Equity Commonwealth
Supplemental Operating
and Financial Data
Fourth Quarter 2018
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| | | | |
| | 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, 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. |
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.
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| | | |
| 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 |
| | | | |
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| | | | |
| 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 |
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| |
| 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 |
| | | 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. |
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 |
|
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 |
|
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. |
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. |
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 |
| | $ | 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 |
|
| | | | |
| | | | |
Same Property capitalized external legal costs(2) | $ | 167 |
| | $ | 590 |
|
|
| |
| (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. |
SAME PROPERTY RESULTS OF OPERATIONS
(dollars and square feet in thousands)
|
| | | | | | | | | | | | | | | | | | | | | |
| | As of and for the Three Months Ended December 31, | | As of and for the Year Ended December 31, |
| | 2018 | | 2017 | | % Change | | 2018 | | 2017 | | % Change |
| Properties | 10 |
| | 10 |
| | | | 10 |
| | 10 |
| | |
Square Feet (1) | 5,120 |
| | 5,128 |
| | | | 5,120 |
| | 5,128 |
| | |
| % Leased | 94.8 | % | | 90.6 | % | | 4.2 | % | | 94.8 | % | | 90.6 | % | | 4.2 | % |
| % Commenced | 91.2 | % | | 86.4 | % | | 4.8 | % | | 91.2 | % | | 86.4 | % | | 4.8 | % |
| | | | | | | | | | | | |
| Rental income | $ | 30,127 |
| | $ | 27,837 |
| | 8.2 | % | | $ | 116,864 |
| | $ | 104,755 |
| | 11.6 | % |
| Tenant reimbursements and other income | 10,955 |
| | 9,427 |
| | 16.2 | % | | 42,445 |
| | 39,207 |
| | 8.3 | % |
| Straight line rent adjustment | 1,011 |
| | 862 |
| | | | 4,280 |
| | 9,163 |
| | |
| Lease value amortization | 29 |
| | 8 |
| | | | 53 |
| | 22 |
| | |
| Lease termination fees | 19 |
| | 365 |
| | | | 162 |
| | 2,165 |
| | |
| Total revenue | 42,141 |
| | 38,499 |
| | 9.5 | % | | 163,804 |
| | 155,312 |
| | 5.5 | % |
| Operating expenses | (16,048 | ) | | (14,174 | ) | | 13.2 | % | | (62,011 | ) | | (56,898 | ) | | 9.0 | % |
| NOI | $ | 26,093 |
| | 24,325 |
| | 7.3 | % | | 101,793 |
| | 98,414 |
| | 3.4 | % |
| NOI Margin | 61.9 | % | | 63.2 | % | | | | 62.1 | % | | 63.4 | % | | |
| | | | | | | | | | | | |
| Straight line rent adjustment | (1,011 | ) | | (862 | ) | | | | (4,280 | ) | | (9,163 | ) | | |
| Lease value amortization | (29 | ) | | (8 | ) | | | | (53 | ) | | (22 | ) | | |
| Lease termination fees | (19 | ) | | (365 | ) | | | | (162 | ) | | (2,165 | ) | | |
| Cash Basis NOI | 25,034 |
| | 23,090 |
| | 8.4 | % | | 97,298 |
| | 87,064 |
| | 11.8 | % |
| Cash Basis NOI Margin | 60.9 | % | | 62.0 | % | | | | 61.1 | % | | 60.5 | % | | |
| | | | | | | | | | | | |
| | | | | | | | | | | | |
Same Property capitalized external legal costs(2) | $ | — |
| | $ | 213 |
| | | | $ | 167 |
| | $ | 590 |
| | |
|
| |
| (1) | The change in total square footage results from remeasurement. |
| (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. |
CALCULATION OF EBITDA, EBITDAre, AND ADJUSTED EBITDAre
(amounts in thousands)
|
| | | | | | | | | | | | | | | |
| | For the Three Months Ended | | For the Year Ended |
| | December 31, | | December 31, |
| | 2018 | | 2017 | | 2018 | | 2017 |
| Net income (loss) | $ | 15,422 |
| | $ | (21,569 | ) | | $ | 272,908 |
| | $ | 29,666 |
|
| Interest expense | 5,035 |
| | 10,796 |
| | 26,585 |
| | 52,183 |
|
| Income tax expense (benefit) | 540 |
| | (55 | ) | | 3,156 |
| | 500 |
|
| Depreciation and amortization | 10,830 |
| | 18,738 |
| | 49,041 |
| | 90,708 |
|
| EBITDA | $ | 31,827 |
| | $ | 7,910 |
| | $ | 351,690 |
| | $ | 173,057 |
|
| Loss on asset impairment | — |
| | — |
| | 12,087 |
| | 19,714 |
|
| Loss (gain) on sale of properties, net | 1,608 |
| | 29,172 |
| | (251,417 | ) | | (15,498 | ) |
| EBITDAre | $ | 33,435 |
