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CommonWealth REIT Announces 2013 Fourth Quarter and Year End Results

  CommonWealth REIT Announces 2013 Fourth Quarter and Year End Results  $0.63 of Normalized FFO Per Share for the 2013 Fourth Quarter; +8.4% Increase          in Same Property Cash Basis NOI for the 2013 Fourth Quarter  5.2 Million Square Feet of Leasing Activity in 2013; 89.6% Leased Portfolio at                                 Year End 2013     $249.1 Million of Gross Proceeds from Sale of 43 Properties in 2013; 45 Properties With $536.6 Million of Net Asset Value Currently Being Marketed For                      Sale and Expected to be Sold in 2014  Business Wire  NEWTON, Mass. -- February 27, 2014  CommonWealth REIT (NYSE: CWH) today announced financial results for the quarter and year ended December 31, 2013.  Highlights for the Fourth Quarter and Year Ended December 31, 2013:    *$0.63 per share and $2.67 per share of normalized funds from operations,     or Normalized FFO, for the quarter and year ended December 31, 2013,     respectively.   *81.4% ratio of common share dividends paid to cash available for     distribution, or CAD, for the trailing four quarters ended December 31,     2013.   *89.6% of CWH’s total square feet from continuing operations leased as of     December 31, 2013, compared to 89.6% as of September 30, 2013.   *1.1 million square feet of leasing activity during the fourth quarter of     2013, bringing total leasing activity for the year ended December 31, 2013     to approximately 5.2 million square feet.   *+3.1% higher weighted average cash rental rates than prior cash rental     rates for the same space for leases entered into during the fourth quarter     of 2013. +8.5% higher weighted average GAAP rental rates than prior GAAP     rental rates for the same space for leases entered into during the fourth     quarter of 2013.    *+8.4% increase in same property cash basis net operating income, or Cash     Basis NOI, during the fourth quarter of 2013 for properties owned     continuously since October 1, 2012. +3.6% increase in same property GAAP     net operating income, or NOI, during the fourth quarter of 2013 for     properties owned continuously since October 1, 2012.   *$249.1 million of gross proceeds from the sale of 43 suburban office and     industrial properties with approximately 8.3 million square feet during     the year ended December 31, 2013. As of December 31, 2013, 45 properties     with approximately 8.4 million square feet are classified as held for sale     with a net book value of $536.6 million.   *66.2% of CWH’s total Cash Basis NOI from continuing operations during the     fourth quarter of 2013 was generated from 38 properties with approximately     21.0 million square feet located in central business district, or CBD,     locations.  Adam Portnoy, Managing Trustee and President of CWH, made the following statement regarding today’s announcement:  “The portfolio repositioning, which began several years ago to focus on high quality CBD office properties, delivered positive results and meaningful value to shareholders in the fourth quarter of 2013. On most financial and operating metrics, the fourth quarter exceeded expectations, with improving Normalized FFO per share, leasing activity and same property results. We believe that our strong fourth quarter results can be attributed to the successful execution of our strategy, as CWH’s portfolio now primarily consists of high quality office properties located in top performing market areas. We expect to sell all of the remaining 45 non-core properties in 2014, which will successfully complete CWH’s portfolio repositioning.”  Results for the Quarter Ended December 31, 2013:  Normalized FFO available for CommonWealth REIT common shareholders for the quarter ended December 31, 2013 was $74.8 million, or $0.63 per share basic and diluted, compared to Normalized FFO available for CommonWealth REIT common shareholders for the quarter ended December 31, 2012 of $68.7 million, or $0.82 per share basic and diluted.  CAD for the quarter ended December 31, 2013 was $18.6 million, or $0.16 per share, compared to CAD for the quarter ended December 31, 2012 of $15.5 million, or $0.19 per share.  Both Normalized FFO and CAD excludes shareholder litigation costs and related expenses totaling $6.5 million, or $0.05 per share, for the quarter ended December 31, 2013.  Net loss available for CommonWealth REIT common shareholders was $16.5 million for the quarter ended December 31, 2013, compared to a net loss of $163.9 million for the same period last year. Net loss available for CommonWealth REIT common shareholders per share, basic and diluted (EPS), for the quarters ended December 31, 2013 and 2012 was $0.14 and $1.96, respectively. Net loss for the quarter ended December 31, 2013 includes a net loss from property sales of $25.5 million, or $0.22 per share, and $6.5 million, or $0.05 per share, of shareholder litigation costs and related expenses. Net loss for the quarter ended December 31, 2012 includes a loss on asset impairment of $168.6 million, or $2.01 per share.  The weighted average number of basic and diluted common shares outstanding for the quarters ended December 31, 2013 and 2012, was 118,387,388 and 83,804,068, respectively.  