Equity Commonwealth (NYSE: EQC) today reported financial results
for the quarter and year ended December 31, 2022.
Financial results for the quarter ended December 31,
2022
Net income attributable to common shareholders was $18.9
million, or $0.17 per diluted share, for the quarter ended December
31, 2022. This compares to net loss attributable to common
shareholders of $3.6 million, or $0.03 per diluted share, for the
quarter ended December 31, 2021. The increase in net income was
primarily due to an increase in interest income from higher average
interest rates.
Funds from Operations, or FFO, as defined by the National
Association of Real Estate Investment Trusts, for the quarter ended
December 31, 2022, were $23.5 million, or $0.21 per diluted share.
This compares to FFO for the quarter ended December 31, 2021 of
$0.7 million, or $0.01 per diluted share. The following items
impacted FFO for the quarter ended December 31, 2022, compared to
the corresponding 2021 period:
- $0.20 per diluted share increase in interest and other income,
net; and
- $0.01 per diluted share increase in same property NOI.
Normalized FFO was $23.9 million, or $0.21 per diluted share,
for the quarter ended December 31, 2022. This compares to
Normalized FFO for the quarter ended December 31, 2021 of $0.4
million, or $0.00 per diluted share. The following items impacted
Normalized FFO for the quarter ended December 31, 2022, compared to
the corresponding 2021 period:
- $0.20 per diluted share increase in interest and other income,
net; and
- $0.01 per diluted share increase in same property NOI.
Same property results for the quarter ended December 31,
2022
The company’s same property portfolio at the end of the quarter
consisted of 4 properties totaling 1.5 million square feet.
Operating results were as follows:
- The same property portfolio was 82.8% leased as of December 31,
2022, compared to 83.4% as of September 30, 2022, and 82.3% as of
December 31, 2021.
- The same property portfolio commenced occupancy was 78.7% as of
December 31, 2022, compared to 80.8% as of September 30, 2022, and
79.2% as of December 31, 2021.
- Same property NOI increased 14.5% when compared to the same
period in 2021, primarily due to higher parking revenue and higher
lease termination fees.
- Same property cash NOI increased 14.9% when compared to the
same period in 2021, primarily due higher parking revenue and a
decrease in free rent.
- The company entered into leases for approximately 76,000 square
feet, including renewal leases for approximately 30,000 square feet
and new leases for approximately 46,000 square feet.
- The GAAP rental rate on new and renewal leases was 3.6% higher
compared to the prior GAAP rental rate for the same space.
- The cash rental rate on new and renewal leases was 0.4% higher
compared to the prior cash rental rate for the same space.
The definitions and reconciliations of same property NOI and
same property cash NOI to net income (loss), determined in
accordance with GAAP, are included at the end of this press
release. The same property portfolio at the end of the quarter
included properties continuously owned from October 1, 2021 through
December 31, 2022.
Financial results for the year ended December 31,
2022
Net income attributable to common shareholders was $29.3
million, or $0.26 per diluted share, for the year ended December
31, 2022. This compares to net loss attributable to common
shareholders of $24.4 million, or $0.20 per diluted share, for the
year ended December 31, 2021. The increase in net income was
primarily due to an increase in interest income from higher average
interest rates.
FFO for the year ended December 31, 2022, was $46.9 million, or
$0.41 per diluted share. This compares to FFO for the year ended
December 31, 2021 of $(6.8) million, or $(0.06) per diluted share.
The following items impacted FFO for the year ended December 31,
2022, compared to the corresponding 2021 period:
- $0.35 per diluted share increase in interest income and other,
net;
- $0.06 per diluted share decrease in general and administrative
expense, including executive severance;
- $0.05 per diluted share increase in same property NOI; and
- $0.01 per diluted share increase in NOI from properties
sold.
