Supplemental Operating and Financial Data
Third Quarter 2017
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
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| | |
| 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 and Adjusted EBITDA | |
| | 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 |
| | Top Properties by Annualized Rental Revenue | |
| | Leasing Summary | |
| | Same Property Leasing Summary | |
| | Capital Summary - Expenditures & Leasing Commitments | |
| | Tenants Representing 1.5% or More of Annualized Rental Revenue | |
| | Same Property Lease Expiration Schedule | |
| | Property Detail | |
| | 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 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. |
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 |
| 20 | 11,031 | 88.3% | 85.5% |
|
| | | |
| Senior Unsecured Debt Ratings | | | NYSE Trading Symbols |
| Moody's: Baa3 | | | Common Stock: EQC |
| Standard & Poor's: BBB- | | | Preferred Stock Series D: EQCPD |
| | | | 5.75% Senior Notes due 2042: EQCO |
|
| | | | |
| 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 | Jed Reagan | (949) 640-8780 | jreagan@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 | Nader Abadi | (212) 438-3506 | nader.abadi@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. |
KEY FINANCIAL DATA
(amounts in thousands, except per share data)
|
| | | | | | | | | | | | | | | | | | | | |
| | | As of and for the Three Months Ended |
| | | 9/30/2017 |
| | 6/30/2017 |
| | 3/31/2017 |
| | 12/31/2016 |
| | 9/30/2016 |
|
| OPERATING INFORMATION |
| | Ending property count (1) | 20 |
| | 21 |
| | 28 |
| | 33 |
| | 37 |
|
| | Ending square footage (1)(2) | 11,031 |
| | 11,651 |
| | 14,593 |
| | 16,053 |
| | 16,710 |
|
| | Percent leased (1) | 88.3 | % | | 88.4 | % | | 89.0 | % | | 91.1 | % | | 91.2 | % |
| | Total revenues | $ | 77,798 |
| | $ | 91,599 |
| | $ | 99,551 |
| | $ | 103,546 |
| | $ | 114,632 |
|
| | Net income (loss) | 33,224 |
| | (5,811 | ) | | 23,822 |
| | 12,260 |
| | 86,388 |
|
| | Net income (loss) attributable to EQC common shareholders | 31,215 |
| | (7,806 | ) | | 21,817 |
| | 10,263 |
| | 84,391 |
|
| | NOI (3) | 45,418 |
| | 54,315 |
| | 58,464 |
| | 60,804 |
| | 65,319 |
|
| | Cash Basis NOI (3) | 40,772 |
| | 49,476 |
| | 52,939 |
| | 55,963 |
| | 61,422 |
|
| | Adjusted EBITDA (3) | 41,325 |
| | 48,374 |
| | 50,758 |
| | 52,461 |
| | 54,917 |
|
| | NOI margin | 58.4 | % | | 59.3 | % | | 58.7 | % | | 58.7 | % | | 57.0 | % |
| | Cash Basis NOI margin | 55.7 | % | | 57.0 | % | | 56.3 | % | | 56.7 | % | | 55.5 | % |
| | FFO attributable to EQC common shareholders and unitholders (3) | 26,989 |
| | 31,103 |
| | 33,273 |
| | 28,077 |
| | 31,129 |
|
| | Normalized FFO attributable to EQC common shareholders and unitholders (3) | 24,023 |
| | 27,141 |
| | 29,459 |
| | 29,601 |
| | 28,919 |
|
SHARES OUTSTANDING AND PER SHARE DATA (4) |
| | Shares Outstanding at End of Period | | | | | | | | | |
| | Common stock outstanding - basic (includes unvested restricted shares) | 124,089 |
| | 124,089 |
| | 124,064 |
| | 123,994 |
| | 125,533 |
|
| | Dilutive restricted share units ("RSUs") and LTIP Units(4) | 1,085 |
| | 1,191 |
| | 1,165 |
| | 1,027 |
| | 1,035 |
|
| | Dilutive Series D Convertible Preferred Shares outstanding(5) | — |
| | — |
| | — |
| | — |
| | — |
|
| | Preferred Stock outstanding (5) | 4,915 |
| | 4,915 |
| | 4,915 |
| | 4,915 |
| | 4,915 |
|
| | Weighted Average Shares Outstanding - GAAP | | | | | | | | | |
| | Basic (6) | 124,089 |
| | 124,067 |
| | 124,047 |
| | 125,021 |
| | 125,533 |
|
| | Diluted (6) | 125,175 |
| | 124,067 |
| | 125,150 |
| | 126,048 |
| | 126,568 |
|
| | Net income (loss) attributable to EQC common shareholders - basic | $ | 0.25 |
| | $ | (0.06 | ) | | $ | 0.18 |
| | $ | 0.08 |
| | $ | 0.67 |
|
| | Net income (loss) attributable to EQC common shareholders - diluted | 0.25 |
| | (0.06 | ) | | 0.17 |
| | 0.08 |
| | 0.67 |
|
| | Normalized FFO(3) attributable to EQC common shareholders and unitholders - diluted | 0.19 |
| | 0.22 |
| | 0.24 |
| | 0.23 |
| | 0.23 |
|
| BALANCE SHEET |
| | Total assets | $ | 4,260,289 |
| | $ | 4,491,116 |
| | $ | 4,518,756 |
| | $ | 4,526,075 |
| | $ | 4,965,767 |
|
| | Total liabilities | 935,590 |
| | 1,204,655 |
| | 1,232,231 |
| | 1,265,628 |
| | 1,676,727 |
|
| ENTERPRISE VALUE |
| | Total debt (book value) | $ | 850,576 |
| | $1,100,355 | | $1,141,628 | | $1,141,667 | | $ | 1,557,260 |
|
| | Less: Cash and cash equivalents | (2,233,077 | ) | | (1,967,549 | ) | | (1,888,537 | ) | | (2,094,674 | ) | | (2,405,174 | ) |
| | Plus: Market value of preferred shares (at end of period) | 130,892 |
| | 127,992 |
| | 125,632 |
| | 125,731 |
| | 133,202 |
|
| | Plus: Market value of diluted common shares (at end of period) | 3,805,309 |
| | 3,958,870 |
| | 3,909,662 |
| | 3,780,649 |
| | 3,824,864 |
|
| | Total enterprise value | $ | 2,553,700 |
| | $ | 3,219,668 |
| | $ | 3,288,385 |
| | $ | 2,953,373 |
| | $ | 3,110,152 |
|
| RATIOS |
| | Net debt / enterprise value | (54.1 | )% | | (26.9 | )% | | (22.7 | )% | | (32.3 | )% | | (27.3 | )% |
| | Net debt / annualized adjusted EBITDA (3) | (8.4)x |
| | (4.5)x |
| | (3.7)x |
| | (4.5)x |
| | (3.9)x |
|
| | Adjusted EBITDA (3) / interest expense | 3.6x |
| | 3.3x |
| | 3.4x |
| | 2.7x |
| | 2.6x |
|
|
| |
| (1) | Excludes properties classified as held for sale. As of December 31, 2016, land parcels are excluded from the property count. |
| (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. None of the RSUs or LTIP Units have vested. 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) | As of September 30, 2017, we had 4,915 series D preferred shares outstanding that were convertible into 2,363 common shares. Given this conversion ratio relative to our current common stock price, we exclude these shares from dilutive shares outstanding on September 30, 2017. 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. |
| (6) | Refer to the schedule of Common & Potential Common Shares for information regarding the components of our weighted average common shares outstanding. |
CONDENSED CONSOLIDATED BALANCE SHEETS
(amounts in thousands, except share data)
|
| | | | | | | |
| | September 30, 2017 | | December 31, 2016 |
| ASSETS | | | |
| Real estate properties: | | | |
| Land | $ | 216,957 |
| | $ | 286,186 |
|
| Buildings and improvements | 1,841,230 |
| | 2,570,704 |
|
| | 2,058,187 |
| | 2,856,890 |
|
| Accumulated depreciation | (554,411 | ) | | (755,255 | ) |
| | 1,503,776 |
| | 2,101,635 |
|
| Acquired real estate leases, net | 28,108 |
| | 48,281 |
|
| Cash and cash equivalents | 2,233,077 |
| | 2,094,674 |
|
| Marketable securities | 279,626 |
| | — |
|
| Restricted cash | 7,657 |
| | 6,532 |
|
| Rents receivable, net of allowance for doubtful accounts of $4,217 and $5,105, respectively | 107,832 |
| | 152,031 |
|
| Other assets, net | 100,213 |
| | 122,922 |
|
| Total assets | $ | 4,260,289 |
| | $ | 4,526,075 |
|
| | | | |
| LIABILITIES AND EQUITY | | | |
| Revolving credit facility | $ | — |
| | $ | — |
|
| Senior unsecured debt, net | 815,577 |
| | 1,063,950 |
|
| Mortgage notes payable, net | 34,999 |
| | 77,717 |
|
| Accounts payable and accrued expenses | 63,506 |
| | 95,395 |
|
| Assumed real estate lease obligations, net | 1,215 |
| | 1,946 |
|
| Rent collected in advance | 14,355 |
| | 18,460 |
|
| Security deposits | 5,938 |
| | 8,160 |
|
| Total liabilities | $ | 935,590 |
| | $ | 1,265,628 |
|
| | | | |
| 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; 124,089,443 and 123,994,465 shares issued and outstanding, respectively | 1,241 |
| | 1,240 |
|
| Additional paid in capital | 4,378,184 |
| | 4,363,177 |
|
| Cumulative net income | 2,617,820 |
| | 2,566,603 |
|
| Cumulative other comprehensive income (loss) | 2,671 |
| | (208 | ) |
| Cumulative common distributions | (3,111,868 | ) | | (3,111,868 | ) |
| Cumulative preferred distributions | (683,751 | ) | | (677,760 | ) |
| Total shareholders’ equity | 3,323,560 |
| | 3,260,447 |
|
| Noncontrolling interest | 1,139 |
| | — |
|
| Total equity | $ | 3,324,699 |
| | $ | 3,260,447 |
|
| Total liabilities and equity | $ | 4,260,289 |
| | $ | 4,526,075 |
|
ADDITIONAL BALANCE SHEET INFORMATION
(amounts in thousands)
|
| | | | | | |
| | September 30, 2017 | December 31, 2016 |