A reconciliation of net loss attributable to CommonWealth REIT, determined according to U.S. generally accepted accounting principles, or GAAP, to FFO available for CommonWealth REIT common shareholders and Normalized FFO available for CommonWealth REIT common shareholders, and a reconciliation of Normalized FFO available for CommonWealth REIT common shareholders to CAD for the quarters ended December 31, 2013 and 2012 appears later in this press release.  Results for the Year Ended December 31, 2013:  Normalized FFO available for CommonWealth REIT common shareholders for the year ended December 31, 2013 was $300.6 million, or $2.67 per share basic and diluted, compared to Normalized FFO available for CommonWealth REIT common shareholders for the year ended December 31, 2012 of $283.8 million, or $3.39 per share basic and diluted.  CAD for the year ended December 31, 2013 was $134.8 million, or $1.20 per share, compared to CAD for the year ended December 31, 2012 of $131.4 million, or $1.57 per share.  Both Normalized FFO and CAD excludes shareholder litigation costs and related expenses totaling $30.4 million, or $0.27 per share, for the year ended December 31, 2013.  Net loss available for CommonWealth REIT common shareholders was $221.7 million for the year ended December 31, 2013, compared to a net loss of $152.0 million for the same period last year. Net loss available for CommonWealth REIT common shareholders per share, basic and diluted (EPS), for the years ended December 31, 2013 and 2012 was $1.97 and $1.81, respectively. Net loss for the year ended December 31, 2013 includes a loss on asset impairment of $227.1 million, or $2.02 per share, losses on early extinguishment of debt totaling $61.1 million, or $0.54 per share, and shareholder litigation costs and related expenses of $30.4 million, or $0.27 per share, partially offset by a gain of $66.3 million, or $0.59 per share, from the sale of an equity investment. Net loss for the year ended December 31, 2012 includes a loss on asset impairment of $168.6 million, or $2.01 per share.  The weighted average number of basic and diluted common shares outstanding for the years ended December 31, 2013 and 2012, was 112,377,732 and 83,749,644, respectively.  A reconciliation of net loss attributable to CommonWealth REIT, determined according to GAAP, to FFO available for CommonWealth REIT common shareholders and Normalized FFO available for CommonWealth REIT common shareholders, and a reconciliation of Normalized FFO available for CommonWealth REIT common shareholders to CAD for the years ended December 31, 2013 and 2012 appears later in this press release.  Operating Results (excluding CWH’s former consolidated subsidiary, Select Income REIT, or SIR):  As of December 31, 2013, 89.6% of CWH’s total square feet included within continuing operations was leased, compared to 89.6% as of September 30, 2013. During the quarter ended December 31, 2013, CWH entered into 1,084,000 square feet of leases, including lease renewals for 887,000 square feet and new leases for 197,000 square feet, and 1,029,000 square feet expired. Leases entered into during the fourth quarter of 2013 had weighted average cash and GAAP rental rates that were approximately +3.1% and +8.5% higher than prior rental rates for the same space, respectively. The increases in both cash and GAAP rental rates during the fourth quarter of 2013 were primarily driven by 388,000 square feet of leases signed in CBD properties which had weighted average cash and GAAP rental rates that were approximately +12.6% and +19.7% higher than prior rental rates for the same space, respectively.  The weighted average lease term based on square feet for leases entered into during the fourth quarter of 2013 was 7.3 years. Commitments for tenant improvements, leasing commission costs and concessions for leases entered into during the fourth quarter of 2013 totaled approximately $19.3 million, or $2.44 per square foot per year of the lease term.  Same property occupancy for properties owned continuously since October 1, 2012 decreased -0.3 percentage points from 89.9% as of December 31, 2012, to 89.6% as of December 31, 2013. Same property occupancy for CBD properties increased +0.1 percentage points from 88.0% as of December 31, 2012 to 88.1% as of December 31, 2013; same property occupancy for suburban properties decreased -0.8 percentage points from 92.2% as of December 31, 2012 to 91.4% as of December 31, 2013.  Same property Cash Basis NOI increased by +8.4% during the quarter ended December 31, 2013, which was driven by a +6.0% increase in Cash Basis NOI at CBD properties and a +13.4% increase in Cash Basis NOI at suburban properties. Same property NOI increased by +3.6% during the quarter ended December 31, 2013, which was driven by a +3.1% increase in NOI at CBD properties and a +4.4% increase in NOI at suburban properties.  A reconciliation of NOI and Cash Basis NOI to net loss, determined according to GAAP, for the quarters and years ended December 31, 2013 and 2012 appears later in this press release.  Recent Acquisitions and Sales Activities (excluding activities of SIR):  Since January 1, 2013, CWH has not acquired or entered into any agreements to purchase properties.  As previously disclosed, CWH’s business plan has been focused on repositioning its portfolio towards high quality CBD office properties and away from suburban office and industrial properties. In early 2013, CWH announced that it would offer for sale 40 primarily suburban properties with a combined 6.7 million square feet. All of these properties were sold during 2013 for an aggregate sale price of $158.3 million, excluding closing costs. In addition, CWH also sold a land parcel and three suburban properties with a combined 1.7 million square feet during 2013, for an aggregate sale price of $90.8 million, excluding closing costs and other adjustments.  