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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): February 13, 2019


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 February 13, 2019, Equity Commonwealth, or the Company, issued a press release setting forth the Company’s results of operations and financial condition for the quarter and year ended December 31, 2018, and also provided certain supplemental operating and financial data for the quarter and year ended December 31, 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.
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.
Item 9.01.  Financial Statements and Exhibits.
(d)          Exhibits
99.1        Press release dated February 13, 2019.
99.2        Fourth 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: February 13, 2019




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Section 2: EX-99.1 (EXHIBIT 99.1)

Exhibit
Exhibit 99.1

396733001_earningslogoa15.jpg
Two North Riverside Plaza, Suite 2100, Chicago, Illinois 60606

            
Equity Commonwealth Reports Fourth Quarter and Full Year 2018 Results


Chicago - February 13, 2019 - Equity Commonwealth (NYSE: EQC) today reported its financial results for the quarter and year ended December 31, 2018. All per share results are reported on a diluted basis.

Financial results for the quarter ended December 31, 2018
Net income attributable to common shareholders for the quarter ended December 31, 2018 was $13.4 million, or $0.11 per share. This compares to net loss attributable to common shareholders for the quarter ended December 31, 2017 of $23.6 million, or $0.19 per share. The increase in net income was primarily due to lower losses from property sales, an increase in interest and other income, and a decrease in interest expense.

Funds from Operations (FFO), as defined by the National Association of Real Estate Investment Trusts, for the quarter ended December 31, 2018, were $25.6 million, or $0.21 per share. This compares to FFO for the quarter ended December 31, 2017 of $24.0 million, or $0.19 per share. The following items impacted FFO for the quarter ended December 31, 2018, compared to the corresponding 2017 period:
($0.12) per share from properties sold;
$0.06 per share of increase in interest and other income;
$0.05 per share of interest expense savings;
$0.02 per share of general & administrative expense savings; and
$0.01 per share of income from same properties.

Normalized FFO for the quarter ended December 31, 2018 was $25.5 million, or $0.21 per share. This compares to Normalized FFO for the quarter ended December 31, 2017 of $22.6 million, or $0.18 per share. The following items impacted Normalized FFO for the quarter ended December 31, 2018, compared to the corresponding 2017 period:
($0.12) per share from properties sold;
$0.06 per share of increase in interest income;
$0.05 per share of interest expense savings;
$0.02 per share of general & administrative expense savings; and
$0.02 per share from same properties.

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 December 31, 2018, the company’s balance of cash and marketable securities was $2.7 billion, or $21 per share. Total debt outstanding as of December 31, 2018 was $275 million.

The weighted average number of diluted common shares outstanding used for calculating net income or loss per share for the quarter ended December 31, 2018 was 123,375,686 shares, compared to 124,293,289 for the quarter ended December 31, 2017.

1



Same property results for the quarter ended December 31, 2018
The companys same property portfolio at the end of the quarter consisted of 10 properties totaling 5.1 million square feet. Operating results were as follows:
The same property portfolio was 94.8% leased as of December 31, 2018, compared to 93.7% as of September 30, 2018, and 90.6% as of December 31, 2017;
The same property portfolio commenced occupancy was 91.2% as of December 31, 2018, compared to 90.8% as of September 30, 2018, and 86.4% as of December 31, 2017;
Same property net operating income (NOI) increased 7.3% when compared to the same period in 2017;
Same property cash NOI increased 8.4% when compared to the same period in 2017;
The company entered into leases for approximately 173,000 square feet, including renewal leases for approximately 93,000 square feet and new leases for approximately 80,000 square feet;
GAAP rental rates on new and renewal leases were 22.5% higher compared to prior GAAP rental rates for the same space; and
Cash rental rates on new and renewal leases were 10.0% 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 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 October 1, 2017 through December 31, 2018.

Financial results for the year ended December 31, 2018
Net income attributable to common shareholders for the year ended December 31, 2018 was $264.8 million, or $2.15 per share. This compares to net income attributable to common shareholders for the year ended December 31, 2017 of $21.7 million, or $0.17 per share. The increase in net income was primarily due to gains from property sales, a decrease in interest expense, and an increase in interest and other income.

FFO for the year ended December 31, 2018 was $73.4 million, or $0.59 per share. This compares to FFO for the year ended December 31, 2017 of $115.4 million, or $0.92 per share. The decrease in FFO was primarily the result of property sales. The following items impacted FFO for the year ended December 31, 2018, compared to the corresponding 2017 period:
($0.69) per share from properties sold;
($0.05) per share of loss on debt extinguishment;
($0.02) per share of income tax expense;
$0.21 per share of interest expense savings;
$0.17 per share of increase in interest and other income (net of $0.05 per share of losses from the sale of securities and the sale of a mortgage note receivable);
$0.03 per share of general & administrative expense savings; and
$0.03 per share from same properties.