Normalized FFO was $47.2 million, or $0.42 per diluted share,
for the year ended December 31, 2022. This compares to Normalized
FFO for the year ended December 31, 2021 of $(1.3) million, or
$(0.01) per diluted share. The following items impacted Normalized
FFO for the year ended December 31, 2022, compared to the
corresponding 2021 period:
- $0.36 per diluted share increase in interest income and other,
net;
- $0.06 per diluted share increase in same property cash NOI and
lease termination fees; and
- $0.01 per diluted share increase in NOI from properties
sold.
As of December 31, 2022, the company’s cash and cash equivalents
balance was $2.6 billion.
Normalized FFO begins with FFO and eliminates certain items
that, by their nature, are not comparable from period to period,
non-cash items, and items that obscure the company’s operating
performance. Definitions of FFO, Normalized FFO and reconciliations
to net income (loss), determined in accordance with U.S. generally
accepted accounting principles, or GAAP, are included at the end of
this press release.
Same property results for the year ended December 31,
2022
The company’s same property portfolio at the end of the year
consisted of 4 properties totaling 1.5 million square feet.
Operating results were as follows:
- Same property NOI increased 17.0% when compared to the same
period in 2021, primarily due to the collection of $1.9 million of
a previously reserved receivable in the year ended December 31,
2022, higher parking revenue and higher lease termination
fees.
- Same property cash NOI increased 19.1% when compared to the
same period in 2021, primarily due to the collection of the
previously reserved receivable described above, higher parking
revenue and a decrease in free rent.
- Excluding the collection of the previously reserved receivable,
same property NOI and same property cash NOI increased 11.1% and
12.8%, respectively, when compared to the same period in 2021.
- The company entered into leases for approximately 205,000
square feet, including renewal leases for approximately 96,000
square feet and new leases for approximately 109,000 square
feet.
- The GAAP rental rate on new and renewal leases was 3.8% higher
compared to the prior GAAP rental rate for the same space.
- The cash rental rate on new and renewal leases was 0.3% higher
compared to the prior cash rental rate for the same space.
The definitions and reconciliations of same property NOI and
same property cash NOI to net income (loss), determined in
accordance with GAAP, are included at the end of this press
release. The same property portfolio at the end of the year
included properties continuously owned from January 1, 2021 through
December 31, 2022.
Significant events during the year ended December 31,
2022
- On March 15, 2022, the Board of Trustees authorized the
repurchase, through June 30, 2023, of an additional $150 million of
its outstanding common shares under the company’s existing share
repurchase program.
- On September 8, 2022, the company declared a special, one-time
cash distribution of $1.00 per common share, which was paid on
October 18, 2022 to shareholders of record on September 29,
2022.
- During the year ended December 31, 2022, the company
repurchased 6,110,646 of its common shares at a weighted average
dividend adjusted price of $24.64 per share, for a total investment
of $155.5 million. The company has $120.4 million of remaining
authorization available under its share repurchase program, as of
February 7, 2023.
Earnings Conference Call & Supplemental Operating and
Financial Information
Equity Commonwealth will host a conference call to discuss
fourth quarter and full year results on Thursday, February 9, 2023,
at 9:00 A.M. CT. The conference call will be available via live
audio webcast on the Investor Relations section of the company’s
website (www.eqcre.com). A replay of the audio webcast will also be
available following the call.
A copy of EQC’s Full Year 2022 Supplemental Operating and
Financial Information is available in the Investor Relations
section of EQC’s website at www.eqcre.com.
About Equity Commonwealth
Equity Commonwealth (NYSE: EQC) is a Chicago based, internally
managed and self-advised real estate investment trust (REIT) with
commercial office properties in the United States. EQC’s portfolio
is comprised of four properties totaling 1.5 million square
feet.
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.
Forward-Looking Statements
Some of the statements contained in this press release
constitute forward-looking statements within the meaning of the
federal securities laws. Any forward-looking statements contained
in this press release are intended to be made pursuant to the safe
harbor provisions of Section 21E of the Securities Exchange Act of
1934, as amended. Forward-looking statements relate to
expectations, beliefs, projections, future plans and strategies,
anticipated events or trends and similar expressions concerning
matters that are not historical facts. You can identify
forward-looking statements by the use of forward-looking
terminology, including but not limited to, “may,” “will,” “should,”
“could,” “would,” “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 press release
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.