As of December 31, 2013, CWH had 45 properties with a combined 8.4 million square feet classified as held for sale. CWH expects to sell these properties during 2014; however, no assurance can be given that any of these properties will be sold in that time period or at all.  Recent Financing Activities (excluding activities of SIR):  In October 2013, CWH prepaid, at par, all $99.0 million of its 5.75% unsecured senior notes due in 2014, using borrowings under its revolving credit facility.  Presentation:  As of December 31, 2013, CWH owned approximately 44.2% of the common shares of SIR, a publicly traded real estate investment trust, or REIT, that primarily owns net leased, single tenant office and industrial properties. On July 2, 2013, SIR issued and sold to the public 10.5 million common shares in an underwritten public offering. Prior to this offering, CWH’s 22.0 million common shares of SIR represented more than 50% of SIR's outstanding common shares and SIR’s financial position and results of operations were consolidated in CWH’s financial statements. Beginning on July 2, 2013, CWH no longer consolidates its investment in SIR, but instead accounts for its investment in SIR under the equity method. Unless the context indicates otherwise, the amounts reported in this press release include SIR’s financial position and results of operations on a consolidated basis with CWH for periods prior to July 2, 2013, when SIR was CWH’s consolidated subsidiary.  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 and year ended December 31, 2013.  The conference call telephone number is (877) 531-2986. Participants calling from outside the United States and Canada should dial (612) 332-7516. 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 Thursday, March 6, 2014. To hear the replay, dial (320) 365-3844. The replay pass code is 318037.  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 fourth quarter conference call are strictly prohibited without the prior written consent of CWH.  Supplemental Data:  A copy of CWH’s Fourth 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 that primarily owns office properties 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, for an explanation of CWH’s calculation of FFO, Normalized FFO, CAD, NOI and Cash Basis NOI and for a reconciliation of those non-GAAP amounts to net loss and net loss attributable to CommonWealth REIT.                  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 EXPECTS TO SELL IN 2014 THE 45 PROPERTIES THAT ARE CLASSIFIED AS HELD FOR SALE AS OF DECEMBER 31, 2013. HOWEVER, CWH MAY BE UNABLE TO SELL SOME OR ALL OF THESE PROPERTIES IN 2014 OR EVER, ON TERMS CWH IS WILLING TO ACCEPT OR OTHERWISE. ALSO, REMOVAL OF ALL OF CWH’S TRUSTEES PURSUANT TO THE CONSENT SOLICITATION BY RELATED FUND MANAGEMENT, LLC AND CORVEX MANAGEMENT LP MAY RESULT IN CWH NOT SELLING SOME OR ALL OF THESE PROPERTIES. ACCORDINGLY, SOME OR ALL OF THE PROPERTIES CWH HAS IDENTIFIED FOR SALE MAY NOT BE SOLD OR THE SALES OF THESE PROPERTIES MAY BE DELAYED.  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  Consolidated Statements of Operations, Funds from Operations and  Normalized Funds from Operations  (amounts in thousands)  (unaudited)                                                                                 Quarter Ended December 31,       Year Ended December 31,                        2013           2012              2013            2012 Revenues: Rental income          $ 157,815      $ 188,529         $ 707,380       $ 709,390 Tenant reimbursements          40,604        43,428           178,156        172,515 and other income Total revenues          198,419       231,957          885,536        881,905                                                                            Expenses: Operating                90,104         97,972            370,869         356,604 expenses Depreciation and                      51,908         57,931            218,854         209,759 amortization General and              16,221         12,313            77,209          46,057 administrative Acquisition             (19)          646              318            5,648 related costs Total expenses          158,214       168,862          667,250        618,068                                                                            Operating                40,205         63,095            218,286         263,837 income                                                                            Interest and             298            384               1,229           1,404 other income Interest expense (including net amortization of debt discounts, premiums and             (38,559)       (53,303)          (173,011)       (201,840) deferred financing fees of ($256), $635, $9 and $3,296, respectively) Loss on early extinguishment           (25)           -                 (60,052)        (287) of debt Gain on sale of equity                -              -                 66,293          - investment Gain on issuance of shares by an            -             7,246            -              7,246 equity investee Income from continuing operations before income tax expense              1,919          17,422            52,745          70,360 and equity in earnings of investees   Income tax               (107)          (1,301)           (2,634)         (3,207) expense Equity in earnings