Normalized FFO for the year ended December 31, 2018 was $85.4 million, or $0.69 per share. This compares to Normalized FFO for the year ended December 31, 2017 of $103.3 million, or $0.83 per share. The following items impacted Normalized FFO for the year ended December 31, 2018, compared to the corresponding 2017 period:
($0.67) per share from properties sold;
$0.22 per share of increase in interest income;
$0.21 per share of interest expense savings;
$0.06 per share from same properties; and
$0.03 per share of general & administrative expense savings.

The weighted average number of diluted common shares outstanding when calculating net income or loss per share for the year ended December 31, 2018 was 123,384,813 shares, compared to 125,128,772 for the year ended December 31, 2017.



2


Same property results for the year ended December 31, 2018
The companys same property portfolio at the end of the year consisted of 10 properties totaling 5.1 million square feet. Operating results were as follows:
Same property NOI increased 3.4% when compared to the same period in 2017;
Same property cash NOI increased 11.8% when compared to the same period in 2017;
The company entered into leases for approximately 976,000 square feet, including new leases for approximately 757,000 square feet and renewal leases for approximately 219,000 square feet;
GAAP rental rates on new and renewal leases were 14.8% higher compared to prior GAAP rental rates for the same space; and
Cash rental rates on new and renewal leases were 3.4% 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 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 January 1, 2017 through December 31, 2018.

Significant events during the quarter ended December 31, 2018
The company sold 97 Newberry Road, a 289,000 square foot industrial property, in East Windsor, Connecticut, for a gross sale price of $7.1 million. In connection with the sale, the company repaid the outstanding $4.9 million, 5.7% mortgage loan on the property and incurred $0.5 million of prepayment costs.
The company paid a special, one-time cash distribution of $2.50 per share on October 23, 2018 to shareholders of record on October 9, 2018.
The company determined not to extend its $750 million unsecured revolving credit facility, which was terminated on December 26, 2018.

Significant events during the year ended December 31, 2018
The company sold seven properties totaling 4,405,000 square feet, for a gross sales price of $1.0 billion, at a weighted average cap rate in the high-5% range. Proceeds after credits for capital, contractual lease costs, and rent abatement were $988.3 million.
The company repaid $579.9 million of debt with a weighted average coupon of 4.0%.
The company repurchased approximately 2.97 million of its common shares at an average price of $29.67 per share for a total investment of $88.1 million. The company has $130.9 million authorized for future share repurchases.

Subsequent Events
On January 29, 2019, the company entered into a contract to sell its 1,287,000 square foot office property at 1735 Market Street in Philadelphia, PA, for a gross sale price of $451.6 million. Proceeds after credits for capital costs, contractual lease costs, and rent abatements are expected to be approximately $435.6 million. The closing is expected to occur on or before March 27, 2019. This transaction is subject to customary closing conditions and extensions, and there is no certainty that it will close.
The company currently has three properties totaling 2.7 million square feet for sale, including 1735 Market Street.

Earnings Conference Call & Supplemental Data
Equity Commonwealth will host a conference call to discuss fourth quarter and full year results on Thursday, February 14, 2019, at 9:00 A.M. CST. 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 Fourth Quarter 2018 Supplemental Operating and Financial Data is available for on the Investor Relations section of EQCs website at www.eqcre.com.





3


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 December 31, 2018, EQCs same property portfolio comprised 10 properties and 5.1 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, any statements regarding marketing the companys 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, 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.

Any forward-looking statements contained in this press release reflect the companys current views about future events and are subject to numerous known and unknown risks, uncertainties, assumptions and changes in circumstances that may cause the companys 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 companys future results to differ materially from any forward-looking statements, see the section entitled Risk Factors in the companys most recent Annual Report on Form 10-K and in the companys Quarterly Reports on Form 10-Q for subsequent quarters.


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








4

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


 
December 31, 2018
 
December 31, 2017
ASSETS
 
 
 
Real estate properties:
 
 
 
Land
$
135,142

 
$
191,775

Buildings and improvements
1,004,500

 
1,555,836

 
1,139,642

 
1,747,611

Accumulated depreciation
(375,968
)
 
(450,718
)
 
763,674

 
1,296,893

Assets held for sale

 
97,688

Acquired real estate leases, net
275

 
23,847

Cash and cash equivalents
2,400,803

 
2,351,693

Marketable securities
249,602

 
276,928

Restricted cash
3,298

 
8,897

Rents receivable, net of allowance for doubtful accounts of $4,974 and $4,771, respectively
51,089