| Additional Balance Sheet Information | | |
| | | |
| Straight-line rents receivable, net of allowance for doubtful accounts | $ | 101,219 |
| $ | 141,637 |
|
| Accounts receivable, net of allowance for doubtful accounts | 6,613 |
| 10,394 |
|
| Rents receivable, net of allowance for doubtful accounts | $ | 107,832 |
| $ | 152,031 |
|
| | | |
| Capitalized lease incentives, net | $ | 5,800 |
| $ | 7,664 |
|
| Deferred financing fees, net | 2,153 |
| 3,365 |
|
| Deferred leasing costs, net | 69,521 |
| 92,623 |
|
| Other | 22,739 |
| 19,270 |
|
| Other assets, net | $ | 100,213 |
| $ | 122,922 |
|
| | | |
| Accounts payable | $ | 5,150 |
| $ | 5,159 |
|
| Accrued interest | 3,898 |
| 15,265 |
|
| Accrued taxes | 22,602 |
| 26,819 |
|
| Accrued capital expenditures | 7,262 |
| 11,138 |
|
| Accrued leasing costs | 5,224 |
| 10,828 |
|
| Other accrued liabilities | 19,370 |
| 26,186 |
|
| Accounts payable and accrued expenses | $ | 63,506 |
| $ | 95,395 |
|
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(amounts in thousands, except per share data)
|
| | | | | | | | | | | | | | | |
| | Three Months Ended | | Nine Months Ended |
| | September 30, | | September 30, |
| | 2017 | | 2016 | | 2017 | | 2016 |
| Revenues: | | | | | | | |
| Rental income | $ | 61,091 |
| | $ | 92,722 |
| | $ | 215,648 |
| | $ | 324,345 |
|
| Tenant reimbursements and other income | 16,707 |
| | 21,910 |
| | 53,300 |
| | 72,789 |
|
| Total revenues | $ | 77,798 |
| | $ | 114,632 |
| | $ | 268,948 |
| | $ | 397,134 |
|
| | | | | | | | |
| Expenses: | | | | | | | |
| Operating expenses | $ | 32,380 |
| | $ | 49,313 |
| | $ | 110,751 |
| | $ | 157,964 |
|
| Depreciation and amortization | 21,133 |
| | 29,184 |
| | 71,970 |
| | 102,766 |
|
| General and administrative | 11,689 |
| | 13,277 |
| | 35,727 |
| | 38,766 |
|
| Loss on asset impairment | — |
| | — |
| | 19,714 |
| | 43,736 |
|
| Total expenses | $ | 65,202 |
| | $ | 91,774 |
| | $ | 238,162 |
| | $ | 343,232 |
|
| | | | | | | | |
| Operating income | $ | 12,596 |
| | $ | 22,858 |
| | $ | 30,786 |
| | $ | 53,902 |
|
| | | | | | | | |
| Interest and other income | 7,596 |
| | 3,013 |
| | 17,987 |
| | 7,184 |
|
| Interest expense (including net amortization of debt discounts, premiums and deferred financing fees of $784, $948, $2,346 and $2,880, respectively) | (11,510 | ) | | (21,427 | ) | | (41,387 | ) | | (65,074 | ) |
| Loss on early extinguishment of debt | (203 | ) | | — |
| | (266 | ) | | (118 | ) |
| Foreign currency exchange loss | — |
| | — |
| | — |
| | (5 | ) |
| Gain on sale of properties, net | 25,080 |
| | 82,169 |
| | 44,670 |
| | 225,210 |
|
| Income before income taxes | 33,559 |
| | 86,613 |
| | 51,790 |
| | 221,099 |
|
| Income tax expense | (335 | ) | | (225 | ) | | (555 | ) | | (465 | ) |
| Net income | $ | 33,224 |
| | $ | 86,388 |
| | $ | 51,235 |
| | $ | 220,634 |
|
| Net income attributable to noncontrolling interest | (12 | ) | | — |
| | (18 | ) | | — |
|
| Net income attributable to Equity Commonwealth | $ | 33,212 |
| | $ | 86,388 |
| | $ | 51,217 |
| | $ | 220,634 |
|
| Preferred distributions | (1,997 | ) | | (1,997 | ) | | (5,991 | ) | | (15,959 | ) |
Excess fair value of consideration paid over carrying value of preferred shares (1) | — |
| | — |
| | — |
| | (9,609 | ) |
| Net income attributable to Equity Commonwealth common shareholders | $ | 31,215 |
| | $ | 84,391 |
| | $ | 45,226 |
| | $ | 195,066 |
|
|
| | | | | | | | | | | | | | | |
Weighted average common shares outstanding — basic (2) | 124,089 |
| | 125,533 |
| | 124,068 |
| | 125,627 |
|
Weighted average common shares outstanding — diluted (2) | 125,175 |
| | 126,568 |
| | 125,194 |
| | 127,009 |
|
| | | | | | | | |
| Earnings per common share attributable to Equity Commonwealth common shareholders: | | | | | | | |
| Basic | $ | 0.25 |
| | $ | 0.67 |
| | $ | 0.36 |
| | $ | 1.55 |
|
| Diluted | $ | 0.25 |
| | $ | 0.67 |
| | $ | 0.36 |
| | $ | 1.54 |
|
|
| | |
| (1 | ) | On May 15, 2016, we redeemed all of our 11,000,000 outstanding series E preferred shares at a price of $25.00 per share, for a total of $275.0 million, plus any accrued and unpaid dividends. The redemption payment occurred on May 16, 2016 (the first business day following the redemption date). We recorded $9.6 million related to the excess fair value of consideration paid over the carrying value of the preferred shares as a reduction to net income attributable to Equity Commonwealth common shareholders for the nine months ended September 30, 2016. |
| (2 | ) | Refer to the schedule of Common & Potential Common Shares for information regarding the components of our weighted average common shares outstanding. |
CALCULATION OF SAME PROPERTY NET OPERATING INCOME (NOI) AND SAME PROPERTY CASH BASIS NOI
(amounts in thousands)
|
| | | | | | | | | | | | | | | |
| | For the Three Months Ended | | For the Nine Months Ended |
| | September 30, | | September 30, |
| | 2017 | | 2016 | | 2017 | | 2016 |
| Calculation of Same Property NOI and Same Property Cash Basis NOI: | | | | | | | |
| Rental income | $ | 61,091 |
| | $ | 92,722 |
| | $ | 215,648 |
| | $ | 324,345 |
|
| Tenant reimbursements and other income | 16,707 |
| | 21,910 |
| | 53,300 |
| | 72,789 |
|
| Operating expenses | (32,380 | ) | | (49,313 | ) | | (110,751 | ) | | (157,964 | ) |
| NOI | $ | 45,418 |
| | $ | 65,319 |
| | $ | 158,197 |
| | $ | 239,170 |
|
| Straight line rent adjustments | (3,557 | ) | | (2,954 | ) | | (12,487 | ) | | (12,384 | ) |
| Lease value amortization | 388 |
| | 882 |
| | 1,479 |
| | 5,870 |
|
| Lease termination fees | (1,477 | ) | | (1,825 | ) | | (4,002 | ) | | (19,569 | ) |
| Cash Basis NOI | $ | 40,772 |
| | $ | 61,422 |
| | $ | 143,187 |
| | $ | 213,087 |
|
Cash Basis NOI from non-same properties (1) | (2,917 | ) | | (21,810 | ) | | (29,784 | ) | | (93,796 | ) |
| Same Property Cash Basis NOI | $ | 37,855 |
| | $ | 39,612 |
| | $ | 113,403 |
| | $ | 119,291 |
|
| Non-cash rental income and lease termination fees from same properties | 4,728 |
| | 1,069 |
| | 13,507 |
| | 7,450 |
|
| Same Property NOI | $ | 42,583 |
| | $ | 40,681 |
| | $ | 126,910 |
| | $ | 126,741 |
|
| | | | | | | | |
| Reconciliation of Same Property NOI to GAAP Operating Income: | | | | | | | |
| Same Property NOI | $ | 42,583 |
| | $ | 40,681 |
| | $ | 126,910 |
| | $ | 126,741 |
|
| Non-cash rental income and lease termination fees from same properties | (4,728 | ) | | (1,069 | ) | | (13,507 | ) | | (7,450 | ) |
| Same Property Cash Basis NOI | $ | 37,855 |
| | $ | 39,612 |
| | $ | 113,403 |
| | $ | 119,291 |
|
Cash Basis NOI from non-same properties (1) | 2,917 |
| | 21,810 |
| | 29,784 |
| | 93,796 |
|
| Cash Basis NOI | $ | 40,772 |
| | $ | 61,422 |
| | $ | 143,187 |
| | $ | 213,087 |
|
| Straight line rent adjustments | 3,557 |
| | 2,954 |
| | 12,487 |
| | 12,384 |
|
| Lease value amortization | (388 | ) | | (882 | ) | | (1,479 | ) | | (5,870 | ) |
| Lease termination fees | 1,477 |
| | 1,825 |
| | 4,002 |
| | 19,569 |
|
| NOI | $ | 45,418 |
| | $ | 65,319 |
| | $ | 158,197 |
| | $ | 239,170 |
|
| Depreciation and amortization | (21,133 | ) | | (29,184 | ) | | (71,970 | ) | | (102,766 | ) |
| General and administrative | (11,689 | ) | | (13,277 | ) | | (35,727 | ) | | (38,766 | ) |
| Loss on asset impairment | — |
| | — |
| | (19,714 | ) | | (43,736 | ) |
| Operating Income | $ | 12,596 |
| | $ | 22,858 |
| | $ | 30,786 |
| | $ | 53,902 |
|
|
| |
| (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. |
| | |
SAME PROPERTY RESULTS OF OPERATIONS
(dollars and square feet in thousands)
|
| | | | | | | | | | | | | | | | | | | | | |
| | As of and for the Three Months Ended September 30, | | As of and for the Nine Months Ended September 30, |
| | 2017 | | 2016 | | % Change | | 2017 | | 2016 | | % Change |
| Properties | 20 |
| | 20 |
| | | | 20 |
| | 20 |
| | |
Square Feet(1) | 11,031 |
| | 10,931 |
| | | | 11,031 |
| | 10,931 |
| | |
| % Leased | 88.3 | % | | 89.6 | % | | (1.3 | )% | | 88.3 | % | | 89.6 | % | | (1.3 | )% |
| % Commenced | 85.5 | % | | 87.0 | % | | (1.5 | )% | | 85.5 | % | | 87.0 | % | | (1.5 | )% |
| | | | | | | | | | | | |
| Rental income | $ | 52,364 |
| | $ | 53,982 |
| | (3.0 | )% | | $ | 155,173 |
| | $ | 157,482 |
| | (1.5 | )% |
| Tenant reimbursements and other income | 16,346 |
| | 16,219 |
| | 0.8 | % | | 50,040 |
| | 47,870 |
