CHICAGO–(BUSINESS WIRE)–Equity Commonwealth (NYSE: EQC) today reported financial results for the
quarter ended March 31, 2019. All per share results are reported on a
diluted basis.
Financial results for the quarter ended March 31, 2019
Net income attributable to common shareholders was $208.5 million, or
$1.67 per share, for the quarter ended March 31, 2019. This compares to
net income attributable to common shareholders of $185.6 million, or
$1.48 per share, for the quarter ended March 31, 2018. The increase in
net income was primarily due to a loss on asset impairment in the prior
period and increases in interest and other income in the current period.
Funds from Operations, or FFO, as defined by the National Association of
Real Estate Investment Trusts, for the quarter ended March 31, 2019,
were $23.8 million, or $0.19 per share. This compares to FFO for the
quarter ended March 31, 2018 of $6.1 million, or $0.05 per share. The
following items impacted FFO for the quarter ended March 31, 2019,
compared to the corresponding 2018 period:
- ($0.08) per share from properties sold;
- $0.10 per of share of increase in interest and other income;
- $0.05 per share of interest expense savings; and
- $0.04 per share decrease in loss on debt extinguishment.
Normalized FFO was $23.1 million, or $0.19 per share. This compares to
Normalized FFO for the quarter ended March 31, 2018 of $17.5 million, or
$0.14 per share. The following items impacted Normalized FFO for the
quarter ended March 31, 2019, compared to the corresponding 2018 period:
- ($0.07) per share from properties sold;
- $0.06 per share of increase in interest income; and
- $0.05 per share of interest expense savings.
Normalized FFO begins with FFO and eliminates certain items that we view
as nonrecurring or impacting comparability from period to period.
Definitions of FFO, Normalized FFO and reconciliations to net income,
determined in accordance with U.S. generally accepted accounting
principles, or GAAP, are included at the end of this press release.
For the quarter ended March 31, 2019, the company’s cash and cash
equivalents balance was $3.1 billion. Total debt outstanding was $275
million.
The weighted average number of diluted common shares outstanding when
calculating net income per share for the quarter ended March 31, 2019
was 125,822,059 shares, compared to 127,097,324 for the quarter ended
March 31, 2018. The weighted average number of diluted common shares
outstanding when calculating FFO or Normalized FFO per share for the
quarter ended March 31, 2019 was 123,304,504 shares, compared to
124,734,221 for the quarter ended March 31, 2018.
Same property results for the quarter ended March 31, 2019
The company’s same property portfolio at the end of the quarter
consisted of 9 properties totaling 3.8 million square feet. Operating
results were as follows:
-
The same property portfolio was 94.4% leased as of March 31, 2019,
compared to 95.5% as of December 31, 2018, and 92.3% as of March 31,
2018. -
The same property portfolio commenced occupancy was 93.7% as of March
31, 2019, compared to 93.9% as of December 31, 2018, and 91.2% as of
March 31, 2018. -
Same property NOI increased 7.0% when compared to the same period in
2018. -
Same property cash NOI increased 9.7% when compared to the same period
in 2018. -
The company entered into leases for approximately 108,000 square feet,
including renewal leases for approximately 95,000 square feet and new
leases for approximately 13,000 square feet. -
GAAP rental rates on new and renewal leases were 17.9% higher compared
to prior GAAP rental rates for the same space. -
Cash rental rates on new and renewal leases were 8.0% higher compared
to prior cash rental rates for the same space.
The definitions and reconciliations of same property NOI and same
property cash NOI to net income, determined in accordance with GAAP, are
included at the end of this press release. The same property portfolio
includes properties continuously owned from January 1, 2018 through
March 31, 2019 and excludes properties sold or classified as held for
sale during the period.
Significant events during the quarter ended March 31, 2019
-
The company authorized the repurchase of $150 million of its
outstanding common shares, replacing the expiring authorization. -
The company completed the sale of 1735 Market Street, a 1,287,000
square foot, office building in Philadelphia, PA, for a gross price of
$451.6 million. Proceeds after credits for capital costs, contractual
lease costs, and rent abatements were approximately $435.4 million.