 
93,436

Other assets, net
62,031

 
87,563

Total assets
$
3,530,772

 
$
4,236,945

 
 
 
 
LIABILITIES AND EQUITY
 
 
 
Senior unsecured debt, net
$
248,473

 
$
815,984

Mortgage notes payable, net
26,482

 
32,594

Liabilities related to properties held for sale

 
1,840

Accounts payable, accrued expenses and other
62,368

 
74,956

Rent collected in advance
9,451

 
11,076

Total liabilities
$
346,774

 
$
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; 121,572,155 and 124,217,616 shares issued and outstanding, respectively
1,216

 
1,242

Additional paid in capital
4,305,974

 
4,380,313

Cumulative net income
2,870,974

 
2,596,259

Cumulative other comprehensive loss
(342
)
 
(95
)
Cumulative common distributions
(3,420,548
)
 
(3,111,868
)
Cumulative preferred distributions
(693,736
)
 
(685,748
)
Total shareholders' equity
3,182,801

 
3,299,366

Noncontrolling interest
1,197

 
1,129

Total equity
$
3,183,998

 
$
3,300,495

Total liabilities and equity
$
3,530,772

 
$
4,236,945






5

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



 
Three Months Ended
 
Year Ended
 
December 31,
 
December 31,
 
2018
 
2017
 
2018
 
2017
Revenues:
 
 
 
 
 
 
 
Rental income
$
31,527

 
$
54,672

 
$
144,425

 
$
270,320

Tenant reimbursements and other income
11,398

 
16,951

 
52,597

 
70,251

Total revenues
$
42,925

 
$
71,623

 
$
197,022

 
$
340,571

 
 
 
 
 
 
 
 
Expenses:
 
 
 
 
 
 
 
Operating expenses
$
15,539

 
$
30,674

 
$
79,916

 
$
141,425

Depreciation and amortization
10,830

 
18,738

 
49,041

 
90,708

General and administrative
8,973

 
12,033

 
44,439

 
47,760

Loss on asset impairment

 

 
12,087

 
19,714

Total expenses
$
35,342

 
$
61,445

 
$
185,483

 
$
299,607

 
 
 
 
 
 
 
 
Operating income
$
7,583

 
$
10,178

 
$
11,539

 
$
40,964

 
 
 
 
 
 
 
 
Interest and other income, net
15,741

 
8,393

 
46,815

 
26,380

Interest expense (including net amortization of debt discounts, premiums and deferred financing fees of $548, $789, $2,553 and $3,135, respectively)
(5,035
)
 
(10,796
)
 
(26,585
)
 
(52,183
)
Loss on early extinguishment of debt
(719
)
 
(227
)
 
(7,122
)
 
(493
)
(Loss) gain on sale of properties, net
(1,608
)
 
(29,172
)
 
251,417

 
15,498

Income (loss) before income taxes
15,962

 
(21,624
)
 
276,064

 
30,166

Income tax (expense) benefit
(540
)
 
55

 
(3,156
)
 
(500
)
Net income (loss)
$
15,422

 
$
(21,569
)
 
$
272,908

 
$
29,666

Net (income) loss attributable to noncontrolling interest
(5
)
 
8

 
(95
)
 
(10
)
Net income (loss) attributable to Equity Commonwealth
$
15,417

 
$
(21,561
)
 
$
272,813

 
$
29,656

Preferred distributions
(1,997
)
 
(1,997
)
 
(7,988
)
 
(7,988
)
Net income (loss) attributable to Equity Commonwealth common shareholders
$
13,420

 
$
(23,558
)
 
$
264,825

 
$
21,668

Weighted average common shares outstanding — basic (1)
121,749

 
124,293

 
122,314

 
124,125

Weighted average common shares outstanding — diluted (1)
123,376

 
124,293

 
123,385

 
125,129

 
 
 
 
 
 
 
 
Earnings per common share attributable to Equity Commonwealth common shareholders:
 
 
 
 
 
 
 
Basic
$
0.11

 
$
(0.19
)
 
$
2.17

 
$
0.17

Diluted
$
0.11

 
$
(0.19
)
 
$
2.15

 
$
0.17


(1
)
Weighted average common shares outstanding for the three months and year ended December 31, 2018 includes 203 and 308 unvested, earned RSUs, respectively. Weighted average common shares outstanding for the three months and year ended December 31, 2017 includes 133 and 33 unvested, earned RSUs, respectively.