| | 4.5 | % |
| Straight line rent adjustment | 3,560 |
| | 1,520 |
| | | | 12,138 |
| | 8,270 |
| | |
| Lease value amortization | (309 | ) | | (516 | ) | | | | (1,023 | ) | | (1,476 | ) | | |
| Lease termination fees | 1,477 |
| | 65 |
| | | | 2,392 |
| | 656 |
| | |
| Total revenue | 73,438 |
| | 71,270 |
| | 3.0 | % | | 218,720 |
| | 212,802 |
| | 2.8 | % |
| Operating expenses | (30,855 | ) | | (30,589 | ) | | 0.9 | % | | (91,810 | ) | | (86,061 | ) | | 6.7 | % |
| NOI | $ | 42,583 |
| | $ | 40,681 |
| | 4.7 | % | | $ | 126,910 |
| | $ | 126,741 |
| | 0.1 | % |
| NOI Margin | 58.0 | % | | 57.1 | % | | | | 58.0 | % | | 59.6 | % | | |
| | | | | | | | | | | | |
| Straight line rent adjustment | $ | (3,560 | ) | | $ | (1,520 | ) | | | | $ | (12,138 | ) | | $ | (8,270 | ) | | |
| Lease value amortization | 309 |
| | 516 |
| | | | 1,023 |
| | 1,476 |
| | |
| Lease termination fees | (1,477 | ) | | (65 | ) | | | | (2,392 | ) | | (656 | ) | | |
| Cash Basis NOI | $ | 37,855 |
| | $ | 39,612 |
| | (4.4 | )% | | 113,403 |
| | 119,291 |
| | (4.9 | )% |
| Cash Basis NOI Margin | 55.1 | % | | 56.4 | % | | | | 55.3 | % | | 58.1 | % | | |
| | | | | | | | | | | | |
|
| | |
| (1 | ) | The change in total square footage results from remeasurement. |
CALCULATION OF EBITDA AND ADJUSTED EBITDA
(amounts in thousands)
|
| | | | | | | | | | | | | | | |
| | For the Three Months Ended | | For the Nine Months Ended |
| | September 30, | | September 30, |
| | 2017 | | 2016 | | 2017 | | 2016 |
| Net income | $ | 33,224 |
| | $ | 86,388 |
| | $ | 51,235 |
| | $ | 220,634 |
|
| Interest expense | 11,510 |
| | 21,427 |
| | 41,387 |
| | 65,074 |
|
| Income tax expense | 335 |
| | 225 |
| | 555 |
| | 465 |
|
| Depreciation and amortization | 21,133 |
| | 29,184 |
| | 71,970 |
| | 102,766 |
|
| EBITDA | $ | 66,202 |
| | $ | 137,224 |
| | $ | 165,147 |
| | $ | 388,939 |
|
| Loss on asset impairment | — |
| | — |
| | 19,714 |
| | 43,736 |
|
| Loss on early extinguishment of debt | 203 |
| | — |
| | 266 |
| | 118 |
|
Transition-related expenses (1) | — |
| | (138 | ) | | — |
| | 999 |
|
| Gain on sale of properties, net | (25,080 | ) | | (82,169 | ) | | (44,670 | ) | | (225,210 | ) |
| Foreign currency exchange loss | — |
| | — |
| | — |
| | 5 |
|
| Adjusted EBITDA | $ | 41,325 |
| | $ | 54,917 |
| | $ | 140,457 |
| | $ | 208,587 |
|
|
| |
| (1) | Transition related expenses are primarily related to the shareholder-approved liability for the reimbursement of expenses incurred by Related/Corvex beginning in February 2013 in connection with their consent solicitations to remove the former Trustees, elect the new Board of Trustees and engage in related litigation. No transition related expenses were incurred during 2017. There is no future obligation to pay any amounts under the shareholder-approved agreement to Related/Corvex. |
| | |
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, |
| | 2017 | | 2016 | | 2017 | | 2016 |
| Calculation of FFO | | | | | | | |
| Net income | $ | 33,224 |
| | $ | 86,388 |
| | $ | 51,235 |
| | $ | 220,634 |
|
| Real estate depreciation and amortization | 20,842 |
| | 28,907 |
| | 71,077 |
| | 102,015 |
|
| Loss on asset impairment | — |
| | — |
| | 19,714 |
| | 43,736 |
|
| Gain on sale of properties, net | (25,080 | ) | | (82,169 | ) | | (44,670 | ) | | (225,210 | ) |
| FFO attributable to Equity Commonwealth | 28,986 |
| | 33,126 |
| | 97,356 |
| | 141,175 |
|
| Preferred distributions | (1,997 | ) | | (1,997 | ) | | (5,991 | ) | | (15,959 | ) |
Excess fair value of consideration paid over carrying value of preferred shares (1) | — |
| | — |
| | — |
| | (9,609 | ) |
| FFO attributable to EQC common shareholders and unitholders | $ | 26,989 |
| | $ | 31,129 |
| | $ | 91,365 |
| | $ | 115,607 |
|
| | | | | | | | |
| Calculation of Normalized FFO | | | | | | | |
| FFO attributable to EQC common shareholders and unitholders | $ | 26,989 |
| | $ | 31,129 |
| | $ | 91,365 |
| | $ | 115,607 |
|
| Lease value amortization | 388 |
| | 882 |
| | 1,479 |
| | 5,870 |
|
| Straight line rent adjustments | (3,557 | ) | | (2,954 | ) | | (12,487 | ) | | (12,384 | ) |
| Loss on early extinguishment of debt | 203 |
| | — |
| | 266 |
| | 118 |
|
Transition related expenses (2) | — |
| | (138 | ) | | — |
| | 999 |
|
| Foreign currency exchange loss | — |
| | — |
| | — |
| | 5 |
|
Excess fair value of consideration paid over carrying value of preferred shares (1) | — |
| | — |
| | — |
| | 9,609 |
|
| Normalized FFO attributable to EQC common shareholders and unitholders | $ | 24,023 |
| | $ | 28,919 |
| | $ | 80,623 |
| | $ | 119,824 |
|
| | | | | | | | |
Weighted average common shares and units outstanding -- basic (3) | 124,132 |
| | 125,533 |
| | 124,105 |
| | 125,627 |
|
Weighted average common shares and units outstanding -- diluted (3) | 125,175 |
| | 126,568 |
| | 125,194 |
| | 127,009 |
|
| FFO attributable to EQC common shareholders and unitholders per share -- basic | $ | 0.22 |
| | $ | 0.25 |
| | $ | 0.74 |
| | $ | 0.92 |
|
| FFO attributable to EQC common shareholders and unitholders per share -- diluted | $ | 0.22 |
| | $ | 0.25 |
| | $ | 0.73 |
| | $ | 0.91 |
|
| Normalized FFO attributable to EQC common shareholders and unitholders per share -- basic | $ | 0.19 |
| | $ | 0.23 |
| | $ | 0.65 |
| | $ | 0.95 |
|
| Normalized FFO attributable to EQC common shareholders and unitholders per share -- diluted | $ | 0.19 |
| | $ | 0.23 |
| | $ | 0.64 |
| | $ | 0.94 |
|
|
| |
| (1) | On May 15, 2016, we redeemed all of our 11,000,000 outstanding series E preferred shares at a price of $25.00 per share, for a total of $275.0 million, plus any accrued and unpaid dividends. The redemption payment occurred on May 16, 2016 (the first business day following the redemption date). We recorded $9.6 million related to the excess fair value of consideration paid over the carrying value of the preferred shares as a reduction to net income attributable to Equity Commonwealth common shareholders for the nine months ended September 30, 2016. |
| (2) | Transition related expenses are primarily related to the shareholder-approved liability for the reimbursement of expenses incurred by Related/Corvex beginning in February 2013 in connection with their consent solicitations to remove the former Trustees, elect the new Board of Trustees and engage in related litigation. No transition related expenses were incurred during 2017. There is no future obligation to pay any amounts under the shareholder-approved agreement to Related/Corvex. |
| (3) | Refer to the schedule of Common & Potential Common Shares for information regarding the components of our weighted average common shares outstanding. |
DEBT SUMMARY
As of September 30, 2017
(dollars in thousands)
|
| | | | | | | | | | | | | | | | |
| | Interest Rate | | Principal Balance | | Maturity Date | Open at Par Date | | Due at Maturity | | Years to Maturity |
| Unsecured Debt: | | | | | | | | | | |
| Unsecured Floating Rate Debt: | | | | | | | | | | |
Revolving credit facility (LIBOR + 125 bps) (1) | 2.48 | % | | $ | — |
| | 1/28/2019 | Open | | $ | — |
| | 1.3 |
|
Term loan (LIBOR + 140 bps) (2) | 2.63 | % | | 200,000 |
| | 1/28/2020 | Open | | 200,000 |
| | 2.3 |
|
Term loan (LIBOR + 180 bps) (2) | 3.03 | % | | 200,000 |
| | 1/28/2022 | Open | | 200,000 |
| | 4.3 |
|
| Total / weighted average unsecured floating rate debt | 2.83 | % | | $ | 400,000 |
| | | | | $ | 400,000 |
| | 3.3 |
|
| | | | | | | | | | | |
| Unsecured Fixed Rate Debt: | | | | | | | | | | |
| 5.875% Senior Unsecured Notes Due 2020 | 5.88 | % | | $ | 250,000 |
| | 9/15/2020 | 3/15/2020 | | $ | 250,000 |
| | 3.0 |
|
| 5.75% Senior Unsecured Notes Due 2042 | 5.75 | % | | 175,000 |
| | 8/1/2042 | Open | | 175,000 |
| | 24.9 |
|
| Total / weighted average unsecured fixed rate debt | 5.83 | % | | $ | 425,000 |
| | | | | $ | 425,000 |
| | 12.0 |
|
| | | | | | | | | | | |
| Secured Debt: | | | | | | | | | | |
| Secured Fixed Rate Debt: | | | | | | | | | | |
| 206 East 9th Street | 5.69 | % | | $ | 26,666 |
| | 1/5/2021 | 7/5/2020 | | $ | 24,836 |
| | 3.3 |
|
| 33 Stiles Lane | 6.75 | % | | 2,119 |
| | 3/1/2022 | 12/1/2021 | | — |
| | 4.4 |
|
| 97 Newberry Road | 5.71 | % | | 5,532 |
| | 3/1/2026 | None | | — |
| | 8.4 |
|
| Total / weighted average secured fixed rate debt | 5.76 | % | | $ | 34,317 |
| | | | | $ | 24,836 |
