Reports First Quarter Net Income of $2.04
Per Diluted Common Share
Reports First Quarter FFO, Excluding Certain
Items, of $0.41 Per Diluted Common 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 quarter ended
March 31, 2017.
First Quarter 2017 Highlights
- Reported net income of $2.04 per
diluted common share for the quarter ended March 31, 2017, as
compared to a net loss of $0.27 per diluted common share for the
quarter ended March 31, 2016
- Reported Funds from Operations (FFO)
attributable to common stockholders of $0.38 per diluted common
share for the quarter ended March 31, 2017, as compared to
$0.42 per diluted common share for the quarter ended March 31,
2016
- Reported FFO, excluding certain items,
of $0.41 per diluted common share for the quarter ended
March 31, 2017, as compared to $0.45 per diluted common share
for the quarter ended March 31, 2016
- Reported Same Store Cash NOI of $25.8
million for the quarter ended March 31, 2017, as compared to
$24.4 million for the quarter ended March 31, 2016
“Year to date, we have disposed of over $300 million in
properties located outside of our target growth markets,” stated
Scott Fordham, Chief Executive Officer and President of TIER REIT.
“We’ve also commenced development of Third + Shoal in downtown
Austin and increased our investment activities in the highly
sought-after submarket of The Domain in northwest Austin, including
the acquisition of our partner’s interest in Domain 2 and Domain 7
earlier this year. As a result of these recycling efforts, we are
pleased to announce that over 85% of our net operating income is
now derived from our target growth markets.”
“Due to our continued investment prospects, primarily through
development,” added Mr. Fordham, “we have increased our
expectations for further non-strategic property dispositions to
between $400 and $500 million, a $100 million increase to our prior
estimate.”
“Further, our strong and growing presence in Austin, which is
one of the most attractive markets in the country today, represents
a significant opportunity to create stockholder value,” continued
Mr. Fordham, “while our exit so far this year from the
Philadelphia, Burbank, Tampa and D.C. markets represents the
continued sharpening of our geographic footprint.”
First Quarter Financial Results
Net income attributable to common stockholders was $98.2
million, or $2.04 per diluted common share, for the quarter ended
March 31, 2017, as compared to a net loss of $12.7 million, or
$0.27 per diluted common share, for the quarter ended
March 31, 2016.
NAREIT-defined FFO attributable to common stockholders for the
quarter ended March 31, 2017, was $18.3 million, or $0.38 per
diluted common share, as compared to $20.2 million, or $0.42 per
diluted common share, for the quarter ended March 31, 2016.
FFO attributable to common stockholders, excluding certain items,
for the quarter ended March 31, 2017, was $19.5 million, or
$0.41 per diluted common share, as compared to $21.3 million, or
$0.45 per diluted common share, for the quarter ended
March 31, 2016.
Leasing Update
At March 31, 2017, the Company’s occupancy was 90.2%, a
decrease of 50 basis points from December 31, 2016.
During the first quarter of 2017, the Company leased 281,000
square feet, which included 219,000 square feet of renewals, 3,000
square feet of expansion space, and 59,000 square feet of new
leasing.
Dispositions & Acquisitions
The Company disposed of several properties located outside of
its target growth markets in the first quarter of 2017. These
included the sale of a noncontrolling interest in the Wanamaker
Building (Philadelphia, PA) for a contract sales price of $114.3
million on January 17, 2017, which included the buyer’s assumption
of $41.8 million in debt; a sale of Buena Vista Plaza (Burbank, CA)
for a contract sales price of $52.5 million on January 18, 2017; a
sale of Three Parkway (Philadelphia, PA) for a contract sales price
of $95.0 million on March 1, 2017; and a sale of Eisenhower I
(Tampa, FL) for a contract sales price of $31.4 million on March
13, 2017. On March 31, 2017, the Company sold a 50% interest in its
95% interest in the Third + Shoal development property for a
contract sales price of $15.0 million. Subsequent to quarter end,
the Colorado Building and 1325 G Street, each of which the Company
held a 10% interest, were sold for a combined contract sales price
of $259.0 million on April 27, 2017.
During the quarter ended March 31, 2017, the Company acquired
the remaining 50.16% interest in its Domain 2 and Domain 7
properties for a contract price of $51.2 million plus assumed debt
of $40.1 million. The properties total approximately 337,000 square
feet of existing office space located at The Domain, a premier,
high-density, mixed-use development in northwest Austin, Texas. The
Company originally acquired various real estate interests in The
Domain in July 2015, including its initial joint venture interests
in Domain 2 and Domain 7, which are now wholly owned by the
Company.
