Attached files
| file | filename |
|---|---|
| 8-K - 8-K - Equity Commonwealth | eqc-20201028.htm |
| EX-99.1 - EX-99.1 - Equity Commonwealth | eqc93020ex991.htm |
Exhibit 99.2
Equity Commonwealth
Supplemental Operating
and Financial Data
Third Quarter 2020
| Corporate Headquarters | Investor Relations | |||||||
| Two North Riverside Plaza | Sarah Byrnes | |||||||
| Suite 2100 | (312) 646-2801 | |||||||
| Chicago, IL 60606 | ir@eqcre.com | |||||||
| (312) 646-2800 | www.eqcre.com | |||||||
TABLE OF CONTENTS
| Corporate Information | ||||||||
| Company Profile and Investor Information | ||||||||
| Financial Information | ||||||||
| Key Financial Data | ||||||||
| Condensed Consolidated Balance Sheets | ||||||||
| Additional Balance Sheet Information | ||||||||
| Condensed Consolidated Statements of Operations | ||||||||
Calculation of Same Property Net Operating Income (NOI) and Same Property Cash Basis NOI | ||||||||
| Same Property Results of Operations | ||||||||
| Calculation of EBITDA, EBITDAre, and Adjusted EBITDAre | ||||||||
| Calculation of Funds from Operations (FFO) and Normalized FFO | ||||||||
| Acquisitions and Dispositions | ||||||||
| Portfolio Information | ||||||||
| Property Detail | ||||||||
| Leasing Summary | ||||||||
| Same Property Leasing Summary | ||||||||
| Capital Summary - Expenditures & Same Property Leasing Commitments | ||||||||
| Tenants Representing 2.5% or More of Annualized Rental Revenue | ||||||||
| Same Property Lease Expiration Schedule | ||||||||
| 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, including our statements regarding the overall impact of COVID-19 on the foregoing to the extent we make any such statements. 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. | ||||||||
| 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 section 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 use any of the following to comply with our disclosure obligations under Regulation FD: press releases, SEC filings, public conference calls, or our website. We routinely post important information on our website at www.eqcre.com, including information that may be deemed to be material. We encourage investors and others interested in the company to monitor these distribution channels for material disclosures. | ||||||||
2
COMPANY PROFILE AND INVESTOR INFORMATION
Equity Commonwealth (NYSE: EQC) is a Chicago based, internally managed and self-advised real estate investment trust (REIT) with commercial office properties in the United States.
| Same Property Statistics | |||||||||||
| No. of | |||||||||||
| Properties | Sq. Feet | % Leased | % Commenced | ||||||||
| 4 | 1,507,379 | 87.7% | 85.1% | ||||||||
| NYSE Trading Symbols | ||
| Common Stock: EQC | ||
| Preferred Stock Series D: EQCpD | ||
| Board of Trustees | ||||||||||||||
| Sam Zell (Chairman) | Edward A. Glickman | Mary Jane Robertson | ||||||||||||
| Ellen-Blair Chube | 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 | ||||||||||||
| 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 | ||||||||
| Certain terms are defined in the definitions section of this document. All financial data included herein is unaudited. | |||||
| (1) | Any opinions, estimates or forecasts regarding EQC's performance made by these analysts do not represent opinions, forecasts or predictions of EQC or its management. EQC does not by its reference to the analysts above imply its endorsement of or concurrence with any information, conclusions or recommendations provided by any of these analysts. | ||||
3
KEY FINANCIAL DATA
(Unaudited, amounts in thousands, except per share data)
| As of and for the Three Months Ended | ||||||||||||||||||||||||||||||||
| 9/30/2020 | 6/30/2020 | 3/31/2020 | 12/31/2019 | 9/30/2019 | ||||||||||||||||||||||||||||
| OPERATING INFORMATION | ||||||||||||||||||||||||||||||||
Ending property count (1) | 4 | 4 | 4 | 7 | 7 | |||||||||||||||||||||||||||
Ending square footage (1)(2) | 1,507 | 1,507 | 1,507 | 2,469 | 2,469 | |||||||||||||||||||||||||||
Percent leased (1) | 87.7 | % | 90.1 | % | 90.8 | % | 94.7 | % | 93.5 | % | ||||||||||||||||||||||
Percent commenced (1) | 85.1 | % | 83.9 | % | 83.7 | % | 89.0 | % | 88.2 | % | ||||||||||||||||||||||
Net (loss) income attributable to EQC common shareholders | $ | (1,628) | $ | 25,835 | $ | 422,762 | $ | 13,993 | $ | 21,889 | ||||||||||||||||||||||
Adjusted EBITDAre (3) | 5,456 | 5,729 | 11,350 | 22,485 | 27,690 | |||||||||||||||||||||||||||
| SAME PROPERTY OPERATING INFORMATION | ||||||||||||||||||||||||||||||||
| Ending square footage | 1,507 | 1,507 | 1,507 | 1,507 | 1,507 | |||||||||||||||||||||||||||
| Percent leased | 87.7 | % | 90.1 | % | 90.8 | % | 91.5 | % | 89.5 | % | ||||||||||||||||||||||
| Percent commenced | 85.1 | % | 83.9 | % | 83.7 | % | 87.2 | % | 85.8 | % | ||||||||||||||||||||||
Same Property NOI (3) | $ | 9,824 | $ | 8,474 | $ | 8,751 | $ | 8,801 | $ | 8,786 | ||||||||||||||||||||||
Same Property Cash Basis NOI (3) | 8,156 | 8,882 | 8,858 | 8,925 | 8,776 | |||||||||||||||||||||||||||
| Same Property NOI margin | 60.4 | % | 56.6 | % | 56.0 | % | 57.2 | % | 57.4 | % | ||||||||||||||||||||||
| Same Property Cash Basis NOI margin | 55.8 | % | 57.7 | % | 56.3 | % | 57.6 | % | 57.4 | % | ||||||||||||||||||||||
SHARES OUTSTANDING AND PER SHARE DATA (4) | ||||||||||||||||||||||||||||||||
| Shares Outstanding at End of Period | ||||||||||||||||||||||||||||||||
Common stock outstanding | 121,525 | 121,522 | 121,503 | 121,924 | 121,924 | |||||||||||||||||||||||||||
Dilutive restricted share units (RSUs), Operating Partnership Units, and LTIP Units (4) | 1,994 | 1,995 | 1,986 | 1,615 | 1,688 | |||||||||||||||||||||||||||
Dilutive Series D Convertible Preferred Shares outstanding (5) | — | — | 2,857 | — | — | |||||||||||||||||||||||||||
Preferred Stock Outstanding (5) | 4,915 | 4,915 | 4,915 | 4,915 | 4,915 | |||||||||||||||||||||||||||
| Weighted Average Shares Outstanding - GAAP | ||||||||||||||||||||||||||||||||
Basic (6) | 121,673 | 121,655 | 122,148 | 122,140 | 122,140 | |||||||||||||||||||||||||||
Diluted (6) | 121,673 | 123,255 | 126,605 | 123,490 | 123,564 | |||||||||||||||||||||||||||
| Distributions Declared Per Common Share | $ | 3.50 | $ | — | $ | — | $ | — | $ | 3.50 | ||||||||||||||||||||||
| BALANCE SHEET | ||||||||||||||||||||||||||||||||
| Total assets | $ | 3,708,774 | $ | 3,733,155 | $ | 3,704,057 | $ | 3,319,377 | $ | 3,731,343 | ||||||||||||||||||||||