| | $ | 37,082 |
| | $ | 112,360 |
| | $ | 177,273 |
|
| Loss on early extinguishment of debt | 719 |
| | 227 |
| | 7,122 |
| | 493 |
|
| Loss on sale of real estate mortgage receivable | — |
| | — |
| | 2,117 |
| | — |
|
| Loss on sale of securities | — |
| | — |
| | 4,987 |
| | — |
|
| Adjusted EBITDAre | $ | 34,154 |
| | $ | 37,309 |
| | $ | 126,586 |
| | $ | 177,766 |
|
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). Refer to the schedule of Common & Potential Common Shares for information regarding the components of our weighted average common shares and units outstanding. |
DEBT SUMMARY
As of December 31, 2018
(dollars in thousands)
|
| | | | | | | | | | | | | | | | |
| | Interest Rate | | Principal Balance | | Maturity Date | Open at Par Date | | Due at Maturity | | Years to Maturity |
| Unsecured Debt: | | | | | | | | | | |
| Unsecured Fixed Rate Debt: | | | | | | | | | | |
| 5.875% Senior Unsecured Notes Due 2020 | 5.88 | % | | $ | 250,000 |
| | 9/15/2020 | 3/15/2020 | | $ | 250,000 |
| | 1.7 |
|
| | | | | | | | | | | |
| Secured Debt: | | | | | | | | | | |
| Secured Fixed Rate Debt: | | | | | | | | | | |
| 206 East 9th Street | 5.69 | % | | $ | 26,000 |
| | 1/5/2021 | 7/5/2020 | | $ | 24,836 |
| | 2.0 |
|
| | | | | | | | | | | |
Total / weighted average (1) | 5.86 | % | | $ | 276,000 |
| | | | | $ | 274,836 |
| | 1.7 |
|
| | | | | | | | | | | |
|
| |
| (1) | Total debt outstanding as of December 31, 2018, including net unamortized premiums, discounts, and deferred financing fees was $274,955. |
DEBT MATURITY SCHEDULE
(dollars in thousands)
|
| | | | | | | | | | | | | | |
| Scheduled Principal Payments During Period |
| Year | Unsecured Fixed Rate Debt | | Secured Fixed Rate Debt | | Total | | Weighted Average Interest Rate |
| 2019 | $ | — |
| | $ | 567 |
| | $ | 567 |
| | 5.7 | % |
| 2020 | 250,000 |
| | 597 |
| | 250,597 |
| | 5.9 | % |
| 2021 | — |
| | 24,836 |
| | 24,836 |
| | 5.7 | % |
| Thereafter | — |
| | — |
| | — |
| | — | % |
| Total | $ | 250,000 |
| | $ | 26,000 |
|
| $ | 276,000 |
| (1) | 5.9 | % |
| | | | | | | | |
| Percent | 90.6 | % | | 9.4 | % | | 100.0 | % | | |
|
| |
| (1) | Total debt outstanding as of December 31, 2018, including net unamortized premiums, discounts, and deferred financing fees was $274,955. |
LEVERAGE RATIOS, COVERAGE RATIOS AND PUBLIC DEBT COVENANTS
(dollars in thousands)
|
| | | | | | | | | | | | | | |
| | As of and for the Three Months Ended |
| | 12/31/2018 |
| | 9/30/2018 |
| | 6/30/2018 |
| | 3/31/2018 |
| | 12/31/2017 |
|
| Leverage Ratios | | | | | | | | | |
| Total debt / total assets | 7.8 | % | | 7.3 | % | | 7.4 | % | | 16.4 | % | | 20.0 | % |
| Total debt / total market capitalization | 6.7 | % | | 6.4 | % | | 6.6 | % | | 14.8 | % | | 17.7 | % |
| Total debt + preferred stock / total market capitalization | 9.7 | % | | 9.4 | % | | 9.5 | % | | 17.6 | % | | 20.4 | % |
Total debt / annualized adjusted EBITDAre (1) | 2.0 | x | | 2.3x |
| | 2.3x |
| | 5.4x |
| | 5.7x |
|
Total debt + preferred stock / annualized adjusted EBITDAre (1) | 2.9 | x | | 3.4x |
| | 3.3x |
| | 6.4x |
| | 6.6x |
|
| Net debt / enterprise value | (125.3) | % | | (142.6 | )% | | (126.1 | )% | | (124.4 | )% | | (61.7 | )% |
| Net debt + preferred stock / enterprise value | (118.0) | % | | (134.9 | )% | | (118.8 | )% | | (117.0 | )% | | (56.4 | )% |
Net debt / annualized adjusted EBITDAre (1) | (15.6 | )x | | (19.6)x |
| | (18.2)x |
| | (17.2)x |
| | (10.1)x |
|
Net debt + preferred stock / annualized adjusted EBITDAre (1) | (14.7 | )x | | (18.6)x |
| | (17.2)x |
| | (16.2)x |
| | (9.2)x |
|
| Secured debt / total assets | 0.8 | % | | 0.8 | % | | 0.8 | % | | 0.8 | % | | 0.8 | % |
| Variable rate debt / total debt | — | % | | — | % | | — | % | | 59.0 | % | | 47.1 | % |
| Variable rate debt / total assets | — | % | | — | % | | — | % | | 9.7 | % | | 9.4 | % |
| | | | | | | | | | |
| Coverage Ratios | | | | | | | | | |
Adjusted EBITDAre / interest expense (1) | 6.8 | x | | 6.0x |
| | 4.8x |
| | 3.1x |
| | 3.5x |
|
Adjusted EBITDAre / interest expense + preferred distributions (1) | 4.9 | x | | 4.3x |
| | 3.7x |
| | 2.6x |
| | 2.9x |
|
| | | | | | | | | | |
| Public Debt Covenants | | | | | | | | | |
Debt / adjusted total assets (2) (maximum 60%) | 7.2 | % | | 6.8 | % | | 6.8 | % | | 15.2 | % | | 18.2 | % |
