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Section 1: 8-K (8-K)

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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549

FORM 8-K


CURRENT REPORT PURSUANT
TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934

Date of report (Date of earliest event reported): October 24, 2018


EQUITY COMMONWEALTH
(Exact Name of Registrant as Specified in Its Charter)

Maryland
(State or Other Jurisdiction of Incorporation)
 

1-9317
 

04-6558834
(Commission File Number)
 
(IRS Employer Identification No.)
 
 
 
Two North Riverside Plaza,
Suite 2100, Chicago, IL
 

60606
(Address of Principal Executive Offices)
 
(Zip Code)

(312) 646-2800
(Registrant’s Telephone Number, Including Area Code)

Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions:

o
Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)
o
Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)
o
Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))
o
Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))

Indicate by check mark whether the registrant is an emerging growth company as defined in Rule 405 of the Securities Act of 1933 (§230.405 of this chapter) or Rule 12b-2 of the Securities Exchange Act of 1934 (§240.12b-2 of this chapter).
 
Emerging growth company o
 
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. o









Item 2.02. Results of Operations and Financial Condition.
On October 24, 2018, Equity Commonwealth, or the Company, issued a press release setting forth the Company’s results of operations and financial condition for the quarter ended September 30, 2018, and also provided certain supplemental operating and financial data for the quarter ended September 30, 2018.  Copies of the Company’s press release and supplemental operating and financial data are furnished as Exhibits 99.1 and 99.2 hereto, respectively.
Item 9.01.  Financial Statements and Exhibits.
(d)          Exhibits
99.1         Press Release Dated October 24, 2018.
99.2         Third Quarter 2018 Supplemental Operating and Financial Data.



2




SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.

 
EQUITY COMMONWEALTH
 
By:
/s/ Adam S. Markman
 
Name:
Adam S. Markman
 
Title:
Executive Vice President, Chief
 
 
Financial Officer and Treasurer
Date: October 24, 2018




(Back To Top)

Section 2: EX-99.1 (EXHIBIT 99.1)

Exhibit
Exhibit 99.1

395464110_earningslogoa14.jpg
Two North Riverside Plaza, Suite 2100, Chicago, Illinois 60606

            
Equity Commonwealth Reports Third Quarter 2018 Results

Chicago - October 24, 2018 - Equity Commonwealth (NYSE: EQC) today reported financial results for the quarter ended September 30, 2018. All per share results are reported on a diluted basis.

Financial results for the quarter ended September 30, 2018
Net income attributable to common shareholders was $30.8 million, or $0.25 per share, for the quarter ended September 30, 2018. This compares to net income attributable to common shareholders of $31.2 million, or $0.25 per share, for the quarter ended September 30, 2017.

Funds from Operations (FFO), as defined by the National Association of Real Estate Investment Trusts, for the quarter ended September 30, 2018, were $20.9 million, or $0.17 per share. This compares to FFO for the quarter ended September 30, 2017 of $27.0 million, or $0.22 per share. The following items impacted FFO for the quarter ended September 30, 2018, compared to the corresponding 2017 period:
($0.15) per share of income from properties sold;
$0.05 per share of interest expense savings;
$0.04 per of share of increase in interest and other income (net of a $0.02 per share loss on the sale of a mortgage receivable); and
$0.01 per share of general & administrative expense savings.

Normalized FFO was $21.6 million, or $0.18 per share. This compares to Normalized FFO for the quarter ended September 30, 2017 of $24.0 million, or $0.19 per share. The following items impacted Normalized FFO for the quarter ended September 30, 2018, compared to the corresponding 2017 period:
($0.15) per share of income from properties sold;
$0.06 per of share of increase in interest and other income;
$0.05 per share of interest expense savings;
$0.02 per share of increase in same property cash NOI; and
$0.01 per share of general & administrative expense savings.

Normalized FFO begins with FFO and eliminates certain items that, by their nature, are not comparable from period to period, non-cash items, and items that tend to obscure the companys operating performance. 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 September 30, 2018, the company’s balance of cash and marketable securities net of distributions payable was $2.6 billion. Total debt outstanding was $280 million and availability under the company’s revolving credit facility was $750 million.

The weighted average number of diluted common shares outstanding when calculating net income per share for the quarter ended September 30, 2018 was 122,850,928 shares, compared to 125,174,651 for the quarter ended September 30, 2017. The weighted average number of diluted common shares outstanding when calculating FFO or Normalized FFO per share for the quarter ended September 30, 2018 was 122,896,648 shares, compared to 125,174,651 for the quarter ended September 30, 2017.


1


Same property results for the quarter ended September 30, 2018
The companys same property portfolio at the end of the quarter consisted of 11 properties totaling 5.4 million square feet. Operating results were as follows:
The same property portfolio was 94.0% leased as of September 30, 2018, compared to 91.8% as of June 30, 2018, and 91.1% as of September 30, 2017.
The same property portfolio commenced occupancy was 91.3% as of September 30, 2018, compared to 89.9% as of June 30, 2018, and 87.5% as of September 30, 2017.
Same property NOI increased 1.7% when compared to the same period in 2017.
Same property cash NOI increased 9.1% when compared to the same period in 2017.
The company entered into leases for approximately 563,000 square feet, including new leases for approximately 562,000 square feet and renewal leases for approximately 1,000 square feet.
GAAP rental rates on new and renewal leases were 11.0% higher compared to prior GAAP rental rates for the same space.
Cash rental rates on new and renewal leases were 1.2% lower compared to prior cash rental rates for the same space.

The definitions and reconciliations of same property NOI and same property cash NOI to operating income, determined in accordance with GAAP, are included at the end of this press release. The same property portfolio includes properties continuously owned from July 1, 2017 through September 30, 2018.

