September 30, 2019 | December 31, 2018 | ||||||||||
ASSETS | |||||||||||
Real estate properties: | |||||||||||
Land | $ | 85,627 | $ | 135,142 | |||||||
Buildings and improvements | 572,714 | 1,004,500 | |||||||||
658,341 | 1,139,642 | ||||||||||
Accumulated depreciation | (197,847) | (375,968) | |||||||||
460,494 | 763,674 | ||||||||||
Cash and cash equivalents | 3,205,775 | 2,400,803 | |||||||||
Marketable securities | — | 249,602 | |||||||||
Restricted cash | 4,456 | 3,298 | |||||||||
Rents receivable | 19,347 | 51,089 | |||||||||
Other assets, net | 41,271 | 62,306 | |||||||||
Total assets | $ | 3,731,343 | $ | 3,530,772 | |||||||
LIABILITIES AND EQUITY | |||||||||||
Senior unsecured debt, net | $ | — | $ | 248,473 | |||||||
Mortgage notes payable, net | 25,896 | 26,482 | |||||||||
Accounts payable, accrued expenses and other | 38,218 | 58,300 | |||||||||
Rent collected in advance | 3,533 | 9,451 | |||||||||
Distributions payable | 435,583 | 4,068 | |||||||||
Total liabilities | $ | 503,230 | $ | 346,774 | |||||||
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; 121,924,199 and 121,572,155 shares issued and outstanding, respectively | 1,219 | 1,216 | |||||||||
Additional paid in capital | 4,310,353 | 4,305,974 | |||||||||
Cumulative net income | 3,347,664 | 2,870,974 | |||||||||
Cumulative other comprehensive loss | — | (342) | |||||||||
Cumulative common distributions | (3,851,947) | (3,420,548) | |||||||||
Cumulative preferred distributions | (699,727) | (693,736) | |||||||||
Total shareholders’ equity | 3,226,825 | 3,182,801 | |||||||||
Noncontrolling interest | 1,288 | 1,197 | |||||||||
Total equity | $ | 3,228,113 | $ | 3,183,998 | |||||||
Total liabilities and equity | $ | 3,731,343 | $ | 3,530,772 |
Three Months Ended | Nine Months Ended | ||||||||||||||||||||||
September 30, | September 30, | ||||||||||||||||||||||
2019 | 2018 | 2019 | 2018 | ||||||||||||||||||||
Revenues: | |||||||||||||||||||||||
Rental revenue | $ | 23,995 | $ | 43,770 | $ | 93,459 | $ | 144,612 | |||||||||||||||
Other revenue | 2,740 | 3,103 | 8,396 | 9,485 | |||||||||||||||||||
Total revenues | $ | 26,735 | $ | 46,873 | $ | 101,855 | $ | 154,097 | |||||||||||||||
Expenses: | |||||||||||||||||||||||
Operating expenses | $ | 9,923 | $ | 20,257 | $ | 36,677 | $ | 64,377 | |||||||||||||||
Depreciation and amortization | 5,939 | 11,287 | 22,085 | 38,211 | |||||||||||||||||||
General and administrative | 8,523 | 10,905 | 30,152 | 35,466 | |||||||||||||||||||
Loss on asset impairment | — | — | — | 12,087 | |||||||||||||||||||
Total expenses | $ | 24,385 | $ | 42,449 | $ | 88,914 | $ | 150,141 | |||||||||||||||
Interest and other income, net | 19,401 | 12,626 | 57,871 | 31,074 | |||||||||||||||||||
Interest expense (including net amortization of debt discounts, premiums and deferred financing fees of $(55), $559, $264 and $2,005, respectively) | (321) | (5,085) | (8,597) | (21,550) | |||||||||||||||||||
Loss on early extinguishment of debt | — | — | (6,374) | (6,403) | |||||||||||||||||||
Gain on sale of properties, net | 1,945 | 20,877 | 422,148 | 253,025 | |||||||||||||||||||
Income before income taxes | 23,375 | 32,842 | 477,989 | 260,102 | |||||||||||||||||||
Income tax benefit (expense) | 521 | (65) | (1,119) | (2,616) | |||||||||||||||||||
Net income | $ | 23,896 | $ | 32,777 | $ | 476,870 | $ | 257,486 | |||||||||||||||
Net income attributable to noncontrolling interest | (10) | (13) | (180) | (90) | |||||||||||||||||||
Net income attributable to Equity Commonwealth | $ | 23,886 | $ | 32,764 | $ | 476,690 | $ | 257,396 | |||||||||||||||
Preferred distributions | (1,997) | (1,997) | (5,991) | (5,991) | |||||||||||||||||||