Secured debt / adjusted total assets (2) (maximum 40%) | 0.7 | % | | 0.8 | % | | 0.8 | % | | 0.7 | % | | 0.7 | % |
| Consolidated income available for debt service / debt service (minimum 1.5x) | 6.2 | x | | 4.6x |
| | 4.6x |
| | 2.8x |
| | 3.3x |
|
Total unencumbered assets (2) / unsecured debt (minimum 150% / 200%) | 1,520 | % | | 1,629 | % | | 1,624 | % | | 681 | % | | 553 | % |
|
| |
| (1) | Refer to the calculation of EBITDA, EBITDAre and Adjusted EBITDAre for a reconciliation of these measures to Net income. |
| (2) | 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) |
| 1600 Market Street | Philadelphia | PA | 1 | 825,968 |
| | 84.7 | % | | $ | 160,000 |
| | $ | 76,066 |
| | $ | 19,219 |
|
600 West Chicago Avenue (2) | Chicago | IL | 1 | 1,561,477 |
| | 99.2 | % | | 510,000 | | 343,111 | | 53,193 |
| 5073, 5075, & 5085 S. Syracuse Street | Denver | CO | 1 | 248,493 |
| | 100.0 | % | | 115,186 | | 52,323 | | 7,601 |
| Total Q1 Dispositions | | 3 |
| 2,635,938 |
| | 94.7 | % | | $ | 785,186 |
| | $ | 471,500 |
| | $ | 80,013 |
|
| | | | | | | | | | | | | |
| 1601 Dry Creek Drive | Longmont | CO | 1 | 552,865 |
| | 100.0 | % | | $ | 68,500 |
| | $ | 24,786 |
| | $ | 9,115 |
|
| Total Q2 Dispositions | | 1 |
| 552,865 |
| | 100.0 | % | | $ | 68,500 |
| | $ | 24,786 |
| | $ | 9,115 |
|
| | | | | | | | | | | | | |
| 777 East Eisenhower Parkway | Ann Arbor | MI | 1 | 290,530 |
| | 39.8 | % | | $ | 29,500 |
| | $ | 21,652 |
| | $ | 2,989 |
|
8750 Bryn Mawr Avenue (3) | Chicago | IL | 1 | 636,078 |
| | 95.5 | % | | 141,000 | | 91,873 | | 17,041 |
| Total Q3 Dispositions | | 2 |
| 926,608 |
| | 78.0 | % | | $ | 170,500 |
| | $ | 113,525 |
| | $ | 20,030 |
|
| | | | | | | | | | | | | |
| 97 Newberry Road | East Windsor | CT | 1 | 289,386 |
| | 100.0 | % | | $ | 7,100 |
| | $ | 7,741 |
| | 1,923 |
| Total Q4 Dispositions | | 1 |
| 289,386 |
| | 100.0 | % | | $ | 7,100 |
| | $ | 7,741 |
| | $ | 1,923 |
|
| | | | | | | | | | | | | |
| Total Disposed Year-to-Date | | 7 |
| 4,404,797 |
| | 92.2 | % | | $ | 1,031,286 |
| | $ | 617,552 |
| | $ | 111,081 |
|
The dispositions above resulted in a net (loss) gain on sale of properties of $(1.6) million and $251.4 million for the three months and year ended December 31, 2018, respectively. |
| | |
| (1 | ) | As of the quarter-ended preceding each sale. |
| (2 | ) | Proceeds from the sale of 600 West Chicago Avenue were approximately $488 million after credits for capital, contractual lease costs, and rent abatement. |
| (3 | ) | Proceeds from the sale of 8750 Bryn Mawr Avenue were approximately $120 million after credits for capital, contractual lease costs, and rent abatement. |
PROPERTY DETAIL
As of December 31, 2018
(sorted by annualized rental revenue, dollars in thousands)
|
| | | | | | | | | | | | | | | | | | | | | | | | |
Same Property Portfolio(1) | | | | | | |
| Property | City, State | Type | No. of Buildings | Sq. Feet | % Leased | % Comm-enced | Annualized Rental Revenue | Undepreciated Book Value | Net Book Value | Year Acquired | Weighted Average Year Built or Substantially Renovated (2) |
| 1 | 1735 Market Street (3) | Philadelphia, PA | Office | 1 | 1,286,936 |
| 92.8 | % | 83.4 | % | $ | 37,313 |
| $ | 328,519 |
| $ | 192,094 |
| 1998 | 1990 |
| 2 | 1225 Seventeenth Street | Denver, CO | Office | 1 | 695,372 |
| 88.9 | % | 85.3 | % | 23,755 |
| 162,848 | 127,782 | 2009 | 1982 |
| | (17th Street Plaza) | | | | | | | | | | | |
| 3 | 333 108th Avenue NE | Bellevue, WA | Office | 1 | 435,406 |
| 99.3 | % | 99.3 | % | 21,771 |
| 153,527 | 120,410 | 2009 | 2008 |
| | (Tower 333) | | | | | | | | | | | |
| 4 | Bridgepoint Square | Austin, TX | Office | 5 | 440,007 |
| 91.6 | % | 90.3 | % | 14,492 |
| 97,775 |
| 52,629 |
| 1997 | 1995 |
| 5 | Research Park | Austin, TX | Flex | 4 | 1,110,007 |
| 100.0 | % | 98.9 | % | 12,040 |
| 109,417 | 71,300 | 1998 | 1976 |
| 6 | 109 Brookline Avenue | Boston, MA | Office | 1 | 285,556 |
| 94.6 | % | 94.6 | % | 11,187 |
| 47,804 | 25,951 | 1995 | 1915 |
| 7 | 1250 H Street, NW | Washington, D.C. | Office | 1 | 196,490 |
| 89.7 | % | 84.9 | % | 8,936 |
| 75,069 | 41,686 | 1998 | 1992 |
| 8 | 600 108th Avenue NE | Bellevue, WA | Office | 1 | 254,510 |
| 97.5 | % | 93.7 | % | 8,737 |
| 52,277 | 34,891 | 2004 | 2012 |