| | 4.2 |
|
| | | | | | | | | | | |
Total / weighted average (3) | 4.43 | % | | $ | 859,317 |
| | | | | $ | 849,836 |
| | 7.6 |
|
| | | | | | | | | | | |
|
| |
| | |
| (1) | Represents amounts outstanding on EQC's $750,000 revolving credit facility as of September 30, 2017. The interest rate presented is as of September 30, 2017, and equals LIBOR plus 1.25%. We also pay a 25 basis point facility fee annually. The spread over LIBOR and the facility fee vary depending upon EQC's credit rating. |
| (2) | Represents amounts outstanding on EQC's term loans as of September 30, 2017. The interest rate presented is as of September 30, 2017, and equals LIBOR plus 1.4% for the loan maturing on January 28, 2020, and LIBOR plus 1.8% for the loan maturing January 28, 2022. The spreads over LIBOR vary depending upon EQC's credit rating. We entered into an interest rate cap with coverage effective April 1, 2016 that caps LIBOR at 2.5% until March 1, 2019. |
| (3) | Total debt outstanding as of September 30, 2017, including net unamortized premiums, discounts, and deferred financing fees was $850,576. Net unamortized deferred financing fees related to our revolving credit facility of $2,153 are included in other assets, net on our condensed consolidated balance sheet as of September 30, 2017. |
DEBT MATURITY SCHEDULE
(dollars in thousands)
|
| | | | | | | | | | | | | | | | | | |
| Scheduled Principal Payments During Period |
| Year | Unsecured Floating Rate Debt | | Unsecured Fixed Rate Debt | | Secured Fixed Rate Debt | | Total | | Weighted Average Interest Rate |
| | | | | | | | | | |
| 2017 | $ | — |
| | $ | — |
| | $ | 359 |
| | $ | 359 |
| | 6.0 | % |
| 2018 | — |
| | — |
| | 1,487 |
| | 1,487 |
| | 6.0 | % |
| 2019 | — |
| | — |
| | 1,580 |
| | 1,580 |
| | 6.0 | % |
| 2020 | 200,000 |
| (1) | 250,000 |
| | 1,674 |
| | 451,674 |
| | 4.4 | % |
| 2021 | — |
| | — |
| | 25,982 |
| | 25,982 |
| | 5.7 | % |
| 2022 | 200,000 |
| (1) | — |
| | 799 |
| | 200,799 |
| | 3.0 | % |
| 2023 | — |
| | — |
| | 702 |
| | 702 |
| | 5.7 | % |
| 2024 | — |
| | — |
| | 743 |
| | 743 |
| | 5.7 | % |
| 2025 | — |
| | — |
| | 787 |
| | 787 |
| | 5.7 | % |
| 2026 | — |
| | — |
| | 204 |
| | 204 |
| | 5.7 | % |
| Thereafter | — |
| | 175,000 |
| (2) | — |
| | 175,000 |
| | 5.8 | % |
| Total | $ | 400,000 |
| | $ | 425,000 |
| | $ | 34,317 |
|
| $ | 859,317 |
| (3) | 4.4 | % |
| | | | | | | | | | |
| Percent | 46.5 | % | | 49.5 | % | | 4.0 | % | | 100.0 | % | | |
|
| |
| (1) | Represents amounts outstanding on EQC's term loans as of September 30, 2017. The interest rate presented is as of September 30, 2017, and equals LIBOR plus 1.4% for the loan maturing on January 28, 2020, and LIBOR plus 1.8% for the loan maturing January 28, 2022. The spreads over LIBOR vary depending upon EQC's credit rating. We entered into an interest rate cap with coverage effective April 1, 2016 that caps LIBOR at 2.5% until March 1, 2019. |
| (2) | The 5.75% senior unsecured notes due 2042 are callable at par through maturity. |
| (3) | Total debt outstanding as of September 30, 2017, including net unamortized premiums, discounts, and deferred financing fees was $850,576. Net unamortized deferred financing fees related to our revolving credit facility of $2,153 are included in other assets, net on our condensed consolidated balance sheet as of September 30, 2017. |
LEVERAGE RATIOS, COVERAGE RATIOS AND PUBLIC DEBT COVENANTS
(dollars in thousands)
|
| | | | | | | | | | | | | | |
| | As of and for the Three Months Ended |
| | 9/30/2017 |
| | 6/30/2017 |
| | 3/31/2017 |
| | 12/31/2016 |
| | 9/30/2016 |
|
| Leverage Ratios | | | | | | | | | |
| Total debt / total assets | 20.0 | % | | 24.5 | % | | 25.3 | % | | 25.2 | % | | 31.4 | % |
| Total debt / total market capitalization | 17.8 | % | | 21.2 | % | | 22.1 | % | | 22.6 | % | | 28.2 | % |
| Total debt + preferred stock / total market capitalization | 20.5 | % | | 23.7 | % | | 24.5 | % | | 25.1 | % | | 30.7 | % |
Total debt / annualized adjusted EBITDA (1) | 5.1x |
| | 5.7x |
| | 5.6x |
| | 5.4x |
| | 7.1x |
|
Total debt + preferred stock / annualized adjusted EBITDA (1) | 5.9x |
| | 6.3x |
| | 6.2x |
| | 6.0x |
| | 7.7x |
|
| Net debt / enterprise value | (54.1 | )% | | (26.9 | )% | | (22.7 | )% | | (32.3 | )% | | (27.3 | )% |
| Net debt + preferred stock / enterprise value | (49.0 | )% | | (23.0 | )% | | (18.9 | )% | | (28.0 | )% | | (23.0 | )% |
Net debt / annualized adjusted EBITDA (1) | (8.4)x |
| | (4.5)x |
| | (3.7)x |
| | (4.5)x |
| | (3.9)x |
|
Net debt + preferred stock / annualized adjusted EBITDA (1) | (7.6)x |
| | (3.8)x |
| | (3.1)x |
| | (3.9)x |
| | (3.3)x |
|
| Secured debt / total assets | 0.8 | % | | 0.8 | % | | 1.7 | % | | 1.7 | % | | 4.9 | % |
Variable rate debt (2) / total debt | 47.0 | % | | 36.4 | % | | 35.0 | % | | 35.0 | % | | 25.7 | % |
Variable rate debt (2) / total assets | 9.4 | % | | 8.9 | % | | 8.9 | % | | 8.8 | % | | 8.1 | % |
| | | | | | | | | | |
| Coverage Ratios | | | | | | | | | |
Adjusted EBITDA / interest expense (1) | 3.6x |
| | 3.3x |
| | 3.4x |
| | 2.7x |
| | 2.6x |
|
Adjusted EBITDA / interest expense + preferred distributions (1) | 3.1x |
| | 2.9x |
| | 3.0x |
| | 2.5x |
| | 2.3x |
|
| | | | | | | | | | |
| Public Debt Covenants | | | | | | | | | |
Debt / adjusted total assets (3) (maximum 60%) | 18.0 | % | | 22.1 | % | | 22.3 | % | | 21.9 | % | | 27.6 | % |
Secured debt / adjusted total assets (3) (maximum 40%) | 0.7 | % | | 0.7 | % | | 1.5 | % | | 1.5 | % | | 4.3 | % |
| Consolidated income available for debt service / debt service (minimum 1.5x) | 3.5x |
| | 3.1x |
| | 3.2x |
| | 3.3x |
| | 2.3x |
|
Total unencumbered assets (3) / unsecured debt (minimum 150% / 200%) | 567.1 | % | | 459.7 | % | | 468.3 | % | | 475.9 | % | | 392.0 | % |
|
| |
| (1) | Refer to the calculation of EBITDA and Adjusted EBITDA for a reconciliation of these measures to Net income. |
| (2) | We entered into an interest rate cap with coverage effective April 1, 2016 that caps LIBOR at 2.5% until March 1, 2019. |
| (3) | Adjusted total assets and total unencumbered assets includes original cost of real estate assets plus capital improvements, both calculated in accordance with GAAP, and excludes depreciation and amortization, accounts receivable, other intangible assets and impairment write downs, if any. |
ACQUISITIONS AND DISPOSITIONS
(dollars in thousands)
|
| | | | | | | | | | | | | | | | | | | | | |
| Dispositions |
| Property/Portfolio | City | State | No. of Properties | Sq. Feet (1) | | % Leased(1) | | Gross Sales Price | | Net Book Value (1) | | Annualized Rental Revenue (1) |
| 111 Market Place | Baltimore | MD | 1 |
| 589,380 |
| | 95.4 | % | | $ | 60,100 |
| (2) | $ | 44,199 |
| | $ | 12,583 |
|
| Seton Center | Austin | TX | 2 |
| 237,824 |
| | 95.6 | % | | 52,450 |
| | 27,141 |
| | 6,295 |
|
| Cabot Business Park Land | Mansfield | MA | — |
| — |
| | — | % | | 575 |
| | 575 |
| | — |
|
| Total Q1 Dispositions | | 3 |
| 827,204 |
| | 95.4 | % | | $ | 113,125 |
| | $ | 71,915 |
| | $ | 18,878 |
|
| | | | | | | | | | | | | |
| Parkshore Plaza | Folsom | CA | 1 |
| 271,072 |
| | 73.1 | % | | $ | 40,000 |
| | $ | 38,494 |
| | $ | 4,280 |
|
| 25 S. Charles Street | Baltimore | MD | 1 |
| 359,254 |
| | 94.2 | % | | 24,500 |
| | 23,335 |
| | 8,746 |
|
| 802 Delaware Avenue | Wilmington | DE | 1 |
| 240,780 |
| | 100.0 | % | | 34,000 |
| | 18,997 |
| | 4,291 |
|
| Total Q2 Dispositions | | 3 |
| 871,106 |
|
| 89.2 | % | | $ | 98,500 |
| | $ | 80,826 |
| | $ | 17,317 |
|
| | | | | | | | | | | | | |
| 1500 Market Street | Philadelphia | PA | 1 |
| 1,759,193 |
| | 91.2 | % | | $ | 328,000 |
| | $ | 220,215 |
| | $ | 39,321 |
|
Five-Property Portfolio (3) | Multiple | | 5 |
| 1,002,095 |
| | 92.1 | % | | 84,000 |
| | 80,625 |
| | 14,306 |
|
| 6600 North Military Trail | Boca Raton | FL | 1 |
| 639,825 |
| | 100.0 | % | | 132,050 |
| | 124,713 |
| | 16,994 |
|
| Total Q3 Dispositions | | 7 |
| 3,401,113 |
| | 93.1 | % | | $ | 544,050 |
| | $ | 425,553 |
| | $ | 70,621 |
|
| | | | | | | | | | | | | |
| Total Disposed Year-to-Date | | 13 |
| 5,099,423 |
| | 92.8 | % | | $ | 755,675 |
| | $ | 578,294 |
| | $ | 106,816 |
|
The dispositions above resulted in a gain on sale of properties of $25.1 million and $44.7 million for the three and nine months ended September 30, 2017, respectively.