Net income attributable to Equity Commonwealth common shareholders | $ | 21,889 | $ | 30,767 | $ | 470,699 | $ | 251,405 |
Weighted average common shares outstanding — basic (1) | 122,140 | 121,845 | 122,075 | 122,504 | |||||||||||||||||||
Weighted average common shares outstanding — diluted (1) | 123,564 | 122,851 | 125,938 | 123,389 | |||||||||||||||||||
Earnings per common share attributable to Equity Commonwealth common shareholders: | |||||||||||||||||||||||
Basic | $ | 0.18 | $ | 0.25 | $ | 3.86 | $ | 2.05 | |||||||||||||||
Diluted | $ | 0.18 | $ | 0.25 | $ | 3.79 | $ | 2.04 | |||||||||||||||
Distributions declared per common share | $ | 3.50 | $ | 2.50 | $ | 3.50 | $ | 2.50 |
Certain reclassifications were made to conform the prior period to our presentation of the condensed consolidated statements of operations due to the impact of adopting ASU 2016-02. Amounts that were previously disclosed as "Tenant reimbursements and other income" are now included in "Rental revenue" and are no longer presented as a separate line item. Parking revenues that do not represent components of leases and were previously disclosed as "Rental income" are now included in "Other revenue." Subsequent to January 1, 2019, provisions for credit losses are included in "Rental revenue." Provisions for credit losses prior to January 1, 2019 were disclosed as "Operating expenses" and were not reclassified to conform prior periods to the current presentation. | |||||
(1) | Weighted average common shares outstanding for the three months ended September 30, 2019 and 2018 includes 217 and 362 unvested, earned RSUs, respectively. Weighted average common shares outstanding for the nine months ended September 30, 2019 and 2018 includes 208 and 344 unvested, earned RSUs, respectively. |
Three Months Ended | Nine Months Ended | ||||||||||||||||||||||
September 30, | September 30, | ||||||||||||||||||||||
2019 | 2018 | 2019 | 2018 | ||||||||||||||||||||
Calculation of FFO | |||||||||||||||||||||||
Net income | $ | 23,896 | $ | 32,777 | $ | 476,870 | $ | 257,486 | |||||||||||||||
Real estate depreciation and amortization | 5,683 | 10,978 | 21,243 | 37,298 | |||||||||||||||||||
Loss on asset impairment | — | — | — | 12,087 | |||||||||||||||||||
Gain on sale of properties, net | (1,945) | (20,877) | (422,148) | (253,025) | |||||||||||||||||||
FFO attributable to Equity Commonwealth | 27,634 | 22,878 | 75,965 | 53,846 | |||||||||||||||||||
Preferred distributions | (1,997) | (1,997) | (5,991) | (5,991) | |||||||||||||||||||
FFO attributable to EQC common shareholders and unitholders | $ | 25,637 | $ | 20,881 | $ | 69,974 | $ | 47,855 | |||||||||||||||
Calculation of Normalized FFO | |||||||||||||||||||||||
FFO attributable to EQC common shareholders and unitholders | $ | 25,637 | $ | 20,881 | $ | 69,974 | $ | 47,855 | |||||||||||||||
Lease value amortization | (39) | (4) | (117) | 76 | |||||||||||||||||||
Straight line rent adjustments | 499 | (1,435) | (349) | (3,985) | |||||||||||||||||||
Loss on early extinguishment of debt | — | — | 6,374 | 6,403 | |||||||||||||||||||
Loss on sale of securities | — | — | — | 4,987 | |||||||||||||||||||
Loss on sale of real estate mortgage receivable | — | 2,117 | — | 2,117 | |||||||||||||||||||
Income taxes related to gains on property sales, net | (423) | 25 | 142 | 2,498 | |||||||||||||||||||
Normalized FFO attributable to EQC common shareholders and unitholders | $ | 25,674 | $ | 21,584 | $ | 76,024 | $ | 59,951 | |||||||||||||||
Weighted average common shares and units outstanding -- basic (1) | 122,189 | 121,891 | 122,121 | 122,548 | |||||||||||||||||||
Weighted average common shares and units outstanding -- diluted (1) | 123,613 | 122,897 | 123,421 | 123,433 | |||||||||||||||||||