6

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




 
Three Months Ended
 
Year Ended
 
December 31,
 
December 31,
 
2018
 
2017
 
2018
 
2017
Calculation of FFO
 
 
 
 
 
 
 
Net income (loss)
$
15,422

 
$
(21,569
)
 
$
272,908

 
$
29,666

Real estate depreciation and amortization
10,518

 
18,442

 
47,816

 
89,519

Loss on asset impairment

 

 
12,087

 
19,714

Loss (gain) on sale of properties, net
1,608

 
29,172

 
(251,417
)
 
(15,498
)
FFO attributable to Equity Commonwealth
27,548

 
26,045

 
81,394

 
123,401

Preferred distributions
(1,997
)
 
(1,997
)
 
(7,988
)
 
(7,988
)
FFO attributable to EQC common shareholders and unitholders
$
25,551

 
$
24,048

 
$
73,406

 
$
115,413

 
 
 
 
 
 
 
 
Calculation of Normalized FFO
 
 
 
 
 
 
 
FFO attributable to EQC common shareholders and unitholders
$
25,551

 
$
24,048

 
$
73,406

 
$
115,413

Lease value amortization
(22
)
 
295

 
54

 
1,774

Straight line rent adjustments
(986
)
 
(1,938
)
 
(4,971
)
 
(14,425
)
Loss on early extinguishment of debt
719

 
227

 
7,122

 
493

Loss on sale of securities

 

 
4,987

 

Loss on sale of real estate mortgage receivable

 

 
2,117

 

Income taxes related to gains on property sales
228

 

 
2,726

 

Normalized FFO attributable to EQC common shareholders and unitholders
$
25,490

 
$
22,632

 
$
85,441

 
$
103,255

 
 
 
 
 
 
 
 
Weighted average common shares and units outstanding -- basic (1)
121,794

 
124,336

 
122,358

 
124,163

Weighted average common shares and units outstanding -- diluted (1)
123,421

 
124,932

 
123,429

 
125,129

FFO attributable to EQC common shareholders and unitholders per share and unit -- basic
$
0.21

 
$
0.19

 
$
0.60

 
$
0.93

FFO attributable to EQC common shareholders and unitholders per share and unit -- diluted
$
0.21

 
$
0.19

 
$
0.59

 
$
0.92

Normalized FFO attributable to EQC common shareholders and unitholders per share and unit -- basic
$
0.21

 
$
0.18

 
$
0.70

 
$
0.83

Normalized FFO attributable to EQC common shareholders and unitholders per share and unit -- diluted
$
0.21

 
$
0.18

 
$
0.69

 
$
0.83

(1
)
Our calculations of FFO and Normalized FFO attributable to EQC common shareholders and unitholders per share and unit - basic for the three months and year ended December 31, 2018, include 45 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 months and year ended December 31, 2017, include 43 and 38 LTIP/Operating Partnership Units, respectively, that are excluded from the calculation of basic earnings per common share attributable to EQC common shareholders (only).



7


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.


8

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



 
Three Months Ended
 
12/31/2018
 
9/30/2018
 
6/30/2018
 
3/31/2018
 
12/31/2017
Calculation of Same Property NOI and Same Property Cash Basis NOI:
 
 
 
 
 
 
 
 
 
Rental income
$
31,527

 
$
34,138

 
$
35,211

 
$
43,549

 
$
54,672

Tenant reimbursements and other income
11,398

 
12,735

 
13,425

 
15,039

 
16,951

Operating expenses
(15,539
)
 
(20,257
)
 
(19,521
)
 
(24,599
)
 
(30,674
)
NOI
$
27,386

 
$
26,616

 
$
29,115

 
$
33,989

 
$
40,949

Straight line rent adjustments
(986
)
 
(1,435
)
 
(1,022
)
 
(1,528
)
 
(1,938
)
Lease value amortization
(22
)
 
(4
)
 
(18
)
 
98

 
295

Lease termination fees
(19
)
 
(395
)
 
(1,557
)
 
(965
)
 
(942
)
Cash Basis NOI
$
26,359

 
$
24,782

 
$
26,518

 
$
31,594

 
$
38,364

Cash Basis NOI from non-same properties (1)
(1,325
)
 
(405
)
 
(2,259
)
 
(7,966
)
 
(15,274
)
Same Property Cash Basis NOI
$
25,034

 
$
24,377

 
$
24,259

 
$
23,628

 
$
23,090

Non-cash rental income and lease termination fees from same properties
1,059

 
1,159

 
1,147

 
1,130

 
1,235

Same Property NOI
$
26,093

 
$
25,536

 
$
25,406

 
$
24,758

 
$
24,325

 
 
 
 
 
 
 
 
 
 
Reconciliation of Same Property NOI to GAAP Operating Income:
 
 
 
 
 
 
 
 
 
Same Property NOI
$
26,093

 
$
25,536

 
$
25,406

 
$
24,758

 
$
24,325

Non-cash rental income and termination fees from same properties
(1,059
)
 