Significant events during the quarter ended September 30, 2018
The company completed dispositions totaling $170.5 million. The properties sold during the quarter included:
777 East Eisenhower Parkway, a 39.8% leased, 290,530 square foot office building in Ann Arbor, Michigan, for a gross sale price of $29.5 million.
8750 Bryn Mawr Avenue, a 95.5% leased, 636,078 square foot, office property in Chicago, Illinois, for a gross sale price of $141 million.
The company announced a special, one-time cash distribution of $2.50 per common share, which was paid on October 23, 2018 to shareholders of record on October 9, 2018.

Subsequent Events
The company currently has 4 properties totaling 2.9 million square feet in various stages of the sale process.

Earnings Conference Call & Supplemental Data
Equity Commonwealth will host a conference call to discuss third quarter results on Thursday, October 25, 2018, at 9:00 A.M. CT. The conference call will be available via live audio webcast on the Investor Relations section of the companys website (www.eqcre.com). A replay of the audio webcast will also be available following the call.

A copy of EQCs Third Quarter 2018 Supplemental Operating and Financial Data is available on the Investor Relations section of EQCs 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 September 30, 2018, EQCs portfolio comprised 11 properties and 5.4 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.




2


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 regarding share repurchases, marketing the company’s properties for sale and consummating asset sales. 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. 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,” “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).

While forward-looking statements reflect the company’s good faith beliefs, they are not guarantees of future performance. 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 most recent Annual Report on Form 10-K and in the company’s Quarterly Reports on Form 10-Q for subsequent quarters.


Contact:
Sarah Byrnes, Investor Relations
(312) 646-2801
ir@eqcre.com









    




3

CONDENSED CONSOLIDATED BALANCE SHEETS
(amounts in thousands, except share data)


 
September 30, 2018
 
December 31, 2017
ASSETS
 
 
 
Real estate properties:
 
 
 
Land
$
137,329

 
$
191,775

Buildings and improvements
1,000,822

 
1,555,836

 
1,138,151

 
1,747,611

Accumulated depreciation
(370,854
)
 
(450,718
)
 
767,297

 
1,296,893

Assets held for sale

 
97,688

Acquired real estate leases, net
596

 
23,847

Cash and cash equivalents
2,673,328

 
2,351,693

Marketable securities
248,838

 
276,928

Restricted cash
9,708

 
8,897

Rents receivable, net of allowance for doubtful accounts of $5,816 and $4,771, respectively
50,103

 
93,436

Other assets, net
63,858

 
87,563

Total assets
$
3,813,728

 
$
4,236,945

 
 
 
 
LIABILITIES AND EQUITY
 
 
 
Revolving credit facility
$

 
$

Senior unsecured debt, net
248,258

 
815,984

Mortgage notes payable, net
31,643

 
32,594

Liabilities related to properties held for sale

 
1,840

Accounts payable, accrued expenses and other
46,896

 
74,956

Rent collected in advance
8,182

 
11,076

Distributions payable
309,238

 

Total liabilities
$
644,217

 
$
936,450

 
 
 
 
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; 121,482,673 and 124,217,616 shares issued and outstanding, respectively
1,215

 
1,242

Additional paid in capital
4,306,020

 
4,380,313

Cumulative net income
2,855,557

 
2,596,259

Cumulative other comprehensive loss
(1,006
)
 
(95
)
Cumulative common distributions
(3,418,995
)
 
(3,111,868
)
Cumulative preferred distributions
(693,736
)
 
(685,748
)
Total shareholders’ equity
3,168,318

 
3,299,366

Noncontrolling interest
1,193

 
1,129

Total equity
$
3,169,511

 
$
3,300,495

Total liabilities and equity
$
3,813,728

 
$
4,236,945



4

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(amounts in thousands, except per share data)



 
Three Months Ended
 
Nine Months Ended
 
September 30,
 
September 30,
 
2018
 
2017
 
2018
 
2017
Revenues:
 
 
 
 
 
 
 
Rental income
$
34,138

 
$
61,091

 
$
112,898

 
$
215,648

Tenant reimbursements and other income
12,735

 
16,707

 
41,199

 
53,300

Total revenues
$
46,873

 
$
77,798

 
$
154,097

 
$
268,948

 
 
 
 
 
 
 
 
Expenses:
 
 
 
 
 
 
 
Operating expenses
$
20,257

 
$
32,380

 
$
64,377

 
$
110,751

Depreciation and amortization
11,287

 
21,133

 
38,211

 
71,970

General and administrative
10,905

 
11,689

 
35,466

 
35,727

Loss on asset impairment

 

 
12,087

 
19,714

Total expenses
$
42,449

 
$
65,202

 
$
150,141

 
$
238,162

 
 
 
 
 
 
 
 
Operating income
$
4,424

 
$
12,596

 
$
3,956

 
$
30,786

 
 
 
 
 
 
 
 
Interest and other income, net
12,626

 
7,596

 
31,074

 
17,987

Interest expense (including net amortization of debt discounts, premiums and deferred financing fees of $559, $784, $2,005 and $2,346, respectively)
(5,085
)
 
(11,510
)
 
(21,550
)
 
(41,387
)
Loss on early extinguishment of debt

 
(203
)
 
(6,403
)
 
(266
)
Gain on sale of properties, net
20,877

 
25,080

 
253,025

 
44,670

Income before income taxes
32,842

 
33,559

 
260,102

 
51,790

Income tax expense
(65
)
 
(335
)
 
(2,616
)
 