| | (Bellevue Corporate Plaza) | | | | | | | | | | | |
| 9 | 206 East 9th Street | Austin, TX | Office | 1 | 175,510 |
| 92.0 | % | 92.0 | % | 7,833 |
| 51,351 | 44,278 | 2012 | 1984 |
| | (Capitol Tower) | | | | | | | | | | | |
| 10 | Georgetown-Green and Harris Buildings | Washington, D.C. | Office | 2 | 240,475 |
| 100.0 | % | 100.0 | % | 6,911 |
| 61,055 | 52,653 | 2009 | 2006 |
| | Total Same Properties | | | 18 | 5,120,269 |
| 94.8 | % | 91.2 | % | $ | 152,975 |
| $ | 1,139,642 |
| $ | 763,674 |
| 2001 | 1985 |
| | | | | | | | | | | | |
| | | | | | | | | | | | |
| | | | | | | | | | | | | |
| | Same Property NOI & Cash Basis NOI Composition | | Q4 2018 NOI | % of NOI | Q4 2018 Cash Basis NOI | % of Cash Basis NOI | | | | | |
| | Top 5 Properties | | $ | 18,163 |
| 69.6 | % | $ | 16,906 |
| 67.5 | % | | | | | |
| | All other properties (5 properties) | | 7,930 |
| 30.4 | % | 8,128 |
| 32.5 | % | | | | | |
| | Total (10 properties) | | $ | 26,093 |
| 100.0 | % | $ | 25,034 |
| 100.0 | % | | | | | |
|
| |
| (1) | Excludes properties disposed prior to January 1, 2019. |
| (2) | Weighted based on square feet. |
| (3) | On January 29, 2019, certain of our subsidiaries entered into a contract to sell 100% of the equity interests in the fee simple owner of our 1,286,936 square foot property at 1735 Market Street, for a sales price of $451.6 million, excluding closing credits and closing costs. This transaction is subject to customary closing extensions and conditions, and there is no certainty that this transaction will close. |
LEASING SUMMARY
(dollars and square feet in thousands, except per square foot data)
|
| | | | | | | | | | | | | | | | | | | | |
| | | As of and for the Three Months Ended |
| | | 12/31/2018 | | 9/30/2018 | | 6/30/2018 | | 3/31/2018 | | 12/31/2017 |
Properties (1) | | 10 |
| | 11 |
| | 13 |
| | 13 |
| | 16 |
|
Total square feet (1)(2) | | 5,120 |
| | 5,410 |
| | 6,341 |
| | 6,344 |
| | 8,706 |
|
| Percentage leased | | 94.8 | % | | 94.0 | % | | 89.8 | % | | 88.6 | % | | 91.9 | % |
| Percentage commenced | | 91.2 | % | | 91.3 | % | | 87.7 | % | | 83.5 | % | | 89.2 | % |
| | | | | | | | | | | |
| Total Leases | | | | | | | | | | |
| Square feet | | 173 |
| | 563 |
| | 292 |
| | 117 |
| | 248 |
|
| Lease term (years) | | 7.0 |
| | 14.4 |
| | 9.4 |
| | 7.8 |
| | 11.5 |
|
| Starting cash rent | | $ | 45.01 |
| | $ | 47.36 |
| | $ | 39.44 |
| | $ | 36.29 |
| | $ | 33.36 |
|
Percent change in cash rent (3) | | 10.0 | % | | (1.2) | % | | 10.4 | % | | 2.8 | % | | 6.8 | % |
Percent change in GAAP rent (3) | | 22.5 | % | | 11.0 | % | | 23.6 | % | | 10.8 | % | | 19.0 | % |
Total TI & LC per square foot (4) | | $ | 46.00 |
| | $ | 118.03 |
| | $ | 59.54 |
| | $ | 59.23 |
| | $ | 36.91 |
|
Total TI & LC per sq. ft. per year of lease term (4) | | $ | 6.60 |
| | $ | 8.22 |
| | $ | 6.36 |
| | $ | 7.56 |
| | $ | 3.20 |
|
| | | | | | | | | | | |
| Renewal Leases | | | | | | | | | | |
| Square feet | | 93 |
| | 1 |
| | 103 |
| | 71 |
| | 171 |
|
| Lease term (years) | | 6.7 |
| | 5.0 |
| | 5.2 |
| | 7.2 |
| | 13.4 |
|
| Starting cash rent | | $ | 43.12 |
| | $ | 67.85 |
| | $ | 39.01 |
| | $ | 36.93 |
| | $ | 33.06 |
|
Percent change in cash rent (3) | | 6.5 | % | | 0.0 | % | | 12.0 | % | | 1.7 | % | | 6.2 | % |
Percent change in GAAP rent (3) | | 19.4 | % | | 17.0 | % | | 20.2 | % | | 9.5 | % | | 20.7 | % |
Total TI & LC per square foot (4) | | $ | 32.95 |
| | $ | 2.50 |
| | $ | 40.07 |
| | $ | 55.07 |
| | $ | 33.67 |
|
Total TI & LC per sq. ft. per year of lease term (4) | | $ | 4.95 |
| | $ | 0.50 |
| | $ | 7.75 |
| | $ | 7.61 |
| | $ | 2.52 |
|
| | | | | | | | | | | |
| New Leases | | | | | | | | | | |
| Square feet | | 80 |
| | 562 |
| | 189 |
| | 46 |
| | 77 |
|
| Lease term (years) | | 7.3 |
| | 14.4 |
| | 11.6 |
| | 8.7 |
| | 7.5 |
|
| Starting cash rent | | $ | 47.23 |
| | $ | 47.32 |
| | $ | 39.67 |
| | $ | 35.34 |
| | $ | 34.02 |
|
Percent change in cash rent (3) | | 18.8 | % | | (1.2) | % | | 9.6 | % | | 6.7 | % | | 9.0 | % |
Percent change in GAAP rent (3) | | 30.3 | % | | 11.0 | % | | 25.5 | % | | 15.3 | % | | 13.4 | % |
Total TI & LC per square foot (4) | | $ | 61.27 |
| | $ | 118.28 |
| | $ | 70.12 |
| | $ | 65.55 |
| | $ | 44.06 |
|
Total TI & LC per sq. ft. per year of lease term (4) | | $ | 8.35 |
| | $ | 8.23 |
