BETHESDA, Md., Oct. 27,
2016 /PRNewswire/ -- First Potomac Realty Trust (NYSE: FPO), a
leader in the ownership, management, development and redevelopment
of office and business park properties in the greater Washington, D.C. region, reported results for
the three and nine months ended September 30, 2016.
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Third Quarter 2016 Highlights
- Reported net income attributable to common shareholders of
$1.6 million, or $0.03 per diluted share.
- Reported Core Funds From Operations of $17.0 million, or $0.28 per diluted share.
- Increased same property net operating income ("Same Property
NOI") by 4.1% on an accrual basis compared with the same period in
2015.
- Increased occupied percentage to 92.8% from 89.9% at
September 30, 2015.
- Increased leased percentage to 94.1% from 91.0% at
September 30, 2015.
- Redeemed the remaining 0.6 million 7.750% Series A
Cumulative Redeemable Perpetual Preferred Shares (the "7.750%
Series A Preferred Shares").
- Completed the sale of Storey Park, a development site
located in Washington, D.C, for a
contractual sales price of $54.5
million, which generated net proceeds of $52.7 million.
- Retained sales brokers to market Plaza 500 and One Fair Oaks, located in Northern Virginia, as well as Aviation
Business Park and Rivers Park I and II, located in Maryland and owned through unconsolidated
joint ventures, as part of plan to dispose of at least $350 million of assets.
Bob Milkovich, Chief Executive
Officer of First Potomac Realty Trust stated, "We are pleased to
announce our fourth consecutive quarter of strong operational and
financial results, as we continue to execute on our strategic plan
to de-risk our portfolio, de-lever our balance sheet, and create
value for our shareholders. In the third quarter, we
delivered strong same property growth, increased our leased and
occupied percentages year-over-year, and continued to make progress
on dispositions. We have made significant strides towards
achieving our stated goals and believe that we are well positioned
to continue delivering value for First Potomac shareholders."
Third Quarter Results
For the three months ended September 30,
2016 and 2015, net income attributable to common
shareholders was $1.6 million,
or $0.03 per diluted share, and
$0.9 million, or $0.01 per diluted share, respectively. For the
nine months ended September 30, 2016
and 2015, net loss attributable to common shareholders was
$8.0 million, or $0.14 per diluted share, and $4.1 million, or $0.07 per diluted share, respectively. The
increase in net income for the three months ended September 30, 2016 compared with the same period
in 2015 was primarily due to an increase in Same Property NOI,
which was the result of an increase in occupancy in our comparable
portfolio. The increase in net loss for the nine months ended
September 30, 2016 compared with the same period in 2015 was
primarily due to the write off of $5.5 million of original issuance costs
during the nine months ended September 30,
2016 associated with the redemption of 6.4 million shares of
our 7.750% Series A Preferred Shares. The original issuance costs
are deducted from net income attributable to First Potomac Realty
Trust to calculate net income (loss) attributable to common
shareholders on our consolidated statements of operations.
Core Funds From Operations ("Core FFO") increased for the three
months ended September 30, 2016 to $17.0 million, or $0.28 per diluted share, from $15.3 million, or $0.25 per diluted share, for the same period in
2015. Core FFO increased for the nine months ended
September 30, 2016 to $47.9 million, or $0.79 per diluted share, from $44.9 million, $0.74 per diluted share, for the same period in
2015. These increases were primarily due to increases in Same
Property NOI, which was a result of higher occupancy in our
portfolio, as well as decreases in general and administrative
expenses and lower accrued preferred dividends due to the
redemption of our 7.750% Series A Preferred Shares. The increases
in Core FFO for the three and nine months ended September 30, 2016 compared with the same periods
in 2015 were partially offset by decreases in net operating income
as a result of property dispositions, and a reduction in interest
income due to the repayment of the $29.7
million mezzanine loan on America's Square in the first
quarter of 2015 and the repayment of the $34.0 million mezzanine loan on 950 F St., NW in
the second quarter of 2016.
Funds From Operations ("FFO") available to common shareholders
and unitholders increased to $16.5 million, or $0.27 per diluted share, for the three months
ended September 30, 2016, from $15.3 million, or $0.25 per diluted share, for the same period in
2015. FFO available to common shareholders and unitholders
decreased to $42.3 million, or
$0.70 per diluted share, for the nine
months ended September 30, 2016 from
$45.6 million, or $0.75 per diluted share, for the same period in
2015. FFO for the three and nine months ended September 30, 2016 included the write-off of
$0.5 million and $5.5 million, respectively, of original
issuance costs associated with the redemption of 0.6 million shares
and 6.4 million shares, respectively, of our 7.750%
Series A Preferred Shares. In addition, FFO for the nine months
ended September 30, 2015 included a
$2.4 million yield maintenance
payment that we received with the prepayment of the $29.7 million mezzanine loan on America's
Square in the first quarter of 2015.