(555
)
Net income
$
32,777

 
$
33,224

 
$
257,486

 
$
51,235

Net income attributable to noncontrolling interest
(13
)
 
(12
)
 
(90
)
 
(18
)
Net income attributable to Equity Commonwealth
$
32,764

 
$
33,212

 
$
257,396

 
$
51,217

Preferred distributions
(1,997
)
 
(1,997
)
 
(5,991
)
 
(5,991
)
Net income attributable to Equity Commonwealth common shareholders
$
30,767

 
$
31,215

 
$
251,405

 
$
45,226

Weighted average common shares outstanding — basic (1)
121,845

 
124,089

 
122,504

 
124,068

Weighted average common shares outstanding — diluted (1)
122,851

 
125,175

 
123,389

 
125,194

 
 
 
 
 
 
 
 
Earnings per common share attributable to Equity Commonwealth common shareholders:
 
 
 
 
 
 
 
Basic
$
0.25

 
$
0.25

 
$
2.05

 
$
0.36

Diluted
$
0.25

 
$
0.25

 
$
2.04

 
$
0.36

 
 
 
 
 
 
 
 
Distributions declared per common share
$
2.50

 
$

 
$
2.50

 
$

(1)
Weighted average common shares outstanding for the three months ended September 30, 2018 and 2017 includes 362 and 0 unvested, earned RSUs, respectively. Weighted average common shares outstanding for the nine months ended September 30, 2018 and 2017 includes 344 and 0 unvested, earned RSUs, respectively.
 
 

5

CALCULATION OF FUNDS FROM OPERATIONS (FFO) AND NORMALIZED FFO
(amounts in thousands, except per share data)


 
Three Months Ended
 
Nine Months Ended
 
September 30,
 
September 30,
 
2018
 
2017
 
2018
 
2017
Calculation of FFO
 
 
 
 
 
 
 
Net income
$
32,777

 
$
33,224

 
$
257,486

 
$
51,235

Real estate depreciation and amortization
10,978

 
20,842

 
37,298

 
71,077

Loss on asset impairment

 

 
12,087

 
19,714

Gain on sale of properties, net
(20,877
)
 
(25,080
)
 
(253,025
)
 
(44,670
)
FFO attributable to Equity Commonwealth
22,878

 
28,986

 
53,846

 
97,356

Preferred distributions
(1,997
)
 
(1,997
)
 
(5,991
)
 
(5,991
)
FFO attributable to EQC common shareholders and unitholders
$
20,881

 
$
26,989

 
$
47,855

 
$
91,365

 
 
 
 
 
 
 
 
Calculation of Normalized FFO
 
 
 
 
 
 
 
FFO attributable to EQC common shareholders and unitholders
$
20,881

 
$
26,989

 
$
47,855

 
$
91,365

Lease value amortization
(4
)
 
388

 
76

 
1,479

Straight line rent adjustments
(1,435
)
 
(3,557
)
 
(3,985
)
 
(12,487
)
Loss on early extinguishment of debt

 
203

 
6,403

 
266

Loss on sale of securities

 

 
4,987

 

Loss on sale of real estate mortgage receivable
2,117

 

 
2,117

 

Income taxes related to gains on property sales
25

 

 
2,498

 

Normalized FFO attributable to EQC common shareholders and unitholders
$
21,584

 
$
24,023

 
$
59,951

 
$
80,623

 
 
 
 
 
 
 
 
Weighted average common shares and units outstanding -- basic (1)
121,891

 
124,132

 
122,548

 
124,105

Weighted average common shares and units outstanding -- diluted (1)
122,897

 
125,175

 
123,433

 
125,194

 
 
 
 
 
 
 
 
FFO attributable to EQC common shareholders and unitholders per share and unit -- basic
$
0.17

 
$
0.22

 
$
0.39

 
$
0.74

FFO attributable to EQC common shareholders and unitholders per share and unit -- diluted
$
0.17

 
$
0.22

 
$
0.39

 
$
0.73

Normalized FFO attributable to EQC common shareholders and unitholders per share and unit -- basic
$
0.18

 
$
0.19

 
$
0.49

 
$
0.65

Normalized FFO attributable to EQC common shareholders and unitholders per share and unit -- diluted
$
0.18

 
$
0.19

 
$
0.49

 
$
0.64

(1
)
Our calculations of FFO and Normalized FFO attributable to EQC common shareholders and unitholders per share and unit - basic for the three and nine months ended September 30, 2018 include 46 and 44 LTIP/Operating Partnership Units, respectively, that are excluded from the calculation of basic earnings per common share attributable to EQC common shareholders (only). Our calculations of FFO and Normalized FFO attributable to EQC common shareholders and unitholders per share and unit - basic for the three and nine months ended September 30, 2017 include 43 and 37 LTIP/Operating Partnership Units, respectively, that are excluded from the calculation of basic earnings per common share attributable to EQC common shareholders (only).





6



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, operating income (loss) 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, operating income (loss) 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, operating income (loss) 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.