|
| | |
| (1 | ) | As of the quarter-ended preceding each sale. |
| (2 | ) | Proceeds from the sale of 111 Market Place were $44.1 million net of credits for contractual lease costs, capital and rent abatements. |
| (3 | ) | The Five-Property Portfolio consists of 820 W. Diamond (Maryland), Danac Stiles Business Park (Maryland), 2250 Pilot Knob Road (Minnesota), 411 Farwell Avenue (Minnesota), and 4700 Belleview Avenue (Missouri). |
TOP PROPERTIES BY ANNUALIZED RENTAL REVENUE
As of September 30, 2017
(sorted by annualized rental revenue, dollars in thousands)
|
| | | | | | | | | | | | | | | | | | | | | | | | |
| Property | City | State | No. of Buildings | Square Feet | % Leased | % Comm-enced | Annualized Rental Revenue | Undepreciated Book Value | Net Book Value | Year Acquired | Weighted Average Year Built or Substantially Renovated (1) |
| 1 | 600 West Chicago Avenue | Chicago | IL | 2 |
| 1,571,280 | 98.4 | % | 95.6 | % | $ | 50,132 |
| $ | 399,173 |
| $ | 344,316 |
| 2011 | 2001 |
| 2 | 1735 Market Street | Philadelphia | PA | 1 |
| 1,286,936 | 81.0 | % | 67.2 | % | 29,382 |
| 311,139 |
| 187,949 |
| 1998 | 1990 |
| 3 | 1225 Seventeenth Street | Denver | CO | 1 |
| 695,372 | 82.6 | % | 80.7 | % | 22,270 |
| 158,951 |
| 129,275 |
| 2009 | 1982 |
| 4 | 333 108th Avenue NE | Bellevue | WA | 1 |
| 440,565 | 100.0 | % | 100.0 | % | 21,110 |
| 153,666 |
| 125,121 |
| 2009 | 2008 |
| 5 | 1600 Market Street | Philadelphia | PA | 1 |
| 825,968 | 84.0 | % | 82.3 | % | 19,119 |
| 137,677 |
| 76,620 |
| 1998 | 1983 |
| 6 | 8750 Bryn Mawr Avenue | Chicago | IL | 2 |
| 636,078 | 93.2 | % | 93.2 | % | 17,153 |
| 96,615 |
| 80,032 |
| 2010 | 2005 |
| 7 | Bridgepoint Square | Austin | TX | 5 |
| 440,007 | 92.3 | % | 92.3 | % | 12,279 |
| 94,316 |
| 52,434 |
| 1997 | 1995 |
| 8 | Foster Plaza | Pittsburgh | PA | 8 |
| 727,743 | 82.7 | % | 80.6 | % | 11,876 |
| 76,599 |
| 53,185 |
| 2005 | 1993 |
| 9 | Research Park | Austin | TX | 4 |
| 1,110,007 | 98.0 | % | 98.0 | % | 11,573 |
| 93,466 |
| 59,186 |
| 1998 | 1976 |
| 10 | 109 Brookline Avenue | Boston | MA | 1 |
| 285,556 | 99.7 | % | 99.7 | % | 10,371 |
| 48,152 |
| 26,721 |
| 1995 | 1915 |
| | Subtotal (10 properties) | | | 26 |
| 8,019,512 |
| 90.7 | % | 87.4 | % | $ | 205,265 |
| $ | 1,569,754 |
| $ | 1,134,839 |
| | |
| | All other properties (10 properties) | | 18 |
| 3,011,257 |
| 81.9 | % | 80.5 | % | 61,602 |
| 488,433 |
| 368,937 |
| | |
| | Total (20 properties) | | 44 |
| 11,030,769 |
| 88.3 | % | 85.5 | % | $ | 266,867 |
| $ | 2,058,187 |
| $ | 1,503,776 |
| | |
| | | | | | | | | | | | | |
| | Same Property NOI & Cash Basis NOI Composition | Q3 2017 NOI | % of NOI | Q3 2017 Cash Basis NOI | % of Cash Basis NOI | | | | | |
| | Top 10 Properties | | | $ | 31,727 |
| 74.5 | % | $ | 27,248 |
| 72.0 | % | | | | | |
| | All other properties (10 properties) | | 10,856 |
| 25.5 | % | 10,607 |
| 28.0 | % | | | | | |
| | Total (20 properties) | | | $ | 42,583 |
| 100.0 | % | $ | 37,855 |
| 100.0 | % | | | | | |
| | | | | | | | | | | | | |
|
| |
| (1) | Weighted based on square feet. |
| | |
LEASING SUMMARY
(dollars and square feet in thousands, except per square foot data)
|
| | | | | | | | | | | | | | | | | | | | |
| | | As of and for the Three Months Ended |
| | | 9/30/2017 | | 6/30/2017 | | 3/31/2017 | | 12/31/2016 | | 9/30/2016 |
Properties (1) | | 20 |
| | 21 |
| | 28 |
| | 33 |
| | 37 |
|
Total square feet (1)(2) | | 11,031 |
| | 11,651 |
| | 14,593 |
| | 16,053 |
| | 16,710 |
|
| Percentage leased | | 88.3 | % | | 88.4 | % | | 89.0 | % | | 91.1 | % | | 91.2 | % |
| | | | | | | | | | | |
| Total Leases | | | | | | | | | | |
| Square feet | | 273 |
| | 448 |
| | 331 |
| | 1,411 |
| | 237 |
|
| Lease term (years) | | 7.5 |
| | 6.8 |
| | 11.8 |
| | 10.3 |
| | 7.4 |
|
| Starting cash rent | | $ | 33.49 |
| | $ | 32.18 |
| | $ | 32.69 |
| | $ | 16.98 |
| | $ | 27.28 |
|
Percent change in cash rent (3) | | 2.3 | % | | 10.7 | % | | (4.9 | )% | | 7.3 | % | | (5.8 | )% |
Percent change in GAAP rent (3) | | 7.8 | % | | 17.6 | % | | 21.6 | % | | 20.2 | % | | 9.0 | % |
Total TI & LC per square foot (4) | | $ | 40.37 |
| | $ | 33.84 |
| | $ | 28.88 |
| | $ | 32.52 |
| | $ | 47.05 |
|
Total TI & LC per sq. ft. per year of lease term (4) | | $ | 5.35 |
| | $ | 4.94 |
| | $ | 2.44 |
| | $ | 3.16 |
| | $ | 6.38 |
|
| | | | | | | | | | | |
| Renewal Leases | | | | | | | | | | |
| Square feet | | 81 |
| | 252 |
| | 264 |
| | 1,190 |
| | 46 |
|
| Lease term (years) | | 4.0 |
| | 7.7 |
| | 13.0 |
| | 9.6 |
| | 4.9 |
|
| Starting cash rent | | $ | 35.52 |
| | $ | 33.07 |
| | $ | 31.68 |
| | $ | 13.89 |
| | $ | 37.77 |
|
Percent change in cash rent (3) | | 3.7 | % | | 11.2 | % | | (7.2 | )% | | 3.9 | % | | 14.6 | % |
Percent change in GAAP rent (3) | | 10.9 | % | | 14.7 | % | | 22.8 | % | | 16.2 | % | | 24.1 | % |
Total TI & LC per square foot (4) | | $ | 18.00 |
| | $ | 31.56 |
| | $ | 25.58 |
| | $ | 21.14 |
| | $ | 24.13 |
|
Total TI & LC per sq. ft. per year of lease term (4) | | $ | 4.51 |
| | $ | 4.10 |
| | $ | 1.97 |
| | $ | 2.19 |
| | $ | 4.92 |
|
| | | | | | | | | | | |
| New Leases | | | | | | | | | | |
| Square feet | | 192 |
| | 196 |
| | 67 |
| | 221 |
| | 191 |
|
| Lease term (years) | | 9.0 |
| | 5.7 |
| | 7.4 |
| | 13.8 |
| | 8.0 |
|
| Starting cash rent | | $ | 32.63 |
| | $ | 31.03 |
| | $ | 36.74 |
| | $ | 33.61 |
| | $ | 24.76 |
|
Percent change in cash rent (3) | | 1.5 | % | | 9.9 | % | | 8.4 | % | | 15.8 | % | | (12.6 | )% |
Percent change in GAAP rent (3) | | 6.4 | % | | 22.0 | % | | 15.8 | % | | 30.9 | % | | 3.4 | % |
Total TI & LC per square foot (4) | | $ | 49.75 |
| | $ | 36.76 |
| | $ | 42.02 |
| | $ | 93.85 |
| | $ | 52.57 |
|
Total TI & LC per sq. ft. per year of lease term (4) | | $ | 5.51 |
| | $ | 6.39 |
| | $ | 5.70 |
| | $ | 6.79 |
| | $ | 6.59 |
|
|
| |
| The above leasing summary is based on leases executed during the periods indicated. |
| | |
| (1) | Excludes properties classified as held for sale. As of December 31, 2016, land parcels are excluded from the property count. |
| (2) | Changes in total square footage result from property dispositions, reclassifications, and remeasurement. |
| (3) | Percent change in GAAP and cash rent is a comparison of current rent (rent before deducting any initial period free rent), including tenant expense reimbursements, if any, to the rent, including tenant expense reimbursements, if any, last received for the same space on a GAAP and cash basis, respectively. New leasing in suites vacant longer than 2 years was excluded from the calculation. |
| (4) | Includes tenant improvements (TI) and leasing commissions (LC). |
SAME PROPERTY LEASING SUMMARY
(dollars and square feet in thousands, except per square foot data)
|
| | | | | | | | | | | | | | | | | | | | |
| | | As of and for the Three Months Ended |
| | | 9/30/2017 | | 6/30/2017 | | 3/31/2017 | | 12/31/2016 | | 9/30/2016 |
| Properties | | 20 |
| | 20 |
| | 20 |
| | 20 |
| | 20 |
|
Total square feet (1) | | 11,031 |
| | 11,011 |
| | 10,952 |
| | 10,954 |
| | 10,931 |
|
| Percentage leased | | 88.3 | % | | 87.7 | % | | 87.5 | % | | 90.3 | % | | 89.6 | % |
| Percentage commenced | | 85.5 | % | | 85.5 | % | | 85.0 | % | | 87.9 | % | | 87.0 | % |
| | | | | | | | | | | |
| Total Leases | | | | | | | | | | |
| Square feet | | 273 |
| | 448 |
| | 328 |
| | 1,411 |
| | 110 |
|
| Lease term (years) | | 7.5 |
| | 6.8 |
| | 11.9 |
| | 10.3 |
| | 4.3 |
|
| Starting cash rent | | $ | 33.49 |
| | $ | 32.18 |
| | $ | 32.63 |
| | $ | 16.98 |
| | $ | 34.04 |
|
Percent change in cash rent (2) | | 2.3 | % | | 10.7 | % | | (4.9 | )% | | 7.3 | % | | 4.1 | % |
Percent change in GAAP rent (2) | | 7.8 | % | | 17.6 | % | | 21.8 | % | | 20.2 | % | | 10.4 | % |
Total TI & LC per square foot (3) | | $ | 40.37 |
| | $ | 33.84 |
| | $ | 29.12 |
| | $ | 32.52 |
| | $ | 28.04 |
|
Total TI & LC per sq. ft. per year of lease term (3) | | $ | 5.35 |
| | $ | 4.94 |
| | $ | 2.44 |
| | $ | 3.16 |
| | $ | 6.55 |
|
| | | | | | | | | | | |
| Renewal Leases | | | | | | | | | | |
| Square feet | | 81 |
| | 252 |
| | 260 |
| | 1,190 |
| | 46 |
|
| Lease term (years) | | 4.0 |
| | 7.7 |
| | 13.1 |
| | 9.6 |
| | 4.9 |
|
| Starting cash rent | | $ | 35.52 |