of             10,841        2,765            25,754         11,420 investees Income from continuing               12,653         18,886            75,865          78,573 operations Discontinued operations: Income from discontinued             10,085         2,476             15,867          9,783 operations Loss on asset impairment from                     (1,507)        (168,632)         (227,122)       (168,632) discontinued operations Loss on early extinguishment of debt from             (1,011)        -                 (1,011)         (1,608) discontinued operations Net (loss) gain on sale of properties           (25,521)      -                (22,162)       2,039 from discontinued operations Loss before gain on sale             (5,301)        (147,270)         (158,563)       (79,845) of properties Gain on sale            -             -                1,596          - of properties Net loss                 (5,301)        (147,270)         (156,967)       (79,845) Net income attributable to noncontrolling          -             (5,514)          (20,093)       (15,576) interest in consolidated subsidiary Net loss attributable to                       (5,301)        (152,784)         (177,060)       (95,421) CommonWealth REIT Preferred                (11,151)       (11,151)          (44,604)        (51,552) distributions Excess redemption price paid over carrying           -             -                -              (4,985) value of preferred shares Net loss available for CommonWealth           $ (16,452)     $ (163,935)       $ (221,664)     $ (151,958) REIT common shareholders                                                                                                                                                       Amounts attributable to CommonWealth REIT common shareholders: Income from continuing             $ 1,502        $ 2,221           $ 12,764        $ 6,460 operations Income from discontinued             10,085         2,476             15,867          9,783 operations Loss on asset impairment from                     (1,507)        (168,632)         (227,122)       (168,632) discontinued operations Loss on early extinguishment of debt from             (1,011)        -                 (1,011)         (1,608) discontinued operations Net (loss) gain on sale of properties           (25,521)      -                (22,162)       2,039 from discontinued operations Net loss               $ (16,452)     $ (163,935)       $ (221,664)     $ (151,958)                                                                              CommonWealth REIT  Consolidated Statements of Operations, Funds from Operations and  Normalized Funds from Operations (continued)  (amounts in thousands, except per share data)  (unaudited)                                                                                               Quarter Ended December 31,       Year Ended December 31,                              2013           2012              2013            2012 Calculation of FFO:^(1) Net loss attributable to              $ (5,301)      $ (152,784)       $ (177,060)     $ (95,421) CommonWealth REIT       depreciation       and Plus: amortization             51,908         57,931            218,854         209,759       from       continuing       operations       depreciation       and Plus: amortization             825            12,021            28,098          48,533       from       discontinued       operations       loss on asset       impairment Plus: from                     1,507          168,632           227,122         168,632       discontinued       operations Plus: FFO from                 14,568         5,313             33,564          21,383       investees       net income       attributable Plus: to                       -              5,514             20,093          15,576       noncontrolling       interest       FFO       attributable Less: to                       -              (7,149)           (26,270)        (19,419)       noncontrolling       interest Less: gain on sale             -              -                 (1,596)         -       of properties       net loss       (gain) on sale Less: of properties            25,521         -                 22,162          (2,039)       from       discontinued       operations       equity in Less: earnings of             (10,841)      (2,765)          (25,754)       (11,420)       investees FFO attributable to            78,187         86,713            319,213         335,584 CommonWealth REIT Less: preferred               (11,151)      (11,151)         (44,604)       (51,552)       distributions FFO available for CommonWealth REIT            $ 67,036       $ 75,562          $ 274,609       $ 284,032 common shareholders                                                                                  Calculation of Normalized FFO:^(1) FFO attributable to          $ 78,187       $ 86,713          $ 319,213       $ 335,584 CommonWealth REIT       acquisition       related costs Plus: from                     (19)           646               318             5,648       continuing       operations Plus: normalized FFO           14,799         5,417             34,149          21,710       from investees       loss on early       extinguishment Plus: of debt from             25             -                 60,052          287       continuing       operations       loss on early       extinguishment Plus: of debt from             1,011          -                 1,011           1,608       