7

CALCULATION OF SAME PROPERTY NET OPERATING INCOME (NOI) AND SAME PROPERTY CASH BASIS NOI
(amounts in thousands)


 
For the Three Months Ended
 
9/30/2018
 
6/30/2018
 
3/31/2018
 
12/31/2017
 
9/30/2017
Calculation of Same Property NOI and Same Property Cash Basis NOI:
 
 
 
 
 
 
 
 
 
Rental income
$
34,138

 
$
35,211

 
$
43,549

 
$
54,672

 
$
61,091

Tenant reimbursements and other income
12,735

 
13,425

 
15,039

 
16,951

 
16,707

Operating expenses
(20,257
)
 
(19,521
)
 
(24,599
)
 
(30,674
)
 
(32,380
)
NOI
$
26,616

 
$
29,115

 
$
33,989

 
$
40,949

 
$
45,418

Straight line rent adjustments
(1,435
)
 
(1,022
)
 
(1,528
)
 
(1,938
)
 
(3,557
)
Lease value amortization
(4
)
 
(18
)
 
98

 
295

 
388

Lease termination fees
(395
)
 
(1,557
)
 
(965
)
 
(942
)
 
(1,477
)
Cash Basis NOI
$
24,782

 
$
26,518

 
$
31,594

 
$
38,364

 
$
40,772

Cash Basis NOI from non-same properties (1)
(58
)
 
(1,856
)
 
(7,579
)
 
(14,905
)
 
(18,110
)
Same Property Cash Basis NOI
$
24,724

 
$
24,662

 
$
24,015

 
$
23,459

 
$
22,662

Non-cash rental income and lease termination fees from same properties
1,120

 
1,107

 
1,084

 
1,192

 
2,745

Same Property NOI
$
25,844

 
$
25,769

 
$
25,099

 
$
24,651

 
$
25,407

 
 
 
 
 
 
 
 
 
 
Reconciliation of Same Property NOI to GAAP Operating Income:
 
 
 
 
 
 
 
 
 
Same Property NOI
$
25,844

 
$
25,769

 
$
25,099

 
$
24,651

 
$
25,407

Non-cash rental income and lease termination fees from same properties
(1,120
)
 
(1,107
)
 
(1,084
)
 
(1,192
)
 
(2,745
)
Same Property Cash Basis NOI
$
24,724

 
$
24,662

 
$
24,015

 
$
23,459

 
$
22,662

Cash Basis NOI from non-same properties (1)
58

 
1,856

 
7,579

 
14,905

 
18,110

Cash Basis NOI
$
24,782

 
$
26,518

 
$
31,594

 
$
38,364

 
$
40,772

Straight line rent adjustments
1,435

 
1,022

 
1,528

 
1,938

 
3,557

Lease value amortization
4

 
18

 
(98
)
 
(295
)
 
(388
)
Lease termination fees
395

 
1,557

 
965

 
942

 
1,477

NOI
$
26,616

 
$
29,115

 
$
33,989

 
$
40,949

 
$
45,418

Depreciation and amortization
(11,287
)
 
(13,021
)
 
(13,903
)
 
(18,738
)
 
(21,133
)
General and administrative
(10,905
)
 
(11,222
)
 
(13,339
)
 
(12,033
)
 
(11,689
)
Loss on asset impairment

 

 
(12,087
)
 

 

Operating Income (Loss)
$
4,424

 
$
4,872

 
$
(5,340
)
 
$
10,178

 
$
12,596

(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.

















8

CALCULATION OF SAME PROPERTY NET OPERATING INCOME (NOI) AND SAME PROPERTY CASH BASIS NOI
(amounts in thousands)


 
For the Nine Months Ended September 30,
 
2018
 
2017
Calculation of Same Property NOI and Same Property Cash Basis NOI:
 
 
 
Rental income
$
112,898

 
$
215,648

Tenant reimbursements and other income
41,199

 
53,300

Operating expenses
(64,377
)
 
(110,751
)
NOI
$
89,720

 
$
158,197

Straight line rent adjustments
(3,985
)
 
(12,487
)
Lease value amortization
76

 
1,479

Lease termination fees
(2,917
)
 
(4,002
)
Cash Basis NOI
$
82,894

 
$
143,187

Cash Basis NOI from non-same properties (1)
(9,493
)
 
(78,164
)
Same Property Cash Basis NOI
$
73,401

 
$
65,023

Non-cash rental income and lease termination fees from same properties
3,311

 
10,011

Same Property NOI
$
76,712

 
$
75,034

 
 
 
 
Reconciliation of Same Property NOI to GAAP Operating Income:
 
 
 
Same Property NOI
$
76,712

 
$
75,034

Non-cash rental income and lease termination fees from same properties
(3,311
)
 
(10,011
)
Same Property Cash Basis NOI
$
73,401

 
$
65,023

Cash Basis NOI from non-same properties (1)
9,493

 
78,164

Cash Basis NOI
$
82,894

 
$
143,187

Straight line rent adjustments
3,985

 
12,487

Lease value amortization
(76
)
 
(1,479
)
Lease termination fees
2,917

 
4,002

NOI
$
89,720

 
$
158,197

Depreciation and amortization
(38,211
)
 
(71,970
)
General and administrative
(35,466
)
 
(35,727
)
Loss on asset impairment
(12,087
)
 
(19,714
)
Operating Income
$
3,956

 
$
30,786


(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.


NOI is income from our real estate operations 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 July 1, 2017 through September 30, 2018. The year-to-date same property versions of these measures include the results of properties continuously owned from January 1, 2017 through September 30, 2018. 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 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 EQC common shareholders, operating income (loss) 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, operating income (loss) 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.


