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CommonWealth REIT Announces 2013 First Quarter Results



  CommonWealth REIT Announces 2013 First Quarter Results

Business Wire

NEWTON, Mass. -- May 08, 2013

CommonWealth REIT (NYSE: CWH) today announced financial results for the
quarter ended March 31, 2013.

Results for the Quarter Ended March 31, 2013:

Normalized funds from operations, or Normalized FFO, available for
CommonWealth REIT common shareholders for the quarter ended March 31, 2013 was
$73.8 million, or $0.78 per share basic and diluted, compared to Normalized
FFO available for CommonWealth REIT common shareholders for the quarter ended
March 31, 2012 of $76.0 million, or $0.91 per share basic and $0.90 per share
diluted.

Net income available for CommonWealth REIT common shareholders was $14.5
million for the quarter ended March 31, 2013, compared to $9.9 million for the
same quarter last year. Net income available for CommonWealth REIT common
shareholders per share, basic and diluted (EPS), for the quarters ended March
31, 2013 and 2012 was $0.15 and $0.12, respectively. Net income for the
quarter ended March 31, 2013 includes gains of $66.3 million, or $0.70 per
share, from the sale of an equity investment and $2.9 million, or $0.03 per
share, from the sale of properties, partially offset by losses of $60.0
million, or $0.64 per share, from the early extinguishment of debt and $3.9
million, or $0.04 per share, from asset impairment.

The weighted average number of basic and diluted common shares outstanding was
94,154,068 and 101,452,233, respectively, for the quarter ended March 31,
2013, and 83,721,736 and 91,019,901, respectively, for the quarter ended March
31, 2012.

A reconciliation of net income attributable to CommonWealth REIT, determined
according to U.S. generally accepted accounting principles, or GAAP, to funds
from operations, or FFO, available for CommonWealth REIT common shareholders
and Normalized FFO available for CommonWealth REIT common shareholders for the
quarters ended March 31, 2013 and 2012 appears later in this press release.

Occupancy and Leasing Results:

As of March 31, 2013, 90.0% of CWH’s total square feet from continuing
operations was leased, compared to 90.0% as of December 31, 2012 and 90.1% as
of March 31, 2012.

CWH entered into lease renewals for 1,175,000 square feet and new leases for
511,000 square feet during the quarter ended March 31, 2013, which had
weighted average cash rental rates that were 1.2% below prior rents for the
same leasable space. The weighted average lease term based on square feet for
leases entered into during the first quarter of 2013 was 5.9 years.
Commitments for tenant improvements, leasing commission costs and concessions
for leases entered into during the quarter ended March 31, 2013 totaled
approximately $20.0 million, or $2.01 per square foot per year of the lease
term.

Recent Acquisitions and Sales Activities:

Since the announcement of 2012 fourth quarter results on February 25, 2013,
CWH has not acquired or entered into any agreements to purchase properties
(excluding transactions by Select Income REIT, or SIR, CWH’s majority owned
consolidated subsidiary).

As previously disclosed, during the quarter ended March 31, 2013, CWH sold 18
properties with a combined 1,060,026 square feet for a total of $10.3 million,
excluding closing costs. In addition, CWH received eminent domain taking
proceeds of $1.8 million (before closing costs) for a land parcel adjacent to
one of its central business district office buildings located in Boston, MA.
As of March 31, 2013, 76 properties with a combined 5,613,825 square feet
located throughout the United States were listed for sale with third party
brokers and classified as held for sale. In April 2013, CWH sold one of these
properties with 618,000 square feet for a total of $830,000, excluding closing
costs. As of today, CWH has five of the remaining 75 properties with a
combined 1,222,642 square feet under agreement to sell for a total of $39.5
million, excluding closing costs. CWH expects to sell these five properties
and the remaining 70 properties listed for sale during 2013; however, no
assurance can be given that any of the properties will be sold in that time
period or at all.

