DALLAS--(BUSINESS WIRE)--TIER REIT, Inc. (NYSE: TIER), a Dallas-based real estate investment trust that specializes in owning and operating best-in-class office properties in select U.S. markets, today announced financial and operating results for the fourth quarter and full year ended December 31, 2016.
Fourth Quarter and Full Year 2016 Highlights
- Reported a net loss of $0.13 per basic and diluted common share for the fourth quarter and $0.62 per basic and diluted common share for the year ended December 31, 2016
- Reported Funds from Operations (FFO) attributable to common stockholders of $0.40 per diluted common share for the fourth quarter and $1.60 per diluted common share for the year ended December 31, 2016, as compared to $0.37 per diluted common share for the fourth quarter and $0.71 per diluted common share for the year ended December 31, 2015
- Reported FFO, excluding certain items, of $0.40 per diluted common share for the fourth quarter and $1.66 per diluted common share for the year ended December 31, 2016, as compared to $0.38 per diluted common share for the fourth quarter and $1.49 per diluted common share for the year ended December 31, 2015
- Reported Same Store Cash NOI of $29.8 million for the fourth quarter and $106.1 million for the year ended December 31, 2016, as compared to $27.9 million for the fourth quarter and $102.6 million for the year ended December 31, 2015
“We are pleased to have successfully accomplished our key 2016 objectives,” stated Scott Fordham, Chief Executive Officer and President of TIER REIT. “In particular, together with delivering strong financial results, we have now substantially completed the strengthening phase of our strategic plan, in which we solidified our balance sheet by lowering leverage and significantly increased financial flexibility through the transition of an extensive portion of our debt structure to unsecured.”
“Looking forward,” Mr. Fordham continued, “as we move to the recycling phase of our strategic plan in 2017, we will seek to exit additional non-target markets and reallocate that capital into prudent development opportunities and strategic acquisitions within our target markets. In addition to our previously announced transactions earlier this year, we are currently under contract to sell approximately $100 million of assets, and are in the market with additional assets, located outside of our target markets. We believe the continued execution of our strategic plan will position the Company for future growth and long-term value creation for our stockholders.”
Fourth Quarter Financial Results
Net loss attributable to common stockholders was $6.3 million, or $0.13 per basic and diluted common share, for the quarter ended December 31, 2016, as compared to $11.2 million, or $0.24 per basic and diluted common share, for the quarter ended December 31, 2015.
NAREIT-defined FFO attributable to common stockholders for the quarter ended December 31, 2016, was $18.9 million, or $0.40 per diluted common share, as compared to $17.4 million, or $0.37 per diluted common share, for the quarter ended December 31, 2015. FFO attributable to common stockholders, excluding certain items, for the quarter ended December 31, 2016, was $19.1 million, or $0.40 per diluted common share, as compared to $18.0 million, or $0.38 per diluted common share, for the quarter ended December 31, 2015.
Leasing Update
At December 31, 2016, the Company’s occupancy was 90.7%, which represents a 100 basis point increase from December 31, 2015, and a 90 basis point increase from September 30, 2016.
During the fourth quarter of 2016, the Company leased 261,000 square feet, which included 140,000 square feet of renewals, 48,000 square feet of expansion space, and 73,000 square feet of new leasing.
Acquisitions & Dispositions
On October 27, 2016, the Company sold its 801 Thompson property for a contract sales price of $4.9 million.
Subsequent to quarter end, the Company acquired the remaining 50.16% interest in its Domain 2 and Domain 7 properties on January 4, 2017, for a combined contract purchase price of $51.2 million and assumed additional debt of $40.1 million. In addition, on January 17, 2017, the Company sold substantially all of its noncontrolling interest in the entity that indirectly owns the Wanamaker Building for a contract sales price of $114.3 million, including the buyer’s assumption of $41.8 million in debt. On January 18, 2017, the Company sold its Buena Vista Plaza property for a contract sales price of $52.5 million.
Financing and Capital Markets Activity
On October 11, 2016, the Company repaid (without penalty) the $70.0 million loan secured by its One & Two Eldridge Place property that was scheduled to mature in January 2017. This loan had an effective interest rate of 5.49%.
Subsequent to quarter end, on February 1, 2017, the Company repaid (without penalty) the $58.8 million loan secured by its 500 E. Pratt property. This loan was scheduled to mature in May 2017.