A reconciliation between net income (loss) attributable to
common shareholders and FFO, FFO available to common shareholders
and unitholders and Core FFO for the three and nine months ended
September 30, 2016 and 2015 is presented below (in
thousands, except per share amounts):
|
Three Months
Ended
September 30,
|
|
Nine Months Ended
September 30,
|
|
2016
|
|
2015
|
|
2016
|
|
2015
|
Net income (loss)
attributable to common shareholders
|
$
|
1,607
|
|
|
$
|
859
|
|
|
$
|
(7,989)
|
|
|
$
|
(4,146)
|
|
Depreciation and
amortization:
|
|
|
|
|
|
|
|
Rental
property
|
13,928
|
|
|
16,758
|
|
|
44,075
|
|
|
49,909
|
|
Discontinued operations
|
—
|
|
|
—
|
|
|
—
|
|
|
1,222
|
|
Unconsolidated joint
ventures
|
895
|
|
|
1,006
|
|
|
2,671
|
|
|
3,049
|
|
Impairment of rental
property(1)
|
—
|
|
|
—
|
|
|
2,772
|
|
|
—
|
|
(Gain) loss on sale
of rental property
|
—
|
|
|
(3,384)
|
|
|
1,155
|
|
|
(4,241)
|
|
Net income (loss)
attributable to noncontrolling interests in
the Operating Partnership
|
71
|
|
|
38
|
|
|
(356)
|
|
|
(186)
|
|
Dividends on
preferred shares
|
11
|
|
|
3,100
|
|
|
3,053
|
|
|
9,300
|
|
Issuance costs of
redeemed preferred shares
|
517
|
|
|
—
|
|
|
5,515
|
|
|
—
|
|
Funds from operations
("FFO")
|
17,029
|
|
|
18,377
|
|
|
50,896
|
|
|
54,907
|
|
Dividends on
preferred shares
|
(11)
|
|
|
(3,100)
|
|
|
(3,053)
|
|
|
(9,300)
|
|
Issuance costs of
redeemed preferred shares
|
(517)
|
|
|
—
|
|
|
(5,515)
|
|
|
—
|
|
FFO available to
common shareholders and unitholders
|
16,501
|
|
|
15,277
|
|
|
42,328
|
|
|
45,607
|
|
Issuance costs of
redeemed preferred shares(2)
|
517
|
|
|
—
|
|
|
5,515
|
|
|
—
|
|
Yield maintenance
payment(3)
|
—
|
|
|
—
|
|
|
—
|
|
|
(2,426)
|
|
Personnel separation
costs
|
—
|
|
|
—
|
|
|
—
|
|
|
405
|
|
Loss on debt
extinguishment
|
—
|
|
|
—
|
|
|
48
|
|
|
489
|
|
Deferred abatement
and straight-line amortization(4)
|
—
|
|
|
—
|
|
|
—
|
|
|
854
|
|
Core FFO
|
$
|
17,018
|
|
|
$
|
15,277
|
|
|
$
|
47,891
|
|
|
$
|
44,929
|
|
|
|
|
|
|
|
|
|
Net income (loss)
attributable to common shareholders per share - basic and
diluted
|
$
|
0.03
|
|
|
$
|
0.01
|
|
|
$
|
(0.14)
|
|
|
$
|
(0.07)
|
|
Weighted average
common shares outstanding:
|
|
|
|
|
|
|
|
Basic
|
57,597
|
|
|
57,961
|
|
|
57,572
|
|
|
58,155
|
|
Diluted
|
57,825
|
|
|
58,045
|
|
|
57,572
|
|
|
58,155
|
|
|
|
|
|
|
|
|
|
FFO available to
common shareholders and unitholders per share – basic and
diluted
|
$
|
0.27
|
|
|
$
|
0.25
|
|
|
$
|
0.70
|
|
|
$
|
0.75
|
|
Core FFO per share –
diluted
|
$
|
0.28
|
|
|
$
|
0.25
|
|
|
$
|
0.79
|
|
|
$
|
0.74
|
|
Weighted average
common shares and units outstanding:
|
|
|
|
|
|
|
|
Basic
|
60,175
|
|
|
60,580
|
|
|
60,160
|
|
|
60,779
|
|
Diluted
|
60,402
|
|
|
60,664
|
|
|
60,373
|
|
|
60,857
|
|
(1)
|
In the second quarter
of 2016, we recorded a $2.8 million impairment charge related to
the sale of Storey Park, which was subsequently sold in July
2016.