Capital Markets Activity
On February 1, 2017, the Company repaid (without penalty) the
$58.8 million loan secured by its 500 E. Pratt property. This loan
was scheduled to mature in May 2017 and had an effective interest
rate of 5.63%.
On March 1, 2017, the Company repaid a $14.6 million mezzanine
loan secured by its One BriarLake Plaza property. The loan was
scheduled to mature in August 2021 and had an effective interest
rate of 9.94%. The Company paid a prepayment penalty of $0.4
million in connection with the repayment.
For the first quarter of 2017, 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 March 15, 2017, which was paid on March 31, 2017.
On May 3, 2017, 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 15,
2017, payable on June 30, 2017.
2017 Outlook
The Company has maintained its originally issued 2017 outlook
and assumptions, except for a $100 million increase to dispositions
of non-target properties, to a range of $400 million to $500
million, and a $0.5 million decrease to general &
administrative expenses, excluding certain items, to a range of
$21.5 million to $22.5 million; the Company’s guidance for
projected net income per basic & diluted common share was also
updated. Complete details of the Company’s original 2017 outlook
and assumptions, along with these revised 2017 outlook and
assumptions, are included in the table below.
2017 Outlook Original
Revised Projected net income per basic & diluted
common share $1.56 - $1.66 $2.06 -
$2.16 Adjustments: Real estate depreciation and amortization
$2.00 $1.75 Gain on sale of depreciable real estate ($2.05)
($2.30)
Projected FFO per diluted common share
$1.51 - $1.61 $1.51 - $1.61 Adjustments: Gain
on debt restructuring / reversal of default interest ($0.14)
($0.14) Loss on early extinguishment of debt $0.01
$0.01
Projected FFO, excluding certain items, per diluted common
share $1.38 - $1.48 $1.38 - $1.48
Assumptions used in 2017 outlook above: Dispositions
of non-target properties $300mm - $400mm $400mm - $500mm Strategic
acquisitions $100mm - $225mm $100mm - $225mm Same store cash NOI
growth 2.0% - 3.0% 2.0% - 3.0% Same store NOI growth 0.0% - 1.0%
0.0% - 1.0% Straight line rent and lease incentive revenue $6.5mm -
$8.5mm $6.5mm - $8.5mm Lease termination fees $1.0mm - $1.5mm
$1.0mm - $1.5mm Above- and below-market rent amortization $4.0mm -
$5.0mm $4.0mm - $5.0mm General & administrative expenses,
excluding certain items $22.0mm - $23.0mm $21.5mm - $22.5mm
Year-end occupancy 88.0% - 90.0% 88.0% - 90.0% Weighted average
shares of common stock outstanding 48.1 million 48.1
million
Supplemental Information
A copy of the Company’s supplemental information regarding its
financial results and operations for the quarter ended
March 31, 2017, is available in the “Investor Relations”
section of the Company’s website at www.tierreit.com, or by
contacting the Investor Relations department by email at
ir@tierreit.com.
Conference Call
A conference call will be held on Thursday, May 11, 2017, at
11:00 AM Eastern time / 10:00 AM Central time. TIER REIT will host
the conference call to discuss matters relating to this release. To
participate in the live telephone conference call, please dial in
at least five minutes prior to start time to 877.407.0789 (U.S.) or
201.689.8562 (International).
A live, listen-only webcast and subsequent replay will also be
available on the Company’s website
at www.tierreit.com under the “Investor Relations”
section.
About TIER REIT, Inc.
TIER REIT, Inc. is a publicly traded (NYSE: TIER), self-managed,
Dallas-based real estate investment trust focused on owning
quality, well-managed commercial office properties in dynamic
markets throughout the U.S. TIER REIT’s vision is to be the premier
owner and operator of best-in-class office properties in TIER1
submarkets, which are primarily higher density and amenity-rich
locations within select, high-growth metropolitan areas that offer
a walkable experience to various amenities. Our mission is to
provide unparalleled, TIER ONE Property Services to our tenants and
outsized total return through stock price appreciation and dividend
growth to our stockholders.
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 acquire and 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,” “outlook,” “would,” “could,”
“should,” “goals,” “vision,” “mission,” “opportunities,”
“position,” “objectives,” “strategies,” “goals,” “future,”
“assumptions,” 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, 2016.