Distributions
For the fourth quarter of 2016, the Company’s board of directors authorized a distribution in the amount of $0.18 per share on its common stock to stockholders of record as of the close of business on December 28, 2016, which was paid on January 6, 2017.
On January 23, 2017, the Company’s board of directors authorized a distribution for the first quarter of 2017 in the amount of $0.18 per share on its common stock to stockholders of record as of the close of business on March 15, 2017, payable on March 31, 2017.
2017 Outlook
The Company has released its 2017 outlook to reflect management’s view of current and future market conditions, including assumptions such as acquisition and disposition activity, rental rates, occupancy levels, operating and general and administrative expenses, weighted average diluted shares outstanding, and interest rates.
The Company’s 2017 outlook and assumptions are as follows:
| 2017 Guidance | |||
| Projected net income per basic & diluted common share | $1.56 - $1.66 | ||
| Adjustments: | |||
| Real estate depreciation and amortization | $2.00 | ||
| Gain on sale of depreciable real estate | ($2.05) | ||
| Projected FFO per diluted common share | $1.51 - $1.61 | ||
| Adjustments: | |||
| Gain on debt restructuring / reversal of default interest | ($0.14) | ||
| Loss on early extinguishment of debt | $0.01 | ||
| Projected FFO, excluding certain items, per diluted common share | $1.38 - $1.48 | ||
| Assumptions used in 2017 outlook above: | |||
| Dispositions of non-target properties (including Wanamaker & Buena Vista) | $300mm - $400mm | ||
| Strategic acquisitions | $100mm - $225mm | ||
| Same store cash NOI growth | 2.0% - 3.0% | ||
| Same store NOI growth | 0.0% - 1.0% | ||
| Straight line rent and lease incentive revenue | $6.5mm - $8.5mm | ||
| Lease termination fees | $1.0mm - $1.5mm | ||
| Above- and below-market rent amortization | $4.0mm - $5.0mm | ||
| General & administrative expenses, excluding certain items | $22.0mm - $23.0mm | ||
| Year-end occupancy | 88.0% - 90.0% | ||
| Weighted average shares of common stock outstanding | 48.1 million | ||
Included with this release is a bridge that provides additional details regarding the Company’s 2017 guidance for FFO, excluding certain items (“2017 Guidance Bridge”). The 2017 Guidance Bridge is also available in the “Investor Relations” section of the Company’s website at www.tierreit.com, or by contacting the Investor Relations department by email to ir@tierreit.com.
Supplemental Information
A copy of the Company’s supplemental information regarding its financial results and operations for the quarter ended December 31, 2016, is available in the “Investor Relations” section of the Company’s website at www.tierreit.com, or by contacting the Investor Relations department by email to ir@tierreit.com.
Conference Call
A conference call will be held on Tuesday, February 14, 2017, at 11:30 AM Eastern time / 10:30 AM Central time. TIER REIT will host the conference call to discuss matters related to the Company’s financial results and operating performance, as well as business highlights and outlook. In addition, the Company may discuss business and financial developments and trends and other matters affecting the Company, some of which may not have been previously disclosed. A live audio webcast can be accessed through the Company’s website at www.tierreit.com under the “Investor Relations” section. A replay of the call will also be available on the website for 30 days.
To Participate in the Telephone Conference Call
Dial in at least five minutes prior to start time.
Domestic Call-In
Number: 877.407.0789
International Call-In Number: 201.689.8562
Conference Call Playback
Call-in Number: 844.512.2921
International: 412.317.6671
Passcode:
13652997
The audio playback can be accessed through February 28,
2017.
About TIER REIT, Inc.
TIER REIT, Inc. is a self-managed, Dallas-based real estate investment trust focused on delivering outsized stockholder return through stock price appreciation and dividend growth while offering unparalleled tenant service. TIER REIT’s investment strategy is to acquire, develop and operate a portfolio of best-in-class office properties in select U.S. markets that consistently lead the nation in both population and office-using employment growth. Within these markets, we target TIER1 submarkets, which are primarily urban and amenity-rich locations. For additional information regarding TIER REIT, please visit www.tierreit.com or call 972.483.2400.