9
(Back To Top)

Section 3: EX-99.2 (EXHIBIT 99.2)

Exhibit
Exhibit 99.2





395464110_multibldga04.jpg

Equity Commonwealth
Supplemental Operating
and Financial Data

Third Quarter 2018

395464110_eqcblueboxonlya04.jpg



Corporate Headquarters                                Investor Relations
Two North Riverside Plaza                                Sarah Byrnes
Suite 2100                                        (312) 646-2801
Chicago, IL 60606                                    ir@eqcre.com
(312) 646-2800                                        www.eqcre.com








TABLE OF CONTENTS

Corporate Information
 
Company Profile and Investor Information
 
 
 
Financial Information
 
Key Financial Data
 
Condensed Consolidated Balance Sheets
 
Additional Balance Sheet Information
 
Condensed Consolidated Statements of Operations
 
Calculation of Same Property Net Operating Income (NOI) and Same Property Cash Basis NOI
 
Same Property Results of Operations
 
Calculation of EBITDA, EBITDAre, and Adjusted EBITDAre
 
Calculation of Funds from Operations (FFO) and Normalized FFO
 
Debt Summary
 
Debt Maturity Schedule
 
Leverage Ratios, Coverage Ratios and Public Debt Covenants
 
Acquisitions and Dispositions
 
 
 
Portfolio Information
 
Property Detail
 
Leasing Summary
 
Same Property Leasing Summary
 
Capital Summary - Expenditures & Same Property Leasing Commitments
 
Tenants Representing 1.5% or More of Annualized Rental Revenue
 
Same Property Lease Expiration Schedule
 
Disposed Property Detail
 
 
 
Additional Support
 
Common & Potential Common Shares
 
Definitions
 
 
 
Forward-Looking Statements
 
 
 
Some of the statements contained in this presentation constitute forward-looking statements within the meaning of the federal securities laws. Any forward-looking statements contained in this presentation are intended to be made pursuant to the safe harbor provisions of Section 27A of the Securities Act of 1933, as amended, or the Securities Act, and Section 21E of the Securities Exchange Act of 1934, as amended, or the Exchange Act. 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 particular, statements pertaining to our capital resources, portfolio performance and results of operations contain forward-looking statements. Likewise, all of our statements regarding anticipated growth in our funds from operations and anticipated market conditions are forward-looking statements. 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 presentation reflect our current views about future events and are subject to numerous known and unknown risks, uncertainties, assumptions and changes in circumstances that may cause our 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 our future results to differ materially from any forward-looking statements, see the sections entitled “Risk Factors” in our most recent Annual Report on Form 10-K and subsequent quarterly reports on Form 10-Q.
 
 
 
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.

2


COMPANY PROFILE AND INVESTOR INFORMATION

Equity Commonwealth (NYSE: EQC) is an internally managed and self-advised real estate investment trust (REIT) with commercial office properties throughout the United States.
Same Property Statistics
No. of
 
 
 
 Properties
Sq. Feet
% Leased
% Commenced
11
5,410
94.0%
91.3%
 Senior Unsecured Debt Ratings
 
 
 NYSE Trading Symbols
 Moody's: Baa2
 
 
 Common Stock: EQC
 Standard & Poor's: BBB-
 
 
 Preferred Stock Series D: EQCPD
 
 
 
 
Board of Trustees
Sam Zell (Chairman)
 
David A. Helfand
 
Kenneth Shea
James S. Corl
 
Peter Linneman (Lead Independent Trustee)
 
Gerald A. Spector
Martin L. Edelman
 
James L. Lozier, Jr.
 
James A. Star
Edward A. Glickman
 
Mary Jane Robertson
 
 
 
 
 
 
 
Senior Management
David A. Helfand
 
David S. Weinberg
 
 
President and Chief Executive Officer
 
Executive Vice President and
 
 
 
 
Chief Operating Officer
 
 
 
 
 
 
 
Adam S. Markman
 
Orrin S. Shifrin
 
 
Executive Vice President,
 
Executive Vice President,
 
 
Chief Financial Officer and Treasurer
 
General Counsel and Secretary
 
 
Equity Research Coverage (1)
Bank of America / Merrill Lynch
James Feldman
(646) 855-5808
james.feldman@baml.com
Citigroup
Michael Bilerman
(212) 816-1383
michael.bilerman@citi.com
Green Street Advisors
Daniel Ismail
(949) 640-8780
dismail@greenstreetadvisors.com
JMP Securities
Mitch Germain
(212) 906-3546
mgermain@jmpsecurities.com
Stifel Nicolaus
John Guinee
(443) 224-1307
jwguinee@stifel.com
 
 
 
 
Debt Research Coverage (1)
J.P.Morgan
Mark Streeter
(212) 834-5086
mark.streeter@jpmorgan.com
Wells Fargo Securities
Thierry Perrein
(704) 410-3262
thierry.perrein@wellsfargo.com
 
 
 
 
Rating Agencies (1)
Moody's Investors Service
Lori Marks
(212) 553-1098
lori.marks@moodys.com
Standard & Poor's
Fernanda Hernandez
(212) 438-1347
fernanda.hernandez@spglobal.com

Certain terms are defined in the definitions section of this document.
 
 
(1)
Any opinions, estimates or forecasts regarding EQC's performance made by these analysts or agencies do not represent opinions, forecasts or predictions of EQC or its management. EQC does not by its reference to the analysts and agencies above imply its endorsement of or concurrence with any information, conclusions or recommendations provided by any of these analysts or agencies.