FFO attributable to EQC common shareholders and unitholders per share and unit -- basic & diluted | $ | 0.21 | $ | 0.17 | $ | 0.57 | $ | 0.39 | |||||||||||||||
Normalized FFO attributable to EQC common shareholders and unitholders per share and unit -- basic & diluted | $ | 0.21 | $ | 0.18 | $ | 0.62 | $ | 0.49 | |||||||||||||||
(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, 2019 and 2018 include 49 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). 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, 2019 and 2018 include 46 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). | ||||
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, 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. |
For the Three Months Ended | |||||||||||||||||||||||||||||
9/30/2019 | 6/30/2019 | 3/31/2019 | 12/31/2018 | 9/30/2018 | |||||||||||||||||||||||||
Calculation of Same Property NOI and Same Property Cash Basis NOI: | |||||||||||||||||||||||||||||
Rental revenue | $ | 23,995 | $ | 30,574 | $ | 38,890 | $ | 39,756 | $ | 43,770 | |||||||||||||||||||
Other revenue | 2,740 | 2,794 | 2,862 | 3,169 | 3,103 | ||||||||||||||||||||||||
Operating expenses | (9,923) | (10,974) | (15,780) | (15,539) | (20,257) | ||||||||||||||||||||||||
NOI | $ | 16,812 | $ | 22,394 | $ | 25,972 | $ | 27,386 | $ | 26,616 | |||||||||||||||||||
Straight line rent adjustments | 499 | (11) | (837) | (986) | (1,435) | ||||||||||||||||||||||||
Lease value amortization | (39) | (39) | (39) | (22) | (4) | ||||||||||||||||||||||||
Lease termination fees | (11) | (2,188) | — | (19) | (395) | ||||||||||||||||||||||||
Cash Basis NOI | $ | 17,261 | $ | 20,156 | $ | 25,096 | $ | 26,359 | $ | 24,782 | |||||||||||||||||||
Cash Basis NOI from non-same properties (1) | (135) | (2,666) | (7,853) | (10,273) | (8,756) | ||||||||||||||||||||||||
Same Property Cash Basis NOI | $ | 17,126 | $ | 17,490 | $ | 17,243 | $ | 16,086 | $ | 16,026 | |||||||||||||||||||
Non-cash rental income and lease termination fees from same properties | (449) | 1,950 | (165) | (137) | (180) | ||||||||||||||||||||||||
Same Property NOI | $ | 16,677 | $ | 19,440 | $ | 17,078 | $ | 15,949 | $ | 15,846 | |||||||||||||||||||
Reconciliation of Same Property NOI to GAAP Net Income: | |||||||||||||||||||||||||||||
Same Property NOI | $ | 16,677 | $ | 19,440 | $ | 17,078 | $ | 15,949 | $ | 15,846 | |||||||||||||||||||
Non-cash rental income and lease termination fees from same properties | 449 | (1,950) | 165 | 137 | 180 | ||||||||||||||||||||||||
Same Property Cash Basis NOI | $ | 17,126 | $ | 17,490 | $ | 17,243 | $ | 16,086 | $ | 16,026 | |||||||||||||||||||
Cash Basis NOI from non-same properties (1) | 135 | 2,666 | 7,853 | 10,273 | 8,756 | ||||||||||||||||||||||||
Cash Basis NOI | $ | 17,261 | $ | 20,156 | $ | 25,096 | $ | 26,359 | $ | 24,782 | |||||||||||||||||||
Straight line rent adjustments | (499) | 11 | 837 | 986 | 1,435 | ||||||||||||||||||||||||
Lease value amortization | 39 | 39 | 39 | 22 | 4 | ||||||||||||||||||||||||
Lease termination fees | 11 | 2,188 | — | 19 | 395 | ||||||||||||||||||||||||
NOI | $ | 16,812 | $ | 22,394 | $ | 25,972 | $ | 27,386 | $ | 26,616 | |||||||||||||||||||
Depreciation and amortization | (5,939) | (7,561) | (8,585) | (10,830) | (11,287) | ||||||||||||||||||||||||
General and administrative | (8,523) | (9,533) | (12,096) | (8,973) | (10,905) | ||||||||||||||||||||||||
Interest and other income, net | 19,401 | 20,695 | 17,775 | 15,741 | 12,626 | ||||||||||||||||||||||||
Interest expense | (321) | (4,070) | (4,206) | (5,035) | (5,085) | ||||||||||||||||||||||||
Loss on early extinguishment of debt | — | (6,374) | — | (719) | — | ||||||||||||||||||||||||