(1,159
)
 
(1,147
)
 
(1,130
)
 
(1,235
)
Same Property Cash Basis NOI
$
25,034

 
$
24,377

 
$
24,259

 
$
23,628

 
$
23,090

Cash Basis NOI from non-same properties (1)
1,325

 
405

 
2,259

 
7,966

 
15,274

Cash Basis NOI
$
26,359

 
$
24,782

 
$
26,518

 
$
31,594

 
$
38,364

Straight line rent adjustments
986

 
1,435

 
1,022

 
1,528

 
1,938

Lease value amortization
22

 
4

 
18

 
(98
)
 
(295
)
Lease termination fees
19

 
395

 
1,557

 
965

 
942

NOI
$
27,386

 
$
26,616

 
$
29,115

 
$
33,989

 
$
40,949

Depreciation and amortization
(10,830
)
 
(11,287
)
 
(13,021
)
 
(13,903
)
 
(18,738
)
General and administrative
(8,973
)
 
(10,905
)
 
(11,222
)
 
(13,339
)
 
(12,033
)
Loss on asset impairment

 

 

 
(12,087
)
 

Operating Income (Loss)
$
7,583

 
$
4,424

 
$
4,872

 
$
(5,340
)
 
$
10,178

(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.

9

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


 
For the Year Ended December 31,
 
2018
 
2017
Calculation of Same Property NOI and Same Property Cash Basis NOI:
 
 
 
Rental income
$
144,425

 
$
270,320

Tenant reimbursements and other income
52,597

 
70,251

Operating expenses
(79,916
)
 
(141,425
)
NOI
$
117,106

 
$
199,146

Straight line rent adjustments
(4,971
)
 
(14,425
)
Lease value amortization
54

 
1,774

Lease termination fees
(2,936
)
 
(4,944
)
Cash Basis NOI
$
109,253

 
$
181,551

Cash Basis NOI from non-same properties (1)
(11,955
)
 
(94,487
)
Same Property Cash Basis NOI
$
97,298

 
$
87,064

Non-cash rental income and lease termination fees from same properties
4,495

 
11,350

Same Property NOI
$
101,793

 
$
98,414

 
 
 
 
Reconciliation of Same Property NOI to GAAP Operating Income:
 
 
 
Same Property NOI
$
101,793

 
$
98,414

Non-cash rental income and termination fees from same properties
(4,495
)
 
(11,350
)
Same Property Cash Basis NOI
$
97,298

 
$
87,064

Cash Basis NOI from non-same properties (1)
11,955

 
94,487

Cash Basis NOI
$
109,253

 
$
181,551

Straight line rent adjustments
4,971

 
14,425

Lease value amortization
(54
)
 
(1,774
)
Lease termination fees
2,936

 
4,944

NOI
$
117,106

 
$
199,146

Depreciation and amortization
(49,041
)
 
(90,708
)
General and administrative
(44,439
)
 
(47,760
)
Loss on asset impairment
(12,087
)
 
(19,714
)
Operating Income
$
11,539

 
$
40,964

(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 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 October 1, 2017 through December 31, 2018. The year-to-date same property versions of these measures include the results of properties continuously owned from January 1, 2017 through December 31, 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 Equity Commonwealth 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.

10
(Back To Top)

Section 3: EX-99.2 (EXHIBIT 99.2)

Exhibit
Exhibit 99.2



396733001_covercollage21219.jpg

Equity Commonwealth
Supplemental Operating
and Financial Data

Fourth Quarter 2018

396733001_eqcblueboxonlya05.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, including, but not limited to, statements pertaining to our capital resources, portfolio performance, results of operations or anticipated market conditions. 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, and 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.
 
 
 
Any 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 a Chicago based, internally managed and self-advised real estate investment trust (REIT) with commercial office properties in the United States.
Same Property Statistics
No. of
 
 
 
 Properties
Sq. Feet
% Leased
% Commenced
10
5,120
94.8%
91.2%
 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
 
 
12/31/2018

 
9/30/2018

 
6/30/2018

 
3/31/2018

 
12/31/2017

OPERATING INFORMATION
 
Ending property count (1)
10

 
11

 
13

 
13

 
16

 
Ending square footage (1)(2)
5,120

 
5,410

 
6,341

 
6,344

 
8,706

 
Percent leased (1)
94.8
 %
 
94.0
 %
 
89.8
 %
 
88.6
 %
 
91.9
 %
 
Percent commenced (1)
91.2
 %
 
91.3
 %
 
87.7
 %
 
83.5
 %
 
89.2
 %
 
Net income (loss) attributable to EQC common shareholders
$
13,420

 
$
30,767

 
$
35,036

 
$
185,602

 
$
(23,558
)
 