3


KEY FINANCIAL DATA
(amounts in thousands, except per share data)

 
 
As of and for the Three Months Ended
 
 
9/30/2018

 
6/30/2018

 
3/31/2018

 
12/31/2017

 
9/30/2017

OPERATING INFORMATION
 
Ending property count (1)
11

 
13

 
13

 
16

 
20

 
Ending square footage (1)(2)
5,410

 
6,341

 
6,344

 
8,706

 
11,031

 
Percent leased (1)
94.0
 %
 
89.8
 %
 
88.6
 %
 
91.9
 %
 
88.3
 %
 
Percent commenced (1)
91.3
 %
 
87.7
 %
 
83.5
 %
 
89.2
 %
 
85.5
 %
 
Net income (loss) attributable to EQC common shareholders
$
30,767

 
$
35,036

 
$
185,602

 
$
(23,558
)
 
$
31,215

 
Adjusted EBITDAre (3)
30,454

 
30,561

 
31,417

 
37,309

 
41,325

SAME PROPERTY OPERATING INFORMATION
 
Ending square footage
5,410

 
5,415

 
5,417

 
5,417

 
5,417

 
Percent leased
94.0
 %
 
91.8
 %
 
90.5
 %
 
91.1
 %
 
91.1
 %
 
Percent commenced
91.3
 %
 
89.9
 %
 
86.7
 %
 
87.1
 %
 
87.5
 %
 
Same Property NOI (3)
$
25,844

 
$
25,769

 
$
25,099

 
$
24,651

 
$
25,407

 
Same Property Cash Basis NOI (3)
24,724

 
24,662

 
24,015

 
23,459

 
22,662

 
Same Property NOI margin
60.8
 %
 
62.9
 %
 
63.3
 %
 
63.3
 %
 
63.4
 %
 
Same Property Cash Basis NOI margin
59.8
 %
 
61.9
 %
 
62.3
 %
 
62.1
 %
 
60.7
 %
SHARES OUTSTANDING AND PER SHARE DATA (4)
 
Shares Outstanding at End of Period
 
 
 
 
 
 
 
 
 
 
Common stock outstanding - basic (5)
121,483

 
121,483

 
121,457

 
124,218

 
124,089

 
Dilutive restricted share units (RSUs), Operating Partnership Units, and LTIP Units (4)
1,414

 
1,235

 
1,377

 
673

 
1,085

 
Dilutive Series D Convertible Preferred Shares outstanding (6)

 

 
2,363

 

 

 
Preferred Stock Outstanding (6)
4,915

 
4,915

 
4,915

 
4,915

 
4,915

 
Weighted Average Shares Outstanding - GAAP
 
 
 
 
 
 
 
 
 
 
Basic (5)
121,845

 
121,822

 
123,867

 
124,293

 
124,089

 
Diluted (5)
122,851

 
122,649

 
127,097

 
124,293

 
125,175

 
Distributions Declared Per Common Share
$
2.50

 
$

 
$

 
$

 
$

BALANCE SHEET
 
Total assets
$
3,813,728

 
$
3,776,874

 
$
4,137,306

 
$
4,236,945

 
$
4,260,289

 
Total liabilities
644,217

 
334,565

 
735,827

 
936,450

 
935,590

ENTERPRISE VALUE
 
Total debt (book value)
$
279,901

 
$
280,012

 
$
678,527

 
$
848,578

 
$
850,576

 
Less: Cash and cash equivalents
(2,673,328
)
 
(2,507,117
)
 
(2,837,671
)
 
(2,351,693
)
 
(2,233,077
)
 
Plus: Market value of preferred shares
128,451

 
127,943

 
127,746

 
129,462

 
130,892

 
Plus: Market value of diluted common shares
3,943,753

 
3,865,605

 
3,767,312

 
3,810,414

 
3,805,309

 
Total enterprise value
$
1,678,777

 
$
1,766,443

 
$
1,735,914

 
$
2,436,761

 
$
2,553,700

RATIOS
 
Net debt / enterprise value
(142.6
)%
 
(126.1
)%
 
(124.4
)%
 
(61.7
)%
 
(54.1
)%
 
Net debt / annualized adjusted EBITDAre (3)
(19.6)x

 
(18.2)x

 
(17.2)x

 
(10.1)x

 
(8.4)x

 
Adjusted EBITDAre (3) / interest expense
6.0x

 
4.8x

 
3.1x

 
3.5x

 
3.6x

(1)
Excludes properties classified as held for sale and land parcels.
(2)
Changes in total square footage result from property dispositions, reclassifications, and remeasurement.
(3)
Non-GAAP financial measures are defined and reconciled to the most directly comparable GAAP measure, herein.
(4)
Restricted share units (RSUs) and LTIP Units are equity awards that contain both service and market-based vesting components. Refer to the schedule of Common & Potential Common Shares for information regarding RSUs and LTIP Units and their impact on weighted average shares outstanding.
(5)
Refer to the schedule of Common & Potential Common Shares for information regarding the components of our weighted average common shares outstanding.
(6)
As of September 30, 2018, we had 4,915 series D preferred shares outstanding that were convertible into 2,363 common shares. The series D preferred shares are dilutive for GAAP EPS for the three months ended March 31, 2018, and are anti-dilutive for GAAP EPS for all other periods presented. Refer to the schedule of Common & Potential Common Shares for information regarding the series D preferred shares and their impact on diluted weighted average shares outstanding for EPS, FFO per share and Normalized FFO per share.

4


CONDENSED CONSOLIDATED BALANCE SHEETS
(amounts in thousands, except share data)

 
September 30, 2018
 
December 31, 2017
ASSETS
 
 
 
Real estate properties:
 
 
 
Land
$
137,329

 
$
191,775

Buildings and improvements
1,000,822

 
1,555,836

 
1,138,151

 
1,747,611

Accumulated depreciation
(370,854
)
 
(450,718
)
 
767,297

 
1,296,893

Assets held for sale

 
97,688

Acquired real estate leases, net
596

 
23,847

Cash and cash equivalents
2,673,328

 
2,351,693

Marketable securities
248,838

 
276,928

Restricted cash
9,708

 
8,897

Rents receivable, net of allowance for doubtful accounts of $5,816 and $4,771, respectively
50,103

 
93,436

Other assets, net
63,858

 
87,563

Total assets
$
3,813,728

 
$
4,236,945

 
 