| Total liabilities | 465,668 | 59,414 | 59,443 | 73,505 | 503,230 | |||||||||||||||||||||||||||
| MARKET CAPITALIZATION | ||||||||||||||||||||||||||||||||
Total debt (book value) (7) | $ | — | $ | 25,281 | $ | 25,487 | $ | 25,691 | $ | 25,896 | ||||||||||||||||||||||
Market value of preferred shares | 142,786 | 135,168 | 127,304 | 138,805 | 137,871 | |||||||||||||||||||||||||||
Market value of diluted common shares | 3,289,311 | 3,977,229 | 3,915,829 | 4,055,786 | 4,233,722 | |||||||||||||||||||||||||||
| Total Market Capitalization | $ | 3,432,097 | $ | 4,137,678 | $ | 4,068,620 | $ | 4,220,282 | $ | 4,397,489 | ||||||||||||||||||||||
| (1) | Excludes properties classified as held for sale. | ||||
| (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) | As of September 30, 2020, we had 4,915 series D preferred shares outstanding that were convertible into 2,857 common shares. The series D preferred shares are dilutive for GAAP EPS for the three months ended March 31, 2020, 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. | ||||
| (6) | Refer to the schedule of Common & Potential Common Shares for information regarding the components of our weighted average common shares outstanding. | ||||
| (7) | On July 5, 2020, we repaid at par our only remaining mortgage debt obligation. Refer to prior quarter presentations of our supplemental operating and financial data on our company website (www.eqcre.com) for historical debt summaries and leverage and coverage ratios. | ||||
4
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited, amounts in thousands, except share data)
| September 30, 2020 | December 31, 2019 | ||||||||||
| ASSETS | |||||||||||
| Real estate properties: | |||||||||||
| Land | $ | 44,060 | $ | 85,627 | |||||||
| Buildings and improvements | 355,877 | 576,494 | |||||||||
| 399,937 | 662,121 | ||||||||||
| Accumulated depreciation | (142,053) | (202,700) | |||||||||
| 257,884 | 459,421 | ||||||||||
| Cash and cash equivalents | 3,418,240 | 2,795,642 | |||||||||
| Restricted cash | — | 5,003 | |||||||||
| Rents receivable | 14,486 | 19,554 | |||||||||
| Other assets, net | 18,164 | 39,757 | |||||||||
| Total assets | $ | 3,708,774 | $ | 3,319,377 | |||||||
| LIABILITIES AND EQUITY | |||||||||||
| Mortgage notes payable, net | $ | — | $ | 25,691 | |||||||
| Accounts payable, accrued expenses and other | 25,702 | 37,153 | |||||||||
| Rent collected in advance | 1,861 | 3,127 | |||||||||
| Distributions payable | 438,105 | 7,534 | |||||||||
| Total liabilities | $ | 465,668 | $ | 73,505 | |||||||
| Shareholders’ equity: | |||||||||||
| Preferred shares of beneficial interest, $0.01 par value: 50,000,000 shares authorized; | |||||||||||
| Series D preferred shares; 6.50% 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; 121,524,510 and 121,924,199 shares issued and outstanding, respectively | 1,215 | 1,219 | |||||||||
| Additional paid in capital | 4,291,293 | 4,313,831 | |||||||||
| Cumulative net income | 3,816,614 | 3,363,654 | |||||||||
| Cumulative common distributions | (4,284,050) | (3,851,666) | |||||||||
| Cumulative preferred distributions | (707,715) | (701,724) | |||||||||
| Total shareholders’ equity | 3,236,620 | 3,244,577 | |||||||||
| Noncontrolling interest | 6,486 | 1,295 | |||||||||
| Total equity | $ | 3,243,106 | $ | 3,245,872 | |||||||
| Total liabilities and equity | $ | 3,708,774 | $ | 3,319,377 | |||||||
5
ADDITIONAL BALANCE SHEET INFORMATION
(Unaudited, amounts in thousands)
| September 30, 2020 | December 31, 2019 | |||||||||||||
| Additional Balance Sheet Information | ||||||||||||||
| Straight-line rents receivable | $ | 13,727 | $ | 16,416 | ||||||||||
| Accounts receivable | 759 | 3,138 | ||||||||||||
| Rents receivable | $ | 14,486 | $ | 19,554 | ||||||||||
| Capitalized lease incentives, net | $ | 1,400 | $ | 2,030 | ||||||||||
| Deferred leasing costs, net | 11,426 | 26,618 | ||||||||||||
| Other | 5,338 | 11,109 | ||||||||||||
| Other assets, net | $ | 18,164 | $ | 39,757 | ||||||||||
| Accounts payable | $ | 2,331 | $ | 2,944 | ||||||||||
| Accrued interest | — | 104 | ||||||||||||
| Accrued taxes | 11,385 | 10,398 | ||||||||||||
| Accrued capital expenditures | 980 | 1,383 | ||||||||||||
| Accrued leasing costs | 583 | 5,266 | ||||||||||||
| Security deposits | 2,249 | 3,082 | ||||||||||||
| Other accrued liabilities | 8,174 | 13,976 | ||||||||||||
| Accounts payable and accrued expenses | $ | 25,702 | $ | 37,153 | ||||||||||
6
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited, amounts in thousands, except per share data)
| Three Months Ended | Nine Months Ended | ||||||||||||||||||||||
| September 30, | September 30, | ||||||||||||||||||||||
| 2020 | 2019 | 2020 | 2019 | ||||||||||||||||||||
| Revenues: | |||||||||||||||||||||||
| Rental revenue | $ | 15,742 | $ | 23,995 | $ | 48,133 | $ | 93,459 | |||||||||||||||
Other revenue (1) | 743 | 2,740 | 3,437 | 8,396 | |||||||||||||||||||
| Total revenues | $ | 16,485 | $ | 26,735 | $ | 51,570 | $ | 101,855 | |||||||||||||||
| Expenses: | |||||||||||||||||||||||
| Operating expenses | $ | 6,444 | $ | 9,923 | $ | 21,882 | $ | 36,677 | |||||||||||||||
| Depreciation and amortization | 5,137 | 5,939 | 14,649 | 22,085 | |||||||||||||||||||
| General and administrative | 7,191 | 8,523 | 26,097 | 30,152 | |||||||||||||||||||
| Total expenses | $ | 18,772 | $ | 24,385 | $ | 62,628 | $ | 88,914 | |||||||||||||||
| Interest and other income, net | 2,606 | 19,401 | 18,944 | 57,871 | |||||||||||||||||||
| Interest expense (including net amortization of debt discounts, premiums and deferred financing fees of $(3), $(55), $(119) and $264, respectively) | (9) | (321) | (620) | (8,597) | |||||||||||||||||||
| Gain (loss) on early extinguishment of debt | 131 | — | 131 | (6,374) | |||||||||||||||||||
| Gain on sale of properties, net | — | 1,945 | 446,536 | 422,148 | |||||||||||||||||||
| Income before income taxes | 441 | 23,375 | 453,933 | 477,989 | |||||||||||||||||||
| Income tax (expense) benefit | (71) | 521 | (170) | (1,119) | |||||||||||||||||||
| Net income | $ | 370 | $ | 23,896 | $ | 453,763 | $ | 476,870 | |||||||||||||||
| Net income attributable to noncontrolling interest | (1) | (10) | (803) | (180) | |||||||||||||||||||
| Net income attributable to Equity Commonwealth | $ | 369 | $ | 23,886 | $ | 452,960 | $ | 476,690 | |||||||||||||||
Preferred distributions | (1,997) | (1,997) | (5,991) | (5,991) | |||||||||||||||||||
