Net Loss for Second Quarter 2018 of $0.17
per Diluted Common Share
FFO, Excluding Certain Items, for Second
Quarter 2018 of $0.40 per Diluted Common Share
11.2% Same Store Cash NOI Growth for Second
Quarter 2018
Increases 2018 Outlook
Domain 12 - In Leases For Entirety of
Building
Domain 10 - Expect to Commence Development
Fourth Quarter 2018
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
June 30, 2018.
This press release features multimedia. View
the full release here:
https://www.businesswire.com/news/home/20180807005891/en/
Rendering of Domain 10, Domain 9, and
Domain 12 (from left to right) at The Domain in Austin, Texas
(Photo: Business Wire)
Second Quarter 2018 and Recent Highlights
- Recognized net loss of $0.17 per
diluted common share
- Reported Funds from Operations (FFO)
attributable to common stockholders of $0.39 per diluted common
share
- Reported FFO, Excluding Certain Items,
attributable to common stockholders of $0.40 per diluted common
share
- Recognized Same Store Cash NOI Growth
of 11.2% over second quarter 2017
- Raised $66.96 million of gross equity
proceeds from the sale of approximately 2.84 million shares of
common stock through our at-the-market equity offering program (the
“ATM Program”)
“We are pleased to announce our strong second quarter results,
which were ahead of our expectations,” stated Scott W. Fordham,
Chief Executive Officer of TIER REIT. “Tenant demand continues to
grow, especially in Austin and at The Domain, where TIER controls
over 75% of the competitive office space and substantially all of
the available land for office development in the heart of The
Domain’s premier amenities.”
Mr. Fordham continued, “We are now in leases for the entirety of
our recently commenced Domain 12 development, which is a 320,000
square foot office tower expected to deliver fourth quarter 2019.
Further, we have active letters of intent from prospective tenants
totaling over 350,000 square feet for Domain 10, a fully designed
and permitted 300,000 square foot office project. As a result, we
expect to commence development of Domain 10 in the fourth
quarter.”
“We’ve raised approximately $67 million of gross proceeds
through our ATM Program to bolster our balance sheet,” added Mr.
Fordham, “and together with our planned dispositions, we are well
positioned to capitalize on our robust development pipeline.”
Second Quarter Financial Results
For the second quarter of 2018, net loss attributable to common
stockholders was $8.3 million, or $0.17 per diluted common share,
as compared to net income of $4.0 million, or $0.08 per diluted
common share, for the second quarter of 2017.
For the second quarter of 2018, Nareit-defined FFO attributable
to common stockholders was $18.8 million, or $0.39 per diluted
common share, as compared to $18.7 million, or $0.39 per diluted
common share, for the second quarter of 2017.
For the second quarter of 2018, FFO attributable to common
stockholders, excluding certain items, was $19.5 million, or $0.40
per diluted common share, as compared to $19.8 million, or $0.41
per diluted common share, for the second quarter of 2017.
Property Results
Our occupancy at June 30, 2018, was 89.4%, reflecting no
change from March 31, 2018.
During the second quarter of 2018, we leased 94,000 square feet,
which included 48,000 square feet of renewals, 23,000 square feet
of expansions, and 23,000 square feet of new leasing.
During the second quarter of 2018, we provided rent abatements
of $0.8 million to tenants at One & Two Eldridge Place and
Three Eldridge Place, partially offset by $0.4 million in business
interruption insurance proceeds recorded in the second quarter,
related to Hurricane Harvey. We anticipate we will receive
remaining business interruption insurance proceeds in subsequent
quarters.
Real Estate Activity
Development of Domain 12 commenced in May 2018. Domain 12 will
contain 320,000 rentable square feet and is located in Austin,
Texas, adjacent to our Domain 11 development property. We announced
today that we are in leases for the entirety of the building.
Additionally, we announced today that we expect to commence
development of Domain 10, a 300,000 square foot office building in
Austin, Texas, in the fourth quarter.