Forward-Looking Statements
This press release contains forward-looking statements within the meaning of the federal securities laws relating to the business and financial outlook of TIER REIT that are based on our current expectations, estimates, forecasts and projections and are not guarantees of future performance. These forward-looking statements include discussion and analysis of the financial condition of us and our subsidiaries, including our ability to rent space on favorable terms, our ability to address debt maturities and fund our capital requirements, our intentions to acquire and sell certain properties, our intentions with respect to development activity, the value of our assets, our anticipated capital expenditures, the amount and timing of any anticipated future cash distributions to our stockholders, and other matters. Words such as “may,” “will,” “anticipates,” “expects,” “believes,” “intends,” “plans,” “seeks,” “estimates,” “look,” “move,” “would,” “could,” “should,” “opportunities,” “position,” “objectives,” “strategies,” “goals,” “growth,” “long-term,” “future,” “assumptions,” and variations of these words and similar expressions are intended to identify forward-looking statements.
Actual results may differ materially from those expressed in these forward-looking statements, and you should not place undue reliance on any such statements. Factors that could cause actual results to vary materially from those expressed in forward-looking statements include changes in real estate conditions and in the capital markets, as well as the risk factors included in our Annual Report on Form 10-K for the fiscal year ended December 31, 2016. Forward-looking statements in this press release speak only as of the date on which such statements were made and, except as required by law, we undertake no obligation to update any such statements that may become untrue because of subsequent events.
| TIER REIT, Inc. | ||||||||||
| Consolidated Balance Sheets | ||||||||||
| As of December 31, 2016 and 2015 | ||||||||||
| (in thousands, except share and per share amounts) | ||||||||||
|
December 31, |
December 31, |
|||||||||
| Assets | ||||||||||
| Real estate | ||||||||||
| Land | $ | 143,537 | $ | 179,989 | ||||||
| Land held for development | 45,059 | 45,059 | ||||||||
| Buildings and improvements, net | 1,043,641 | 1,348,200 | ||||||||
| Real estate under development | 17,961 | — | ||||||||
| Total real estate | 1,250,198 | 1,573,248 | ||||||||
| Cash and cash equivalents | 14,884 | 12,248 | ||||||||
| Restricted cash | 7,509 | 10,712 | ||||||||
| Accounts receivable, net | 71,459 | 76,228 | ||||||||
| Prepaid expenses and other assets | 25,305 | 6,712 | ||||||||
| Investments in unconsolidated entities | 76,813 | 88,998 | ||||||||
| Deferred financing fees, net | 2,395 | 3,111 | ||||||||
| Lease intangibles, net | 61,844 | 83,548 | ||||||||
| Other intangible assets, net | 9,787 | 10,086 | ||||||||
| Assets associated with real estate held for sale | 32,346 | — | ||||||||
| Total assets | $ | 1,552,540 | $ | 1,864,891 | ||||||
| Liabilities and equity | ||||||||||
| Liabilities | ||||||||||
| Notes payable, net | $ | 826,783 | $ | 1,071,571 | ||||||
| Accounts payable and accrued liabilities | 74,458 | 71,597 | ||||||||
| Payables to related parties | — | 292 | ||||||||
| Acquired below-market leases, net | 6,886 | 11,934 | ||||||||
| Distributions payable | 8,601 | 8,596 | ||||||||
| Other liabilities | 14,353 | 23,082 | ||||||||
| Obligations associated with real estate held for sale | 943 | — | ||||||||
| Total liabilities | 932,024 | 1,187,072 | ||||||||
| Commitments and contingencies | ||||||||||