| Net (loss) income attributable to Equity Commonwealth common shareholders | $ | (1,628) | $ | 21,889 | $ | 446,969 | $ | 470,699 | |||||||||||||||
Weighted average common shares outstanding — basic (2) | 121,673 | 122,140 | 121,824 | 122,075 | |||||||||||||||||||
Weighted average common shares outstanding — diluted (2) | 121,673 | 123,564 | 126,282 | 125,938 | |||||||||||||||||||
| Earnings per common share attributable to Equity Commonwealth common shareholders: | |||||||||||||||||||||||
| Basic | $ | (0.01) | $ | 0.18 | $ | 3.67 | $ | 3.86 | |||||||||||||||
| Diluted | $ | (0.01) | $ | 0.18 | $ | 3.59 | $ | 3.79 | |||||||||||||||
| Distributions declared per common share | $ | 3.50 | $ | 3.50 | $ | 3.50 | $ | 3.50 | |||||||||||||||
| (1) | Other revenue is primarily comprised of parking revenue that does not represent a component of a lease. | ||||
| (2) | Refer to the schedule of Common & Potential Common Shares for information regarding the components of our weighted average common shares outstanding. | ||||
7
CALCULATION OF SAME PROPERTY NET OPERATING INCOME (NOI) AND SAME PROPERTY CASH BASIS NOI
(Unaudited, amounts in thousands)
| For the Three Months Ended | |||||||||||||||||||||||||||||
| 9/30/2020 | 6/30/2020 | 3/31/2020 | 12/31/2019 | 9/30/2019 | |||||||||||||||||||||||||
Calculation of Same Property NOI and Same Property Cash Basis NOI: | |||||||||||||||||||||||||||||
| Rental revenue | $ | 15,742 | $ | 15,248 | $ | 17,143 | $ | 23,410 | $ | 23,995 | |||||||||||||||||||
Other revenue (1) | 743 | 1,017 | 1,677 | 2,585 | 2,740 | ||||||||||||||||||||||||
| Operating expenses | (6,444) | (6,677) | (8,761) | (9,741) | (9,923) | ||||||||||||||||||||||||
| NOI | $ | 10,041 | $ | 9,588 | $ | 10,059 | $ | 16,254 | $ | 16,812 | |||||||||||||||||||
| Straight line rent adjustments | (367) | 515 | 198 | (69) | 499 | ||||||||||||||||||||||||
| Lease value amortization | — | — | — | — | (39) | ||||||||||||||||||||||||
| Lease termination fees | (1,300) | — | — | (16) | (11) | ||||||||||||||||||||||||
| Cash Basis NOI | $ | 8,374 | $ | 10,103 | $ | 10,257 | $ | 16,169 | $ | 17,261 | |||||||||||||||||||
Cash Basis NOI from non-same properties (2) | (218) | (1,221) | (1,399) | (7,244) | (8,485) | ||||||||||||||||||||||||
| Same Property Cash Basis NOI | $ | 8,156 | $ | 8,882 | $ | 8,858 | $ | 8,925 | $ | 8,776 | |||||||||||||||||||
Non-cash rental income and lease termination fees from same properties | 1,668 | (408) | (107) | (124) | 10 | ||||||||||||||||||||||||
| Same Property NOI | $ | 9,824 | $ | 8,474 | $ | 8,751 | $ | 8,801 | $ | 8,786 | |||||||||||||||||||
Reconciliation of Same Property NOI to GAAP Net Income: | |||||||||||||||||||||||||||||
| Same Property NOI | $ | 9,824 | $ | 8,474 | $ | 8,751 | $ | 8,801 | $ | 8,786 | |||||||||||||||||||
Non-cash rental income and lease termination fees from same properties | (1,668) | 408 | 107 | 124 | (10) | ||||||||||||||||||||||||
| Same Property Cash Basis NOI | $ | 8,156 | $ | 8,882 | $ | 8,858 | $ | 8,925 | $ | 8,776 | |||||||||||||||||||
Cash Basis NOI from non-same properties (2) | 218 | 1,221 | 1,399 | 7,244 | 8,485 | ||||||||||||||||||||||||
| Cash Basis NOI | $ | 8,374 | $ | 10,103 | $ | 10,257 | $ | 16,169 | $ | 17,261 | |||||||||||||||||||
| Straight line rent adjustments | 367 | (515) | (198) | 69 | (499) | ||||||||||||||||||||||||
| Lease value amortization | — | — | — | — | 39 | ||||||||||||||||||||||||
| Lease termination fees | 1,300 | — | — | 16 | 11 | ||||||||||||||||||||||||
| NOI | $ | 10,041 | $ | 9,588 | $ | 10,059 | $ | 16,254 | $ | 16,812 | |||||||||||||||||||
| Depreciation and amortization | (5,137) | (4,398) | (5,114) | (6,037) | (5,939) | ||||||||||||||||||||||||
| General and administrative | (7,191) | (8,302) | (10,604) | (8,290) | (8,523) | ||||||||||||||||||||||||
| Interest and other income, net | 2,606 | 4,443 | 11,895 | 14,521 | 19,401 | ||||||||||||||||||||||||
| Interest expense | (9) | (302) | (309) | (311) | (321) | ||||||||||||||||||||||||
| Gain on early extinguishment of debt | 131 | — | — | — | — | ||||||||||||||||||||||||
| Gain on sale of properties, net | — | 26,916 | 419,620 | 24 | 1,945 | ||||||||||||||||||||||||
| Income before income taxes | $ | 441 | $ | 27,945 | $ | 425,547 | $ | 16,161 | $ | 23,375 | |||||||||||||||||||
| Income tax (expense) benefit | (71) | (59) | (40) | (165) | 521 | ||||||||||||||||||||||||
| Net income | $ | 370 | $ | 27,886 | $ | 425,507 | $ | 15,996 | $ | 23,896 | |||||||||||||||||||
| (1) | Other revenue is primarily comprised of parking revenue that does not represent a component of a lease. | ||||
| (2) | Cash Basis NOI from non-same properties for all periods presented includes the operations of disposed properties. | ||||
8
CALCULATION OF SAME PROPERTY NET OPERATING INCOME (NOI) AND SAME PROPERTY CASH BASIS NOI
(Unaudited, amounts in thousands)
| For the Nine Months Ended September 30, | |||||||||||
| 2020 | 2019 | ||||||||||
Calculation of Same Property NOI and Same Property Cash Basis NOI: | |||||||||||
| Rental revenue | $ | 48,133 | $ | 93,459 | |||||||
Other revenue (1) | 3,437 | 8,396 | |||||||||
| Operating expenses | (21,882) | (36,677) | |||||||||
| NOI | $ | 29,688 | $ | 65,178 | |||||||
| Straight line rent adjustments | 346 | (349) | |||||||||
| Lease value amortization | — | (117) | |||||||||
| Lease termination fees | (1,300) | (2,199) | |||||||||
| Cash Basis NOI | $ | 28,734 | $ | 62,513 | |||||||
Cash Basis NOI from non-same properties (2) | (2,838) | (36,211) | |||||||||
| Same Property Cash Basis NOI | $ | 25,896 | $ | 26,302 | |||||||
Non-cash rental income and lease termination fees from same properties | 1,153 | 2,689 | |||||||||
| Same Property NOI | $ | 27,049 | $ | 28,991 | |||||||
Reconciliation of Same Property NOI to GAAP Net Income: | |||||||||||
| Same Property NOI | $ | 27,049 | $ | 28,991 | |||||||
Non-cash rental income and lease termination fees from same properties | (1,153) | (2,689) | |||||||||
| Same Property Cash Basis NOI | $ | 25,896 | $ | 26,302 | |||||||
Cash Basis NOI from non-same properties (2) | 2,838 | 36,211 | |||||||||
| Cash Basis NOI | $ | 28,734 | $ | 62,513 | |||||||
| Straight line rent adjustments | (346) | 349 | |||||||||
| Lease value amortization | — | 117 | |||||||||
| Lease termination fees | 1,300 | 2,199 | |||||||||
| NOI | $ | 29,688 | $ | 65,178 | |||||||
| Depreciation and amortization | (14,649) | (22,085) | |||||||||
| General and administrative | (26,097) | (30,152) | |||||||||