discontinued       operations       shareholder       litigation Plus: costs and                6,475          -                 30,392          -       related       expenses       average       minimum rent Plus: from direct              329            329               1,316           1,316       financing       lease       FFO       attributable Plus: to                       -              7,149             26,270          19,419       noncontrolling       interest       normalized FFO       attributable Less: to                       -              (7,491)           (26,573)        (20,132)       noncontrolling       interest Less: FFO from                 (14,568)       (5,313)           (33,564)        (21,383)       investees       interest       earned from Less: direct                   (251)          (333)             (1,128)         (1,452)       financing       lease       gain on sale Less: of equity                -              -                 (66,293)        -       investment       gain on       issuance of Less: shares by an            -             (7,246)          -              (7,246)       equity       investee Normalized FFO attributable to                85,988         79,871            345,163         335,359 CommonWealth REIT Less: preferred               (11,151)      (11,151)         (44,604)       (51,552)       distributions Normalized FFO available for                $ 74,837       $ 68,720          $ 300,559       $ 283,807 CommonWealth REIT common shareholders                                                                                  Weighted average common shares                 118,387       83,804           112,378        83,750 outstanding – basic and diluted^(2)                                                                                  Per common share:    Income from    continuing    operations    attributable to      CommonWealth      REIT common      shareholders –          $ 0.01         $ 0.03            $ 0.11          $ 0.08      basic and      diluted    Loss from    discontinued    operations    attributable to      CommonWealth      REIT common      shareholders –          $ (0.15)       $ (1.98)          $ (2.09)        $ (1.89)      basic and      diluted    Net loss    available for    CommonWealth REIT    common      shareholders –      basic and               $ (0.14)       $ (1.96)          $ (1.97)        $ (1.81)      diluted    FFO available for    CommonWealth REIT    common      shareholders –      basic and               $ 0.57         $ 0.90            $ 2.44          $ 3.39      diluted    Normalized FFO    available for    CommonWealth REIT    common      shareholders –      basic and               $ 0.63         $ 0.82            $ 2.67          $ 3.39      diluted                                                                                                                 CommonWealth REIT        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 real estate asset impairment, net income attributable to noncontrolling interest and FFO from equity investees, excluding any gain or loss on sale of properties, equity in earnings from investees and FFO attributable to noncontrolling interests. CWH’s calculation of Normalized FFO differs from NAREIT's definition of FFO because CWH excludes acquisition related costs, gains from issuance of shares by equity investees, gain from sale of equity investment, loss on early extinguishment of debt, shareholder litigation costs and related expenses, 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 interests. CWH considers FFO and Normalized FFO to be appropriate measures of operating performance for a REIT, along with net loss, net loss attributable to CommonWealth REIT, net loss 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 with 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 facility and term loan agreement 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 loss, net loss attributable to CommonWealth REIT, net loss 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. These measures should be considered in conjunction with net loss, net loss attributable to CommonWealth REIT, net loss available for CommonWealth REIT common shareholders, operating income and cash flow from operating activities as presented in CWH’s Consolidated Statements of Operations, Consolidated Statements of Comprehensive (Loss) Income and Consolidated Statements of Cash Flows. Other REITs and real estate companies may calculate FFO and Normalized FFO differently than CWH does.  ^(2) As of December 31, 2013, CWH’s 15,180 outstanding series D cumulative convertible preferred shares were convertible into 7,298 common shares and the effect of a conversion of CWH’s series D cumulative convertible preferred shares on income from continuing operations attributable to CommonWealth REIT common shareholders per share is anti-dilutive to income, FFO and Normalized FFO for all periods presented. Set forth below is the calculation of diluted net loss 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 December 31,       Year Ended December 31,                          2013         2012              2013          2012                                                                                Net loss   available for   CommonWealth           $ (16,452)     $ (163,935)       $ (221,664)     $ (151,958)   REIT common   shareholders   Add - Series D   convertible             6,167         6,167            24,668         24,668   preferred   distributions   Net loss   