.5% - 4.0% Same Store GAAP NOI growth 1.0% - 2.0% 0.0% - 0.5%
Straight line rent and lease incentive revenue $9.5 - $11.0 million
$9.0 - $9.5 million Lease termination fees $1.5 - $2.0 million $1.6
- $1.8 million Above- and below-market rent amortization $4.4 -
$5.0 million $4.4 - $4.7 million General & administrative
expenses, excluding certain items $23.5 - $24.5 million $23.3 -
$23.7 million Year-end occupancy 89.5% - 90.5% 89.7% - 90.2%
Weighted average 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
September 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 Thursday, November 10, 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:
844.512.2921International: 412.317.6671Passcode: 13648014The audio
playback can be accessed through November 24, 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) September
30, December 31, 2016
2015 Assets Real estate Land $
143,581 $ 179,989 Land held for development 45,059 45,059 Buildings
and improvements, net 1,048,194 1,348,200 Real estate under
development 11,657 —
Total real
estate 1,248,491 1,573,248 Cash and cash equivalents 51,466
12,248 Restricted cash 8,586 10,712 Accounts receivable, net 67,100
76,228 Prepaid expenses and other assets 5,540 6,712 Investments in
unconsolidated entities 76,954 88,998 Deferred financing fees, net
2,698 3,111 Lease intangibles, net 62,936 83,548 Other intangible
assets, net 9,888 10,086 Assets associated with real estate held
for sale 37,026 —
Total assets $
1,570,685 $ 1,864,891
Liabilities and equity
Liabilities Notes payable, net $ 837,920 $ 1,071,571
Accounts payable and accrued liabilities 65,924 71,597 Payables to
related parties — 292 Acquired below-market leases, net 7,856
11,934 Distributions payable 8,602 8,596 Other liabilities 30,005
23,082 Obligations associated with real estate held for sale
1,394 —
Total liabilities
951,701 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 September 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 September 30, 2016, and December
31, 2015, respectively 5 5 Additional paid-in capital 2,605,569
2,600,193 Cumulative distributions and net loss attributable to
common stockholders (1,971,588 ) (1,922,721 ) Accumulated other
comprehensive loss (16,662 ) (3,860 )
Stockholders’ equity 617,324 673,617
Noncontrolling
interests 1,660 1,502
Total
equity 618,984 675,119
Total
liabilities and equity $ 1,570,685 $ 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
September 30, September 30,
2016 2015 Rental revenue
$ 55,998 $ 69,423
Expenses Property operating
expenses 16,315 21,290 Interest expense 9,005 12,765 Real estate
taxes 8,350 9,670 Property management fees 210 342 Asset impairment
losses 4,151 — General and administrative 5,529 10,123 Depreciation
and amortization 25,133 31,446
Total
expenses 68,693 85,636 Interest and
other income 248 267 Loss on early extinguishment of debt —
(30 )
Loss from continuing operations before
income taxes, equity in operations of investments, and gain (loss)
on sale of assets
(12,447 ) (15,976 ) Provision for income taxes (4 ) (36 ) Equity in
operations of investments 646 (159 )
Loss
from continuing operations before gain (loss) on sale of assets
(11,805 ) (16,171 )
Discontinued operations
Income from discontinued operations — 21 Gain on sale of
discontinued operations — 403
Discontinued operations — 424
Gain (loss) on sale of assets 10,777 (85 )
Net loss (1,028 ) (15,832 ) Noncontrolling interests in
continuing operations 3 58 Noncontrolling interests in discontinued
operations — (1 ) Dilution of Series A Convertible Preferred Stock
— 1,926
Net loss attributable to
common stockholders $ (1,025 ) $ (13,849 )
Basic and diluted
weighted average common shares outstanding 47,412,705
48,842,711
Basic and diluted earnings (loss) per common
share: Continuing operations $ (0.02 ) $ (0.29 ) Discontinued
operations — 0.01
Basic and diluted
loss per common share $ (0.02 ) $ (0.28 )
Distributions declared per common share $ 0.18 $ 0.18
Net income (loss) attributable to common
stockholders: Continuing operations $ (1,025 ) $ (14,272 )
Discontinued operations — 423
Net
loss attributable to common stockholders $ (1,025 ) $ (13,849 )
Comprehensive income (loss): Net loss $ (1,028 ) $ (15,832 )
Other comprehensive income (loss): unrealized income (loss) on