Capital Markets Activity
Since April 1, 2018, we have sold 2,841,551 shares of common
stock for total gross proceeds under the ATM Program of $66.96
million, or $65.73 million net of commissions and issuance costs.
Of that amount, 901,300 shares were issued during the last week of
the second quarter, while the remainder was issued subsequent to
the second quarter. Proceeds from the ATM Program are being
utilized as additional funding for our Austin development
activities and repayment of the revolving balance of our credit
facility.
On May 4, 2018, our board of directors authorized a distribution
of $0.18 per share of common stock for the second quarter of 2018,
which was paid on June 29, 2018.
On August 3, 2018, our board of directors authorized a
distribution of $0.18 per share of common stock for the third
quarter of 2018, which will be paid on September 28, 2018.
2018 Outlook
We have updated our 2018 outlook and assumptions, as
follows:
2018 Outlook Prior
Updated Projected net loss per basic & diluted
common share ($0.29) - ($0.24)
($0.28) - ($0.24) Adjustments: Real estate
depreciation and amortization $2.02 $2.03 Gain on remeasurement of
investment in unconsolidated entities ($0.23) ($0.22) Gain on sale
of depreciable real estate ($0.25)
($0.24)
Projected FFO per diluted common share $1.25 -
$1.30 $1.29 - $1.33 Adjustments: Reversal of Fifth Third
Center default interest $0.05 $0.05 Loss on early extinguishment of
debt
1 $0.19 $0.18
Projected
FFO, excluding certain items, per diluted common share $1.49
- $1.54 $1.52 - $1.56 Assumptions used in 2018
outlook above: Dispositions $145mm - $270mm $145mm - $270mm
Strategic acquisitions $164mm $164mm Same store cash NOI growth
7.5% - 8.5% 7.5% - 8.5% Same store NOI growth 1.0% - 2.0% 1.5% -
2.5% Straight line rent and lease incentive revenue $5.0mm - $6.0mm
$5.0mm - $6.0mm Above- and below-market rent amortization $5.5mm -
$6.5mm $5.5mm - $6.5mm General & administrative expenses,
excluding certain items $21.0mm - $22.0mm $21.0mm - $22.0mm
Year-end occupancy 89.5% - 91.5% 89.5% - 91.5% Weighted average
common shares outstanding - diluted 48.5mm
49.8mm
1 Represents the loss from write-off
of deferred financing costs upon recast of our credit facility on
January 18, 2018
Supplemental Information
A copy of our supplemental information regarding our financial
results and operations for the quarter ended June 30, 2018, is
available on our Investor Relations website at www.tierreit.com/ir,
or by contacting our Investor Relations department by email at
ir@tierreit.com.
Conference Call
A conference call will be held on Wednesday, August 8, 2018, at
11:00 a.m. Eastern time/10:00 a.m. Central time to discuss matters
pertaining to this release. Callers in the U.S. or Canada may join
the conference call by dialing 877.407.0789.
A live, listen-only webcast and subsequent replay will also be
available on our Investor Relations website at
www.tierreit.com/ir.