available for   CommonWealth           $ (10,285)     $ (157,768)       $ (196,996)     $ (127,290)   REIT common   shareholders –   diluted                                                                                FFO available   for   CommonWealth           $ 67,036       $ 75,562          $ 274,609       $ 284,032   REIT common   shareholders   Add - Series D   convertible             6,167         6,167            24,668         24,668   preferred   distributions   FFO available   for   CommonWealth           $ 73,203       $ 81,729          $ 299,277       $ 308,700   REIT common   shareholders –   diluted                                                                                Normalized FFO   available for   CommonWealth           $ 74,837       $ 68,720          $ 300,559       $ 283,807   REIT common   shareholders   Add - Series D   convertible              6,167          6,167             24,668          24,668   preferred   distributions   Normalized FFO   available for                                                         CommonWealth   REIT common     shareholders         $ 81,004       $ 74,887          $ 325,227       $ 308,475     – diluted                                                                                Weighted   average common   shares                   118,387        83,804            112,378         83,750   outstanding –   basic   Effect of   dilutive   Series D                7,298         7,298            7,298          7,298   preferred   shares   Weighted   average common   shares                  125,685       91,102           119,676        91,048   outstanding –   diluted                                                                                                                                                CommonWealth REIT  Calculation of Cash Available for Distribution  (amounts in thousands, except per share data)  (unaudited)                                       Quarter Ended December          Year Ended December 31,                              31,                              2013           2012             2013            2012 Calculation of CAD:^(1) Normalized FFO available for                $ 74,837       $ 68,720         $ 300,559       $ 283,807 CommonWealth REIT common shareholders       lease value       amortization Plus: from                     2,445          2,588            10,158          10,274       continuing       operations       lease value       amortization Plus: from                     (126)          (89)             (623)           (312)       discontinued       operations       amortization Plus: of prepaid       interest and       debt discounts         from         continuing             (255)          635              9               3,296         operations       amortization Plus: of prepaid       interest and       debt discounts         from         discontinued           15             18               72              109         operations Plus: distributions            10,120         4,279            24,079          16,816       from investees       non-cash Plus: general and       administrative       expenses paid         in common              338            542              2,113           1,686         shares^(2)       minimum cash       rent from Plus: direct                   2,025          2,025            8,098           8,098       financing       lease       normalized FFO       attributable Plus: to                       -              7,491            26,573          20,132       noncontrolling       interest       CAD       attributable Less: to                       -              (6,119)          (23,792)        (17,968)       noncontrolling       interest       average       minimum rent Less: from direct              (329)          (329)            (1,316)         (1,316)       financing       lease       straight-line Less: rent from                (5,522)        (10,667)         (32,549)        (41,569)       continuing       operations       straight-line Less: rent from                349            521              1,320           2,757       discontinued       operations       recurring Less: capital                  (50,510)       (48,658)         (145,795)       (132,725)       expenditures Less: Normalized FFO          (14,799)      (5,417)         (34,149)       (21,710)       from investees CAD                          $ 18,588       $ 15,540         $ 134,757       $ 131,375                                                                                 Weighted average common shares                 118,387       83,804          112,378        83,750 outstanding - basic                                                                                 CAD per share                $ 0.16         $ 0.19           $ 1.20          $ 1.57                                                                                  (1) CWH calculates CAD as shown above. CWH considers CAD to be an appropriate measure of its operating performance, along with net loss, net loss attributable to CommonWealth REIT, net loss available for CommonWealth REIT common shareholders, operating income and cash flow from operating activities. CWH believes that CAD provides useful information to investors because CAD may facilitate a comparison of cash based operating performance between periods and with other REITs. CAD does not represent cash generated by operating activities in accordance with GAAP and should not be considered as an alternative to net loss, net loss attributable to CommonWealth REIT, net loss available for CommonWealth REIT common shareholders, operating income or cash flow from operating activities, determined in accordance with GAAP, or as an indicator of CWH’s financial performance or liquidity, nor is this measure necessarily indicative of sufficient cash flow to fund all of CWH’s needs. This measure should be considered in conjunction with net loss, net loss attributable to CommonWealth REIT, net loss available for CommonWealth REIT common shareholders, operating income and cash flow from operating activities as presented in CWH’s Consolidated Statements of Operations, Consolidated Statements of Comprehensive (Loss) Income and Consolidated Statements of Cash Flows. Other REITs and real estate companies may calculate CAD differently than CWH does.  (2) Represents the amortized value of shares issued during the year to trustees of CWH and SIR (amounts for SIR are only for the periods when SIR was a consolidated subsidiary of CWH), to officers of CWH and SIR, and to Reit Management & Research LLC employees, under CWH's and SIR's equity award plans.                                                             CommonWealth REIT  Calculation of Property Net Operating Income (NOI) and Cash Basis NOI  (amounts in thousands)  (unaudited)                                                                                                   Quarter Ended December 31,       Year Ended December 31,                        2013           2012              2013            2012 Calculation of NOI and Cash Basis NOI:^(1) Rental income          $ 157,815      $ 188,529         $ 707,380       $ 709,390 Tenant reimbursements           40,604         43,428            178,156         172,515 and other income Operating               (90,104)      (97,972)         (370,869)      (356,604) expenses Property net operating                108,315        133,985           514,667         525,301 income (NOI) Non cash straight line            (5,522)        (10,667)          (32,549)        (41,569) rent adjustments Lease value              2,445          2,588             10,158          10,274 amortization Lease termination             (1,043)       (1,920)          (2,758)        (5,146) fees Cash Basis NOI         $ 104,195      $ 123,986         $ 489,518       $ 488,860                                                                            Reconciliation of Cash Basis NOI to Net Loss: Cash Basis NOI         $ 104,195      $ 123,986         $ 489,518       $ 488,860 Non cash straight line            5,522          10,667            32,549          41,569 rent adjustments Lease value              (2,445)        (2,588)           (10,158)        (10,274) amortization Lease termination             1,043         1,920            2,758          5,146 fees Property NOI             108,315        133,985           514,667         525,301 Depreciation and                      (51,908)       (57,931)          (218,854)       (209,759) amortization General and              (16,221)       (12,313)          (77,209)        (46,057) administrative Acquisition             19            (646)            (318)          (5,648) related costs Operating                40,205         63,095            218,286         263,837 income                                                                            Interest and             298            384               1,229           1,404 other income Interest                 (38,559)       (53,303)          (173,011)       (201,840) expense Loss on early extinguishment           (25)           -                 (60,052)        (287) of debt Gain on sale of equity                -              -                 66,293          - investment Gain on issuance of shares by an            -             7,246            -              7,246 equity investee Income from continuing operations before income            1,919          17,422            52,745          70,360 tax expense and equity in earnings of investees Income tax               (107)          (1,301)           (2,634)         (3,207) expense Equity in earnings of             10,841        2,765            25,754         11,420 investees Income from continuing               12,653         18,886            75,865          78,573 operations Discontinued operations: Income from discontinued             10,085         2,476             15,867          9,783 operations Loss on asset impairment from                     (1,507)        (168,632)         (227,122)       (168,632) discontinued operations Loss on early extinguishment of debt from             (1,011)        -                 (1,011)         (1,608) discontinued operations Net loss (gain) on sale of properties           (25,521)      -                (22,162)       2,039 from discontinued operations Loss before gain on sale             (5,301)        (147,270)         (158,563)       (79,845) of properties Gain on sale            -             -                1,596          - of properties Net loss               $ (5,301)      $ (147,270)       $ (156,967)     $ (79,845)                                                                             (1) CWH calculates NOI on a GAAP and cash basis as shown above. CWH defines NOI as income from CWH’s real estate including lease termination fees received from tenants less CWH’s property operating expenses, which expenses include property marketing costs. NOI excludes amortization of capitalized tenant improvement costs and leasing commissions. CWH