Subsequent Events
-
The company sold 600 108th Avenue NE in Bellevue, WA, for a
gross price of $195 million. The property includes a 254,510 square
foot office building and additional development rights. -
The company currently has one property totaling 1.1 million square
feet in the sale process.
Earnings Conference Call & Supplemental Data
Equity Commonwealth will host a conference call to discuss first quarter
results on Tuesday, April 30, 2019, at 8:00 A.M. CDT. The conference
call will be available via live audio webcast on the Investor Relations
section of the company’s website (www.eqcre.com).
A replay of the audio webcast will also be available following the call.
A copy of EQC’s First Quarter 2019 Supplemental Operating and Financial
Data is available on the Investor Relations section of EQC’s website at www.eqcre.com.
About Equity Commonwealth
Equity Commonwealth (NYSE: EQC) is a Chicago based, internally managed
and self-advised real estate investment trust (REIT) with commercial
office properties in the United States. As of April 29, 2019, EQC’s
portfolio comprised 8 properties and 3.6 million square feet.
Regulation FD Disclosures
We intend to use any of the following to comply with our disclosure
obligations under Regulation FD: press releases, SEC filings, public
conference calls, or our website. We routinely post important
information on our website at www.eqcre.com,
including information that may be deemed to be material. We encourage
investors and others interested in the company to monitor these
distribution channels for material disclosures.
Forward-Looking Statements
Some of the statements contained in this press release constitute
forward-looking statements within the meaning of the federal securities
laws including, but not limited to, statements pertaining to the
marketing of certain properties for sale, consummating any sales, and
future share repurchases. Any forward-looking statements contained in
this press release are intended to be made pursuant to the safe harbor
provisions of Section 21E of the Securities Exchange Act of 1934, as
amended. Forward-looking statements relate to expectations, beliefs,
projections, future plans and strategies, anticipated events or trends
and similar expressions concerning matters that are not historical
facts. In some cases, you can identify forward-looking statements by the
use of forward-looking terminology such as “may,” “will,” “should,”
“expects,” “intends,” “plans,” “anticipates,” “believes,” “estimates,”
“predicts,” or “potential” or the negative of these words and phrases or
similar words or phrases which are predictions of or indicate future
events or trends and which do not relate solely to historical matters.
You can also identify forward-looking statements by discussions of
strategy, plans or intentions.
The forward-looking statements contained in this press release reflect
the company’s current views about future events and are subject to
numerous known and unknown risks, uncertainties, assumptions and changes
in circumstances that may cause the company’s actual results to differ
significantly from those expressed in any forward-looking statement. We
do not guarantee that the transactions and events described will happen
as described (or that they will happen at all). We disclaim any
obligation to publicly update or revise any forward-looking statement to
reflect changes in underlying assumptions or factors, of new
information, data or methods, future events or other changes. For a
further discussion of these and other factors that could cause the
company’s future results to differ materially from any forward-looking
statements, see the section entitled “Risk Factors” in the company’s
Annual Report on Form 10-K for the year ended December 31, 2018.