CONDENSED CONSOLIDATED BALANCE
SHEETS
(Unaudited, amounts in thousands,
except share data)
December 31,
ASSETS
2022
2021
Real estate properties:
Land
$
44,060
$
44,060
Buildings and improvements
364,063
362,042
408,123
406,102
Accumulated depreciation
(169,530
)
(156,439
)
238,593
249,663
Cash and cash equivalents
2,582,222
2,800,998
Rents receivable
16,009
15,549
Other assets, net
18,061
15,173
Total assets
$
2,854,885
$
3,081,383
LIABILITIES AND EQUITY
Accounts payable, accrued expenses and
other
$
25,935
$
19,762
Rent collected in advance
2,355
3,986
Distributions payable
2,863
2,365
Total liabilities
$
31,153
$
26,113
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; 109,428,252 and
115,205,818 shares issued and outstanding, respectively
1,094
1,152
Additional paid in capital
3,979,566
4,128,656
Cumulative net income
3,835,815
3,798,552
Cumulative common distributions
(4,393,522
)
(4,281,195
)
Cumulative preferred distributions
(725,688
)
(717,700
)
Total shareholders’ equity
2,816,528
3,048,728
Noncontrolling interest
7,204
6,542
Total equity
$
2,823,732
$
3,055,270
Total liabilities and equity
$
2,854,885
$
3,081,383
CONDENSED CONSOLIDATED
STATEMENTS OF OPERATIONS
(Unaudited, amounts in
thousands, except per share data)
Three Months Ended
Year Ended
December 31,
December 31,
2022
2021
2022
2021
Revenues:
Rental revenue
$
14,628
$
13,503
$
58,763
$
54,927
Other revenue (1)
1,159
892
4,377
3,075
Total revenues
$
15,787
$
14,395
$
63,140
$
58,002
Expenses:
Operating expenses
$
6,986
$
6,582
$
24,184
$
25,893
Depreciation and amortization
4,634
4,403
17,810
17,774
General and administrative
7,137
6,753
30,378
37,444
Total expenses
$
18,757
$
17,738
$
72,372
$
81,111
Interest and other income, net
24,263
1,732
46,945
6,800
Gain on sale of properties, net
7
—
97
—
Income (loss) before income taxes
21,300
(1,611
)
37,810
(16,309
)
Income tax expense
(372
)
(26
)
(453
)
(120
)
Net income (loss)
$
20,928
$
(1,637
)
$
37,357
$
(16,429
)
Net (income) loss attributable to
noncontrolling interest
(53
)
3
(94
)
33
Net income (loss) attributable to
Equity Commonwealth
$
20,875
$
(1,634
)
$
37,263
$
(16,396
)
Preferred distributions
(1,997
)
(1,997
)
(7,988
)
(7,988
)
Net (loss) income attributable to
Equity Commonwealth common shareholders
$
18,878
$
(3,631
)
$
29,275
$
(24,384
)
Weighted average common shares outstanding
— basic (2)
109,695
119,285
111,674
121,411
Weighted average common shares outstanding
— diluted (2)(3)
111,171
119,285
112,825
121,411
Earnings per common share attributable to
Equity Commonwealth common shareholders:
Basic
$
0.17
$
(0.03
)
$
0.26
$
(0.20
)
Diluted
$
0.17
$
(0.03
)
$
0.26
$
(0.20
)
(1)
Other revenue is primarily
comprised of parking revenue that does not represent a component of
a lease.
(2)
Weighted average common shares
outstanding for the three months ended December 31, 2022 and 2021
includes 86 and 260 unvested, earned RSUs, respectively. Weighted
average common shares outstanding for the year ended December 31,
2022 and 2021 includes 105 and 256 unvested, earned RSUs,
respectively.