| Interest and other income, net | 18,944 | 57,871 | |||||||||
| Interest expense | (620) | (8,597) | |||||||||
| Gain (loss) on early extinguishment of debt | 131 | (6,374) | |||||||||
| Gain on sale of properties, net | 446,536 | 422,148 | |||||||||
| Income before income taxes | $ | 453,933 | $ | 477,989 | |||||||
| Income tax expense | (170) | (1,119) | |||||||||
| Net income | $ | 453,763 | $ | 476,870 | |||||||
| (1) | Other revenue is primarily comprised of parking revenue that does not represent a component of a lease. | ||||
| (2) | Cash Basis NOI from non-same properties for all periods presented includes the operations of disposed properties. | ||||
9
SAME PROPERTY RESULTS OF OPERATIONS
(Unaudited, 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, | ||||||||||||||||||||||||||||||||||
| 2020 | 2019 | % Change | 2020 | 2019 | % Change | ||||||||||||||||||||||||||||||
| Properties | 4 | 4 | 4 | 4 | |||||||||||||||||||||||||||||||
Square Feet | 1,507 | 1,507 | 1,507 | 1,507 | |||||||||||||||||||||||||||||||
| % Leased | 87.7 | % | 89.5 | % | (1.8) | % | 87.7 | % | 89.5 | % | (1.8) | % | |||||||||||||||||||||||
| % Commenced | 85.1 | % | 85.8 | % | (0.7) | % | 85.1 | % | 85.8 | % | (0.7) | % | |||||||||||||||||||||||
Rental revenue | $ | 13,872 | $ | 13,726 | 1.1 | % | $ | 42,517 | $ | 41,546 | 2.3 | % | |||||||||||||||||||||||
Other revenue (1) | 736 | 1,572 | (53.2) | % | 3,202 | 4,535 | (29.4) | % | |||||||||||||||||||||||||||
Straight line rent adjustment | 368 | (1) | (147) | 490 | |||||||||||||||||||||||||||||||
Lease termination fees | 1,300 | 11 | 1,300 | 2,199 | |||||||||||||||||||||||||||||||
Total revenue | 16,276 | 15,308 | 6.3 | % | 46,872 | 48,770 | (3.9) | % | |||||||||||||||||||||||||||
Operating expenses | (6,452) | (6,522) | (1.1) | % | (19,823) | (19,779) | 0.2 | % | |||||||||||||||||||||||||||
NOI | $ | 9,824 | $ | 8,786 | 11.8 | % | $ | 27,049 | $ | 28,991 | (6.7) | % | |||||||||||||||||||||||
NOI Margin | 60.4 | % | 57.4 | % | 57.7 | % | 59.4 | % | |||||||||||||||||||||||||||
Straight line rent adjustment | $ | (368) | $ | 1 | $ | 147 | $ | (490) | |||||||||||||||||||||||||||
Lease termination fees | (1,300) | (11) | (1,300) | (2,199) | |||||||||||||||||||||||||||||||
| Cash Basis NOI | $ | 8,156 | $ | 8,776 | (7.1) | % | 25,896 | 26,302 | (1.5) | % | |||||||||||||||||||||||||
Cash Basis NOI Margin | 55.8 | % | 57.4 | % | 56.6 | % | 57.1 | % | |||||||||||||||||||||||||||
| (1) | Other revenue is primarily comprised of parking revenue that does not represent a component of a lease. | ||||
10
CALCULATION OF EBITDA, EBITDAre, AND ADJUSTED EBITDAre
(Unaudited, amounts in thousands)
| Three Months Ended | Nine Months Ended | ||||||||||||||||||||||
| September 30, | September 30, | ||||||||||||||||||||||
| 2020 | 2019 | 2020 | 2019 | ||||||||||||||||||||
| Net income | $ | 370 | $ | 23,896 | $ | 453,763 | $ | 476,870 | |||||||||||||||
Interest expense | 9 | 321 | 620 | 8,597 | |||||||||||||||||||
Income tax expense (benefit) | 71 | (521) | 170 | 1,119 | |||||||||||||||||||
Depreciation and amortization | 5,137 | 5,939 | 14,649 | 22,085 | |||||||||||||||||||
EBITDA | $ | 5,587 | $ | 29,635 | $ | 469,202 | $ | 508,671 | |||||||||||||||
Gain on sale of properties, net | — | (1,945) | (446,536) | (422,148) | |||||||||||||||||||
EBITDAre | $ | 5,587 | $ | 27,690 | $ | 22,666 | $ | 86,523 | |||||||||||||||
| Adjustments to EBITDAre: | |||||||||||||||||||||||
(Gain) loss on early extinguishment of debt | (131) | — | (131) | 6,374 | |||||||||||||||||||
| Adjusted EBITDAre | $ | 5,456 | $ | 27,690 | $ | 22,535 | $ | 92,897 | |||||||||||||||
11
CALCULATION OF FUNDS FROM OPERATIONS (FFO) AND NORMALIZED FFO
(Unaudited, amounts in thousands, except per share data)
| Three Months Ended | Nine Months Ended | ||||||||||||||||||||||
| September 30, | September 30, | ||||||||||||||||||||||
| 2020 | 2019 | 2020 | 2019 | ||||||||||||||||||||
| Calculation of FFO | |||||||||||||||||||||||
| Net income | $ | 370 | $ | 23,896 | $ | 453,763 | $ | 476,870 | |||||||||||||||
| Real estate depreciation and amortization | 4,917 | 5,683 | 13,972 | 21,243 | |||||||||||||||||||
| Gain on sale of properties, net | — | (1,945) | (446,536) | (422,148) | |||||||||||||||||||
| FFO attributable to Equity Commonwealth | 5,287 | 27,634 | 21,199 | 75,965 | |||||||||||||||||||
| Preferred distributions | (1,997) | (1,997) | (5,991) | (5,991) | |||||||||||||||||||
FFO attributable to EQC common shareholders and unitholders | $ | 3,290 | $ | 25,637 | $ | 15,208 | $ | 69,974 | |||||||||||||||
| Calculation of Normalized FFO | |||||||||||||||||||||||
| FFO attributable to EQC common shareholders and unitholders | $ | 3,290 | $ | 25,637 | $ | 15,208 | $ | 69,974 | |||||||||||||||
| Lease value amortization | — | (39) | — | (117) | |||||||||||||||||||
| Straight line rent adjustments | (367) | 499 | 346 | (349) | |||||||||||||||||||
| Sold property expense included in interest and other income, net | 515 | — | 515 | — | |||||||||||||||||||
(Gain) loss on early extinguishment of debt | (131) | — | (131) | 6,374 | |||||||||||||||||||
Taxes related to property sales included in general and administrative | — | — | 1,458 | — | |||||||||||||||||||
| Taxes related to property sales, net included in income tax expense | 99 | (423) | 178 | 142 | |||||||||||||||||||
Normalized FFO attributable to EQC common shareholders and unitholders | $ | 3,406 | $ | 25,674 | $ | 17,574 | $ | 76,024 | |||||||||||||||
Weighted average common shares and units outstanding -- basic (1) | 121,916 | 122,189 | 122,038 | 122,121 | |||||||||||||||||||
Weighted average common shares and units outstanding -- diluted (1) | 123,517 | 123,613 | 123,639 | 123,421 | |||||||||||||||||||
FFO attributable to EQC common shareholders and unitholders per share and unit -- basic and diluted | $ | 0.03 | $ | 0.21 | $ | 0.12 | $ | 0.57 | |||||||||||||||
Normalized FFO attributable to EQC common shareholders and unitholders per share and unit -- basic and diluted | $ | 0.03 | $ | 0.21 | $ | 0.14 | $ | 0.62 | |||||||||||||||
| (1) | Our calculations of FFO and Normalized FFO attributable to EQC common shareholders and unitholders per share and unit - basic for the three months ended September 30, 2020 and 2019 include 243 and 49 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 nine months ended September 30, 2020 and 2019 include 214 and 46 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. | ||||
12
ACQUISITIONS AND DISPOSITIONS