In March 2013, CWH sold all 9,950,000 common shares that it owned of
Government Properties Income Trust in a public offering for $25.20 per common
share, raising gross proceeds of $250.7 million (approximately $239.6 million
after deducting underwriters’ discounts and commissions and estimated
expenses). CWH used the net proceeds from this offering to repay amounts
outstanding under its revolving credit facility, which amounts were borrowed
to fund, in part, the purchase of the senior notes that were tendered in the
tender offer described below.

Recent Financing Activities:

In March 2013, CWH issued 34,500,000 common shares in a public offering for
$19.00 per common share, raising gross proceeds of $655.5 million
(approximately $627.1 million after deducting underwriters’ discounts and
commissions and estimated expenses). CWH used the net proceeds from this
offering to repay indebtedness, including amounts borrowed under its revolving
credit facility to fund, in part, the purchase of its senior notes that were
tendered in the tender offer described below.

Also in March 2013, CWH purchased for cash a total of $670.3 million of the
outstanding principal amount of the following senior notes pursuant to a
tender offer: $145.6 million of 5.75% senior notes due February 15, 2014,
$152.6 million of 6.40% senior notes due February 15, 2015, $111.2 million of
5.75% senior notes due November 1, 2015 and $260.9 million of 6.25% senior
notes due August 15, 2016.

Presentation:

Unless otherwise noted, the amounts reported above are on a consolidated basis
and, as such, include the results of CWH’s consolidated subsidiary, SIR,
including the effect of SIR’s minority interests. For further information
about SIR and its subsidiaries, please see SIR’s periodic reports and other
filings with the Securities and Exchange Commission, or the SEC, which are
available at the SEC’s website at www.sec.gov. References in this press
release to SIR’s filings with the SEC are included to identify the source of
SIR information only, and the information in SIR’s filings with the SEC is not
incorporated by reference into this press release.

Conference Call:

Later today, at 1:00 p.m. Eastern Time, Adam Portnoy, President and Managing
Trustee, and John Popeo, Chief Financial Officer, will host a conference call
to discuss the financial results for the quarter ended March 31, 2013.

The conference call telephone number is (800) 230-1951. Participants calling
from outside the United States and Canada should dial (612) 332-0342. No pass
code is necessary to access either call. Participants should dial in about 15
minutes prior to the scheduled start of the call. A replay of the conference
call will be available through 11:59 p.m. Eastern Time on Wednesday, May 15,
2013. To hear the replay, dial (320) 365-3844. The replay pass code is 290598.

A live audio webcast of the conference call will also be available in a listen
only mode on CWH’s website, which is located at www.cwhreit.com. Participants
wanting to access the webcast should visit CWH’s website about five minutes
before the call. The archived webcast will be available for replay on CWH’s
website for about one week after the call.

The transcription, recording and retransmission in any way of CWH’s first
quarter conference call is strictly prohibited without the prior written
consent of CWH.

Supplemental Data:

A copy of CWH’s First Quarter 2013 Supplemental Operating and Financial Data
is available for download at CWH’s website, www.cwhreit.com. CWH’s website is
not incorporated as part of this press release.

CommonWealth REIT is a real estate investment trust which primarily owns
office properties located throughout the United States. CWH is headquartered
in Newton, MA.

Please see the pages attached hereto for a more detailed statement of CWH’s
operating results and financial condition and for an explanation of CWH’s
calculation of FFO and Normalized FFO and a reconciliation of net income
attributable to CommonWealth REIT to those amounts.

WARNING CONCERNING FORWARD LOOKING STATEMENTS

THIS PRESS RELEASE CONTAINS STATEMENTS THAT CONSTITUTE FORWARD LOOKING
STATEMENTS WITHIN THE MEANING OF THE PRIVATE SECURITIES LITIGATION REFORM ACT
OF 1995 AND OTHER SECURITIES LAWS. ALSO, WHENEVER CWH USES WORDS SUCH AS
“BELIEVE”, “EXPECT”, “ANTICIPATE”, “INTEND”, “PLAN”, “ESTIMATE” OR SIMILAR
EXPRESSIONS, CWH IS MAKING FORWARD LOOKING STATEMENTS. THESE FORWARD LOOKING
STATEMENTS ARE BASED UPON CWH’S PRESENT INTENT, BELIEFS OR EXPECTATIONS, BUT
FORWARD LOOKING STATEMENTS ARE NOT GUARANTEED TO OCCUR AND MAY NOT OCCUR.
ACTUAL RESULTS MAY DIFFER MATERIALLY FROM THOSE CONTAINED IN OR IMPLIED BY
THESE FORWARD LOOKING STATEMENTS AS A RESULT OF VARIOUS FACTORS. FOR EXAMPLE:

  * THIS PRESS RELEASE STATES THAT CWH HAS ENTERED INTO AGREEMENTS TO SELL
    PROPERTIES. THESE TRANSACTIONS ARE SUBJECT TO VARIOUS TERMS AND CONDITIONS
    TYPICAL OF COMMERCIAL REAL ESTATE TRANSACTIONS. THE TERMS AND CONDITIONS
    MAY NOT BE MET. AS A RESULT, THESE TRANSACTIONS MAY NOT OCCUR OR MAY BE
    DELAYED OR THE TERMS MAY CHANGE, AND
  * THIS PRESS RELEASE STATES THAT CWH INTENDS TO SELL IN 2013 THE REMAINING
    PROPERTIES NOT ALREADY SOLD THAT ARE CLASSIFIED AS HELD FOR SALE AS OF
    MARCH 31, 2013. HOWEVER, CWH MAY BE UNABLE TO SELL SOME OR ALL OF THESE
    PROPERTIES IN 2013 OR EVER.

THE INFORMATION CONTAINED IN CWH’S FILINGS WITH THE SEC, INCLUDING UNDER THE
CAPTION "RISK FACTORS" IN CWH’S PERIODIC REPORTS, OR INCORPORATED THEREIN,
IDENTIFIES OTHER IMPORTANT FACTORS THAT COULD CAUSE DIFFERENCES FROM CWH’S
FORWARD LOOKING STATEMENTS. CWH’S FILINGS WITH THE SEC ARE AVAILABLE ON THE
SEC’S WEBSITE AT WWW.SEC.GOV.

YOU SHOULD NOT PLACE UNDUE RELIANCE UPON FORWARD LOOKING STATEMENTS.

EXCEPT AS REQUIRED BY LAW, CWH DOES NOT INTEND TO UPDATE OR CHANGE ANY FORWARD
LOOKING STATEMENTS AS A RESULT OF NEW INFORMATION, FUTURE EVENTS OR OTHERWISE.

                                                                  
CommonWealth REIT
Condensed Consolidated Statements of Operations, Funds from Operations and
Normalized Funds from Operations
(amounts in thousands)
(unaudited)
                                                                      
                                                   Quarter Ended March 31,
                                                   2013            2012       
                                                                      
Rental income                                      $ 275,048       $ 243,378  
                                                                      
Expenses:
Operating expenses                                   109,659         97,236
Depreciation and amortization                        66,523          58,019
General and administrative                           17,266          11,536
Acquisition related costs                            628             2,502    
Total expenses                                       194,076         169,293  
                                                                      
Operating income                                     80,972          74,085
                                                                      
Interest and other income                            458             285
Interest expense (including net amortization
of debt discounts,
premiums and deferred financing fees of $629
and
$746, respectively)                                  (52,344 )       (49,106 )
Loss on early extinguishment of debt                 (60,027 )       (67     )
Equity in earnings of investees                      4,262           2,958
Gain on sale of equity investment                    66,293          -        
Income from continuing operations before             39,614          28,155
income tax expense
Income tax expense                                   (988    )       (492    )
Income from continuing operations                    38,626          27,663
Discontinued operations:
Loss from discontinued operations                    (1,912  )       (3,089  )
Loss on asset impairment from discontinued           (3,946  )       -
operations
Gain on sale of properties from discontinued         1,260           -        
operations
Income before gain on sale of properties             34,028          24,574
Gain on sale of properties                           1,596           -        
Net income                                           35,624          24,574
Net income attributable to noncontrolling            (9,957  )       (894    )
interest in consolidated subsidiary
Net income attributable to CommonWealth REIT         25,667          23,680
Preferred distributions                              (11,151 )       (13,823 )
Net income available for CommonWealth REIT         $ 14,516        $ 9,857    
common shareholders
                                                                      