(3)
As of December 31, 2022, we had
4,915 series D preferred shares outstanding. The series D preferred
shares were convertible into 3,365 common shares as of December 31,
2022 and 3,237 common shares as of December 31, 2021. The series D
preferred shares are antidilutive for GAAP EPS for the three months
and years ended December 31, 2022 and 2021.
CALCULATION OF FUNDS FROM
OPERATIONS (FFO) AND NORMALIZED FFO
(Unaudited, amounts in
thousands, except per share data)
Three Months Ended
Year Ended
December 31,
December 31,
2022
2021
2022
2021
Calculation of FFO
Net income (loss)
$
20,928
$
(1,637
)
$
37,357
$
(16,429
)
Real estate depreciation and
amortization
4,594
4,361
17,652
17,593
Gain on sale of properties, net
(7
)
—
(97
)
—
FFO attributable to Equity
Commonwealth
25,515
2,724
54,912
1,164
Preferred distributions
(1,997
)
(1,997
)
(7,988
)
(7,988
)
FFO attributable to EQC common
shareholders and unitholders
$
23,518
$
727
$
46,924
$
(6,824
)
Calculation of Normalized FFO
FFO attributable to EQC common
shareholders and unitholders
$
23,518
$
727
$
46,924
$
(6,824
)
Straight-line rent adjustments
389
(130
)
238
(1,407
)
Sold property expense included in interest
and other income, net
—
(225
)
—
(225
)
Executive severance expense
—
—
—
7,107
Normalized FFO attributable to EQC
common shareholders and unitholders
$
23,907
$
372
$
47,162
$
(1,349
)
Weighted average common shares and units
outstanding -- basic (1)
109,975
119,532
111,950
121,656
Weighted average common shares and units
outstanding -- diluted (1)
111,451
119,958
113,101
121,656
FFO attributable to EQC common
shareholders and unitholders per share and unit -- basic
$
0.21
$
0.01
$
0.42
$
(0.06
)
FFO attributable to EQC common
shareholders and unitholders per share and unit -- diluted
$
0.21
$
0.01
$
0.41
$
(0.06
)
Normalized FFO attributable to EQC common
shareholders and unitholders per share and unit -- basic
$
0.22
$
0.00
$
0.42
$
(0.01
)
Normalized FFO attributable to EQC common
shareholders and unitholders per share and unit -- diluted
$
0.21
$
0.00
$
0.42
$
(0.01
)
(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
December 31, 2022 and 2021 include 280 and 247 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 year ended December 31, 2022 and
2021 include 276 and 245 LTIP/Operating Partnership Units,
respectively, that are excluded from the calculation of basic
earnings per common share attributable to EQC common shareholders
(only).
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 operations and
condensed consolidated statements of cash flows. Other REITs and
real estate companies may calculate FFO and Normalized FFO
differently than we do.