|
CONDENSED CONSOLIDATED BALANCE SHEETS (amounts in thousands, except share data) |
||||||||
| March 31, 2019 | December 31, 2018 | |||||||
| ASSETS | ||||||||
| Real estate properties: | ||||||||
| Land | $ | 110,395 | $ | 135,142 | ||||
| Buildings and improvements | 704,142 | 1,004,500 | ||||||
| 814,537 | 1,139,642 | |||||||
| Accumulated depreciation | (245,528 | ) | (375,968 | ) | ||||
| 569,009 | 763,674 | |||||||
| Acquired real estate leases, net | 183 | 275 | ||||||
| Cash and cash equivalents | 3,069,501 | 2,400,803 | ||||||
| Marketable securities | — | 249,602 | ||||||
| Restricted cash | 1,767 | 3,298 | ||||||
| Rents receivable | 31,151 | 51,089 | ||||||
| Other assets, net | 42,326 | 62,031 | ||||||
| Total assets | $ | 3,713,937 | $ | 3,530,772 | ||||
| LIABILITIES AND EQUITY | ||||||||
| Senior unsecured debt, net | $ | 248,689 | $ | 248,473 | ||||
| Mortgage notes payable, net | 26,288 | 26,482 | ||||||
| Accounts payable, accrued expenses and other | 42,280 | 62,368 | ||||||
| Rent collected in advance | 5,119 | 9,451 | ||||||
| Total liabilities | $ | 322,376 | $ | 346,774 | ||||
| Shareholders’ equity: | ||||||||
|
Preferred shares of beneficial interest, $0.01 par value: 50,000,000 shares authorized; |
||||||||
|
Series D preferred shares; 6 1/2% cumulative convertible; 4,915,196 shares issued and outstanding, aggregate liquidation preference of $122,880 |
$ | 119,263 | $ | 119,263 | ||||
|
Common shares of beneficial interest, $0.01 par value: 350,000,000 shares authorized; 121,899,625 and 121,572,155 shares issued and outstanding, respectively |
1,219 | 1,216 | ||||||
| Additional paid in capital | 4,304,560 | 4,305,974 | ||||||
| Cumulative net income | 3,081,492 | 2,870,974 | ||||||
| Cumulative other comprehensive loss | — | (342 | ) | |||||
| Cumulative common distributions | (3,420,512 | ) | (3,420,548 | ) | ||||
| Cumulative preferred distributions | (695,733 | ) | (693,736 | ) | ||||
| Total shareholders’ equity | 3,390,289 | 3,182,801 | ||||||
| Noncontrolling interest | 1,272 | 1,197 | ||||||
| Total equity | $ | 3,391,561 | $ | 3,183,998 | ||||
| Total liabilities and equity | $ | 3,713,937 | $ | 3,530,772 | ||||
|
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (amounts in thousands, except per share data) |
||||||||
| Three Months Ended | ||||||||
| March 31, | ||||||||
| 2019 | 2018 | |||||||
| Revenues: | ||||||||
| Rental revenue | $ | 38,890 | $ | 55,273 | ||||
| Other revenue | 2,862 | 3,315 | ||||||
| Total revenues | $ | 41,752 | $ | 58,588 | ||||
| Expenses: | ||||||||
| Operating expenses | $ | 15,780 | $ | 24,599 | ||||
| Depreciation and amortization | 8,585 | 13,903 | ||||||
| General and administrative | 12,096 | 13,339 | ||||||
| Loss on asset impairment | — | 12,087 | ||||||
| Total expenses | $ | 36,461 | $ | 63,928 | ||||
| Interest and other income, net | 17,775 | 5,780 | ||||||
|
Interest expense (including net amortization of debt discounts, premiums and deferred financing fees of $165 and $801, respectively) |
(4,206 | ) | (10,115 | ) | ||||
| Loss on early extinguishment of debt | — | (4,867 | ) | |||||
| Gain on sale of properties, net | 193,037 | 205,211 | ||||||
| Income before income taxes | 211,897 | 190,669 | ||||||
| Income tax expense | (1,300 | ) | (3,007 | ) | ||||
| Net income | $ | 210,597 | $ | 187,662 | ||||
| Net income attributable to noncontrolling interest | (79 | ) | (63 | ) | ||||
| Net income attributable to Equity Commonwealth | $ | 210,518 | $ | 187,599 | ||||
| Preferred distributions | (1,997 | ) | (1,997 | ) | ||||
| Net income attributable to Equity Commonwealth common shareholders | $ | 208,521 | $ | 185,602 | ||||
| Weighted average common shares outstanding — basic (1) | 121,960 | 123,867 | ||||||
| Weighted average common shares outstanding — diluted (1) | 125,822 | 127,097 | ||||||
|
Earnings per common share attributable to Equity Commonwealth common shareholders: |