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)
March 31,2017
December 31,2016
Assets Real estate Land $ 142,776 $ 143,537 Land held
for development 45,059 45,059 Buildings and improvements, net
1,076,701 1,043,641 Real estate under development 5,974
17,961
Total real estate 1,270,510
1,250,198 Cash and cash equivalents 55,215 14,884 Restricted cash
7,685 7,509 Accounts receivable, net 60,996 71,459 Prepaid expenses
and other assets 18,163 25,305 Investments in unconsolidated
entities 40,421 76,813 Deferred financing fees, net 2,442 2,395
Lease intangibles, net 71,740 61,844 Other intangible assets, net
1,876 9,787 Assets associated with real estate held for sale
32,375 32,346
Total assets $ 1,561,423
$ 1,552,540
Liabilities and equity
Liabilities Notes payable, net $ 773,905 $ 826,783 Accounts
payable and accrued liabilities 51,813 74,458 Acquired below-market
leases, net 15,252 6,886 Distributions payable — 8,601 Other
liabilities 7,762 14,353 Obligations associated with real estate
held for sale 970 943
Total
liabilities 849,702 932,024
Commitments and contingencies Equity Preferred stock,
$.0001 par value per share; 17,500,000 shares authorized at March
31, 2017, and December 31, 2016, 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, 47,525,725 and 47,473,218
shares issued and outstanding at March 31, 2017, and December 31,
2016, respectively 5 5 Additional paid-in capital 2,607,071
2,606,098 Cumulative distributions and net loss attributable to
common stockholders (1,897,240 ) (1,986,515 ) Accumulated other
comprehensive income (loss) 1,026 (1,042 )
Stockholders’ equity 710,862 618,546
Noncontrolling
interests 859 1,970
Total
equity 711,721 620,516
Total
liabilities and equity $ 1,561,423 $ 1,552,540
TIER REIT, Inc. Condensed Consolidated Statements
of Operations and Comprehensive Income (Loss) (in thousands,
except share and per share amounts) (unaudited)
Three Months Ended
March 31,2017
March 31,2016
Rental revenue $ 56,363 $ 68,478
Expenses Property operating expenses 14,690 20,485 Interest
expense 8,780 12,240 Real estate taxes 8,560 11,064 Property
management fees 60 284 Asset impairment losses — 4,826 General and
administrative 5,707 6,504 Depreciation and amortization
24,529 32,044
Total expenses
62,326 87,447 Interest and other income 318
274 Loss on early extinguishment of debt (545 ) —
Loss before income taxes, equity in operations of
investments, and gains (6,190 ) (18,695 ) Provision for income
taxes (244 ) (182 ) Equity in operations of investments (256
) 415
Loss before gains (6,690 ) (18,462 )
Gain on sale of assets 90,750 5,739 Gain on remeasurement of
investment in unconsolidated entities 14,168 —
Net income (loss) 98,228 (12,723 ) Noncontrolling
interests (57 ) 16
Net income (loss)
attributable to common stockholders $ 98,171 $ (12,707 )
Basic weighted average common shares outstanding 47,510,915
47,389,591
Diluted weighted average common shares
outstanding 47,806,069 47,389,591 Basic income (loss)
per common share $ 2.05 $ (0.27 ) Diluted income (loss) per common
share 2.04 (0.27 )
Distributions declared per common
share $ 0.18 $ 0.18
Comprehensive income (loss):
Net income (loss) $ 98,228 $ (12,723 ) Other comprehensive income
(loss): unrealized income (loss) on interest rate derivatives
2,069 (12,880 )
Comprehensive income
(loss) 100,297 (25,603 ) Comprehensive (income) loss
attributable to noncontrolling interests (58 ) 24
Comprehensive income (loss) attributable to common
stockholders $ 100,239 $ (25,579 )
Calculation
of FFO and FFO, excluding certain items (in thousands,
except per share amounts) Three Months Ended
March 31,2017
March 31,2016
Net income (loss) $ 98,228 $ (12,723 ) Noncontrolling interests
(57 ) 16 Net income (loss) attributable to
common stockholders 98,171 (12,707 )
Adjustments:
Real estate depreciation and amortization from consolidated
properties 24,431 31,770 Real estate depreciation and amortization
from unconsolidated properties 566 2,045 Real estate depreciation
and amortization - noncontrolling interests — (6 ) Impairment of
depreciable real estate — 4,826 Gain on sale of depreciable real
estate (90,750 ) (5,739 ) Gain on remeasurement of investment in
unconsolidated entities (14,168 ) — Taxes associated with sale of
depreciable real estate — 64 Noncontrolling interests 48
(21 ) FFO attributable to common stockholders 18,298
20,232 Severance charges — 493 Interest rate hedge
ineffectiveness expense (1) 30 — Loss on early extinguishment of
debt 545 — Default interest (2) 602 617 Noncontrolling interests
(1 ) (1 ) FFO attributable to common stockholders,
excluding certain items $ 19,474 $ 21,341 Weighted
average common shares outstanding - basic 47,511 47,390 Weighted
average common shares outstanding - diluted (3) 47,806 47,715 Net
income (loss) per common share - diluted (3) $ 2.04 $ (0.27 ) FFO
per common share - diluted $ 0.38 $ 0.42 FFO, excluding certain
items, per common share - diluted $ 0.41 $ 0.45
_______________________
(1) 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.