                                                                      
Amounts attributable to CommonWealth REIT
common shareholders:
Income from continuing operations                  $ 19,114        $ 12,946
Loss from discontinued operations                    (1,912  )       (3,089  )
Loss on asset impairment from discontinued           (3,946  )       -
operations
Gain on sale of properties from discontinued         1,260           -        
operations
Net income                                         $ 14,516        $ 9,857    

                                                                  
CommonWealth REIT
Condensed Consolidated Statements of Operations, Funds from Operations and
Normalized Funds from Operations (continued)
(amounts in thousands, except per share data)
(unaudited)
                                                                      
                                                   Quarter Ended March 31,
                                                   2013            2012       
  Calculation of FFO:^(1)
  Net income attributable to CommonWealth REIT     $ 25,667        $ 23,680
  Plus:   depreciation and amortization from         66,523          58,019
          continuing operations
  Plus:   depreciation and amortization from         -               3,332
          discontinued operations
  Plus:   loss on asset impairment from              3,946           -
          discontinued operations
  Plus:   FFO from investees                         4,742           5,356
  Plus:   net income attributable to                 9,957           894
          noncontrolling interest
  Less:   FFO attributable to noncontrolling         (12,889 )       (1,062  )
          interest
  Less:   gain on sale of properties                 (1,596  )       -
  Less:   gain on sale of properties from            (1,260  )       -
          discontinued operations
  Less:   equity in earnings of investees            (4,262  )       (2,958  )
  FFO attributable to CommonWealth REIT              90,828          87,261
  Less:   preferred distributions                    (11,151 )       (13,823 )
  FFO available for CommonWealth REIT common       $ 79,677        $ 73,438   
  shareholders
                                                                      
  Calculation of Normalized FFO:^(1)
  FFO attributable to CommonWealth REIT            $ 90,828        $ 87,261
  Plus:   acquisition related costs from             628             2,502
          continuing operations
  Plus:   normalized FFO from investees              4,747           5,367
  Plus:   loss on early extinguishment of debt       60,027          67
          from continuing operations
  Plus:   average minimum rent from direct           329             329
          financing lease
  Plus:   FFO attributable to noncontrolling         12,889          1,062
          interest
  Less:   normalized FFO attributable to             (13,123 )       (1,062  )
          noncontrolling interest
  Less:   FFO from investees                         (4,742  )       (5,356  )
  Less:   interest earned from direct                (313    )       (393    )
          financing lease
  Less:   gain on sale of equity investment          (66,293 )       -        
  Normalized FFO attributable to CommonWealth        84,977          89,777
  REIT
  Less:   preferred distributions                    (11,151 )       (13,823 )
  Normalized FFO available for CommonWealth        $ 73,826        $ 75,954   
  REIT common shareholders
                                                                      
  Weighted average common shares outstanding –       94,154          83,722   
  basic
                                                                      
  Weighted average common shares outstanding –       101,452         91,020   
  diluted^(2)
                                                                      
  Per common share:
     Income from continuing operations
     attributable to
       CommonWealth REIT common shareholders –     $ 0.20          $ 0.15
       basic and diluted
     Loss from discontinued operations
     attributable to
       CommonWealth REIT common shareholders –     $ (0.05   )     $ (0.04   )
       basic and diluted
     Net income available for CommonWealth
     REIT common
       shareholders – basic and diluted            $ 0.15          $ 0.12
     FFO available for CommonWealth REIT
     common
       shareholders – basic                        $ 0.85          $ 0.88
     FFO available for CommonWealth REIT
     common
       shareholders – diluted                      $ 0.85          $ 0.87
     Normalized FFO available for CommonWealth
     REIT common
       shareholders – basic                        $ 0.78          $ 0.91
     Normalized FFO available for CommonWealth
     REIT common
       shareholders – diluted                      $ 0.78          $ 0.90