||||||||
| Basic | $ | 1.71 | $ | 1.50 | ||||
| Diluted | $ | 1.67 | $ | 1.48 | ||||
|
Certain reclassifications were made to conform the prior period to our presentation of the condensed consolidated statements of operations due to the impact of adopting ASU 2016-02. Amounts that were previously disclosed as “Tenant reimbursements and other income” are now included in “Rental revenue” and are no longer presented as a separate line item. Parking revenues that do not represent components of leases and were previously disclosed as “Rental income” are now included in “Other revenue.” Subsequent to January 1, 2019, provisions for credit losses are included in “Rental revenue.” Provisions for credit losses prior to January 1, 2019 were disclosed as “Operating expenses” and were not reclassified to conform prior periods to the current presentation. |
| (1) |
Weighted average common shares outstanding for the three months ended March 31, 2019 and 2018 includes 187 and 307 unvested, earned RSUs, respectively. |
|
CALCULATION OF FUNDS FROM OPERATIONS (FFO) AND NORMALIZED FFO (amounts in thousands, except per share data) |
||||||||
| Three Months Ended | ||||||||
| March 31, | ||||||||
| 2019 | 2018 | |||||||
| Calculation of FFO | ||||||||
| Net income | $ | 210,597 | $ | 187,662 | ||||
| Real estate depreciation and amortization | 8,277 | 13,603 | ||||||
| Loss on asset impairment | — | 12,087 | ||||||
| Gain on sale of properties, net | (193,037 | ) | (205,211 | ) | ||||
| FFO attributable to Equity Commonwealth | 25,837 | 8,141 | ||||||
| Preferred distributions | (1,997 | ) | (1,997 | ) | ||||
| FFO attributable to EQC common shareholders and unitholders | $ | 23,840 | $ | 6,144 | ||||
| Calculation of Normalized FFO | ||||||||
| FFO attributable to EQC common shareholders and unitholders | $ | 23,840 | $ | 6,144 | ||||
| Lease value amortization | (39 | ) | 98 | |||||
| Straight line rent adjustments | (837 | ) | (1,528 | ) | ||||
| Loss on early extinguishment of debt | — | 4,867 | ||||||
| Loss on sale of securities | — | 4,987 | ||||||
| Income taxes related to gains on property sales, net | 150 | 2,969 | ||||||
|
Normalized FFO attributable to EQC common shareholders and unitholders |
$ | 23,114 | $ | 17,537 | ||||
| Weighted average common shares and units outstanding — basic (1) | 122,006 | 123,910 | ||||||
| Weighted average common shares and units outstanding — diluted (1) | 123,305 | 124,734 | ||||||
|
FFO attributable to EQC common shareholders and unitholders per share and unit — basic |
$ | 0.20 | $ | 0.05 | ||||
|
FFO attributable to EQC common shareholders and unitholders per share and unit — diluted |
$ | 0.19 | $ | 0.05 | ||||
|
Normalized FFO attributable to EQC common shareholders and unitholders per share and unit — basic |
$ | 0.19 | $ | 0.14 | ||||
|
Normalized FFO attributable to EQC common shareholders and unitholders per share and unit — diluted |
$ | 0.19 | $ | 0.14 | ||||
| (1) |
Our calculations of FFO and Normalized FFO attributable to EQC |
We compute FFO in accordance with standards established by NAREIT.
NAREIT defines FFO as net income (loss), calculated in accordance with
GAAP, excluding real estate depreciation and amortization, gains (or
losses) from sales of depreciable property, impairment of depreciable
real estate, and our portion of these items related to equity investees
and noncontrolling interests. Our calculation of Normalized FFO differs
from NAREIT’s definition of FFO because we exclude certain items that we
view as nonrecurring or impacting comparability from period to period.
FFO and Normalized FFO are supplemental non-GAAP financial measures. We
consider FFO and Normalized FFO to be appropriate measures of operating
performance for a REIT, along with net income (loss), net income (loss)
attributable to EQC common shareholders, and cash flow from operating
activities.