| Series A Convertible Preferred Stock | — | 2,700 | ||||||||
| Equity | ||||||||||
| Preferred stock, $.0001 par value per share; 17,500,000 and 17,490,000 shares authorized at December 31, 2016 and 2015, respectively, none outstanding | — | — | ||||||||
| Convertible stock, $.0001 par value per share; 1,000 shares authorized, none outstanding | — | — | ||||||||
| Common stock, $.0001 par value per share; 382,499,000 shares authorized, 47,473,218 and 47,362,372 shares issued and outstanding at December 31, 2016 and 2015, respectively | 5 | 5 | ||||||||
| Additional paid-in capital | 2,606,098 | 2,600,193 | ||||||||
| Cumulative distributions and net loss attributable to common stockholders | (1,986,515 | ) | (1,922,721 | ) | ||||||
| Accumulated other comprehensive loss | (1,042 | ) | (3,860 | ) | ||||||
| Stockholders’ equity | 618,546 | 673,617 | ||||||||
| Noncontrolling interests | 1,970 | 1,502 | ||||||||
| Total equity | 620,516 | 675,119 | ||||||||
| Total liabilities and equity | $ | 1,552,540 | $ | 1,864,891 | ||||||
| TIER REIT, Inc. | |||||||||||||||||||||
| Consolidated Statements of Operations and Comprehensive Income (Loss) | |||||||||||||||||||||
| (in thousands, except share and per share amounts) | |||||||||||||||||||||
| Three Months Ended | Year Ended | ||||||||||||||||||||
|
December 31, |
December 31, |
December 31, |
December 31, |
||||||||||||||||||
| Rental revenue | $ | 54,075 | $ | 67,085 | $ | 242,818 | $ | 282,365 | |||||||||||||
| Expenses | |||||||||||||||||||||
| Property operating expenses | 15,998 | 21,812 | 72,603 | 89,158 | |||||||||||||||||
| Interest expense | 8,565 | 12,707 | 43,257 | 57,454 | |||||||||||||||||
| Real estate taxes | 7,454 | 8,622 | 36,297 | 40,134 | |||||||||||||||||
| Property management fees | 197 | 249 | 917 | 5,028 | |||||||||||||||||
| Asset impairment losses | — | — | 8,977 | 132 | |||||||||||||||||
| General and administrative | 5,796 | 8,934 | 23,649 | 44,941 | |||||||||||||||||
| Depreciation and amortization | 23,856 | 30,182 | 111,830 | 122,731 | |||||||||||||||||
| Total expenses | 61,866 | 82,506 | 297,530 | 359,578 | |||||||||||||||||
| Interest and other income | 303 | 257 | 1,169 | 810 | |||||||||||||||||
| Loss on early extinguishment of debt | — | (24 | ) | — | (21,502 | ) | |||||||||||||||
| Loss from continuing operations before income taxes, equity in operations of investments, and gain (loss) on sale of assets | (7,488 | ) | (15,188 | ) | (53,543 | ) | (97,905 | ) | |||||||||||||
| Provision for income taxes | (188 | ) | (209 | ) | (655 | ) | (1,507 | ) | |||||||||||||
| Equity in operations of investments | 685 | 3,829 | 2,569 | 3,982 | |||||||||||||||||
| Loss from continuing operations before gain (loss) on sale of assets | (6,991 | ) | (11,568 | ) | (51,629 | ) | (95,430 | ) | |||||||||||||
| Discontinued operations | |||||||||||||||||||||
| Income from discontinued operations | — | 17 | — | 1,407 | |||||||||||||||||
| Gain on sale of discontinued operations | — | 297 | — | 15,383 | |||||||||||||||||
| Discontinued operations | — | 314 | — | 16,790 | |||||||||||||||||
| Gain (loss) on sale of assets | 650 | (2 | ) | 22,176 | 44,477 | ||||||||||||||||
| Net loss | (6,341 | ) | (11,256 | ) | (29,453 | ) | (34,163 | ) | |||||||||||||
| Noncontrolling interests in continuing operations | 8 | 41 | 36 | 159 | |||||||||||||||||
| Noncontrolling interests in discontinued operations | — | (1 | ) | — | (30 | ) | |||||||||||||||
| Dilution of Series A Convertible Preferred Stock | — | — | — | 1,926 | |||||||||||||||||
| Net loss attributable to common stockholders | $ | (6,333 | ) | $ | (11,216 | ) | $ | (29,417 | ) | $ | (32,108 | ) | |||||||||