 
 
LIABILITIES AND EQUITY
 
 
 
Revolving credit facility
$

 
$

Senior unsecured debt, net
248,258

 
815,984

Mortgage notes payable, net
31,643

 
32,594

Liabilities related to properties held for sale

 
1,840

Accounts payable, accrued expenses and other
46,896

 
74,956

Rent collected in advance
8,182

 
11,076

Distributions payable
309,238

 

Total liabilities
$
644,217

 
$
936,450

 
 
 
 
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; 121,482,673 and 124,217,616 shares issued and outstanding, respectively
1,215

 
1,242

Additional paid in capital
4,306,020

 
4,380,313

Cumulative net income
2,855,557

 
2,596,259

Cumulative other comprehensive loss
(1,006
)
 
(95
)
Cumulative common distributions
(3,418,995
)
 
(3,111,868
)
Cumulative preferred distributions
(693,736
)
 
(685,748
)
Total shareholders’ equity
3,168,318

 
3,299,366

Noncontrolling interest
1,193

 
1,129

Total equity
$
3,169,511

 
$
3,300,495

Total liabilities and equity
$
3,813,728

 
$
4,236,945



5


ADDITIONAL BALANCE SHEET INFORMATION
(amounts in thousands)

 
September 30, 2018
December 31, 2017
Additional Balance Sheet Information
 
 
 
 
 
Straight-line rents receivable, net of allowance for doubtful accounts
$
46,575

$
87,190

Accounts receivable, net of allowance for doubtful accounts
3,528

6,246

Rents receivable, net of allowance for doubtful accounts
$
50,103

$
93,436

 
 
 
Capitalized lease incentives, net
$
4,245

$
6,508

Deferred financing fees, net
538

1,749

Deferred leasing costs, net
50,293

63,539

Other
8,782

15,767

Other assets, net
$
63,858

$
87,563

 
 
 
Accounts payable
$
3,341

$
5,175

Accrued interest
1,163

7,517

Accrued taxes
9,270

28,015

Accrued capital expenditures
8,737

7,168

Accrued leasing costs
5,699

3,630

Assumed real estate lease obligations, net
158

1,001

Security deposits
4,088

4,735

Other accrued liabilities
14,440

17,715

Accounts payable and accrued expenses
$
46,896

$
74,956



6


CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(amounts in thousands, except per share data)

 
Three Months Ended
 
Nine Months Ended
 
September 30,
 
September 30,
 
2018
 
2017
 
2018
 
2017
Revenues:
 
 
 
 
 
 
 
Rental income
$
34,138

 
$
61,091

 
$
112,898

 
$
215,648

Tenant reimbursements and other income
12,735

 
16,707

 
41,199

 
53,300

Total revenues
$
46,873

 
$
77,798

 
$
154,097

 
$
268,948

 
 
 
 
 
 
 
 
Expenses:
 
 
 
 
 
 
 
Operating expenses
$
20,257

 
$
32,380

 
$
64,377

 
$
110,751

Depreciation and amortization
11,287

 
21,133

 
38,211

 
71,970

General and administrative
10,905

 
11,689

 
35,466

 
35,727

Loss on asset impairment

 

 
12,087

 
19,714

Total expenses
$
42,449

 
$
65,202

 
$
150,141

 
$
238,162

 
 
 
 
 
 
 
 
Operating income
$
4,424

 
$
12,596

 
$
3,956

 
$
30,786

 
 
 
 
 
 
 
 
Interest and other income, net
12,626

 
7,596

 
31,074

 
17,987

Interest expense (including net amortization of debt discounts, premiums and deferred financing fees of $559, $784, $2,005 and $2,346, respectively)
(5,085
)
 
(11,510
)
 
(21,550
)
 
(41,387
)
Loss on early extinguishment of debt

 
(203
)
 
(6,403
)
 
(266
)
Gain on sale of properties, net
20,877

 
25,080

 
253,025

 
44,670

Income before income taxes
32,842

 
33,559

 
260,102

 
51,790

Income tax expense
(65
)
 
(335
)
 
(2,616
)
 
(555
)
Net income
$
32,777

 
$
33,224

 
$
257,486

 
$
51,235

Net income attributable to noncontrolling interest
(13
)
 
(12
)
 
(90
)
 
(18
)
Net income attributable to Equity Commonwealth
$
32,764

 
$
33,212

 
$
257,396

 
$
51,217

Preferred distributions
(1,997
)
 
(1,997
)
 
(5,991
)
 
(5,991
)
Net income attributable to Equity Commonwealth common shareholders
$
30,767

 
$
31,215

 
$
251,405

 
$
45,226

 
 
 
 
 
 
 
 
Weighted average common shares outstanding — basic (1)
121,845

 
124,089

 
122,504

 
124,068

Weighted average common shares outstanding — diluted (1)
122,851

 
125,175

 
123,389

 
125,194

 
 
 
 
 
 
 
 
Earnings per common share attributable to Equity Commonwealth common shareholders:
 
 
 
 
 
 
 
Basic
$
0.25

 
$
0.25

 
$
2.05

 
$
0.36

Diluted
$
0.25

 
$
0.25

 
$
2.04

 
$
0.36

 
 
 
 
 
 
 
 
Distributions declared per common share
$
2.50

 
$

 
$
2.50

 
$

(1
)
Refer to the schedule of Common & Potential Common Shares for information regarding the components of our weighted average common shares outstanding.