(Unaudited, dollars in thousands)
| Acquisitions | ||
| None | ||
| Dispositions | ||||||||||||||||||||||||||||||||||||||
| Property/Portfolio | City | State | No. of Properties | Sq. Feet (1) | % Leased(1) | Gross Sales Price | Net Book Value (1) | Annualized Rental Revenue (1) | ||||||||||||||||||||||||||||||
109 Brookline Avenue (2) | Boston | MA | 1 | 285,556 | 99.2 | % | $ | 270,000 | $ | 28,069 | $ | 8,772 | ||||||||||||||||||||||||||
333 108th Avenue NE (3) | Bellevue | WA | 1 | 435,406 | 100.0 | % | 401,500 | 116,928 | 22,661 | |||||||||||||||||||||||||||||
| Total Q1 Dispositions | 2 | 720,962 | 99.7 | % | $ | 671,500 | $ | 144,997 | $ | 31,433 | ||||||||||||||||||||||||||||
| Georgetown-Green and Harris Buildings | Washington, | D.C. | 1 | 240,475 | 100.0 | % | $ | 85,000 | $ | 52,819 | $ | 7,773 | ||||||||||||||||||||||||||
| Total Q2 Dispositions | 1 | 240,475 | 100.0 | % | $ | 85,000 | $ | 52,819 | $ | 7,773 | ||||||||||||||||||||||||||||
| None | ||||||||||||||||||||||||||||||||||||||
| Total Q3 Dispositions | — | — | — | $ | — | $ | — | $ | — | |||||||||||||||||||||||||||||
| Total Disposed Year-to-Date | 3 | 961,437 | 99.8 | % | $ | 756,500 | $ | 197,816 | $ | 39,206 | ||||||||||||||||||||||||||||
Dispositions resulted in a net gain on sale of properties of $0.0 million and $446.5 million for the three and nine months ended September 30, 2020, respectively.
| (1) | As of the quarter-ended preceding each sale. | ||||
| (2) | Proceeds after transfer taxes and credits, primarily for contractual lease costs, were $259.2 million. | ||||
| (3) | Proceeds after transfer taxes and credits, primarily for contractual lease costs, were $316.7 million. | ||||
13
PROPERTY DETAIL
As of September 30, 2020
(Unaudited, sorted by annualized rental revenue, dollars in thousands)
Same Property Portfolio(1) | |||||||||||||||||||||||||||||||||||
| Property | City, State | Type | No. of Buildings | Square Feet | % Leased | % Commenced | Annualized Rental Revenue | Undepreciated Book Value | Net Book Value | Year Acquired | |||||||||||||||||||||||||
| 1 | 1225 Seventeenth Street | Denver, CO | Office | 1 | 695,372 | 94.1 | % | 89.4 | % | $ | 26,074 | $ | 168,102 | $ | 123,328 | 2009 | |||||||||||||||||||
(17th Street Plaza) | |||||||||||||||||||||||||||||||||||
| 2 | Bridgepoint Square | Austin, TX | Office | 5 | 440,007 | 71.4 | % | 70.0 | % | 12,702 | 102,052 | 52,454 | 1997 | ||||||||||||||||||||||
| 3 | 1250 H Street, NW | Washington, D.C. | Office | 1 | 196,490 | 92.2 | % | 92.2 | % | 10,673 | 77,202 | 39,284 | 1998 | ||||||||||||||||||||||
| 4 | 206 East 9th Street | Austin, TX | Office | 1 | 175,510 | 98.0 | % | 98.0 | % | 9,683 | 52,581 | 42,818 | 2012 | ||||||||||||||||||||||
(Capitol Tower) | |||||||||||||||||||||||||||||||||||
| Total Same Properties | 8 | 1,507,379 | 87.7 | % | 85.1 | % | $ | 59,132 | $ | 399,937 | $ | 257,884 | |||||||||||||||||||||||
| (1) | Excludes disposed properties. | ||||
14
LEASING SUMMARY
(Unaudited, dollars and square feet in thousands, except per square foot data)
| As of and for the Three Months Ended | ||||||||||||||||||||||||||||||||
| 9/30/2020 | 6/30/2020 | 3/31/2020 | 12/31/2019 | 9/30/2019 | ||||||||||||||||||||||||||||
Properties | 4 | 4 | 4 | 7 | 7 | |||||||||||||||||||||||||||
Total square feet (1) | 1,507 | 1,507 | 1,507 | 2,469 | 2,469 | |||||||||||||||||||||||||||
| Percentage leased | 87.7 | % | 90.1 | % | 90.8 | % | 94.7 | % | 93.5 | % | ||||||||||||||||||||||
| Percentage commenced | 85.1 | % | 83.9 | % | 83.7 | % | 89.0 | % | 88.2 | % | ||||||||||||||||||||||
| Total Leases | ||||||||||||||||||||||||||||||||
| Square feet | 6 | 22 | 75 | 153 | 298 | |||||||||||||||||||||||||||
| Lease term (years) | 3.0 | 8.0 | 8.5 | 6.6 | 4.6 | |||||||||||||||||||||||||||
| Starting cash rent | $ | 38.54 | $ | 46.34 | $ | 53.14 | $ | 44.36 | $ | 38.89 | ||||||||||||||||||||||
Percent change in cash rent (2) | (0.4) | % | (4.8) | % | (1.3) | % | 1.5 | % | (0.7) | % | ||||||||||||||||||||||
Percent change in GAAP rent (2) | 3.2 | % | 2.3 | % | 15.9 | % | 10.1 | % | 9.1 | % | ||||||||||||||||||||||
Total TI & LC per square foot (3) | $ | 34.15 | $ | 80.63 | $ | 86.14 | $ | 58.48 | $ | 44.27 | ||||||||||||||||||||||
Total TI & LC per sq. ft. per year of lease term (3) | $ | 11.38 | $ | 10.08 | $ | 10.16 | $ | 8.82 | $ | 9.60 | ||||||||||||||||||||||
| Renewal Leases | ||||||||||||||||||||||||||||||||
| Square feet | 6 | — | 41 | 63 | 182 | |||||||||||||||||||||||||||
| Lease term (years) | 3.0 | — | 7.7 | 7.8 | 2.9 | |||||||||||||||||||||||||||
| Starting cash rent | $ | 38.54 | $ | — | $ | 52.76 | $ | 43.47 | $ | 27.88 | ||||||||||||||||||||||
Percent change in cash rent (2) | (0.4) | % | — | 0.1 | % | 5.3 | % | (12.7) | % | |||||||||||||||||||||||
Percent change in GAAP rent (2) | 3.2 | % | — | 13.2 | % | 16.9 | % | (8.5) | % | |||||||||||||||||||||||
Total TI & LC per square foot (3) | $ | 34.15 | $ | — | $ | 68.15 | $ | 49.05 | $ | 9.05 | ||||||||||||||||||||||
Total TI & LC per sq. ft. per year of lease term (3) | $ | 11.38 | $ | — | $ | 8.86 | $ | 6.25 | $ | 3.15 | ||||||||||||||||||||||
| New Leases | ||||||||||||||||||||||||||||||||
| Square feet | — | 22 | 34 | 90 | 116 | |||||||||||||||||||||||||||
| Lease term (years) | — | 8.0 | 9.4 | 5.8 | 7.3 | |||||||||||||||||||||||||||
| Starting cash rent | $ | — | $ | 46.34 | $ | 53.60 | $ | 44.98 | $ | 56.16 | ||||||||||||||||||||||
Percent change in cash rent (2) | — | (4.8) | % | (3.3) | % | (3.6) | % | 11.6 | % | |||||||||||||||||||||||
Percent change in GAAP rent (2) | — | 2.3 | % | 19.9 | % | 1.6 | % | 26.4 | % | |||||||||||||||||||||||
Total TI & LC per square foot (3) | $ | — | $ | 80.63 | $ | 107.67 | $ | 65.09 | $ | 99.56 | ||||||||||||||||||||||
Total TI & LC per sq. ft. per year of lease term (3) | $ | — | $ | 10.08 | $ | 11.43 | $ | 11.26 | $ | 13.55 | ||||||||||||||||||||||
| 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) | Changes in total square footage result from property dispositions, reclassifications and remeasurement. | ||||
| (2) | Percent change in GAAP and cash rents is a comparison of current rent, including estimated tenant expense reimbursements, if any, to the rent, including actual/projected tenant expense reimbursements, if any, last received for the same space on a GAAP and cash basis, respectively. Cash rent during the reporting period is calculated before deducting any initial period free rent. New leasing in suites vacant longer than two years was excluded from the calculation. | ||||