| Basic and diluted weighted average common shares outstanding | 47,414,021 | 47,244,471 | 47,405,564 | 48,960,393 | |||||||||||||||||
| Basic and diluted income (loss) per common share: | |||||||||||||||||||||
| Continuing operations | $ | (0.13 | ) | $ | (0.24 | ) | $ | (0.62 | ) | $ | (1.00 | ) | |||||||||
| Discontinued operations | — | — | — | 0.34 | |||||||||||||||||
| Basic and diluted loss per common share | $ | (0.13 | ) | $ | (0.24 | ) | $ | (0.62 | ) | $ | (0.66 | ) | |||||||||
| Distributions declared per common share | $ | 0.18 | $ | 0.18 | $ | 0.72 | $ | 0.54 | |||||||||||||
| Net income (loss) attributable to common stockholders: | |||||||||||||||||||||
| Continuing operations | $ | (6,333 | ) | $ | (11,529 | ) | $ | (29,417 | ) | $ | (48,868 | ) | |||||||||
| Discontinued operations | — | 313 | — | 16,760 | |||||||||||||||||
| Net loss attributable to common stockholders | $ | (6,333 | ) | $ | (11,216 | ) | $ | (29,417 | ) | $ | (32,108 | ) | |||||||||
| Comprehensive loss: | |||||||||||||||||||||
| Net loss | $ | (6,341 | ) | $ | (11,256 | ) | $ | (29,453 | ) | $ | (34,163 | ) | |||||||||
| Other comprehensive income (loss): unrealized gain (loss) on interest rate derivatives | 15,634 | 6,299 | 2,824 | (3,077 | ) | ||||||||||||||||
| Dilution of Series A Convertible Preferred Stock | — | — | — | 1,926 | |||||||||||||||||
| Comprehensive income (loss) | 9,293 | (4,957 | ) | (26,629 | ) | (35,314 | ) | ||||||||||||||
| Comprehensive (income) loss attributable to noncontrolling interests | (6 | ) | 29 | 30 | 134 | ||||||||||||||||
| Comprehensive income (loss) attributable to common stockholders | $ | 9,287 | $ | (4,928 | ) | $ | (26,599 | ) | $ | (35,180 | ) | ||||||||||
| Calculations of FFO and FFO, excluding certain items | |||||||||||||||||||||
| (in thousands, except per share amounts) | |||||||||||||||||||||
| Three Months Ended | Year Ended | ||||||||||||||||||||
|
December 31, |
December 31, |
December 31, |
December 31, |
||||||||||||||||||
| Net loss | $ | (6,341 | ) | $ | (11,256 | ) | $ | (29,453 | ) | $ | (34,163 | ) | |||||||||
| Net loss attributable to noncontrolling interests | 8 | 40 | 36 | 129 | |||||||||||||||||
| Dilution of Series A Convertible Preferred Stock | — | — | — | 1,926 | |||||||||||||||||
| Net loss attributable to common stockholders | (6,333 | ) | (11,216 | ) | (29,417 | ) | (32,108 | ) | |||||||||||||
|
Adjustments (1): |
|||||||||||||||||||||
| Real estate depreciation and amortization from consolidated properties | 23,771 | 29,910 | 111,122 | 122,230 | |||||||||||||||||
| Real estate depreciation and amortization from unconsolidated properties | 2,150 | 2,427 | 8,258 | 6,985 | |||||||||||||||||
| Real estate depreciation and amortization - noncontrolling interests | — | (10 | ) | (6 | ) | (20 | ) | ||||||||||||||
| Impairment of depreciable real estate | — | — | 8,977 | 132 | |||||||||||||||||
| Gain on sale of depreciable real estate | (650 | ) | (3,698 | ) | (22,236 | ) | (63,263 | ) | |||||||||||||
| Taxes associated with sale of depreciable real estate | — | — | (88 | ) | 1,259 | ||||||||||||||||
| Noncontrolling interests | (21 | ) | (50 | ) | (78 | ) | (116 | ) | |||||||||||||
| FFO attributable to common stockholders | 18,917 | 17,363 | 76,532 | 35,099 | |||||||||||||||||
| Acquisition expenses | — | 26 | — | 1,863 | |||||||||||||||||
| Severance charges | 532 | — | 1,025 | — | |||||||||||||||||
| Tender offer and listing costs | — | (27 | ) | — | 5,526 | ||||||||||||||||
| Interest rate hedge ineffectiveness income (2) | (979 | ) | — | (572 | ) | — | |||||||||||||||
| Loss on early extinguishment of debt | — | 31 | — | 21,606 | |||||||||||||||||