| | $ | 6.03 |
| | $ | 7.49 |
| | $ | 5.88 |
|
|
| |
| The above leasing summary is based on leases executed during the periods indicated, and excludes leasing activity for assets during the quarter in which the asset was sold or classified as held for sale. |
| | |
| (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) | Percent change in GAAP and cash rent is a comparison of current 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. Cash rent is calculated before deducting any initial period free rent. 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 |
| | | 12/31/2018 | | 9/30/2018 | | 6/30/2018 | | 3/31/2018 | | 12/31/2017 |
| Properties | | 10 |
| | 10 |
| | 10 |
| | 10 |
| | 10 |
|
Total square feet (1) | | 5,120 |
| | 5,120 |
| | 5,125 |
| | 5,128 |
| | 5,128 |
|
| Percentage leased | | 94.8 | % | | 93.7 | % | | 91.3 | % | | 89.9 | % | | 90.6 | % |
| Percentage commenced | | 91.2 | % | | 90.8 | % | | 89.3 | % | | 85.9 | % | | 86.4 | % |
| | | | | | | | | | | |
| Total Leases | | | | | | | | | | |
| Square feet | | 173 |
| | 563 |
| | 189 |
| | 51 |
| | 203 |
|
| Lease term (years) | | 7.0 |
| | 14.4 |
| | 5.6 |
| | 8.0 |
| | 12.2 |
|
| Starting cash rent | | $ | 45.01 |
| | $ | 47.36 |
| | $ | 42.47 |
| | $ | 39.61 |
| | $ | 34.56 |
|
Percent change in cash rent (2) | | 10.0 | % | | (1.2) | % | | 15.3 | % | | 4.0 | % | | 9.2 | % |
Percent change in GAAP rent (2) | | 22.5 | % | | 11.0 | % | | 24.8 | % | | 10.4 | % | | 22.9 | % |
Total TI & LC per square foot (3) | | $ | 46.00 |
| | $ | 118.03 |
| | $ | 47.97 |
| | $ | 58.42 |
| | $ | 34.02 |
|
Total TI & LC per sq. ft. per year of lease term (3) | | $ | 6.60 |
| | $ | 8.22 |
| | $ | 8.63 |
| | $ | 7.32 |
| | $ | 2.78 |
|
| | | | | | | | | | | |
| Renewal Leases | | | | | | | | | | |
| Square feet | | 93 |
| | 1 |
| | 91 |
| | 34 |
| | 159 |
|
| Lease term (years) | | 6.7 |
| | 5.0 |
| | 5.2 |
| | 9.4 |
| | 14.0 |
|
| Starting cash rent | | $ | 43.12 |
| | $ | 67.85 |
| | $ | 40.78 |
| | $ | 40.27 |
| | $ | 33.63 |
|
Percent change in cash rent (2) | | 6.5 | % | | 0.0 | % | | 15.6 | % | | 1.3 | % | | 7.2 | % |
Percent change in GAAP rent (2) | | 19.4 | % | | 17.0 | % | | 23.5 | % | | 7.0 | % | | 22.1 | % |
Total TI & LC per square foot (3) | | $ | 32.95 |
| | $ | 2.50 |
| | $ | 43.92 |
| | $ | 70.44 |
| | $ | 34.55 |
|
Total TI & LC per sq. ft. per year of lease term (3) | | $ | 4.95 |
| | $ | 0.50 |
| | $ | 8.45 |
| | $ | 7.52 |
| | $ | 2.47 |
|
| | | | | | | | | | | |
| New Leases | | | | | | | | | | |
| Square feet | | 80 |
| | 562 |
| | 98 |
| | 17 |
| | 44 |
|
| Lease term (years) | | 7.3 |
| | 14.4 |
| | 5.9 |
| | 5.3 |
| | 6.0 |
|
| Starting cash rent | | $ | 47.23 |
| | $ | 47.32 |
| | $ | 44.04 |
| | $ | 38.31 |
| | $ | 37.91 |
|
Percent change in cash rent (2) | | 18.8 | % | | (1.2) | % | | 14.9 | % | | 10.2 | % | | 26.8 | % |
Percent change in GAAP rent (2) | | 30.3 | % | | 11.0 | % | | 26.0 | % | | 18.3 | % | | 28.9 | % |
Total TI & LC per square foot (3) | | $ | 61.27 |
| | $ | 118.28 |
| | $ | 51.74 |
| | $ | 34.90 |
| | $ | 32.14 |
|
Total TI & LC per sq. ft. per year of lease term (3) | | $ | 8.35 |
| | $ | 8.23 |
| | $ | 8.78 |
| | $ | 6.61 |
| | $ | 5.34 |
|
|
| |
| 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, 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. Cash rent is calculated before deducting any initial period free rent. 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 & SAME PROPERTY LEASING COMMITMENTS
(dollars and square feet in thousands)
|
| | | | | | | | | | | | | | | | | | | |
| CAPITAL SUMMARY | Three Months Ended |
| EXPENDITURES | 12/31/2018 | | 9/30/2018 | | 6/30/2018 | | 3/31/2018 | | 12/31/2017 |
| Tenant improvements | $ | 11,078 |
| | $ | 11,490 |
| | $ | 13,773 |
| | $ | 10,907 |
| | $ | 6,410 |
|
| Leasing costs | 2,224 |
| | 11,699 |
| | 4,909 |
| | 2,842 |
| | 3,408 |
|
Building improvements (1) | 1,936 |
| | 2,223 |
| | 2,936 |
| | 1,951 |
| | 5,311 |
|
| Total capital expenditures | $ | 15,238 |
| | $ | 25,412 |
| | $ | 21,618 |
| | $ | 15,700 |
| | $ | 15,129 |
|
| | | | | | | | | | |
Average square feet during period (2) | 5,265 |
| | 5,876 |
| | 6,619 |
| | 8,214 |
| | 10,282 |
|
| | | | | | | | | | |
| Building improvements per average total sq. ft. during period | $ | 0.37 |
| | $ | 0.38 |