| (3) | Includes tenant improvements (TI) and leasing commissions (LC). | ||||
15
SAME PROPERTY LEASING SUMMARY
(Unaudited, dollars and square feet in thousands, except per square foot data)
| As of and for the Three Months Ended | ||||||||||||||||||||||||||||||||
| 9/30/2020 | 6/30/2020 | 3/31/2020 | 12/31/2019 | 9/30/2019 | ||||||||||||||||||||||||||||
| Properties | 4 | 4 | 4 | 4 | 4 | |||||||||||||||||||||||||||
Total square feet | 1,507 | 1,507 | 1,507 | 1,507 | 1,507 | |||||||||||||||||||||||||||
| Percentage leased | 87.7 | % | 90.1 | % | 90.8 | % | 91.5 | % | 89.5 | % | ||||||||||||||||||||||
| Percentage commenced | 85.1 | % | 83.9 | % | 83.7 | % | 87.2 | % | 85.8 | % | ||||||||||||||||||||||
| Total Leases | ||||||||||||||||||||||||||||||||
| Square feet | 6 | 22 | 75 | 153 | 96 | |||||||||||||||||||||||||||
| Lease term (years) | 3.0 | 8.0 | 8.5 | 6.6 | 6.3 | |||||||||||||||||||||||||||
| Starting cash rent | $ | 38.54 | $ | 46.34 | $ | 53.14 | $ | 44.36 | $ | 46.71 | ||||||||||||||||||||||
Percent change in cash rent (1) | (0.4) | % | (4.8) | % | (1.3) | % | 1.5 | % | 9.2 | % | ||||||||||||||||||||||
Percent change in GAAP rent (1) | 3.2 | % | 2.3 | % | 15.9 | % | 10.1 | % | 18.0 | % | ||||||||||||||||||||||
Total TI & LC per square foot (2) | $ | 34.15 | $ | 80.63 | $ | 86.14 | $ | 58.49 | $ | 39.74 | ||||||||||||||||||||||
Total TI & LC per sq. ft. per year of lease term (2) | $ | 11.38 | $ | 10.08 | $ | 10.16 | $ | 8.82 | $ | 6.29 | ||||||||||||||||||||||
| Renewal Leases | ||||||||||||||||||||||||||||||||
| Square feet | 6 | — | 41 | 63 | 54 | |||||||||||||||||||||||||||
| Lease term (years) | 3.0 | — | 7.7 | 7.8 | 5.0 | |||||||||||||||||||||||||||
| Starting cash rent | $ | 38.54 | $ | — | $ | 52.76 | $ | 43.47 | $ | 42.02 | ||||||||||||||||||||||
Percent change in cash rent (1) | (0.4) | % | — | 0.1 | % | 5.3 | % | 6.1 | % | |||||||||||||||||||||||
Percent change in GAAP rent (1) | 3.2 | % | — | 13.2 | % | 16.9 | % | 13.9 | % | |||||||||||||||||||||||
Total TI & LC per square foot (2) | $ | 34.15 | $ | — | $ | 68.15 | $ | 49.05 | $ | 23.66 | ||||||||||||||||||||||
Total TI & LC per sq. ft. per year of lease term (2) | $ | 11.38 | $ | — | $ | 8.86 | $ | 6.25 | $ | 4.76 | ||||||||||||||||||||||
| New Leases | ||||||||||||||||||||||||||||||||
| Square feet | — | 22 | 34 | 90 | 42 | |||||||||||||||||||||||||||
| Lease term (years) | — | 8.0 | 9.4 | 5.8 | 8.0 | |||||||||||||||||||||||||||
| Starting cash rent | $ | — | $ | 46.34 | $ | 53.60 | $ | 44.98 | $ | 52.64 | ||||||||||||||||||||||
Percent change in cash rent (1) | — | (4.8) | % | (3.3) | % | (3.6) | % | 12.7 | % | |||||||||||||||||||||||
Percent change in GAAP rent (1) | — | 2.3 | % | 19.9 | % | 1.6 | % | 22.6 | % | |||||||||||||||||||||||
Total TI & LC per square foot (2) | $ | — | $ | 80.63 | $ | 107.67 | $ | 65.09 | $ | 60.08 | ||||||||||||||||||||||
Total TI & LC per sq. ft. per year of lease term (2) | $ | — | $ | 10.08 | $ | 11.43 | $ | 11.26 | $ | 7.47 | ||||||||||||||||||||||
| The above leasing summary is based on leases executed during the periods indicated. | |||||
| (1) | Percent change in GAAP and cash rents is a comparison of current rent, including estimated tenant expense reimbursements, if any, to the rent, including actual/projected tenant expense reimbursements, if any, last received for the same space on a GAAP and cash basis, respectively. Cash rent during the reporting period is calculated before deducting any initial period free rent. New leasing in suites vacant longer than two years was excluded from the calculation. | ||||
| (2) | Includes tenant improvements (TI) and leasing commissions (LC). | ||||
16
CAPITAL SUMMARY
EXPENDITURES & SAME PROPERTY LEASING COMMITMENTS
(Unaudited, dollars and square feet in thousands)
| CAPITAL SUMMARY | Three Months Ended | ||||||||||||||||||||||||||||
| EXPENDITURES | 9/30/2020 | 6/30/2020 | 3/31/2020 | 12/31/2019 | 9/30/2019 | ||||||||||||||||||||||||
| Tenant improvements | $ | 2,491 | $ | 2,448 | $ | 877 | $ | 1,881 | $ | 707 | |||||||||||||||||||
Leasing costs | 29 | 299 | 946 | 1,136 | 3,056 | ||||||||||||||||||||||||
Building improvements (1) | 697 | 611 | 351 | 1,978 | 804 | ||||||||||||||||||||||||
| Total capital expenditures | $ | 3,217 | $ | 3,358 | $ | 2,174 | $ | 4,995 | $ | 4,567 | |||||||||||||||||||
Average square feet during period (2) | 1,507 | 1,628 | 2,108 | 2,469 | 2,469 | ||||||||||||||||||||||||
Building improvements per average total sq. ft. during period | $ | 0.46 | $ | 0.38 | $ | 0.17 | $ | 0.80 | $ | 0.33 | |||||||||||||||||||
| CAPITAL SUMMARY | Three Months Ended | |||||||||||||||||||
| SAME PROPERTY LEASING COMMITMENTS | September 30, 2020 | |||||||||||||||||||
| New Leases | Renewal Leases | Total | ||||||||||||||||||
| Square feet leased during the period | — | 6 | 6 | |||||||||||||||||
Total TI & LC (3) | $ | — | $ | 205 | $ | 205 | ||||||||||||||
Total TI & LC per square foot (3) | $ | — | $ | 34.15 | $ | 34.15 | ||||||||||||||
| Weighted average lease term by square foot (years) | — | 3.0 | 3.0 | |||||||||||||||||
Total TI & LC per square foot per year of lease term (3) | $ | — | $ | 11.38 | $ | 11.38 | ||||||||||||||
| (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). | ||||
17
TENANTS REPRESENTING 2.5% OR MORE OF ANNUALIZED RENTAL REVENUE
As of September 30, 2020
(Unaudited, square feet in thousands)
| Tenant | Square Feet (1) | % of Total Sq. Ft. (1) | % of Annualized Rental Revenue | Weighted Average Remaining Lease Term | |||||||||||||||||||||||||||||||
| 1 | Equinor Energy Services, Inc. | 80 | 6.1 | % | 5.8 | % | 3.3 | ||||||||||||||||||||||||||||
| 2 | KPMG, LLP | 71 | 5.4 | % | 5.0 | % | 8.7 | ||||||||||||||||||||||||||||
| 3 | Crowdstrike, Inc. | 36 | 2.7 | % | 3.4 | % | 4.1 | ||||||||||||||||||||||||||||
| 4 | CBRE, Inc. | 40 | 3.0 | % | 3.4 | % | 7.5 | ||||||||||||||||||||||||||||
| 5 | International Dairy Foods Association (2) | 23 | 1.7 | % | 2.6 | % | 5.8 | ||||||||||||||||||||||||||||
| 6 | Alden Torch Financial, LLC | 34 | 2.6 | % | 2.5 | % | 6.4 | ||||||||||||||||||||||||||||
| 7 | Kazoo, Inc. | 26 | 2.0 | % | 2.5 | % | 1.3 | ||||||||||||||||||||||||||||
| 8 | The Education Trust, Inc. (3) | 26 | 2.0 | % | 2.5 | % | 0.0 | ||||||||||||||||||||||||||||
| Total | 336 | 25.5 | % | 27.7 | % | 5.1 | |||||||||||||||||||||||||||||