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. Our 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, develop, and
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,” "will," “anticipates,” “expects,” “intends,”
“plans,” “believes,” “seeks,” “estimates,” “outlook,” “would,”
“could,” “should,” “objectives,” “strategies,” “opportunities,”
“goals,” “position,” “future,” “vision,” “mission,” “strive,”
“project” 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, 2017,
and in our other filings with the Securities and Exchange
Commission. 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.Consolidated
Balance Sheets(in thousands, except share and per share
amounts)
June 30,2018
December 31,2017
Assets Real estate Land $ 156,517 $ 139,951 Land held
for development 45,059 45,059 Buildings and improvements, net
1,160,273 1,061,418 Real estate under development 72,965
29,525
Total real estate 1,434,814
1,275,953 Cash and cash equivalents 8,359 13,800 Restricted cash
14,086 8,510 Accounts receivable, net 80,755 81,129 Prepaid
expenses and other assets 17,124 28,112 Investments in
unconsolidated entities 31,714 31,852 Deferred financing fees, net
3,211 1,387 Lease intangibles, net 106,058 87,047 Assets associated
with real estate held for sale — 53,348
Total assets $ 1,696,121 $ 1,581,138
Liabilities and equity Liabilities Notes payable, net
$ 886,260 $ 794,538 Accounts payable and accrued liabilities 82,816
81,166 Acquired below-market leases, net 25,910 17,942 Other
liabilities 6,545 7,567 Obligations associated with real estate
held for sale — 2,354
Total
liabilities 1,001,531 903,567
Commitments and contingencies Equity Preferred stock,
$.0001 par value per share; 17,500,000 shares authorized at June
30, 2018, and December 31, 2017, 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, 48,574,724 and 47,623,324
shares issued and outstanding at June 30, 2018, and December 31,
2017, respectively 5 5 Additional paid-in capital 2,632,635
2,609,540 Cumulative distributions and net loss attributable to
common stockholders (1,953,466 ) (1,936,960 ) Accumulated other
comprehensive income 12,462 4,218
Stockholders’ equity 691,636 676,803
Noncontrolling interests 2,954
768
Total equity 694,590 677,571
Total liabilities and equity $ 1,696,121 $
1,581,138
TIER REIT, Inc.Consolidated
Statements of Operations and Comprehensive Income (Loss)(in
thousands, except share and per share amounts)
Three Months Ended
June 30,2018
June 30,2017
Rental revenue $ 53,990 $ 54,552
Expenses Property operating expenses 12,395 13,930 Interest
expense 8,369 8,235 Real estate taxes 9,074 8,753 Property
management fees 97 72 General and administrative 5,377 5,626
Depreciation and amortization 27,134 22,652
Total expenses 62,446 59,268
Interest and other income 550 783
Loss before income taxes, equity in operations of
investments, and gains (losses) (7,906 ) (3,933 ) Benefit
(provision) for income taxes (214 ) 149 Equity in operations of
investments — 6,556
Income (loss)
before gains (losses) (8,120 ) 2,772 Gain
(loss) on sale of assets (90 ) 1,262 Loss on remeasurement of
investment in unconsolidated entities (152 ) —
Net income (loss) (8,362 ) 4,034 Noncontrolling interests
85 (3 )
Net income (loss) attributable to
common stockholders $ (8,277 ) $ 4,031
Weighted
average common shares outstanding - basic 47,684,152 47,536,320
Weighted average common shares outstanding - diluted
47,684,152 47,875,418 Basic income (loss) per common share $
(0.17 ) $ 0.08 Diluted income (loss) per common share $ (0.17 ) $
0.08
Distributions declared per common share $ 0.18 $
0.18
Comprehensive income (loss): Net income (loss) $
(8,362 ) $ 4,034 Other comprehensive income (loss): unrealized
income (loss) on interest rate derivatives 1,984
(1,301 )
Comprehensive income (loss) (6,378 ) 2,733
Comprehensive (income) loss attributable to noncontrolling
interests 84 (2 )
Comprehensive income
(loss) attributable to common stockholders $ (6,294 ) $ 2,731
Calculations of FFO and FFO, excluding
certain items(in thousands, except per share
amounts)
Three Months Ended
June 30,2018
June 30,2017
Net income (loss) $ (8,362 ) $ 4,034 Noncontrolling interests
85 (3 ) Net income (loss) attributable to
common stockholders (8,277 ) 4,031
Adjustments:
Real estate depreciation and amortization from consolidated