| | $ | 33.07 |
| | $ | 31.63 |
| | $ | 13.89 |
| | $ | 37.77 |
|
Percent change in cash rent (2) | | 3.7 | % | | 11.2 | % | | (7.3 | )% | | 3.9 | % | | 14.6 | % |
Percent change in GAAP rent (2) | | 10.9 | % | | 14.7 | % | | 23.0 | % | | 16.2 | % | | 24.1 | % |
Total TI & LC per square foot (3) | | $ | 18.00 |
| | $ | 31.56 |
| | $ | 25.94 |
| | $ | 21.14 |
| | $ | 24.13 |
|
Total TI & LC per sq. ft. per year of lease term (3) | | $ | 4.51 |
| | $ | 4.10 |
| | $ | 1.98 |
| | $ | 2.19 |
| | $ | 4.92 |
|
| | | | | | | | | | | |
| New Leases | | | | | | | | | | |
| Square feet | | 192 |
| | 196 |
| | 68 |
| | 221 |
| | 64 |
|
| Lease term (years) | | 9.0 |
| | 5.7 |
| | 7.3 |
| | 13.8 |
| | 3.8 |
|
| Starting cash rent | | $ | 32.63 |
| | $ | 31.03 |
| | $ | 36.47 |
| | $ | 33.61 |
| | $ | 31.34 |
|
Percent change in cash rent (2) | | 1.5 | % | | 9.9 | % | | 8.5 | % | | 15.8 | % | | (8.1 | )% |
Percent change in GAAP rent (2) | | 6.4 | % | | 22.0 | % | | 15.9 | % | | 30.9 | % | | (5.7 | )% |
Total TI & LC per square foot (3) | | $ | 49.75 |
| | $ | 36.75 |
| | $ | 41.33 |
| | $ | 93.85 |
| | $ | 30.86 |
|
Total TI & LC per sq. ft. per year of lease term (3) | | $ | 5.51 |
| | $ | 6.39 |
| | $ | 5.66 |
| | $ | 6.79 |
| | $ | 8.06 |
|
|
| |
| The above leasing summary is based on leases executed during the periods indicated. |
| | |
| (1) | Changes in total square footage result from remeasurement. |
| (2) | Percent change in GAAP and cash rent is a comparison of current rent (rent before deducting any initial period free rent), including tenant expense reimbursements, if any, to the rent, including tenant expense reimbursements, if any, last received for the same space on a GAAP and cash basis, respectively. New leasing in suites vacant longer than 2 years was excluded from the calculation. |
| (3) | Includes tenant improvements (TI) and leasing commissions (LC). |
CAPITAL SUMMARY
EXPENDITURES & LEASING COMMITMENTS
(dollars and square feet in thousands)
|
| | | | | | | | | | | | | | | | | | | |
| CAPITAL SUMMARY | Three Months Ended |
| EXPENDITURES | 9/30/2017 | | 6/30/2017 | | 3/31/2017 | | 12/31/2016 | | 9/30/2016 |
| Tenant improvements | $ | 3,015 |
| | $ | 10,309 |
| | $ | 9,427 |
| | $ | 15,636 |
| | $ | 20,411 |
|
| Leasing costs | 3,070 |
| | 4,978 |
| | 4,617 |
| | 11,663 |
| | 2,292 |
|
Building improvements (1) | 8,469 |
| | 7,315 |
| | 4,785 |
| | 6,571 |
| | 8,942 |
|
| Total capital expenditures | $ | 14,554 |
| | $ | 22,602 |
| | $ | 18,829 |
| | $ | 33,870 |
| | $ | 31,645 |
|
| | | | | | | | | | |
Average square feet during period (2) | 12,722 |
| | 14,818 |
| | 15,639 |
| | 16,382 |
| | 19,454 |
|
| | | | | | | | | | |
| Building improvements per average total sq. ft. during period | $ | 0.67 |
| | $ | 0.49 |
| | $ | 0.31 |
| | $ | 0.40 |
| | $ | 0.46 |
|
|
| | | | | | | | | | | | |
| CAPITAL SUMMARY | | Three Months Ended |
| LEASING COMMITMENTS | | September 30, 2017 |
| | | New Leases | | Renewal Leases | | Total |
| Rentable square feet leased during the period | | 192 |
| | 81 |
| | 273 |
|
Total TI & LC (3) | | $ | 9,577 |
| | $ | 1,455 |
| | $ | 11,032 |
|
Total TI & LC per square foot (3) | | $ | 49.75 |
| | $ | 18.00 |
| | $ | 40.37 |
|
| Weighted average lease term by square foot (years) | | 9.0 |
| | 4.0 |
| | 7.5 |
|
Total TI & LC per sq. ft. per year of lease term (3) | | $ | 5.51 |
| | $ | 4.51 |
| | $ | 5.35 |
|
|
| |
| (1) | Tenant-funded capital expenditures are excluded. |
| (2) | Average square feet during each period includes properties held for sale at the end of each period. |
| (3) | Includes tenant improvements (TI) and leasing commissions (LC). |
TENANTS REPRESENTING 1.5% OR MORE OF ANNUALIZED RENTAL REVENUE
As of September 30, 2017
(square feet in thousands)
|
| | | | | | | | | | | | | | |
| | | Tenant | | Square Feet (2) | | % of Total Sq. Ft. (1) | | % of Annualized Rental Revenue | | Weighted Average Remaining Lease Term |
| 1 |
| | Expedia, Inc. | | 427 |
| | 4.4 | % | | 7.7 | % | | 2.3 |
| 2 |
| | Groupon, Inc. (2) | | 376 |
| | 3.9 | % | | 4.5 | % | | 8.4 |
| 3 |
| | PNC Financial Services Group | | 363 |
| | 3.7 | % | | 4.1 | % | | 9.3 |
| 4 |
| | Flextronics International Ltd. | | 1,051 |
| | 10.8 | % | | 3.9 | % | | 12.3 |
| 5 |
| | Ballard Spahr LLP | | 219 |
| | 2.2 | % | | 3.0 | % | | 12.4 |
| 6 |
| | RE/MAX Holdings, Inc. | | 248 |
| | 2.5 | % | | 2.8 | % | | 10.7 |
| 7 |
| | Georgetown University | | 240 |
| | 2.5 | % | | 2.5 | % | | 2.1 |
| 8 |
| | Echo Global Logistics, Inc. | | 223 |
| | 2.3 | % | | 2.2 | % | | 10.1 |
| 9 |
| | West Corporation | | 336 |
| | 3.5 | % | | 2.2 | % | | 11.5 |
| 10 |
| | Wm. Wrigley Jr. Company | | 150 |
| | 1.5 | % | | 2.1 | % | | 4.4 |
| 11 |
| | ProQuest, LLC | | 131 |
| | 1.3 | % | | 1.6 | % | | 3.7 |
| 12 |
| | Level 3 Communications, LLC | | 95 |
| | 1.0 | % | | 1.6 | % | | 8.4 |
| 13 |
| | Jump Operations, LLC | | 113 |
| | 1.2 | % | | 1.5 | % | | 3.3 |
| | | Total | | 3,972 |
| | 40.8 | % | | 39.7 | % | | 8.7 |
|
| |
| (1) | Square footage as of September 30, 2017 includes space subject to leases that have commenced, space being fitted out for occupancy pursuant to existing leases, and space which is leased but not occupied or is being offered for sublease by tenants. |
| (2) | Groupon, Inc. statistics include 207,536 square feet that are sublet from Bankers Life and Casualty Company. |
SAME PROPERTY LEASE EXPIRATION SCHEDULE
As of September 30, 2017
(dollars and sq. ft. in thousands)
|
| | | | | | | | | | | | | | | | | | | | | |
| Year | | Number of Tenants Expiring | | Leased Sq. Ft. Expiring (1) | | % of Leased Sq. Ft. Expiring | | Cumulative % of Leased Sq. Ft. Expiring | | Annualized Rental Revenue Expiring (2) | | % of Annualized Rental Revenue Expiring | | Cumulative % of Annualized Rental Revenue Expiring |
| 2017 | | 17 | | 128 | | 1.3 | % | | 1.3 | % | | $ | 2,949 |
| | 1.1 | % | | 1.1 | % |
| 2018 | | 73 | | 542 | | 5.6 | % | | 6.9 | % | | 16,195 |
| | 6.1 | % | | 7.2 | % |
| 2019 | | 82 | | 1,116 | | 11.5 | % | | 18.4 | % | | 33,693 |
| | 12.6 | % | | 19.8 | % |
| 2020 | | 72 | | 1,296 | | 13.3 | % | | 31.7 | % | | 40,522 |
| | 15.2 | % | | 35.0 | % |
| 2021 | | 58 | | 836 | | 8.6 | % | | 40.3 | % | | 25,405 |
| | 9.4 | % | | 44.4 | % |
| 2022 | | 40 | | 637 | | 6.5 | % | | 46.8 | % | | 20,732 |
| | 7.8 | % | | 52.2 | % |
| 2023 | | 41 | | 598 | | 6.1 | % | | 52.9 | % | | 19,479 |
| | 7.3 | % | | 59.5 | % |
| 2024 | | 10 | | 145 | | 1.5 | % | | 54.4 | % | | 4,697 |
| | 1.8 | % | | 61.3 | % |
| 2025 | | 16 | | 345 | | 3.5 | % | | 57.9 | % | | 10,868 |
| | 4.1 | % | | 65.4 | % |
| 2026 | | 11 | | 579 | | 6.0 | % | | 63.9 | % | | 18,232 |
| | 6.8 | % | | 72.2 | % |
| Thereafter | | 61 | | 3,514 | | 36.1 | % | | 100.0 | % | | 74,095 |
| | 27.8 | % | | 100.0 | % |
| Total | | 481 | | 9,736 | | 100.0 | % | | | | $ | 266,867 |
| | 100.0 | % | | |
| Weighted average remaining | | | | | | | | | | |
| lease term (in years) | | 6.9 |
| | | | | | 6.1 |
| | | | |
| | | | | | | | | | | | | | | |
|
| |
| (1) | Square footage as of September 30, 2017 includes space subject to leases that have commenced, space being fitted out for occupancy pursuant to existing leases, and space which is leased but not occupied or is being offered for sublease by tenants. |
| (2) | Excludes the Annualized Rental Revenue of space that is leased but not commenced. |
PROPERTY DETAIL (1)
As of September 30, 2017
(sorted by geographic location, dollars in thousands)
|
| | | | | | | | | | | | | | | | | | | | | | |
| | Property | City and State | No. of Bldgs. | Sq. Feet | % Leased | % Comm-enced | Annualized Rental Revenue | Undepreciated Book Value | Net Book Value | Year Acquired (2) | Weighted Average Year Built or Substantially Renovated (2) |
| 1 | 1225 Seventeenth Street | Denver | CO | 1 |
| 695,372 |
| 82.6 | % | 80.7 | % | 22,270 |
| 158,951 |
| 129,275 |
| 2009 | 1982 |
| 2 | 5073, 5075, & 5085 S. Syracuse Street | Denver | CO | 1 |
| 248,493 |
| 100.0 | % | 100.0 | % | 7,601 |
| 63,610 |
| 52,691 |
| 2010 | 2007 |
| 3 | 1601 Dry Creek Drive | Longmont | CO | 1 |
| 552,865 |
| 100.0 | % | 100.0 | % | 9,017 |
| 34,589 |
| 24,073 |
| 2004 | 1982 |