| | $ | 0.44 |
| | $ | 0.24 |
| | $ | 0.52 |
|
|
| | | | | | | | | | | | |
| CAPITAL SUMMARY | | Three Months Ended |
| SAME PROPERTY LEASING COMMITMENTS | | December 31, 2018 |
| | | New Leases | | Renewal Leases | | Total |
| Square feet leased during the period | | 80 |
| | 93 |
| | 173 |
|
Total TI & LC (3) | | $ | 4,902 |
| | $ | 3,064 |
| | $ | 7,966 |
|
Total TI & LC per square foot (3) | | $ | 61.27 |
| | $ | 32.95 |
| | $ | 46.00 |
|
| Weighted average lease term by square foot (years) | | 7.3 |
| | 6.7 |
| | 7.0 |
|
Total TI & LC per square foot per year of lease term (3) | | $ | 8.35 |
| | $ | 4.95 |
| | $ | 6.60 |
|
|
| |
| (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 December 31, 2018
(square feet in thousands)
|
| | | | | | | | | | | | | | |
| | | Tenant | | Square Feet (1) | | % of Total Sq. Ft. (1) | | % of Annualized Rental Revenue | | Weighted Average Remaining Lease Term |
| 1 |
| | Expedia, Inc.(2) | | 427 |
| | 8.8 | % | | 13.9 | % | | 1.0 |
| 2 |
| | Flex Ltd. | | 1,051 |
| | 21.6 | % | | 7.2 | % | | 11.0 |
| 3 |
| | Ballard Spahr LLP | | 219 |
| | 4.5 | % | | 5.6 | % | | 11.1 |
| 4 |
| | Georgetown University(3) | | 240 |
| | 4.9 | % | | 4.5 | % | | 0.8 |
| 5 |
| | Beth Israel Deaconess Medical Center, Inc. | | 117 |
| | 2.4 | % | | 2.5 | % | | 4.8 |
| 6 |
| | Dana-Farber Cancer Institute, Inc. | | 77 |
| | 1.6 | % | | 2.3 | % | | 6.0 |
| 7 |
| | BT Americas, Inc. | | 59 |
| | 1.2 | % | | 2.0 | % | | 0.6 |
| 8 |
| | Equinor Energy Services, Inc.(4) | | 89 |
| | 1.8 | % | | 1.8 | % | | 4.5 |
| 9 |
| | Aberdeen Asset Management, Inc | | 58 |
| | 1.2 | % | | 1.7 | % | | 0.8 |
| 10 |
| | KPMG, LLP | | 66 |
| | 1.4 | % | | 1.7 | % | | 4.1 |
| 11 |
| | Public Financial Management, Inc. | | 62 |
| | 1.3 | % | | 1.6 | % | | 12.4 |
| 12 |
| | Sunoco, Inc.(5) | | 71 |
| | 1.5 | % | | 1.5 | % | | 1.8 |
| | | Total | | 2,536 |
| | 52.2 | % | | 46.3 | % | | 6.8 |
|
| |
| (1) | Square footage as of December 31, 2018 includes space subject to leases that have commenced, space being fitted out for occupancy pursuant to existing leases, and space which is leased but is not occupied or is being offered for sublease by tenants. |
| (2) | During the third quarter of 2018, an affiliate of Amazon.com, Inc. entered into a new 16-year lease for 429,012 square feet, including all of the Expedia, Inc. space. The lease commences in 2020. |
| (3) | Georgetown University's leased space includes 111,600 square feet that are sublet to another tenant. During the fourth quarter of 2017, the other tenant committed to lease this space through September 30, 2037. The lease commences in 2019. |
| (4) | Formerly known as Statoil Oil & Gas LP. |
| (5) | 67,063 square feet of Sunoco's space has been leased by other tenants with a weighted-average expiration in mid-2026. These leases commence in 2020. |
SAME PROPERTY LEASE EXPIRATION SCHEDULE
As of December 31, 2018
(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 |
| | | | | | | | | | | | | | | |
| 2019 | | 44 | | 484 | | 10.0 | % | | 10.0 | % | | $ | 17,459 |
| | 11.4 | % | | 11.4 | % |
| 2020 | | 27 | | 115 | | 2.4 | % | | 12.4 | % | | 5,047 |
| | 3.3 | % | | 14.7 | % |
| 2021 | | 35 | | 251 | | 5.2 | % | | 17.6 | % | | 10,068 |
| | 6.6 | % | | 21.3 | % |
| 2022 | | 28 | | 360 | | 7.5 | % | | 25.1 | % | | 14,943 |
| | 9.8 | % | | 31.1 | % |
| 2023 | | 29 | | 374 | | 7.7 | % | | 32.8 | % | | 14,315 |
| | 9.4 | % | | 40.5 | % |
| 2024 | | 20 | | 303 | | 6.2 | % | | 39.0 | % | | 10,124 |
| | 6.6 | % | | 47.1 | % |
| 2025 | | 9 | | 162 | | 3.3 | % | | 42.3 | % | | 5,877 |
| | 3.8 | % | | 50.9 | % |
| 2026 | | 9 | | 128 | | 2.6 | % | | 44.9 | % | | 4,743 |
| | 3.1 | % | | 54.0 | % |
| 2027 | | 9 | | 206 | | 4.2 | % | | 49.1 | % | | 7,866 |
| | 5.1 | % | | 59.1 | % |
| 2028 | | 9 | | 229 | | 4.7 | % | | 53.8 | % | | 7,985 |
| | 5.2 | % | | 64.3 | % |
| Thereafter | | 24 | | 2,243 | | 46.2 | % | | 100.0 | % | | 54,548 |
| | 35.7 | % | | 100.0 | % |
| Total | | 243 | | 4,855 | | 100.0 | % | | | | $ | 152,975 |
| | 100.0 | % | | |
| Weighted average remaining | | | | | | | | | | |
| lease term (in years) | | 8.4 |
| | | | | | 8.0 |
| | | | |
| | | | | | | | | | | | | | | |
|
| |