7


CALCULATION OF SAME PROPERTY NET OPERATING INCOME (NOI) AND SAME PROPERTY CASH BASIS NOI
(amounts in thousands)

 
For the Three Months Ended
 
9/30/2018
 
6/30/2018
 
3/31/2018
 
12/31/2017
 
9/30/2017
Calculation of Same Property NOI and Same Property Cash Basis NOI:
 
 
 
 
 
 
 
 
 
Rental income
$
34,138

 
$
35,211

 
$
43,549

 
$
54,672

 
$
61,091

Tenant reimbursements and other income
12,735

 
13,425

 
15,039

 
16,951

 
16,707

Operating expenses
(20,257
)
 
(19,521
)
 
(24,599
)
 
(30,674
)
 
(32,380
)
NOI
$
26,616

 
$
29,115

 
$
33,989

 
$
40,949

 
$
45,418

Straight line rent adjustments
(1,435
)
 
(1,022
)
 
(1,528
)
 
(1,938
)
 
(3,557
)
Lease value amortization
(4
)
 
(18
)
 
98

 
295

 
388

Lease termination fees
(395
)
 
(1,557
)
 
(965
)
 
(942
)
 
(1,477
)
Cash Basis NOI
$
24,782

 
$
26,518

 
$
31,594

 
$
38,364

 
$
40,772

Cash Basis NOI from non-same properties (1)
(58
)
 
(1,856
)
 
(7,579
)
 
(14,905
)
 
(18,110
)
Same Property Cash Basis NOI
$
24,724

 
$
24,662

 
$
24,015

 
$
23,459

 
$
22,662

Non-cash rental income and lease termination fees from same properties
1,120

 
1,107

 
1,084

 
1,192

 
2,745

Same Property NOI
$
25,844

 
$
25,769

 
$
25,099

 
$
24,651

 
$
25,407

 
 
 
 
 
 
 
 
 
 
Reconciliation of Same Property NOI to GAAP Operating Income:
 
 
 
 
 
 
 
 
 
Same Property NOI
$
25,844

 
$
25,769

 
$
25,099

 
$
24,651

 
$
25,407

Non-cash rental income and lease termination fees from same properties
(1,120
)
 
(1,107
)
 
(1,084
)
 
(1,192
)
 
(2,745
)
Same Property Cash Basis NOI
$
24,724

 
$
24,662

 
$
24,015

 
$
23,459

 
$
22,662

Cash Basis NOI from non-same properties (1)
58

 
1,856

 
7,579

 
14,905

 
18,110

Cash Basis NOI
$
24,782

 
$
26,518

 
$
31,594

 
$
38,364

 
$
40,772

Straight line rent adjustments
1,435

 
1,022

 
1,528

 
1,938

 
3,557

Lease value amortization
4

 
18

 
(98
)
 
(295
)
 
(388
)
Lease termination fees
395

 
1,557

 
965

 
942

 
1,477

NOI
$
26,616

 
$
29,115

 
$
33,989

 
$
40,949

 
$
45,418

Depreciation and amortization
(11,287
)
 
(13,021
)
 
(13,903
)
 
(18,738
)
 
(21,133
)
General and administrative
(10,905
)
 
(11,222
)
 
(13,339
)
 
(12,033
)
 
(11,689
)
Loss on asset impairment

 

 
(12,087
)
 

 

Operating Income (Loss)
$
4,424

 
$
4,872

 
$
(5,340
)
 
$
10,178

 
$
12,596

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Same Property capitalized external legal costs(2)
$
14

 
$
53

 
$
100

 
$
213

 
$
142

(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)
We currently capitalize external legal costs incurred when we enter into leases. Beginning in 2019, these external legal leasing costs will be expensed in our financial statements as an operating expense and will result in a reduction to our Cash Basis NOI, NOI and operating income.  We do not intend to recast the comparative periods presented when we adopt the new lease accounting standards.
 
 

8


CALCULATION OF SAME PROPERTY NET OPERATING INCOME (NOI) AND SAME PROPERTY CASH BASIS NOI
(amounts in thousands)

 
For the Nine Months Ended September 30,
 
2018
 
2017
Calculation of Same Property NOI and Same Property Cash Basis NOI:
 
 
 
Rental income
$
112,898

 
$
215,648

Tenant reimbursements and other income
41,199

 
53,300

Operating expenses
(64,377
)
 
(110,751
)
NOI
$
89,720

 
$
158,197

Straight line rent adjustments
(3,985
)
 
(12,487
)
Lease value amortization
76

 
1,479

Lease termination fees
(2,917
)
 
(4,002
)
Cash Basis NOI
$
82,894

 
$
143,187

Cash Basis NOI from non-same properties (1)
(9,493
)
 
(78,164
)
Same Property Cash Basis NOI
$
73,401

 
$
65,023

Non-cash rental income and lease termination fees from same properties
3,311

 
10,011

Same Property NOI
$
76,712

 
$
75,034

 
 
 
 
Reconciliation of Same Property NOI to GAAP Operating Income:
 
 
 
Same Property NOI
$
76,712

 
$
75,034

Non-cash rental income and lease termination fees from same properties
(3,311
)
 
(10,011
)
Same Property Cash Basis NOI
$
73,401

 
$
65,023

Cash Basis NOI from non-same properties (1)
9,493

 
78,164

Cash Basis NOI
$
82,894

 
$
143,187

Straight line rent adjustments
3,985

 
12,487

Lease value amortization
(76
)
 
(1,479
)
Lease termination fees
2,917

 
4,002

NOI
$
89,720

 
$
158,197

Depreciation and amortization
(38,211
)
 
(71,970
)
General and administrative
(35,466
)
 
(35,727
)
Loss on asset impairment
(12,087
)
 
(19,714
)
Operating Income
$
3,956