| 4 | 1250 H Street, NW | Washington | DC | 1 |
| 196,489 |
| 92.1 | % | 91.1 | % | 9,429 |
| 74,333 |
| 44,006 |
| 1998 | 1992 |
| 5 | Georgetown-Green and Harris Buildings | Washington | DC | 2 |
| 240,475 |
| 100.0 | % | 100.0 | % | 6,605 |
| 60,023 |
| 52,747 |
| 2009 | 2006 |
| 6 | 600 West Chicago Avenue | Chicago | IL | 2 |
| 1,571,280 |
| 98.4 | % | 95.6 | % | 50,132 |
| 399,173 |
| 344,316 |
| 2011 | 2001 |
| 7 | 8750 Bryn Mawr Avenue | Chicago | IL | 2 |
| 636,078 |
| 93.2 | % | 93.2 | % | 17,153 |
| 96,615 |
| 80,032 |
| 2010 | 2005 |
| 8 | 109 Brookline Avenue | Boston | MA | 1 |
| 285,556 |
| 99.7 | % | 99.7 | % | 10,371 |
| 48,152 |
| 26,721 |
| 1995 | 1915 |
| 9 | East Eisenhower Parkway | Ann Arbor | MI | 2 |
| 421,208 |
| 55.1 | % | 48.4 | % | 6,195 |
| 57,386 |
| 48,094 |
| 2010 | 2006 |
| 10 | Cherrington Corporate Center | Moon Township | PA | 7 |
| 454,700 |
| 64.2 | % | 62.0 | % | 5,966 |
| 72,053 |
| 47,812 |
| 1998; 1999 | 1997 |
| 11 | 1600 Market Street | Philadelphia | PA | 1 |
| 825,968 |
| 84.0 | % | 82.3 | % | 19,119 |
| 137,677 |
| 76,620 |
| 1998 | 1983 |
| 12 | 1735 Market Street | Philadelphia | PA | 1 |
| 1,286,936 |
| 81.0 | % | 67.2 | % | 29,382 |
| 311,139 |
| 187,949 |
| 1998 | 1990 |
| 13 | Foster Plaza | Pittsburgh | PA | 8 |
| 727,743 |
| 82.7 | % | 80.6 | % | 11,876 |
| 76,599 |
| 53,185 |
| 2005 | 1993 |
| 14 | 206 East 9th Street | Austin | TX | 1 |
| 175,510 |
| 78.3 | % | 78.3 | % | 6,273 |
| 50,115 |
| 44,286 |
| 2012 | 1984 |
| 15 | Bridgepoint Square | Austin | TX | 5 |
| 440,007 |
| 92.3 | % | 92.3 | % | 12,279 |
| 94,316 |
| 52,434 |
| 1997 | 1995 |
| 16 | Research Park | Austin | TX | 4 |
| 1,110,007 |
| 98.0 | % | 98.0 | % | 11,573 |
| 93,466 |
| 59,186 |
| 1998 | 1976 |
| 17 | 333 108th Avenue NE | Bellevue | WA | 1 |
| 440,565 |
| 100.0 | % | 100.0 | % | 21,110 |
| 153,666 |
| 125,121 |
| 2009 | 2008 |
| 18 | 600 108th Avenue NE | Bellevue | WA | 1 |
| 256,830 |
| 97.1 | % | 95.9 | % | 8,279 |
| 51,238 |
| 35,982 |
| 2004 | 2012 |
| Subtotal Office Properties | 42 |
| 10,566,082 |
| 89.0 | % | 86.1 | % | $ | 264,630 |
| $ | 2,033,101 |
| $ | 1,484,530 |
| 2004 | 1991 |
| | | | | | | | | | | | | |
| | | | | | | | | | | | | |
| Industrial/Flex Properties |
| | Property | City and State | No. of Bldgs. | Sq. Feet | % Leased | % Comm-enced | Annualized Rental Revenue | Undepreciated Book Value | Net Book Value | Year Acquired (2) | Weighted Average Year Built or Substantially Renovated (2) |
| 19 | 97 Newberry Road | East Windsor | CT | 1 |
| 289,386 |
| 100.0 | % | 100.0 | % | $ | 1,909 |
| $ | 15,350 |
| $ | 11,942 |
| 2006 | 1989 |
| 20 | 33 Stiles Lane | North Haven | CT | 1 |
| 175,301 |
| 25.1 | % | 25.1 | % | 328 |
| 9,736 |
| 7,304 |
| 2006 | 2002 |
| Subtotal Industrial/Flex | 2 |
| 464,687 |
| 71.7 | % | 71.7 | % | $ | 2,237 |
| $ | 25,086 |
| $ | 19,246 |
| 2006 | 1994 |
| | | | | | | | | | | | | |
| Total Same Properties | | 44 |
| 11,030,769 |
| 88.3 | % | 85.5 | % | $ | 266,867 |
| $ | 2,058,187 |
| $ | 1,503,776 |
| 2004 | 1991 |
| | | | | | | | | | | | | |
| | 625 Crane Street (Land) | Aurora | IL | — |
| — |
| — | % | — | % | — |
| — |
| — |
| 2007 | — |
| | | | | | | | | | | | | |
| Total Portfolio | | 44 |
| 11,030,769 |
| 88.3 | % | 85.5 | % | $ | 266,867 |
| $ | 2,058,187 |
| $ | 1,503,776 |
| 2004 | 1991 |
|
| | |
| (1 | ) | Excludes properties disposed prior to October 1, 2017. |
| (2 | ) | Weighted based on square feet. |
| | |
DISPOSED PROPERTY DETAIL (1)
(dollars in thousands)
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Property | | City and State/Country | | No. of Bldgs. | | Sq. Feet | | % Leased | | Annualized Rental Revenue | | Undepreciated Book Value | | Net Book Value | | Year Acquired (2) | Weighted Average Year Built or Substantially Renovated (2) |
| 1 | 111 Market Place | | Baltimore | MD | | 1 | | 589,380 | | 95.4 | % | | $ | 12,583 |
| | $ | 71,555 |
| | $ | 44,199 |
| | 2003 | 1990 |
|
| | | | | | | | | | | | | | | | | | | | |
| 2 | 4515 Seton Center Parkway | | Austin | TX | | 1 | | 117,265 | | 98.9 | % | | 3,650 | | 23,130 | | 13,381 | | 1999 | 1996 |
|
| 3 | 4516 Seton Center Parkway | | Austin | TX | | 1 | | 120,559 | | 92.3 | % | | 2,645 | | 24,257 | | 13,760 | | 1999 | 1998 |
|
| | Subtotal Seton Center | | | | | 2 | | 237,824 | | 95.6 | % | | $ | 6,295 |
| | $ | 47,387 |
| | $ | 27,141 |
| | 1999 | 1997 |
|
| | | | | | | | | | | | | | | | | | | | |
| Cabot Business Park Land | | Mansfield | MA | | — |
| | — |
| | — | % | | — |
| | 575 | | 575 | | 2003 | — |
|
| | | | | | | | | | | | | | | | | | | | |
| Total Q1 2017 Dispositions | | 3 | | 827,204 | | 95.4 | % | | $ | 18,878 |
| | $ | 119,517 |
| | $ | 71,915 |
| | 2002 | 1992 |
|
| | | | | | | | | | | | | | | | | | | | |
| 4 | Parkshore Plaza | | Folsom | CA | | 4 | | 271,072 | | 73.1 | % | | 4,280 | | 45,578 | | 38,494 | | 2011 | 1999 |
|
| | | | | | | | | | | | | | | | | | | | |
| 5 | 25 S. Charles Street | | Baltimore | MD | | 1 | | 359,254 | | 94.2 | % | | 8,746 | | 37,218 | | 23,335 | | 2004 | 1972 |
|
| | | | | | | | | | | | | | | | | | | | |
| 6 | 802 Delaware Avenue | | Wilmington | DE | | 1 | | 240,780 | | 100.0 | % | | 4,291 | | 43,496 | | 18,997 | | 1998 | 1986 |
|
| | | | | | | | | | | | | | | | | | | | |
| Total Q2 2017 Dispositions | | 6 | | 871,106 | | 89.2 | % | | $ | 17,317 |
| | $ | 126,292 |
| | $ | 80,826 |
| | 2005 | 1984 |
|
| | | | | | | | | | | | | | | | | | | | |
| 7 | 1500 Market Street | | Philadelphia | PA | | 1 | | 1,759,193 | | 91.2 | % | | 39,321 | | 312,448 | | 220,215 | | 2002 | 1974 |
|
| | | | | | | | | | | | | | | | | | | | |
| 8 | 820 W. Diamond | | Gaithersburg | MD | | 1 | | 134,933 | | 88.7 | % | | 3,156 | | 32,651 | | 19,283 | | 1997 | 1995 |
|
| 9 | Danac Stiles Business Park | | Rockville | MD | | 3 | | 276,637 | | 86.1 | % | | 7,170 | | 62,950 | | 41,141 | | 2004 | 2002 |
|
| 10 | 2250 Pilot Knob Road | | Mendota Heights | MN | | 1 | | 87,183 | | 100.0 | % | | 931 | | 6,309 | | 3,298 | | 1998 | 1995 |
|
| 11 | 411 Farwell Avenue | | South St. Paul | MN | | 1 | | 422,727 | | 100.0 | % | | 1,907 | | 15,597 | | 11,298 | | 2004 | 1970 |
|
| 12 | 4700 Belleview Avenue | | Kansas City | MO | | 1 | | 80,615 | | 68.5 | % | | 1,142 | | 7,004 | | 5,605 | | 2008 | 1986 |
|
| | Subtotal Five-Property Portfolio | | | | | 7 | | 1,002,095 | | 92.1 | % | | 14,306 | | 124,511 | | 80,625 | | 2002 | 1986 |
|
| | | | | | | | | | | | | | | | | | | | |
| 13 | 6600 North Military Trail | | Boca Raton | FL | | 3 | | 639,825 | | 100.0 | % | | 16,994 | | 145,808 | | 124,713 | | 2011 | 2008 |
|
| | | | | | | | | | | | | | | | | | | | |
| Total Q3 2017 Dispositions | | 11 | | 3,401,113 | | 93.1 | % | | $ | 70,621 |
| | $ | 582,767 |
| | $ | 425,553 |
| | 2004 | 1984 |
|
| | | | | | | | | | | | | | | | | | | | |
| Total Disposed Year-to-Date | | 20 | | 5,099,423 | | 92.8 | % | | $ | 106,816 |
| | $ | 828,576 |
|
| $ | 578,294 |
| | 2004 | 1985 |
|
|
| | |
| (1 | ) | Statistics for disposed properties are presented as of the quarter-ended preceding each sale. |
| (2 | ) | Weighted based on square feet. |
| | |
COMMON & POTENTIAL COMMON SHARES
(share amounts in thousands)
|
| | | | | | | | | | | |
| | Three Months Ended | | Nine Months Ended |
| | September 30, | | September 30, |
| Weighted Average Share Calculation | 2017 | | 2016 | | 2017 | | 2016 |
| Weighted average EQC common shares outstanding | 123,173 |
| | 124,624 |
| | 123,152 |
| | 124,727 |
|
| Weighted average restricted shares outstanding | 916 |
| | 909 |
| | 916 |
| | 900 |
|
Weighted average common shares outstanding - basic - GAAP EPS(1) | 124,089 |
| | 125,533 |
| | 124,068 |
| | 125,627 |
|
Weighted average number of dilutive RSUs and LTIP Units(2) | 1,086 |
| | 1,035 |
| | 1,126 |
| | 1,382 |
|
| Weighted average common shares outstanding - diluted - GAAP EPS, FFO & Normalized FFO | 125,175 |
| | 126,568 |
| | 125,194 |
| | 127,009 |
|
|
| | | | | | | |
| Rollforward of Share Count to September 30, 2017 | | | Series D Preferred Shares(3) | | EQC Common Shares(4) |
| Outstanding on December 31, 2016 | | | 4,915 |
| | 123,994 |
|
| Issuance of restricted shares, net of forfeitures | | | — |
| | 95 |
|
| Outstanding on September 30, 2017 | | | 4,915 |