Adjusted EBITDAre (3)
34,154

 
30,454

 
30,561

 
31,417

 
37,309

SAME PROPERTY OPERATING INFORMATION
 
Ending square footage
5,120

 
5,120

 
5,125

 
5,128

 
5,128

 
Percent leased
94.8
 %
 
93.7
 %
 
91.3
 %
 
89.9
 %
 
90.6
 %
 
Percent commenced
91.2
 %
 
90.8
 %
 
89.3
 %
 
85.9
 %
 
86.4
 %
 
Same Property NOI (3) 
26,093

 
25,536

 
25,406

 
24,758

 
24,325

 
Same Property Cash Basis NOI (3) 
25,034

 
24,377

 
24,259

 
23,628

 
23,090

 
Same Property NOI margin
61.9
 %
 
60.8
 %
 
62.8
 %
 
63.2
 %
 
63.2
 %
 
Same Property Cash Basis NOI margin
60.9
 %
 
59.6
 %
 
61.7
 %
 
62.1
 %
 
62.0
 %
SHARES OUTSTANDING AND PER SHARE DATA (4)
 
Shares Outstanding at End of Period
 
 
 
 
 
 
 
 
 
 
Common stock outstanding - basic (5)
121,572

 
121,483

 
121,483

 
121,457

 
124,218

 
Dilutive restricted share units (RSUs), Operating Partnership Units, and LTIP Units(4)
1,809

 
1,414

 
1,235

 
1,377

 
673

 
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)
121,749

 
121,845

 
121,822

 
123,867

 
124,293

 
Diluted (5)
123,376

 
122,851

 
122,649

 
127,097

 
124,293

 
Distributions Declared Per Common Share
$

 
$
2.50

 
$

 
$

 
$

BALANCE SHEET
 
Total assets
$
3,530,772

 
$
3,813,728

 
$
3,776,874

 
$
4,137,306

 
$
4,236,945

 
Total liabilities
346,774

 
644,217

 
334,565

 
735,827

 
936,450

ENTERPRISE VALUE
 
Total debt (book value)
$
274,955

 
$
279,901

 
$
280,012

 
$
678,527

 
$
848,578

 
Less: Cash and cash equivalents
(2,400,803
)
 
(2,673,328
)
 
(2,507,117
)
 
(2,837,671
)
 
(2,351,693
)
 
Plus: Market value of preferred shares
124,109

 
128,451

 
127,943

 
127,746

 
129,462

 
Plus: Market value of diluted common shares
3,698,580

 
3,943,753

 
3,865,605

 
3,767,312

 
3,810,414

 
Total enterprise value
$1,696,841
 
$1,678,777
 
$1,766,443
 
$1,735,914
 
$2,436,761
RATIOS
 
Net debt / enterprise value
(125.3)
 %
 
(142.6
)%
 
(126.1
)%
 
(124.4
)%
 
(61.7
)%
 
Net debt / annualized adjusted EBITDAre (3)
(15.6
)x
 
(19.6
)x
 
(18.2
)x
 
(17.2
)x
 
(10.1
)x
 
Adjusted EBITDAre (3) / interest expense
6.8
x
 
6.0
x
 
4.8
x
 
3.1
x
 
3.5
x
(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 December 31, 2018, we had 4,915 series D preferred shares outstanding that were convertible into 2,563 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)

 
December 31, 2018
 
December 31, 2017
ASSETS
 
 
 
Real estate properties:
 
 
 
Land
$
135,142

 
$
191,775

Buildings and improvements
1,004,500

 
1,555,836

 
1,139,642

 
1,747,611

Accumulated depreciation
(375,968
)
 
(450,718
)
 
763,674

 
1,296,893

Assets held for sale

 
97,688

Acquired real estate leases, net
275

 
23,847

Cash and cash equivalents
2,400,803

 
2,351,693

Marketable securities
249,602

 
276,928

Restricted cash
3,298

 
8,897

Rents receivable, net of allowance for doubtful accounts of $4,974 and $4,771, respectively
51,089

 
93,436

Other assets, net
62,031

 
87,563

Total assets
$
3,530,772

 
$
4,236,945

 
 
 
 
LIABILITIES AND EQUITY
 
 
 
Senior unsecured debt, net
$
248,473

 
$
815,984

Mortgage notes payable, net
26,482

 
32,594

Liabilities related to properties held for sale

 
1,840

Accounts payable, accrued expenses and other
62,368

 
74,956

Rent collected in advance
9,451

 
11,076

Total liabilities
$
346,774

 
$
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; 121,572,155 and 124,217,616 shares issued and outstanding, respectively
1,216