| Default interest (3) | 616 | 625 | 2,468 | 980 | |||||||||||||||||
| BHT Advisors termination fee and HPT Management buyout fee | — | — | — | 10,301 | |||||||||||||||||
| Noncontrolling interests | — | (1 | ) | (2 | ) | (70 | ) | ||||||||||||||
| Dilution of Series A Convertible Preferred Stock | — | — | — | (1,926 | ) | ||||||||||||||||
| FFO attributable to common stockholders, excluding certain items | $ | 19,086 | $ | 18,017 | $ | 79,451 | $ | 73,379 | |||||||||||||
| Weighted average common shares outstanding - basic | 47,414 | 47,244 | 47,406 | 48,960 | |||||||||||||||||
| Weighted average common shares outstanding - diluted (4) | 47,888 | 47,436 | 47,819 | 49,148 | |||||||||||||||||
| Net loss per common share - basic and diluted (4) | $ | (0.13 | ) | $ | (0.24 | ) | $ | (0.62 | ) | $ | (0.66 | ) | |||||||||
| FFO per common share - diluted | $ | 0.40 | $ | 0.37 | $ | 1.60 | $ | 0.71 | |||||||||||||
| FFO, excluding certain items, per common share - diluted | $ | 0.40 | $ | 0.38 | $ | 1.66 | $ | 1.49 | |||||||||||||
|
______________ |
||
| (1) | Reflects the adjustments of continuing operations, as well as discontinued operations. | |
| (2) | Interest rate swaps are adjusted to fair value through other comprehensive income (loss). However, because our interest rate swaps do not have a LIBOR floor while the hedged debt is subject to a LIBOR floor, the portion of the change in fair value of our interest rate swaps attributable to this mismatch is reclassified to interest rate hedge ineffectiveness income within “interest expense” on our consolidated statements of operations and comprehensive income (loss). | |
| (3) | We have a non-recourse loan in default which subjects us to incur default interest at a rate that is 500 basis points higher than the stated interest rate. Although there can be no assurance, we anticipate that when this property is sold or when ownership of this property is conveyed to the lender, this default interest will be forgiven. | |
| (4) | There are no dilutive securities for purposes of calculating net loss per common share. | |
| Same Store NOI and Same Store Cash NOI | |||||||||||||||||||||||
| (in thousands, except percentages) | |||||||||||||||||||||||
| Three Months Ended | Year Ended | ||||||||||||||||||||||
|
December 31, |
December 31, |
December 31, |
December 31, |
||||||||||||||||||||
| Same Store Revenue: | |||||||||||||||||||||||
| Rental revenue | $ | 50,999 | $ | 50,665 | $ | 188,228 | $ | 190,059 | |||||||||||||||
| Less: | |||||||||||||||||||||||
| Lease termination fees | (106 | ) | (783 | ) | (1,443 | ) | (3,471 | ) | |||||||||||||||
| 50,893 | 49,882 | 186,785 | 186,588 | ||||||||||||||||||||
| Same Store Expenses: | |||||||||||||||||||||||
| Property operating expenses (less tenant improvement demolition costs) | 14,633 | 14,810 | 53,337 | 52,782 | |||||||||||||||||||
| Real estate taxes | 7,344 | 5,826 | 27,786 | 25,069 | |||||||||||||||||||
| Property management fees | 161 | 170 | 517 | 3,208 | |||||||||||||||||||
| Property Expenses | 22,138 | 20,806 | 81,640 | 81,059 | |||||||||||||||||||
| Same Store NOI - consolidated properties | 28,755 | 29,076 | 105,145 | 105,529 | |||||||||||||||||||
| Same Store NOI - unconsolidated properties (at ownership %) | 3,657 | 3,550 | 10,273 | 9,736 | |||||||||||||||||||
| Same Store NOI | $ | 32,412 | $ | 32,626 | $ | 115,418 | $ | 115,265 | |||||||||||||||
| Increase (decrease) in Same Store NOI | (0.7 | )% | 0.1 | % | |||||||||||||||||||
| Same Store NOI - consolidated properties | $ | 28,755 | $ | 29,076 | $ | 105,145 | $ | 105,529 | |||||||||||||||
| Less: | |||||||||||||||||||||||