properties 27,011 22,557 Real estate depreciation and amortization
from unconsolidated properties — 131 Real estate depreciation and
amortization - noncontrolling interests (782 ) — Loss (gain) on
sale of depreciable real estate 90 (7,975 ) Loss on remeasurement
of investment in unconsolidated entities 152 — Noncontrolling
interests 610 (9 ) FFO attributable to common
stockholders 18,804 18,735
Adjustments:
Severance charges 108 451 Interest rate hedge ineffectiveness
expense (income) (1) — (29 ) Default interest (2) 609
609 FFO attributable to common stockholders,
excluding certain items $ 19,521 $ 19,766 Weighted
average common shares outstanding - basic 47,684 47,536 Weighted
average common shares outstanding - diluted 48,534 47,875 Net
income (loss) per common share - diluted $ (0.17 ) $ 0.08 FFO per
common share - diluted $ 0.39 $ 0.39 FFO, excluding certain items,
per common share - diluted $ 0.40 $ 0.41
______________________
During the three months ended June 30, 2018, we provided rent
abatements of approximately $0.8 million to tenants as a result of
Hurricane Harvey. These abatements were a reduction to “rental
revenue” on our condensed consolidated statements of operations and
comprehensive income (loss) for the three months ended June 30,
2018. These rent abatements were offset by approximately $0.4
million of business interruption insurance proceeds for the three
months ended June 30, 2018. We anticipate we will receive remaining
business interruption insurance proceeds in subsequent
quarters.
(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. We
adopted new accounting guidance on January 1, 2018, that eliminates
the requirement to separately measure and report 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.
Same Store NOI and Same Store Cash
NOI(in thousands, except property count and
percentages)
Three Months Ended
June 30,2018
June 30,2017
Same Store Revenue: Rental revenue (1) $ 44,549 $ 43,813
Less: Lease termination fees
(375 ) (30 ) 44,174 43,783
Same Store Expenses: Property operating expenses
(less tenant improvement demolition costs) 10,931 10,717 Real
estate taxes 7,144 7,612 Property management fees 25
31 Property Expenses 18,100
18,360 Same Store NOI $ 26,074 $ 25,423
Increase in Same Store NOI 2.6 % Same Store NOI $ 26,074 $
25,423 Less: Straight-line rent revenue adjustment 42 (1,944 )
Above- and below-market rent amortization (1,057 )
(950 ) Same Store Cash NOI $ 25,059 $ 22,529
Increase in Same Store Cash NOI 11.2 % Reconciliation of net
income (loss) to Same Store NOI and Same Store Cash NOI Net income
(loss) $ (8,362 ) $ 4,034
Adjustments:
Interest expense 8,369 8,235 Tenant improvement demolition costs 25
34 General and administrative 5,377 5,626 Depreciation and
amortization 27,134 22,652 Interest and other income (550 ) (783 )
Provision (benefit) for income taxes 214 (149 ) Equity in
operations of investments — (6,556 ) Loss (gain) on sale of assets
90 (1,262 ) Loss on remeasurement of investment in unconsolidated
entities 152 — Net operating income of non-same store properties
(6,000 ) (6,378 ) Lease termination fees (375 ) (30 )
Same Store NOI 26,074 25,423 Straight-line rent revenue adjustment
42 (1,944 ) Above- and below-market rent amortization (1,057
) (950 ) Same Store Cash NOI $ 25,059 $ 22,529
Operating properties 15 Rentable square feet (% owned) 5,807
______________
Excludes 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 included above as
consolidated and at 100% in both periods.
(1)
During the three months ended June 30,
2018, we provided rent abatements of approximately $0.8 million to
tenants as a result of Hurricane Harvey. These rent abatements were
offset by approximately $0.4 million of business interruption
insurance proceeds for the three months ended June 30, 2018. We
anticipate we will receive remaining business interruption
insurance proceeds in subsequent quarters.
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) which is net income (loss), computed in
accordance with GAAP, excluding 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, and
impairments of depreciable real estate assets, 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: https://www.businesswire.com/news/home/20180807005891/en/
TIER REIT, Inc.Scott McLaughlin,
972-483-2465smclaughlin@tierreit.com
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