| | 124,089 |
|
Series D preferred shares convertible into common shares on September 30, 2017(3) | | | | | 2,363 |
|
Common shares issuable from RSUs and LTIP Units as measured on September 30, 2017(2) | | | | | 1,085 |
|
| Potential common shares as measured on September 30, 2017 | | | | | 127,537 |
|
|
| | |
| (1 | ) | Our calculations of FFO and Normalized FFO attributable to EQC common shareholders and unitholders per share - basic for the three and nine months ended September 30, 2017 includes 43 and 37 LTIP Units, respectively, that are excluded from the calculation of basic earnings per common share attributable only to Equity Commonwealth common shareholders. |
| (2 | ) | As of September 30, 2017, we had granted RSUs and LTIP Units to certain employees, officers, and trustees. RSUs and LTIP Units contain service and market-based vesting components. None of the RSUs or LTIP Units have vested. If the market-based vesting component of these awards was measured as of September 30, 2017, and 2016, 1,085 and 1,035 common shares would be issued, respectively. Using a weighted average basis, 1,086 and 1,035 common shares are reflected in diluted earnings per share, FFO per share, and Normalized FFO per share for the three months ended September 30, 2017 and 2016, respectively, and 1,126 and 1,382 common shares are reflected in diluted earnings per share, FFO per share, and Normalized FFO per share for the nine months ended September 30, 2017 and 2016, respectively. |
| (3 | ) | As of September 30, 2017, we had 4,915 series D preferred shares outstanding that were convertible into 2,363 common shares. The series D preferred shares are anti-dilutive for GAAP EPS, FFO per common share and Normalized FFO per common share for all periods presented. |
| (4 | ) | EQC common shares include unvested restricted shares. |
Annualized Rental Revenue
Annualized Rental Revenue is annualized contractual rents from our tenants pursuant to leases which have commenced as of September 30, 2017, plus estimated recurring expense reimbursements; includes triple net lease rents and excludes lease value amortization, straight line rent adjustments, abated (“free”) rent periods and parking revenue. We calculate annualized rental revenue by aggregating the recurring billings outlined above for the most recent month during the quarter reported, adding abated rent, and multiplying the sum by 12 to provide an estimation of near-term potentially-recurring revenues. The annualized rental revenue of disposed properties is presented for the quarter-ended preceding each disposition.
Annualized rental revenue is a forward-looking non-GAAP measure. Annualized rental revenue cannot be reconciled to a comparable GAAP measure without unreasonable efforts, primarily due to the fact that it is calculated from the billings of tenants in the most recent month at the most recent rental rates during the quarter reported, whereas historical GAAP measures include billings from a potentially different group of tenants over multiple months at potentially different rental rates.
Building Improvements
Building improvements are expenditures to replace obsolete building components or extend the useful life of existing assets.
Consolidated Income Available for Debt Service
Consolidated income available for debt service is earnings from operations excluding interest expense, depreciation and amortization, taxes, and certain items that we view as nonrecurring or impacting comparability from period to period, determined together with debt service on a pro forma basis for the four consecutive fiscal quarters most recently ended.
Earnings Before Interest, Taxes, Depreciation and Amortization (EBITDA) and Adjusted EBITDA
We calculate EBITDA as net income (loss) excluding 1) interest expense, 2) income tax expense, and 3) depreciation and amortization. Our calculation of Adjusted EBITDA differs from our calculation of EBITDA because we exclude certain items that we view as nonrecurring or impacting comparability from period to period. EBITDA and Adjusted EBITDA are supplemental non-GAAP financial measures.
We consider EBITDA and Adjusted EBITDA to be appropriate measures of our operating performance, 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 EBITDA and Adjusted EBITDA provide useful information to investors because by excluding the effects of certain historical amounts, such as interest, depreciation and amortization expense, EBITDA and Adjusted EBITDA may facilitate a comparison of current operating performance with our past operating performance. EBITDA and Adjusted EBITDA do not represent cash generated by operating activities in accordance with GAAP and should not be considered 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 (loss) and condensed consolidated statements of cash flows. Other REITs and real estate companies may calculate EBITDA and Adjusted EBITDA differently than we do.
Annualized Adjusted EBITDA
Annualized Adjusted EBITDA is Adjusted EBITDA for the three months ended September 30, 2017 multiplied by four.
Enterprise Value
Enterprise value is net debt plus the market value of our preferred shares plus the market value of our common shares.
Funds from Operations (FFO) and Normalized FFO
We compute FFO in accordance with standards established by the National Association of Real Estate Investment Trusts (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 Equity Commonwealth 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 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 Equity Commonwealth 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.
Leasing Costs
Leasing costs primarily consist of leasing commissions ("LC"'s) and related legal expenses.
LTIP Units
LTIP Units are a class of beneficial interests in EQC Operating Trust (the "Operating Trust") that may be issued to employees, officers, or trustees of the Operating Trust, EQC, or their subsidiaries.
Net Debt
Net debt is total debt minus cash and cash equivalents.
Net Operating Income (NOI), Same Property NOI, Cash Basis NOI, and Same Property Cash Basis NOI
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 July 1, 2016 through September 30, 2017. The year-to-date same property versions of these measures include the results of properties continuously owned from January 1, 2016 through September 30, 2017. 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 Equity Commonwealth 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.
Net Book Value
Net book value represents the carrying value of real estate properties after depreciation and amortization, purchase price allocations, impairment write-downs, and currency adjustments, if any.
NOI Margin
NOI Margin is NOI (or the same property or cash basis derivations of NOI defined above) divided by the total revenues used to calculate NOI (or its derivation).
Percentage Commenced
Percentage commenced includes space subject to leases that have commenced, whether or not the tenant is in a free rent period.
Percentage Leased
Percentage leased includes space subject to leases that have commenced, space being fitted out for occupancy pursuant to existing leases, and space which is leased but not occupied or is being offered for sublease by tenants.
Same Properties
Our quarter-to-date same property portfolio is comprised of those properties continuously owned from July 1, 2016 through September 30, 2017. Our year-to-date same property portfolio is comprised of those properties continuously owned from January 1, 2016 through September 30, 2017. Land parcels and properties classified as held for sale within our condensed consolidated balance sheets are excluded.
Tenant Improvements
Tenant improvements are capital expenditures to improve tenant spaces.
Total Debt
Total debt is the aggregate balance of the following line items on our condensed consolidated balance sheets: revolving credit facility, senior unsecured debt, net, and mortgage notes payable, net.
Undepreciated Book Value
Undepreciated book value represents the carrying value of real estate properties after purchase price allocations, impairment write-downs, and currency adjustments, if any.