| (1) | Square footage as of September 30, 2020 includes space subject to leases that have commenced for revenue recognition purposes in accordance with GAAP, 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) | Approximately 10,000 square feet of International Dairy Foods Association's space expire in 2034. Of the remaining 13,000 square feet, 6,500 square feet expire in 2021 and 6,500 square feet have been backfilled by other tenants until 2022. | ||||
| (3) | The Education Trust Inc.'s lease expires on September 30, 2020. Approximately 19,000 square feet have been backfilled by another tenant until 2032. The backfilling lease commences in 2022. | ||||
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SAME PROPERTY LEASE EXPIRATION SCHEDULE
As of September 30, 2020
(Unaudited, dollars and sq. ft. in thousands)
| Year | Number of Tenants Expiring (1) | Leased Sq. Ft. Expiring (2) | % of Leased Sq. Ft. Expiring | Cumulative % of Leased Sq. Ft. Expiring | Annualized Rental Revenue Expiring (3) | % of Annualized Rental Revenue Expiring | Cumulative % of Annualized Rental Revenue Expiring | |||||||||||||||||||||||||||||||||||||
| 2020 | 4 | 40 | 3.0 | % | 3.0 | % | $ | 1,643 | 2.8 | % | 2.8 | % | ||||||||||||||||||||||||||||||||
| 2021 | 22 | 111 | 8.4 | % | 11.4 | % | 4,854 | 8.2 | % | 11.0 | % | |||||||||||||||||||||||||||||||||
| 2022 | 12 | 119 | 9.0 | % | 20.4 | % | 6,128 | 10.4 | % | 21.4 | % | |||||||||||||||||||||||||||||||||
| 2023 | 19 | 222 | 16.8 | % | 37.2 | % | 10,438 | 17.7 | % | 39.1 | % | |||||||||||||||||||||||||||||||||
| 2024 | 14 | 201 | 15.2 | % | 52.4 | % | 9,171 | 15.5 | % | 54.6 | % | |||||||||||||||||||||||||||||||||
| 2025 | 11 | 145 | 11.0 | % | 63.4 | % | 5,347 | 9.0 | % | 63.6 | % | |||||||||||||||||||||||||||||||||
| 2026 | 8 | 80 | 6.1 | % | 69.5 | % | 3,641 | 6.2 | % | 69.8 | % | |||||||||||||||||||||||||||||||||
| 2027 | 5 | 97 | 7.3 | % | 76.8 | % | 3,560 | 6.0 | % | 75.8 | % | |||||||||||||||||||||||||||||||||
| 2028 | 4 | 81 | 6.1 | % | 82.9 | % | 2,971 | 5.0 | % | 80.8 | % | |||||||||||||||||||||||||||||||||
| 2029 | 5 | 117 | 8.9 | % | 91.8 | % | 5,645 | 9.5 | % | 90.3 | % | |||||||||||||||||||||||||||||||||
| Thereafter | 6 | 108 | 8.2 | % | 100.0 | % | 5,734 | 9.7 | % | 100.0 | % | |||||||||||||||||||||||||||||||||
| Total | 110 | 1,321 | 100.0 | % | $ | 59,132 | 100.0 | % | ||||||||||||||||||||||||||||||||||||
| Weighted average remaining | ||||||||||||||||||||||||||||||||||||||||||||
| lease term (in years) | 4.7 | 4.8 | ||||||||||||||||||||||||||||||||||||||||||
| (1) | Tenants with leases expiring in multiple years are counted in each year they expire. | ||||
| (2) | Square footage as of September 30, 2020 includes space subject to leases that have commenced for revenue recognition purposes in accordance with GAAP, 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. | ||||
| (3) | Excludes the Annualized Rental Revenue of space that is leased but not commenced. | ||||
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COMMON & POTENTIAL COMMON SHARES
(Unaudited, share amounts in thousands)
| Three Months Ended | Nine Months Ended | ||||||||||||||||||||||
| September 30, | September 30, | ||||||||||||||||||||||
| Weighted Average Share Calculation - GAAP EPS | 2020 | 2019 | 2020 | 2019 | |||||||||||||||||||
Weighted average common shares outstanding - basic (1) | 121,673 | 122,140 | 121,824 | 122,075 | |||||||||||||||||||
Weighted average Series D preferred shares convertible to common shares | — | — | 2,857 | 2,563 | |||||||||||||||||||
Weighted average dilutive RSUs and LTIP Units (2) | — | 1,424 | 1,601 | 1,300 | |||||||||||||||||||
Weighted average common shares outstanding - diluted (1) | 121,673 | 123,564 | 126,282 | 125,938 | |||||||||||||||||||
| Three Months Ended | Nine Months Ended | ||||||||||||||||||||||
| September 30, | September 30, | ||||||||||||||||||||||
| Weighted Average Share and Unit Calculation - FFO and Normalized FFO per share and unit | 2020 | 2019 | 2020 | 2019 | |||||||||||||||||||
Weighted average EQC common shares outstanding (1) | 121,673 | 122,140 | 121,824 | 122,075 | |||||||||||||||||||
Weighted average Operating Partnership Units outstanding (3) | 113 | 17 | 99 | 13 | |||||||||||||||||||
Weighted average time-based LTIP Units (2)(3) | 130 | 32 | 115 | 33 | |||||||||||||||||||
Weighted average common shares and units outstanding - basic (1) | 121,916 | 122,189 | 122,038 | 122,121 | |||||||||||||||||||
Weighted average dilutive RSUs and market-based LTIP Units (2) | 1,601 | 1,424 | 1,601 | 1,300 | |||||||||||||||||||
Weighted average common shares and units outstanding - diluted (1) | 123,517 | 123,613 | 123,639 | 123,421 | |||||||||||||||||||
Rollforward of Share Count to September 30, 2020 | Series D Preferred Shares (4) | EQC Common Shares (5) | |||||||||||||||
| Outstanding on December 31, 2019 | 4,915 | 121,924 | |||||||||||||||
| Repurchase of common shares | — | (711) | |||||||||||||||
Share-based compensation grants and vesting, net (6) | — | 312 | |||||||||||||||
Outstanding on September 30, 2020 | 4,915 | 121,525 | |||||||||||||||
Common shares issuable from RSUs, Operating Partnership Units, and LTIP Units as measured on September 30, 2020 (2) | 1,994 | ||||||||||||||||
Potential common shares as measured on September 30, 2020 (7) | 123,519 | ||||||||||||||||
| (1) | Weighted average common shares outstanding for the three months ended September 30, 2020 and 2019 includes 150 and 217 unvested, earned RSUs, respectively. Weighted average common shares outstanding for the nine months ended September 30, 2020 and 2019 includes 159 and 208 unvested, earned RSUs, respectively. | ||||
| (2) | We have granted RSUs and LTIP Units to certain employees, officers, an eligible consultant and trustees. RSUs and market-based LTIP Units contain service and market-based vesting components. Time-based LTIP Units contain service-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) | As of September 30, 2020, we had 4,915 series D preferred shares that were convertible into 2,857 common shares. The series D preferred shares are antidilutive for GAAP EPS for the three months ended September 30, 2020 and 2019. They are dilutive for GAAP EPS for the nine months ended September 30, 2020 and 2019. The series D preferred shares are antidilutive for all periods presented with respect to FFO and Normalized FFO per common share and unit. | ||||
| (5) | EQC common shares include unvested restricted shares. | ||||