 
1,242

Additional paid in capital
4,305,974

 
4,380,313

Cumulative net income
2,870,974

 
2,596,259

Cumulative other comprehensive loss
(342
)
 
(95
)
Cumulative common distributions
(3,420,548
)
 
(3,111,868
)
Cumulative preferred distributions
(693,736
)
 
(685,748
)
Total shareholders' equity
3,182,801

 
3,299,366

Noncontrolling interest
1,197

 
1,129

Total equity
$
3,183,998

 
$
3,300,495

Total liabilities and equity
$
3,530,772

 
$
4,236,945


5

ADDITIONAL BALANCE SHEET INFORMATION
(amounts in thousands)

 
December 31, 2018
December 31, 2017
Additional Balance Sheet Information
 
 
 
 
 
Straight-line rents receivable, net of allowance for doubtful accounts
$
47,393

$
87,190

Accounts receivable, net of allowance for doubtful accounts
3,696

6,246

Rents receivable, net of allowance for doubtful accounts
$
51,089

$
93,436

 
 
 
Capitalized lease incentives, net
$
4,308

$
6,508

Deferred financing fees, net

1,749

Deferred leasing costs, net
51,123

63,539

Other
6,600

15,767

Other assets, net
$
62,031

$
87,563

 
 
 
Accounts payable
$
2,932

$
5,175

Accrued interest
4,432

7,517

Accrued taxes
13,228

28,015

Accrued capital expenditures
13,540

7,168

Accrued leasing costs
6,181

3,630

Assumed real estate lease obligations, net
117

1,001

Security deposits
4,137

4,735

Other accrued liabilities
17,801

17,715

Accounts payable, accrued expenses and other
$
62,368

$
74,956



6


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

 
Three Months Ended
 
Year Ended
 
December 31,
 
December 31,
 
2018
 
2017
 
2018
 
2017
Revenues:
 
 
 
 
 
 
 
Rental income
$
31,527

 
$
54,672

 
$
144,425

 
$
270,320

Tenant reimbursements and other income
11,398

 
16,951

 
52,597

 
70,251

Total revenues
$
42,925

 
$
71,623

 
$
197,022

 
$
340,571

 
 
 
 
 
 
 
 
Expenses:
 
 
 
 
 
 
 
Operating expenses
$
15,539

 
$
30,674

 
$
79,916

 
$
141,425

Depreciation and amortization
10,830

 
18,738

 
49,041

 
90,708

General and administrative
8,973

 
12,033

 
44,439

 
47,760

Loss on asset impairment

 

 
12,087

 
19,714

Total expenses
$
35,342

 
$
61,445

 
$
185,483

 
$
299,607

 
 
 
 
 
 
 
 
Operating income
$
7,583

 
$
10,178

 
$
11,539

 
$
40,964

 
 
 
 
 
 
 
 
Interest and other income, net
15,741

 
8,393

 
46,815

 
26,380

Interest expense (including net amortization of debt discounts, premiums and deferred financing fees of $548, $789, $2,553 and $3,135, respectively)
(5,035
)
 
(10,796
)
 
(26,585
)
 
(52,183
)
Loss on early extinguishment of debt
(719
)
 
(227
)
 
(7,122
)
 
(493
)
(Loss) gain on sale of properties, net
(1,608
)
 
(29,172
)
 
251,417

 
15,498

Income (loss) before income taxes
15,962

 
(21,624
)
 
276,064

 
30,166

Income tax (expense) benefit
(540
)
 
55

 
(3,156
)
 
(500
)
Net income (loss)
$
15,422

 
$
(21,569
)
 
$
272,908

 
$
29,666

Net (income) loss attributable to noncontrolling interest
(5
)
 
8

 
(95
)
 
(10
)
Net income (loss) attributable to Equity Commonwealth
$
15,417

 
$
(21,561
)
 
$
272,813

 
$
29,656

Preferred distributions
(1,997
)
 
(1,997
)
 
(7,988
)
 
(7,988
)
Net income (loss) attributable to Equity Commonwealth common shareholders
$
13,420

 
$
(23,558
)
 
$
264,825

 
$
21,668

Weighted average common shares outstanding — basic (1)
 
121,749

 
124,293

 
122,314

 
124,125

Weighted average common shares outstanding — diluted (1)
 
123,376

 
124,293

 
123,385

 
125,129

 
 
 
 
 
 
 
 
 
Earnings per common share attributable to Equity Commonwealth common shareholders:
 
 
 
 
 
 
 
 
Basic
 
$
0.11

 
$
(0.19
)
 
$
2.17

 
$
0.17

Diluted
 
$
0.11

 
$
(0.19
)
 
$
2.15

 
$
0.17

 
 
 
 
 
 
 
 