(2) 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.
(3) There are no dilutive
securities for purposes of calculating net loss per common
share.
Same Store NOI and Same Store Cash NOI
(in thousands, except percentages) Three Months
Ended
March 31,2017
March 31,2016
Same Store Revenue: Rental revenue $ 46,546 $ 48,039 Less: Lease
termination fees (128 ) (589 ) 46,418
47,450 Same Store Expenses: Property operating
expenses (less tenant improvement demolition costs) 12,008 12,447
Real estate taxes 7,453 7,956 Property management fees 9
56 Property Expenses 19,470
20,459 Same Store NOI - consolidated properties
26,948 26,991 Same Store NOI - unconsolidated properties (at
ownership %) 1,557 820 Same Store NOI $
28,505 $ 27,811 Increase in Same Store NOI 2.5
% Same Store NOI - consolidated properties $ 26,948 $ 26,991
Less: Straight-line rent revenue adjustment (1,722 ) (1,768 )
Amortization of above- and below-market rents, net (703 )
(1,401 ) Same Store Cash NOI - consolidated properties
24,523 23,822 Same Store Cash NOI - unconsolidated properties (at
ownership %) 1,311 590 Same Store Cash
NOI $ 25,834 $ 24,412 Increase in Same Store
Cash NOI 5.8 % Reconciliation of net income (loss) to Same
Store NOI and Same Store Cash NOI Net income (loss) $ 98,228 $
(12,723 ) Adjustments: Interest expense 8,780 12,240 Asset
impairment losses — 4,826 Tenant improvement demolition costs 81 64
General and administrative 5,707 6,504 Depreciation and
amortization 24,529 32,044 Interest and other income (318 ) (274 )
Loss on early extinguishment of debt 545 — Provision for income
taxes 244 182 Equity in operations of investments 256 (415 ) Gain
on sale of assets (90,750 ) (5,739 ) Gain on remeasurement of
investment in unconsolidated entities (14,168 ) — Net operating
income of non-same store properties (6,058 ) (9,129 ) Lease
termination fees (128 ) (589 ) Same Store NOI of unconsolidated
properties (at ownership %) 1,557 820
Same Store NOI 28,505 27,811 Straight-line rent revenue adjustment
(1,722 ) (1,768 ) Amortization of above- and below-market rents,
net (703 ) (1,401 ) Cash NOI adjustments for unconsolidated
properties (at ownership %) (246 ) (230 ) Same Store
Cash NOI $ 25,834 $ 24,412 Operating
properties (1) 21 Rentable square feet (% owned) 6,998
______________
(1) Excludes properties held for
sale and certain operating properties that were not owned or not
fully operational during the entirety of the comparable periods.
Our Domain 2 and Domain 7 properties (two properties in which we
acquired full ownership in January 2017) are reflected above as
unconsolidated and at their prior year ownership percentage of
49.84% in both periods.
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 that 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
and affect the comparability of FFO across periods. 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 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 NOI and Same Store Cash NOI
Same Store 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 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 that is accounted for using the equity
method. We view Same Store 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 NOI and Same Store Cash NOI presented by us may not
be comparable to Same Store NOI or Same Store Cash NOI reported by
other REITs that do not define Same Store 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 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 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/20170510006562/en/
TIER REIT, Inc.Scott McLaughlin,
972-483-2465smclaughlin@tierreit.com
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