| (1) | Square footage as of December 31, 2018 includes space subject to leases that have commenced, space being fitted out for occupancy pursuant to existing leases, and space which is leased but is not occupied or is being offered for sublease by tenants. The year expiring corresponds to the latest-expiring signed lease for a given suite. Thus, backfilled suites expire in the year stipulated by the new lease. |
| (2) | Excludes the Annualized Rental Revenue of space that is leased but not commenced. |
DISPOSED PROPERTY DETAIL (1)
(dollars in thousands)
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Property | | City and State | | No. of Bldgs. | | Sq. Feet | | % Leased | | Annualized Rental Revenue | | Undepreciated Book Value | | Net Book Value | | Year Acquired | Weighted Average Year Built or Substantially Renovated (2) |
| 1 | 1600 Market Street | | Philadelphia | PA | | 1 | | 825,968 | | 84.7 | % | | $ | 19,219 |
| | $ | 138,130 |
| | $ | 76,066 |
| | 1998 | 1983 |
| | | | | | | | | | | | | | | | | | | | |
| 2 | 600 West Chicago Avenue | | Chicago | IL | | 2 | | 1,561,477 | | 99.2 | % | | 53,193 | | 401,062 | | 343,111 | | 2011 | 2001 |
| 3 | 5073, 5075, & 5085 S. Syracuse Street | | Denver | CO | | 1 | | 248,493 | | 100.0 | % | | 7,601 | | 63,610 | | 52,323 | | 2010 | 2007 |
| Total Q1 2018 Dispositions | | 4 | | 2,635,938 |
| | 94.7 | % | | $ | 80,013 |
| | $ | 602,802 |
| | $ | 471,500 |
| | 2007 | 1996 |
| | | | | | | | | | | | | | | | | | | | |
| 4 | 1601 Dry Creek Drive | | Longmont | CO | | 1 |
| | 552,865 |
| | 100.0 | % | | $ | 9,115 |
| | $ | 35,479 |
| | $ | 24,786 |
| | 2004 | 1982 |
| Total Q2 2018 Dispositions | | 1 |
| | 552,865 |
| | 100.0 | % | | $ | 9,115 |
| | $ | 35,479 |
| | $ | 24,786 |
| | 2004 | 1982 |
| | | | | | | | | | | | | | | | | | | | |
| 5 | 777 East Eisenhower Parkway | | Ann Arbor | MI | | 1 |
| | 290,530 | | 39.8 | % | | $ | 2,989 |
| | $ | 27,969 |
| | $ | 21,652 |
| | 2010 | 2006 |
| 6 | 8750 Bryn Mawr Avenue | | Chicago | IL | | 2 |
| | 636,078 | | 95.5 | % | | 17,041 |
| | 111,243 |
| | 91,873 |
| | 2010 | 2005 |
| Total Q3 2018 Dispositions | | 3 |
| | 926,608 |
| | 78.0 | % | | $ | 20,030 |
| | $ | 139,212 |
| | $ | 113,525 |
| | 2010 | 2005 |
| | | | | | | | | | | | | | | | | | | | |
| 7 | 97 Newberry Road | | East Windsor | CT | | 1 |
| | 289,386 | | 100.0 | % | | $ | 1,923 |
| | $ | 11,403 |
| | $ | 7,741 |
| | 2006 | 1989 |
| Total Q4 2018 Dispositions | | 1 |
|
| 289,386 |
| | 100.0 | % | | $ | 1,923 |
| | $ | 11,403 |
| | $ | 7,741 |
| | 2006 | 1989 |
| | | | | | | | | | | | | | | | | | | | |
| Total Disposed Year-to-Date | | | 9 |
| | 4,404,797 |
| | 92.2 | % | | $ | 111,081 |
| | $ | 788,896 |
| | $ | 617,552 |
| | 2007 | 1996 |
| | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | |
|
| | |
| (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 | | Year Ended |
| | December 31, | | December 31, |
| Weighted Average Share Calculation - GAAP EPS | 2018 | | 2017 | | 2018 | | 2017 |
| |
| | | |
| | |
Weighted average common shares outstanding - basic (1) | 121,749 |
| | 124,293 |
| | 122,314 |
| | 124,125 |
|
Weighted average dilutive RSUs and LTIP Units(2) | 1,627 |
| | — |
| | 1,071 |
| | 1,004 |
|
Weighted average common shares outstanding - diluted (1) | 123,376 |
| | 124,293 |
| | 123,385 |
| | 125,129 |
|
| | | | | | | | |
| | Three Months Ended | | Year Ended |
| | December 31, | | December 31, |
| Weighted Average Share and Unit Calculation - FFO and Normalized FFO per share and unit | 2018 | | 2017 | | 2018 | | 2017 |
Weighted average EQC common shares outstanding(1) | 121,749 |
| | 124,293 |
| | 122,314 |
| | 124,125 |
|
Weighted average Operating Partnership Units outstanding (3) | 3 |
| | — |
| | 1 |
| | — |
|
Weighted average time-based LTIP Units (2)(3) | 42 |
| | 43 |
| | 43 |
| | 38 |
|
Weighted average common shares and units outstanding - basic (1) | 121,794 |
| | 124,336 |
| | 122,358 |
| | 124,163 |
|
Weighted average dilutive RSUs and market-based LTIP Units (2) | 1,627 |
| | 596 |
| | 1,071 |
| | 966 |
|
Weighted average common shares and units outstanding - diluted (1) | 123,421 |
| | 124,932 |
| | 123,429 |
| | 125,129 |
|
|
| | | | | | | | | |
| Rollforward of Share Count to December 31, 2018 | | | | | Series D Preferred Shares | | EQC Common Shares(4) |
| Outstanding on December 31, 2017 | | | | | 4,915 |
| | 124,218 |
|
| Repurchase of common shares | | | | | — |