CALCULATION OF SAME PROPERTY
NET OPERATING INCOME (NOI) AND SAME PROPERTY CASH BASIS NOI
(Unaudited, amounts in
thousands)
Three Months Ended
12/31/2022
9/30/2022
6/30/2022
3/31/2022
12/31/2021
Calculation of Same Property NOI and
Same Property Cash Basis NOI:
Rental revenue
$
14,628
$
13,869
$
14,426
$
15,840
$
13,503
Other revenue (1)
1,159
1,257
1,115
846
892
Operating expenses
(6,986
)
(6,073
)
(6,592
)
(4,533
)
(6,582
)
NOI
$
8,801
$
9,053
$
8,949
$
12,153
$
7,813
Straight-line rent adjustments
389
(61
)
(100
)
10
(130
)
Lease termination fees
(743
)
(259
)
(177
)
(325
)
(209
)
Cash Basis NOI
$
8,447
$
8,733
$
8,672
$
11,838
$
7,474
Cash Basis NOI from non-same properties
(2)
14
48
27
(1,699
)
(111
)
Same Property Cash Basis NOI
$
8,461
$
8,781
$
8,699
$
10,139
$
7,363
Non-cash rental income and lease
termination fees from same properties
354
320
277
315
338
Same Property NOI
$
8,815
$
9,101
$
8,976
$
10,454
$
7,701
Reconciliation of Same Property NOI to
GAAP Net Income (Loss):
Same Property NOI
$
8,815
$
9,101
$
8,976
$
10,454
$
7,701
Non-cash rental income and lease
termination fees from same properties
(354
)
(320
)
(277
)
(315
)
(338
)
Same Property Cash Basis NOI
$
8,461
$
8,781
$
8,699
$
10,139
$
7,363
Cash Basis NOI from non-same properties
(2)
(14
)
(48
)
(27
)
1,699
111
Cash Basis NOI
$
8,447
$
8,733
$
8,672
$
11,838
$
7,474
Straight-line rent adjustments
(389
)
61
100
(10
)
130
Lease termination fees
743
259
177
325
209
NOI
$
8,801
$
9,053
$
8,949
$
12,153
$
7,813
Depreciation and amortization
(4,634
)
(4,451
)
(4,313
)
(4,412
)
(4,403
)
General and administrative
(7,137
)
(7,593
)
(7,646
)
(8,002
)
(6,753
)
Interest and other income, net
24,263
15,145
5,963
1,574
1,732
Gain on sale of properties, net
7
90
—
—
—
Income (loss) before income
taxes
$
21,300
$
12,244
$
2,953
$
1,313
$
(1,611
)
Income tax expense
(372
)
(23
)
(50
)
(8
)
(26
)
Net income (loss)
$
20,928
$
12,221
$
2,903
$
1,305
$
(1,637
)
(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.
CALCULATION OF SAME PROPERTY
NET OPERATING INCOME (NOI) AND SAME PROPERTY CASH BASIS NOI
(Unaudited, amounts in
thousands)
For the Year Ended December
31,
2022
2021
Calculation of Same Property NOI and
Same Property Cash Basis NOI:
Rental revenue
$
58,763
$
54,927
Other revenue (1)
4,377
3,075
Operating expenses
(24,184
)
(25,893
)
NOI
$
38,956
$
32,109
Straight-line rent adjustments
238
(1,407
)
Lease termination fees
(1,504
)
(216
)
Cash Basis NOI
$
37,690
$
30,486
Cash Basis NOI from non-same properties
(2)
(1,610
)
(201
)
Same Property Cash Basis NOI
$
36,080
$
30,285
Non-cash rental income and lease
termination fees from same properties
1,266
1,622
Same Property NOI
$
37,346
$
31,907
Reconciliation of Same Property NOI to
GAAP Net Income (Loss):
Same Property NOI
$
37,346
$
31,907
Non-cash rental income and lease
termination fees from same properties
(1,266
)
(1,622
)
Same Property Cash Basis NOI
$
36,080
$
30,285
Cash Basis NOI from non-same properties
(2)
1,610
201
Cash Basis NOI
$
37,690
$
30,486
Straight-line rent adjustments
(238
)
1,407
Lease termination fees
1,504
216
NOI
$
38,956
$
32,109
Depreciation and amortization
(17,810
)
(17,774
)
General and administrative
(30,378
)
(37,444
)
Interest and other income, net
46,945
6,800
Gain on sale of properties, net
97
—
Income (loss) before income
taxes
$
37,810
$
(16,309
)
Income tax expense
(453
)
(120
)
Net income (loss)
$
37,357
$
(16,429
)
(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.
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, 2021 through December 31, 2022.
The year-to-date same property versions of these measures include
the results of properties continuously owned from January 1, 2021
through December 31, 2022. 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 and
condensed consolidated statements of cash flows. Other REITs and
real estate companies may calculate these measures differently than
we do.
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version on businesswire.com: https://www.businesswire.com/news/home/20230208005671/en/
Bill Griffiths (312) 646-2801 ir@eqcre.com
Equity Commonwealth (NYSE:EQC)
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