| Straight-line rent revenue adjustment | (1,529 | ) | (2,973 | ) | (4,951 | ) | (6,187 | ) | |||||||||||||||
| Amortization of above- and below-market rents, net | (960 | ) | (1,292 | ) | (3,357 | ) | (5,486 | ) | |||||||||||||||
| Same Store Cash NOI - consolidated properties | 26,266 | 24,811 | 96,837 | 93,856 | |||||||||||||||||||
| Same Store Cash NOI - unconsolidated properties (at ownership %) | 3,523 | 3,115 | 9,264 | 8,787 | |||||||||||||||||||
| Same Store Cash NOI | $ | 29,789 | $ | 27,926 | $ | 106,101 | $ | 102,643 | |||||||||||||||
| Increase in Same Store Cash NOI | 6.7 | % | 3.4 | % | |||||||||||||||||||
| Reconciliation of net loss to Same Store NOI and Same Store Cash NOI | |||||||||||||||||||||||
| Net loss | $ | (6,341 | ) | $ | (11,256 | ) | $ | (29,453 | ) | $ | (34,163 | ) | |||||||||||
| Adjustments: | |||||||||||||||||||||||
| Interest expense | 8,565 | 12,707 | 43,257 | 57,454 | |||||||||||||||||||
| Asset impairment losses | — | — | 8,977 | 132 | |||||||||||||||||||
| Tenant improvement demolition costs | 277 | 45 | 722 | 358 | |||||||||||||||||||
| General and administrative | 5,796 | 8,934 | 23,649 | 44,941 | |||||||||||||||||||
| Depreciation and amortization | 23,856 | 30,182 | 111,830 | 122,731 | |||||||||||||||||||
| Interest and other income | (303 | ) | (257 | ) | (1,169 | ) | (810 | ) | |||||||||||||||
| Loss on early extinguishment of debt | — | 24 | — | 21,502 | |||||||||||||||||||
| Provision for income taxes | 188 | 209 | 655 | 1,507 | |||||||||||||||||||
| Equity in operations of investments | (685 | ) | (3,829 | ) | (2,569 | ) | (3,982 | ) | |||||||||||||||
| Income from discontinued operations | — | (17 | ) | — | (1,407 | ) | |||||||||||||||||
| Gain on sale of discontinued operations | — | (297 | ) | — | (15,383 | ) | |||||||||||||||||
| (Gain) loss on sale of assets | (650 | ) | 2 | (22,176 | ) | (44,477 | ) | ||||||||||||||||
| Net operating income of non-same store properties | (1,842 | ) | (6,588 | ) | (27,135 | ) | (39,403 | ) | |||||||||||||||
| Lease termination fees | (106 | ) | (783 | ) | (1,443 | ) | (3,471 | ) | |||||||||||||||
| Same Store NOI of unconsolidated properties (at ownership %) | 3,657 | 3,550 | 10,273 | 9,736 | |||||||||||||||||||
| Same Store NOI | 32,412 | 32,626 | 115,418 | 115,265 | |||||||||||||||||||
| Straight-line rent revenue adjustment | (1,529 | ) | (2,973 | ) | (4,951 | ) | (6,187 | ) | |||||||||||||||
| Amortization of above- and below-market rents, net | (960 | ) | (1,292 | ) | (3,357 | ) | (5,486 | ) | |||||||||||||||
| Cash NOI adjustments for unconsolidated properties (at ownership %) | (134 | ) | (435 | ) | (1,009 | ) | (949 | ) | |||||||||||||||
| Same Store Cash NOI | $ | 29,789 | $ | 27,926 | $ | 106,101 | $ | 102,643 | |||||||||||||||
| Operating properties (1) | 25 | 20 | |||||||||||||||||||||
| Rentable square feet (% owned) | 8,638 | 7,805 | |||||||||||||||||||||
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| (1) | Excludes properties held for sale and certain operating properties that were not owned or not fully operational during the entirety of the comparable periods. | |
Non-GAAP Financial Measures
We compute our financial results in accordance with accounting principles generally accepted in the United States of America (GAAP). Although Funds from Operations and Funds from Operations, excluding certain items, are non-GAAP financial measures, we believe that these calculations are helpful to stockholders and potential investors and are widely recognized measures of real estate investment trust performance. We have provided a reconciliation of the non-GAAP financial measures to the most directly comparable GAAP measure in tables included in this press release.