interest rate derivatives 2,602 (10,966 )
Comprehensive income (loss) 1,574 (26,798 ) Comprehensive
loss attributable to noncontrolling interests 1
76
Comprehensive income (loss) attributable to
common stockholders $ 1,575 $ (26,722 )
Calculation of FFO and FFO, excluding certain items (in
thousands, except per share amounts)
Three Months Ended September 30,
September 30, 2016 2015
Net loss $ (1,028 ) $ (15,832 ) Net loss attributable to
noncontrolling interests 3 57 Dilution of Series A Convertible
Preferred Stock — 1,926 Net loss
attributable to common stockholders (1,025 ) (13,849 )
Adjustments
(1):
Real estate depreciation and amortization from consolidated
properties 25,062 31,217 Real estate depreciation and amortization
from unconsolidated properties 2,058 1,904 Real estate depreciation
and amortization - noncontrolling interests — (10 ) Impairment of
depreciable real estate 4,151 — Gain on sale of depreciable real
estate (10,837 ) (318 ) Taxes associated with sale of depreciable
real estate (152 ) (5 ) Noncontrolling interests (18 )
(56 ) FFO attributable to common stockholders 19,239 18,883
Acquisition expenses — 642 Tender offer and listing costs —
2,562 Interest rate hedge ineffectiveness expense (2) (1,534 ) —
Loss on early extinguishment of debt — 127 Default interest (3) 619
355 BHT Advisors termination fee and HPT Management buyout fee —
101 Noncontrolling interests — (7 ) Dilution of Series A
Convertible Preferred Stock — (1,926 ) FFO
attributable to common stockholders, excluding certain items $
18,324 $ 20,737 Weighted average common shares
outstanding - basic 47,413 48,843 Weighted average common shares
outstanding - diluted (4) 47,846 49,034 Net loss per common share -
basic and diluted (4) $ (0.02 ) $ (0.28 ) FFO per common share -
diluted $ 0.40 $ 0.39 FFO, excluding certain items, per common
share - diluted $ 0.38 $ 0.42 _______________________ (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 per common share.
Same Store
GAAP NOI and Same Store Cash NOI (in thousands, except
percentages) Three Months Ended
September 30, September 30, 2016
2015 Same Store Revenue: Rental revenue $ 46,670 $ 49,872
Less: Lease termination fees (264 ) (2,018 )
46,406 47,854 Same Store Expenses:
Property operating expenses (less tenant improvement demolition
costs) 13,259 13,354 Real estate taxes 7,212 6,375 Property
management fees 129 125 Property
Expenses 20,600 19,854 Same Store GAAP
NOI - consolidated properties 25,806 28,000 Same Store GAAP NOI -
unconsolidated properties (at ownership %) 2,606
2,541 Same Store GAAP NOI 28,412 30,541
Decrease in Same Store GAAP NOI (7.0 )% Less: Straight-line
rent revenue adjustment (112 ) (1,446 ) Amortization of above- and
below-market rents, net (775 ) (1,869 ) Same Store
Cash NOI - consolidated properties 24,919 24,685 Same Store Cash
NOI - unconsolidated properties (at ownership %) 2,395
2,264 Same Store Cash NOI $ 27,314 $
26,949 Increase in Same Store Cash NOI 1.4 %
Reconciliation of net loss to Same Store GAAP NOI and Same
Store Cash NOI Net loss $ (1,028 ) $ (15,832 ) Adjustments:
Interest expense 9,005 12,765 Asset impairment losses 4,151 —
Tenant improvement demolition costs 306 106 General and
administrative 5,529 10,123 Depreciation and amortization 25,133
31,446 Interest and other income (248 ) (267 ) Loss on early
extinguishment of debt — 30 Provision for income taxes 4 36 Equity
in operations of investments (646 ) 159 Income from discontinued
operations — (21 ) Gain on sale of discontinued operations — (403 )
Gain (loss) on sale of assets (10,777 ) 85 Net operating income of
non-same store properties (5,359 ) (8,209 ) Lease termination fees
(264 ) (2,018 ) Same store GAAP NOI unconsolidated properties (at
ownership %) 2,606 2,541 Same Store
GAAP NOI 28,412 30,541 Straight-line rent revenue adjustment (112 )
(1,446 ) Amortization of above- and below-market rents, net (775 )
(1,869 ) Cash NOI adjustments for unconsolidated properties (at
ownership %) (211 ) (277 ) Same Store Cash NOI $
27,314 $ 26,949
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 not held for sale and 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/20161109005943/en/
TIER REIT, Inc.Scott McLaughlin,
972-483-2465smclaughlin@tierreit.com
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