                              CommonWealth REIT
  Condensed Consolidated Statements of Operations, Funds from Operations and
                 Normalized Funds from Operations (continued)
                            (amounts in thousands)
                                 (unaudited)

(1) CWH calculates FFO and Normalized FFO as shown above. FFO is calculated on
the basis defined by The National Association of Real Estate Investment
Trusts, or NAREIT, which is net income, calculated in accordance with GAAP,
plus real estate depreciation and amortization, loss on asset impairment, net
income attributable to noncontrolling interest and FFO from equity investees,
excluding any gain or loss on sale of properties, earnings from equity
investees and FFO attributable to noncontrolling interest. CWH’s calculation
of Normalized FFO differs from NAREIT's definition of FFO because CWH excludes
acquisition related costs, gain from sale of equity investment, loss on early
extinguishment of debt, the difference between average minimum rent and
interest earned from CWH’s direct financing lease and the difference between
FFO and Normalized FFO from equity investees and noncontrolling interest. CWH
considers FFO and Normalized FFO to be appropriate measures of operating
performance for a REIT, along with net income, net income attributable to
CommonWealth REIT, net income available for CommonWealth REIT common
shareholders, operating income and cash flow from operating activities. CWH
believes 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
CWH’s operating performance between periods and between CWH and other REITs.
FFO and Normalized FFO are among the factors considered by CWH’s Board of
Trustees when determining the amount of distributions to CWH’s shareholders.
Other factors include, but are not limited to, requirements to maintain CWH’s
status as a REIT, limitations in CWH’s revolving credit facilities and term
loan agreements and public debt covenants, the availability of debt and equity
capital to CWH, CWH’s cash available for distribution, CWH’s expectation of
its future capital requirements and operating performance, and CWH’s expected
needs and availability of cash to pay its obligations. 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, net income
attributable to CommonWealth REIT, net income available for CommonWealth REIT
common shareholders, operating income or cash flow from operating activities,
determined in accordance with GAAP, or as indicators of CWH’s financial
performance or liquidity, nor are these measures necessarily indicative of
sufficient cash flow to fund all of CWH’s needs. CWH believes that FFO and
Normalized FFO may facilitate an understanding of its consolidated historical
operating results. These measures should be considered in conjunction with net
income, net income attributable to CommonWealth REIT, net income available for
CommonWealth REIT common shareholders, operating income and cash flow from
operating activities as presented in CWH’s 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 CWH does.

^(2) As of March 31, 2013, CWH’s 15,180 outstanding series D preferred shares
were convertible into 7,298 common shares. The effect of a conversion of CWH’s
series D convertible preferred shares on income from continuing operations
available for CommonWealth REIT common shareholders per share is anti-dilutive
to income, but dilutive to FFO and Normalized FFO for most periods presented.
Set forth below is the calculation of diluted net income available for common
shareholders, diluted FFO available for common shareholders, diluted
Normalized FFO available for common shareholders and diluted weighted average
common shares outstanding.

                                                       Quarter Ended March 31,
                                                          2013          2012
                                                                         
  Net income available for CommonWealth REIT           $  14,516      $ 9,857
  common shareholders
  Add - Series D convertible preferred                    6,167         6,167
  distributions
  Net income available for CommonWealth REIT           $  20,683      $ 16,024
  common shareholders – diluted
                                                                         
  FFO available for CommonWealth REIT common           $  79,677      $ 73,438
  shareholders
  Add - Series D convertible preferred                    6,167         6,167
  distributions
  FFO available for CommonWealth REIT common           $  85,844      $ 79,605
  shareholders – diluted
                                                                         
  Normalized FFO available for CommonWealth REIT       $  73,826      $ 75,954
  common shareholders
  Add - Series D convertible preferred                    6,167         6,167
  distributions
  Normalized FFO available for CommonWealth REIT                         
  common
  shareholders – diluted                               $  79,993      $ 82,121
                                                                         