| (6) | This amount is net of forfeitures and shares surrendered to satisfy statutory tax witholding obligations. | ||||
| (7) | Potential common shares as measured on September 30, 2020 include unvested earned RSUs. The 4,915 series D preferred shares outstanding that were convertible into 2,857 common shares as of September 30, 2020 are excluded. | ||||
20
DEFINITIONS
Annualized Rental Revenue
Annualized Rental Revenue is annualized contractual rents from our tenants pursuant to leases which have commenced as of September 30, 2020, 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.
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, 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 or cash flow from operating activities, determined in accordance with GAAP, or as indicators of our financial performance or liquidity, nor are these measures necessarily indicative of sufficient cash flow to fund all of our needs. These measures should be considered in conjunction with net income (loss), net income (loss) attributable to EQC common shareholders and cash flow from operating activities as presented in our condensed consolidated statements of operations, condensed consolidated statements of comprehensive income (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.
Enterprise Value
Enterprise value is total debt minus cash and cash equivalents 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 and cash flow from operating activities.
We believe that FFO and Normalized FFO provide useful information to investors because by excluding the effects of certain historical amounts, such as depreciation expense, FFO and Normalized FFO may facilitate a comparison of our operating performance between periods and with other REITs. FFO and Normalized FFO do not represent cash generated by operating activities in accordance with GAAP and should not be considered as alternatives to net income (loss), net income (loss) attributable to EQC common shareholders or cash flow from operating activities, determined in accordance with GAAP, or as indicators of our financial performance or liquidity, nor are these measures necessarily indicative of sufficient cash flow to fund all of our needs. These measures should be considered in conjunction with net income (loss), net income (loss) attributable to EQC common shareholders and cash flow from operating activities as presented in our condensed consolidated statements of
21
DEFINITIONS
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 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, 2019 through September 30, 2020, and the year-to-date same property versions of these measures include the results of properties continuously owned from January 1, 2019 through September 30, 2020. Properties classified as held for sale within our condensed consolidated balance sheets are excluded from the same property versions of these measures.
We consider these supplemental non-GAAP financial measures to be appropriate supplemental measures to net income (loss) because they may help to understand the operations of our properties. We use these measures internally to evaluate property level performance, and we believe that they provide useful information to investors regarding our results of operations because they reflect only those income and expense items that are incurred at the property level and may facilitate comparisons of our operating performance between periods and with other REITs. Cash Basis NOI is among the factors considered with respect to acquisition, disposition and financing decisions. These measures do not represent cash generated by operating activities in accordance with GAAP and should not be considered as an alternative to net income (loss), net income (loss) attributable to Equity Commonwealth common shareholders or cash flow from operating activities, determined in accordance with GAAP, or as indicators of our financial performance or liquidity, nor are these measures necessarily indicative of sufficient cash flow to fund all of our needs. These measures should be considered in conjunction with net income (loss), net income (loss) attributable to EQC common shareholders and cash flow from operating activities as presented in our condensed consolidated statements of operations, condensed consolidated statements of comprehensive income and condensed consolidated statements of cash flows. Other REITs and real estate companies may calculate these measures differently than we do.
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.
Other Revenue
Other revenue is primarily comprised of parking revenue that does not represent a component of a lease.
Percentage Commenced
Percentage commenced is the percentage of space subject to leases that have commenced for revenue recognition purposes in accordance with GAAP, which includes the space of tenants in a free rent period.
Percentage Leased
Percentage leased is the percentage of space subject to signed leases.
Rental Revenue
Rental revenue is primarily comprised of minimum lease payments from tenants, including tenant reimbursements. In addition, rental revenue includes lease termination fees and straight line rent adjustments.
Same Properties
Our quarter-to-date same property portfolio is comprised of those properties continuously owned from July 1, 2019 through September 30, 2020. Our year-to-date same property portfolio is comprised of those properties continuously owned from
22
DEFINITIONS
January 1, 2019 through September 30, 2020. 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 balance of mortgage notes payable, net on our condensed consolidated balance sheets.
Total Market Capitalization
Total market capitalization is total debt, plus the market value of preferred shares, plus the market value of diluted common shares. The market value of preferred shares is the product of the number of Series D preferred shares outstanding at the end of the period and the closing share price of the Series D preferred shares (EQCpD) at the end of the period. The market value of diluted common shares is the product of the number of diluted common shares outstanding at the end of the period and the closing share price of the common shares (EQC) at the end of the period.
Undepreciated Book Value
Undepreciated book value represents the carrying value of real estate properties after purchase price allocations and impairment write-downs, if any.
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