Funds from Operations (FFO)
Historical cost accounting for real estate assets in accordance with GAAP implicitly assumes that the value of real estate diminishes predictably over time. Since real estate values have historically risen or fallen with market conditions, many industry investors and analysts have considered the presentation of operating results for real estate companies that use historical cost accounting alone to be insufficient for evaluating operating performance. FFO is a non-GAAP financial measure that is widely recognized as a measure of a REIT’s operating performance. We use FFO as defined by the National Association of Real Estate Investment Trusts (NAREIT) in the April 2002 “White Paper on Funds From Operations,” which is net income (loss), computed in accordance with GAAP, excluding extraordinary items, as defined by GAAP, gains (or losses) from sales of property and impairments of depreciable real estate (including impairments of investments in unconsolidated entities which resulted from measurable decreases in the fair value of the depreciable real estate held by the unconsolidated entity), plus depreciation and amortization of real estate assets, and after related adjustments for unconsolidated entities and noncontrolling interests. The determination of whether impairment charges have been incurred is based partly on anticipated operating performance and hold periods. Estimated undiscounted cash flows from a property, derived from estimated future net rental and lease revenues, net proceeds on the sale of the property, and certain other ancillary cash flows, are taken into account in determining whether an impairment charge has been incurred. While impairment charges for depreciable real estate are excluded from net income (loss) in the calculation of FFO as described above, impairments reflect a decline in the value of the applicable property that we may not recover.
We believe that the use of FFO, together with the required GAAP presentations, is helpful in understanding our operating performance because it excludes real estate-related depreciation and amortization, gains and losses from property dispositions, impairments of depreciable real estate assets, and extraordinary items, and as a result, when compared period to period, reflects the impact on operations from trends in occupancy rates, rental rates, operating costs, development activities, general and administrative expenses, and interest costs, which are not immediately apparent from net income. Factors that impact FFO include fixed costs, yields on cash held in accounts, income from portfolio properties and other portfolio assets, interest rates on debt financing, and operating expenses.
We also evaluate FFO, excluding certain items. The items excluded relate to certain non-operating activities or certain non-recurring activities that may create significant FFO volatility. We believe it is useful to evaluate FFO excluding these items because it provides useful information in analyzing comparability between reporting periods and in assessing the sustainability of our operating performance.
FFO and FFO, excluding certain items, should not be considered as alternatives to net income (loss), or as indicators of our liquidity, nor are they indicative of funds available to fund our cash needs, including our ability to make distributions. Additionally, the exclusion of impairments limits the usefulness of FFO and FFO, excluding certain items, as historical operating performance measures since an impairment charge indicates that operating performance has been permanently affected. FFO and FFO, excluding certain items, are non-GAAP measurements and should be reviewed in connection with other GAAP measurements. Our FFO and FFO, excluding certain items, as presented may not be comparable to amounts calculated by other REITs that do not define FFO in accordance with the current NAREIT definition, or interpret it differently, or that identify and exclude different items related to non-operating activities or certain non-recurring activities.
Same Store NOI and Same Store Cash NOI
Same Store NOI is equal to rental revenue, less lease termination fee income, property operating expenses (excluding tenant improvement demolition costs), real estate taxes, and property management expenses for our same store properties and is considered a non-GAAP financial measure. Same Store Cash NOI is equal to Same Store NOI less non-cash revenue items including straight-line rent adjustments and the amortization of above- and below-market rent. The same store properties include our operating office properties not held for sale and owned and operated for the entirety of both periods being compared and include our comparable ownership percentage in each period for properties in which we own an unconsolidated interest that is accounted for using the equity method. We view Same Store NOI and Same Store Cash NOI as important measures of the operating performance of our properties because they allow us to compare operating results of properties owned and operated for the entirety of both periods being compared and therefore eliminate variations caused by acquisitions or dispositions during such periods.
Same Store NOI and Same Store Cash NOI presented by us may not be comparable to Same Store NOI or Same Store Cash NOI reported by other REITs that do not define Same Store NOI or Same Store Cash NOI exactly as we do. We believe that in order to facilitate a clear understanding of our operating results, Same Store NOI and Same Store Cash NOI should be examined in conjunction with net income (loss) as presented in our consolidated financial statements and notes thereto. Same Store NOI and Same Store Cash NOI should not be considered as an indicator of our ability to make distributions, as alternatives to net income (loss) as an indication of our performance, or as a measure of cash flows or liquidity.