| | (2,970 | ) |
Issuance of restricted shares and shares earned from RSUs, net(5) | | | | | — |
| | 324 |
|
| Outstanding on December 31, 2018 | | |
| | 4,915 |
| | 121,572 |
|
Common shares issuable from RSUs and LTIP Units as measured on December 31, 2018(2) | | | | | | | 1,809 |
|
Potential common shares as measured on December 31, 2018 (6) | | | | | | | 123,381 |
|
|
| | |
| (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. |
| (2 | ) | We have granted RSUs and LTIP Units to certain employees, officers, and trustees. RSUs and LTIP Units contain service and market-based vesting components. |
| (3 | ) | Our calculations of FFO and Normalized FFO attributable to EQC common shareholders and unitholders per share and unit - basic include time-based LTIP Units and Operating Partnership Units that are excluded from the calculation of basic earnings per common share attributable to EQC common shareholders (only). |
| (4 | ) | EQC common shares include unvested restricted shares and unvested earned RSUs. |
| (5 | ) | This amount is net of forfeitures and shares surrendered to satisfy statutory tax witholding obligations. |
| (6 | ) | Potential common shares as measured on December 31, 2018, exclude 4,915 series D preferred shares outstanding that were convertible into 2,563 common shares. |
Annualized Rental Revenue
Annualized Rental Revenue is annualized contractual rents from our tenants pursuant to leases which have commenced as of December 31, 2018, plus estimated recurring expense reimbursements; 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), EBITDAre, and Adjusted EBITDAre
We calculate EBITDA as net income (loss) excluding interest expense, income tax expense, and depreciation and amortization.
We calculate EBITDAre in accordance with standards established by the National Association of Real Estate Investment Trusts (NAREIT). NAREIT defines EBITDAre as net income (loss), calculated in accordance with GAAP, plus interest expense, plus income tax expense, plus depreciation and amortization, plus (minus) losses and gains on the disposition of depreciated property, plus impairment write-downs of depreciated property and investments in unconsolidated joint ventures, plus adjustments to reflect the entity's share of EBITDAre of unconsolidated joint ventures. Our calculation of Adjusted EBITDAre differs from our calculations of EBITDA and EBITDAre because we exclude certain items that we view as nonrecurring or impacting comparability from period to period. EBITDA, EBITDAre, and Adjusted EBITDAre are supplemental non-GAAP financial measures.
We consider EBITDA, EBITDAre and Adjusted EBITDAre 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, EBITDAre, and Adjusted EBITDAre provide useful information to investors because by excluding the effects of certain historical amounts, such as interest, depreciation and amortization expense, EBITDA, EBITDAre, and Adjusted EBITDAre may facilitate a comparison of current operating performance with our past operating performance. EBITDA, EBITDAre and Adjusted EBITDAre 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, EBITDAre and Adjusted EBITDAre differently than we do.
Annualized Adjusted EBITDAre
Annualized Adjusted EBITDAre is Adjusted EBITDAre for the three months ended December 31, 2018 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 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.
Leasing Costs
Leasing costs include leasing commissions (LCs) 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 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.
Net Book Value
Net book value represents the carrying value of real estate properties after depreciation and amortization, purchase price allocations, and impairment write-downs, 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).
Operating Partnership Units
Operating Partnership Units are beneficial interests in the Operating Trust.
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 October 1, 2017 through December 31, 2018. Our year-to-date same property portfolio is comprised of those 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.
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: 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, and impairment write-downs, if any.