  Weighted average common shares outstanding –            94,154        83,722
  basic
  Effect of dilutive Series D preferred shares            7,298         7,298
  Weighted average common shares outstanding –            101,452       91,020
  diluted

                                                               
CommonWealth REIT
Condensed Consolidated Balance Sheets
(amounts in thousands, except share data)
(unaudited)
                                                                   
                                             March 31,          December 31,
                                             2013               2012
ASSETS
    Real estate properties:
              Land                           $ 1,548,225        $ 1,531,416
              Buildings and improvements       6,441,544          6,297,993   
                                               7,989,769          7,829,409
              Accumulated depreciation         (1,047,697 )       (1,007,606 )
                                               6,942,072          6,821,803
    Properties held for sale                   159,501            171,832
    Acquired real estate leases, net           416,763            427,756
    Equity investments                         11,394             184,711
    Cash and cash equivalents                  48,692             102,219
    Restricted cash                            14,723             16,626
    Rents receivable, net of allowance for     267,733            253,394
    doubtful accounts of $9,962
    Other assets, net                          221,790            211,293     
    Total assets                             $ 8,082,668        $ 8,189,634   
                                                                   
LIABILITIES AND SHAREHOLDERS' EQUITY
    Revolving credit facility                $ 135,000          $ 297,000
    SIR revolving credit facility              238,000            95,000
    Senior unsecured debt, net                 2,304,229          2,972,994
    Mortgage notes payable, net                980,985            984,827
    Liabilities related to properties held     1,994              2,339
    for sale
    Accounts payable and accrued expenses      155,993            194,184
    Assumed real estate lease obligations,     66,576             69,304
    net
    Rent collected in advance                  34,703             35,700
    Security deposits                          23,822             23,860
    Due to related persons                     14,636             12,958      
    Total liabilities                          3,955,938          4,688,166   
                                                                   
    Shareholders' equity:
          Shareholder's equity
          attributable to CommonWealth
          REIT:
              Preferred shares of
              beneficial interest, $0.01
              par value:
              50,000,000 shares
              authorized;
                    Series D preferred
                    shares; 6 1/2%
                    cumulative
                    convertible;
                          15,180,000
                          shares issued
                          and outstanding,
                          aggregate
                          liquidation
                          preference           368,270            368,270
                          $379,500
                    Series E preferred
                    shares; 7 1/4%
                    cumulative redeemable
                    on or after
                          May 15, 2016;
                          11,000,000
                          shares issued
                          and outstanding,
                          aggregate
                          liquidation          265,391            265,391
                          preference
                          $275,000
              Common shares of beneficial
              interest, $0.01 par value:
                    350,000,000 shares
                    authorized;
                    118,304,068 and
                    83,804,068 shares
                          issued and
                          outstanding,         1,183              838
                          respectively
              Additional paid in capital       4,212,082          3,585,400
              Cumulative net income            2,412,567          2,386,900
              Cumulative other                 2,577              565
              comprehensive income
              Cumulative common                (2,993,520 )       (2,972,569 )
              distributions
              Cumulative preferred             (540,518   )       (529,367   )
              distributions
                    Total shareholders'
                    equity attributable to     3,728,032          3,105,428
                    CommonWealth REIT
          Noncontrolling interest in           398,698            396,040     
          consolidated subsidiary
                    Total shareholders'        4,126,730          3,501,468   
                    equity
    Total liabilities and shareholders'      $ 8,082,668        $ 8,189,634   
    equity

A Maryland Real Estate Investment Trust with transferable shares of beneficial
  interest listed on the New York Stock Exchange. No shareholder, Trustee or
     officer is personally liable for any act or obligation of the Trust.

Contact:

CommonWealth REIT
Timothy A. Bonang, 617-796-8222
Vice President, Investor Relations
or
Carlynn Finn, 617-796-8222
Senior Manager, Investor Relations
www.cwhreit.com
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