 
(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)

 
Three Months Ended
 
12/31/2018
 
9/30/2018
 
6/30/2018
 
3/31/2018
 
12/31/2017
Calculation of Same Property NOI and Same Property Cash Basis NOI:
 
 
 
 
 
 
 
 
 
Rental income
$
31,527

 
$
34,138

 
$
35,211

 
$
43,549

 
$
54,672

Tenant reimbursements and other income
11,398

 
12,735

 
13,425

 
15,039

 
16,951

Operating expenses
(15,539
)
 
(20,257
)
 
(19,521
)
 
(24,599
)
 
(30,674
)
NOI
$
27,386

 
$
26,616

 
$
29,115

 
$
33,989

 
$
40,949

Straight line rent adjustments
(986
)
 
(1,435
)
 
(1,022
)
 
(1,528
)
 
(1,938
)
Lease value amortization
(22
)
 
(4
)
 
(18
)
 
98

 
295

Lease termination fees
(19
)
 
(395
)
 
(1,557
)
 
(965
)
 
(942
)
Cash Basis NOI
$
26,359

 
$
24,782

 
$
26,518

 
$
31,594

 
$
38,364

Cash Basis NOI from non-same properties (1)
(1,325
)
 
(405
)
 
(2,259
)

(7,966
)

(15,274
)
Same Property Cash Basis NOI
$
25,034

 
$
24,377

 
$
24,259

 
$
23,628

 
$
23,090

Non-cash rental income and lease termination fees from same properties
1,059

 
1,159

 
1,147

 
1,130

 
1,235

Same Property NOI
$
26,093

 
$
25,536

 
$
25,406

 
$
24,758

 
$
24,325

 
 
 
 
 
 
 
 
 
 
Reconciliation of Same Property NOI to GAAP Operating Income:
 
 
 
 
 
 
 
 
 
Same Property NOI
$
26,093

 
$
25,536

 
$
25,406

 
$
24,758

 
$
24,325

Non-cash rental income and termination fees from same properties
(1,059
)
 
(1,159
)
 
(1,147
)
 
(1,130
)
 
(1,235
)
Same Property Cash Basis NOI
$
25,034

 
$
24,377

 
$
24,259

 
$
23,628

 
$
23,090

Cash Basis NOI from non-same properties (1)
1,325

 
405

 
2,259

 
7,966

 
15,274

Cash Basis NOI
$
26,359

 
$
24,782

 
$
26,518

 
$
31,594

 
$
38,364

Straight line rent adjustments
986

 
1,435

 
1,022

 
1,528

 
1,938

Lease value amortization
22

 
4

 
18

 
(98
)
 
(295
)
Lease termination fees
19

 
395

 
1,557

 
965

 
942

NOI
$
27,386

 
$
26,616

 
$
29,115

 
$
33,989

 
$
40,949

Depreciation and amortization
(10,830
)
 
(11,287
)
 
(13,021
)
 
(13,903
)
 
(18,738
)
General and administrative
(8,973
)
 
(10,905
)
 
(11,222
)
 
(13,339
)
 
(12,033
)
Loss on asset impairment

 

 

 
(12,087
)
 

Operating Income (Loss)
$
7,583

 
$
4,424

 
$
4,872

 
$
(5,340
)
 
$
10,178

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Same Property capitalized external legal costs(2)
$

 
$
14

 
$
53

 
$
100

 
$
213

(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 prior 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 Year Ended December 31,
 
2018
 
2017
Calculation of Same Property NOI and Same Property Cash Basis NOI:
 
 
 
Rental income
$
144,425

 
$
270,320

Tenant reimbursements and other income
52,597

 
70,251

Operating expenses
(79,916
)
 
(141,425
)
NOI
$
117,106

 
$
199,146

Straight line rent adjustments
(4,971
)
 
(14,425
)
Lease value amortization
54

 
1,774

Lease termination fees
(2,936
)
 
(4,944
)
Cash Basis NOI
$
109,253

 
$
181,551

Cash Basis NOI from non-same properties (1)
(11,955
)
 
(94,487
)
Same Property Cash Basis NOI
$
97,298

 
$
87,064

Non-cash rental income and lease termination fees from same properties
4,495

 
11,350

Same Property NOI
$
101,793

 
$
98,414

 
 
 
 
Reconciliation of Same Property NOI to GAAP Operating Income:
 
 
 
Same Property NOI
$
101,793

 
$
98,414

Non-cash rental income and lease termination fees from same properties
(4,495
)
 
(11,350
)
Same Property Cash Basis NOI
$
97,298

 
$
87,064

Cash Basis NOI from non-same properties (1)
11,955

 
94,487

Cash Basis NOI
$
109,253