defines Cash Basis NOI as NOI less non cash straight line rent adjustments, lease value amortization and lease termination fees. CWH considers NOI and Cash Basis NOI to be appropriate supplemental measures to net loss because they may help both investors and management to understand the operations of CWH’s properties. CWH uses NOI and Cash Basis NOI internally to evaluate individual, regional and companywide property level performance, and CWH believes that NOI and Cash Basis NOI provide useful information to investors regarding CWH’s results of operations because they reflect only those income and expense items that are incurred at the property level and may facilitate comparisons of CWH’s operating performance between periods and with other REITs. The calculation of NOI and Cash Basis NOI exclude certain components of net loss in order to provide results that are more closely related to CWH’s properties' results of operations. NOI and Cash Basis NOI do not represent cash generated by operating activities in accordance with GAAP, and should not be considered as alternatives to net loss, net loss attributable to CommonWealth REIT, net loss 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. These measures should be considered in conjunction with net loss, net loss attributable to CommonWealth REIT, net loss available for CommonWealth REIT common shareholders, operating income and cash flow from operating activities as presented in CWH’s Consolidated Statements of Operations, Consolidated Statements of Comprehensive (Loss) Income and Consolidated Statements of Cash Flows. Other REITs and real estate companies may calculate NOI and Cash Basis NOI differently than CWH does.                                      CommonWealth REIT  Consolidated Balance Sheets  (amounts in thousands, except share data)  (unaudited)                                                                                            December 31,                                              2013             2012 ASSETS   Real estate properties:       Land                                   $ 699,135           $ 1,531,416       Buildings and improvements              4,838,030          6,297,993                                                5,537,165           7,829,409       Accumulated depreciation                (895,059)          (1,007,606)                                                4,642,106           6,821,803   Properties held for sale                     573,531             171,832   Acquired real estate leases, net             255,812             427,756   Equity investments                           517,991             184,711   Cash and cash equivalents                    222,449             102,219   Restricted cash                              22,101              16,626   Rents receivable, net of allowance   for doubtful accounts of $7,885       and $9,962, respectively                 223,769             253,394   Other assets, net                           188,675            211,293   Total assets                               $ 6,646,434         $ 8,189,634                                                                     LIABILITIES AND SHAREHOLDERS' EQUITY   Revolving credit facility                  $ 235,000           $ 297,000   SIR revolving credit facility                -                   95,000   Senior unsecured debt, net                   1,855,900           2,972,994   Mortgage notes payable, net                  914,510             984,827   Liabilities related to properties            28,734              2,339   held for sale   Accounts payable and accrued                 165,855             194,184   expenses   Assumed real estate lease                    33,935              69,304   obligations, net   Rent collected in advance                    27,553              35,700   Security deposits                            11,976              23,860   Due to related persons                      9,385              12,958   Total liabilities                           3,282,848          4,688,166                                                                       Commitments and contingencies                                                                       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 $379,500                368,270             368,270         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; 118,386,918 and         83,804,068 shares             issued and outstanding,            1,184               838             respectively       Additional paid in capital               4,213,474           3,585,400       Cumulative net income                    2,209,840           2,386,900       Cumulative other comprehensive           (38,331)            565       (loss) income       Cumulative common                        (3,082,271)         (2,972,569)       distributions       Cumulative preferred                    (573,971)          (529,367)       distributions         Total shareholders' equity         attributable to CommonWealth           3,363,586           3,105,428         REIT     Noncontrolling interest in                -                  396,040     consolidated subsidiary         Total shareholders' equity            3,363,586          3,501,468   Total liabilities and                      $ 6,646,434         $ 8,189,634   shareholders' 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 Jason Fredette, 617-796-8222 Director, Investor Relations www.cwhreit.com  
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