Gain (loss) on sale of properties, net | 1,945 | 227,166 | 193,037 | (1,608) | 20,877 | ||||||||||||||||||||||||
Income before income taxes | $ | 23,375 | $ | 242,717 | $ | 211,897 | $ | 15,962 | $ | 32,842 | |||||||||||||||||||
Income tax benefit (expense) | 521 | (340) | (1,300) | (540) | (65) | ||||||||||||||||||||||||
Net income | $ | 23,896 | $ | 242,377 | $ | 210,597 | $ | 15,422 | $ | 32,777 | |||||||||||||||||||
Same Property capitalized external legal costs(2) | N/A | N/A | N/A | $ | — | $ | 14 |
(1) | Cash Basis NOI from non-same properties for all periods presented includes the operations of disposed properties. | ||||
(2) | Effective January 1, 2019, with the adoption of ASU 2016-02, we no longer capitalize external legal costs incurred when we enter into leases. We did not recast the comparative prior periods presented for the external legal leasing costs capitalized in those periods. |
For the Nine Months Ended September 30, | |||||||||||
2019 | 2018 | ||||||||||
Calculation of Same Property NOI and Same Property Cash Basis NOI: | |||||||||||
Rental revenue | $ | 93,459 | $ | 144,612 | |||||||
Other revenue | 8,396 | 9,485 | |||||||||
Operating expenses | (36,677) | (64,377) | |||||||||
NOI | $ | 65,178 | $ | 89,720 | |||||||
Straight line rent adjustments | (349) | (3,985) | |||||||||
Lease value amortization | (117) | 76 | |||||||||
Lease termination fees | (2,199) | (2,917) | |||||||||
Cash Basis NOI | $ | 62,513 | $ | 82,894 | |||||||
Cash Basis NOI from non-same properties (1) | (10,654) | (35,777) | |||||||||
Same Property Cash Basis NOI | $ | 51,859 | $ | 47,117 | |||||||
Non-cash rental income and lease termination fees from same properties | 1,336 | 256 | |||||||||
Same Property NOI | $ | 53,195 | $ | 47,373 | |||||||
Reconciliation of Same Property NOI to GAAP Net Income: | |||||||||||
Same Property NOI | $ | 53,195 | $ | 47,373 | |||||||
Non-cash rental income and lease termination fees from same properties | (1,336) | (256) | |||||||||
Same Property Cash Basis NOI | $ | 51,859 | $ | 47,117 | |||||||
Cash Basis NOI from non-same properties (1) | 10,654 | 35,777 | |||||||||
Cash Basis NOI | $ | 62,513 | $ | 82,894 | |||||||
Straight line rent adjustments | 349 | 3,985 | |||||||||
Lease value amortization | 117 | (76) | |||||||||
Lease termination fees | 2,199 | 2,917 | |||||||||
NOI | $ | 65,178 | $ | 89,720 | |||||||
Depreciation and amortization | (22,085) | (38,211) | |||||||||
General and administrative | (30,152) | (35,466) | |||||||||
Loss on asset impairment | — | (12,087) | |||||||||
Interest and other income, net | 57,871 | 31,074 | |||||||||
Interest expense | (8,597) | (21,550) | |||||||||
Loss on early extinguishment of debt | (6,374) | (6,403) | |||||||||
Gain on sale of properties, net | 422,148 | 253,025 | |||||||||
Income before income taxes | $ | 477,989 | $ | 260,102 | |||||||
Income tax expense | (1,119) | (2,616) | |||||||||
Net income | $ | 476,870 | $ | 257,486 | |||||||
Same Property capitalized external legal costs(2) | N/A | $ | 190 |
(1) | Cash Basis NOI from non-same properties for all periods presented includes the operations of disposed properties. | ||||
(2) | Effective January 1, 2019, with the adoption of ASU 2016-02, we no longer capitalize external legal costs incurred when we enter into leases. We did not recast the comparative prior periods presented for the external legal leasing costs capitalized in those periods. |
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, 2018 through September 30, 2019. The year-to-date same property versions of these measures include the results of properties continuously owned from January 1, 2018 through September 30, 2019. 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. |