We believe that FFO and Normalized FFO provide useful information to
investors because by excluding the effects of certain historical
amounts, such as depreciation expense, FFO and Normalized FFO may
facilitate a comparison of our operating performance between periods and
with other REITs. FFO and Normalized FFO do not represent cash generated
by operating activities in accordance with GAAP and should not be
considered as alternatives to net income (loss), net income (loss)
attributable to EQC common shareholders, or cash flow from operating
activities, determined in accordance with GAAP, or as indicators of our
financial performance or liquidity, nor are these measures necessarily
indicative of sufficient cash flow to fund all of our needs. These
measures should be considered in conjunction with net income (loss), net
income (loss) attributable to EQC common shareholders, and cash flow
from operating activities as presented in our condensed consolidated
statements of operations, condensed consolidated statements of
comprehensive income and condensed consolidated statements of cash
flows. Other REITs and real estate companies may calculate FFO and
Normalized FFO differently than we do.
|
CALCULATION OF SAME PROPERTY NET OPERATING INCOME (NOI) AND (amounts in thousands) |
||||||||||||||||||||
| For the Three Months Ended | ||||||||||||||||||||
| 3/31/2019 | 12/31/2018 | 9/30/2018 | 6/30/2018 | 3/31/2018 | ||||||||||||||||
| Calculation of Same Property NOI and Same Property Cash Basis NOI: | ||||||||||||||||||||
| Rental revenue | $ | 38,890 | $ | 39,756 | $ | 43,770 | $ | 45,569 | $ | 55,273 | ||||||||||
| Other revenue | 2,862 | 3,169 | 3,103 | 3,067 | 3,315 | |||||||||||||||
| Operating expenses | (15,780 | ) | (15,539 | ) | (20,257 | ) | (19,521 | ) | (24,599 | ) | ||||||||||
| NOI | $ | 25,972 | $ | 27,386 | $ | 26,616 | $ | 29,115 | $ | 33,989 | ||||||||||
| Straight line rent adjustments | (837 | ) | (986 | ) | (1,435 | ) | (1,022 | ) | (1,528 | ) | ||||||||||
| Lease value amortization | (39 | ) | (22 | ) | (4 | ) | (18 | ) | 98 | |||||||||||
| Lease termination fees | — | (19 | ) | (395 | ) | (1,557 | ) | (965 | ) | |||||||||||
| Cash Basis NOI | $ | 25,096 | $ | 26,359 | $ | 24,782 | $ | 26,518 | $ | 31,594 | ||||||||||
| Cash Basis NOI from non-same properties (1) | (3,718 | ) | (6,240 | ) | (4,696 | ) | (6,511 | ) | (12,101 | ) | ||||||||||
| Same Property Cash Basis NOI | $ | 21,378 | $ | 20,119 | $ | 20,086 | $ | 20,007 | $ | 19,493 | ||||||||||
|
Non-cash rental income and lease termination fees from same properties |
(7 | ) | 45 | (22 | ) | 284 | 483 | |||||||||||||
| Same Property NOI | $ | 21,371 | $ | 20,164 | $ | 20,064 | $ | 20,291 | $ | 19,976 | ||||||||||
| Reconciliation of Same Property NOI to GAAP Net Income: | ||||||||||||||||||||
| Same Property NOI | $ | 21,371 | $ | 20,164 | $ | 20,064 | $ | 20,291 | $ | 19,976 | ||||||||||
|
Non-cash rental income and lease termination fees from same properties |
7 | (45 | ) | 22 | (284 | ) | (483 | ) | ||||||||||||
| Same Property Cash Basis NOI | $ | 21,378 | $ | 20,119 | $ | 20,086 | $ | 20,007 | $ | 19,493 | ||||||||||
| Cash Basis NOI from non-same properties (1) | 3,718 | 6,240 | 4,696 | 6,511 | 12,101 | |||||||||||||||
| Cash Basis NOI | $ | 25,096 | $ | 26,359 | $ | 24,782 | $ | 26,518 | $ | 31,594 | ||||||||||
| Straight line rent adjustments | 837 | 986 | 1,435 | 1,022 | 1,528 | |||||||||||||||
| Lease value amortization | 39 | 22 | 4 | 18 | (98 | ) | ||||||||||||||
| Lease termination fees | — | 19 | 395 | 1,557 | 965 | |||||||||||||||
| NOI | $ | 25,972 | $ | 27,386 | $ | 26,616 | $ | 29,115 | $ | 33,989 | ||||||||||
| Depreciation and amortization | (8,585 | ) | (10,830 | ) | (11,287 | ) | (13,021 | ) | (13,903 | ) | ||||||||||
| General and administrative | (12,096 | ) | (8,973 | ) | (10,905 | ) | (11,222 | ) | (13,339 | ) | ||||||||||
| Loss on asset impairment | — | — | — | — | (12,087 | ) | ||||||||||||||
| Interest and other income, net | 17,775 | 15,741 | 12,626 | 12,668 | 5,780 | |||||||||||||||
|
Interest expense (including net amortization of debt discounts, premiums and deferred financing fees of $165 and $801, respectively) |
(4,206 | ) | (5,035 | ) | (5,085 | ) | (6,350 | ) | (10,115 | ) | ||||||||||
| Loss on early extinguishment of debt | — | (719 | ) | — | (1,536 | ) | (4,867 | ) | ||||||||||||
| Gain (loss) on sale of properties, net | 193,037 | (1,608 | ) | 20,877 | 26,937 | 205,211 | ||||||||||||||
| Income before income taxes | $ | 211,897 | $ | 15,962 | $ | 32,842 | $ | 36,591 | $ | 190,669 | ||||||||||
| Income tax (expense) benefit | (1,300 | ) | (540 | ) | (65 | ) | 456 | (3,007 | ) | |||||||||||
| Net income | $ | 210,597 | $ | 15,422 | $ | 32,777 | $ | 37,047 | $ | 187,662 | ||||||||||
| Same Property capitalized external legal costs(2) | N/A | $ | — | $ | 9 | $ | 63 | $ | 76 | |||||||||||
| (1) |
Cash Basis NOI from non-same properties for all periods presented includes the operations of properties disposed or classified as held for sale and land parcels. |
|
| (2) |
Effective January 1, 2019, with the adoption of ASU 2016-02, we no longer capitalize external legal costs incurred when we enter into leases. We did not recast the comparative prior periods presented for the external legal leasing costs capitalized in those periods. |
NOI is income from our real estate including lease termination fees
received from tenants less our property operating expenses. NOI excludes
amortization of capitalized tenant improvement costs and leasing
commissions and corporate level expenses. Cash Basis NOI is NOI
excluding the effects of straight line rent adjustments, lease value
amortization, and lease termination fees. The quarter-to-date same
property versions of these measures include the results of properties
continuously owned from January 1, 2018 through March 31, 2019. Land
parcels and properties classified as held for sale within our condensed
consolidated balance sheets are excluded from the same property versions
of these measures.
We consider these supplemental non-GAAP financial measures to be
appropriate supplemental measures to net income (loss) because they may
help to understand the operations of our properties. We use these
measures internally to evaluate property level performance, and we
believe that they provide useful information to investors regarding our
results of operations because they reflect only those income and expense
items that are incurred at the property level and may facilitate
comparisons of our operating performance between periods and with other
REITs. Cash Basis NOI is among the factors considered with respect to
acquisition, disposition and financing decisions. These measures do not
represent cash generated by operating activities in accordance with GAAP
and should not be considered as an alternative to net income (loss), net
income (loss) attributable to Equity Commonwealth common shareholders,
or cash flow from operating activities, determined in accordance with
GAAP, or as indicators of our financial performance or liquidity, nor
are these measures necessarily indicative of sufficient cash flow to
fund all of our needs. These measures should be considered in
conjunction with net income (loss), net income (loss) attributable to
EQC common shareholders, and cash flow from operating activities as
presented in our condensed consolidated statements of operations,
condensed consolidated statements of comprehensive income and condensed
consolidated statements of cash flows. Other REITs and real estate
companies may calculate these measures differently than we do.
Contacts
Sarah Byrnes, Investor Relations
(312) 646-2801
[email protected]