|
(2)
|
Represents original
issuance costs associated with the 7.750% Series A Preferred Shares
that were redeemed during the periods presented. These costs, which
are included in FFO, but excluded from Core FFO, are deducted from
net income (loss) attributable to First Potomac Realty Trust to
calculate at net income (loss) attributable to common
shareholders.
|
(3)
|
On February 24, 2015,
the owners of America's Square, a 461,000 square foot office
complex located in Washington, D.C., prepaid a mezzanine loan that
had an outstanding balance of $29.7 million, which was scheduled to
mature on May 1, 2016. We received a yield maintenance payment of
$2.4 million associated with the prepayment of the loan.
|
(4)
|
As a result of the
sale of the Richmond Portfolio in March 2015, we accelerated the
amortization of straight-line rents and deferred rent abatements
related to those properties.
|
The definitions of FFO, FFO available to common shareholders and
unitholders and Core FFO, as well as the statements of purpose are
included below under "Non-GAAP Financial Measures."
Operating Performance
At September 30, 2016, our consolidated portfolio
consisted of 74 buildings totaling 6.7 million square feet. Our
consolidated portfolio was 94.1% leased and 92.8% occupied at
September 30, 2016 compared with 94.4% leased and 93.1%
occupied at June 30, 2016 and 91.0%
leased and 89.9% occupied at September 30, 2015.
Year-over-year, we achieved a 310 basis-point increase in our
leased percentage and a 290 basis-point increase in our occupied
percentage across our consolidated portfolio. The increase in
occupancy during the third quarter of 2016 compared with the same
period in 2015 is primarily a result of tenant move-ins at 440
First Street, NW, Greenbrier Business Park and Cloverleaf.
During the third quarter of 2016, we executed 280,000 square
feet of leases, which consisted of 74,000 square feet of new leases
and 206,000 square feet of renewal leases. The 206,000 square feet
of renewal leases in the quarter, which included a 107,000 square
foot renewal at Plaza 500 in Northern
Virginia, reflected a tenant retention rate of 81%. We
experienced positive net absorption of 152,000 square feet in the
third quarter of 2016, which includes the 167,000 square foot lease
at the Northern Virginia
build-to-suit.
For the nine months ended September 30, 2016, we
executed 739,000 square feet of leases, including 245,000 square
feet of new leases and 494,000 square feet of renewal leases,
achieved a tenant retention rate of 81% and had positive net
absorption of 166,000 square feet. Our executed new and renewal
leases for the nine months ended September
30, 2016 do not include a one-year lease extension with the
Bureau of Prisons at 500 First Street, NW, which expires in
July 2017, or the 125,000 square feet
of combined new and renewal leases at our unconsolidated joint
venture properties.
Same Property NOI increased 4.1% on an accrual basis for the
three months ended September 30, 2016 compared with the
same period in 2015. Specifically, Same Property NOI increased 9.3%
in Southern Virginia, 7.9% in
Maryland and 1.1% in Washington, D.C. for the three months ended
September 30, 2016 compared with the same period in 2015.
The increases in Same Property NOI in these regions were primarily
due to increases in occupancy, particularly at the following
properties: 440 First Street, NW, which is located in Washington D.C., Cloverleaf, which is located
in Maryland, and Greenbrier
Business Park, which is located in Southern Virginia. Same Property NOI decreased
1.2% in Northern Virginia for the
three months ended September 30, 2016
compared with the same period in 2015 primarily due to a decrease
in occupancy.
Same Property NOI increased 5.1% on an accrual basis for the
nine months ended September 30, 2016 compared with the same
period in 2015. More specifically, Same Property NOI increased 9.1%
in Maryland, 8.2% in Southern Virginia and 4.0% in Washington, D.C., primarily due to increases
in occupancy across the portfolio in these regions. Same Property
NOI decreased 0.9% in Northern
Virginia for the nine months ended September 30, 2016
compared with the same period in 2015 primarily due to an increase
in bad debt reserves at several non-core properties in the second
quarter of 2016.
A reconciliation of net income (loss) from our consolidated
statements of operations to Same Property NOI and a definition and
statement of purpose are included below in the financial tables
accompanying this press release and under "Non-GAAP Financial
Measures," respectively.
A list of our properties, as well as additional information
regarding our results of operations, and our definition of
"strategic hold," "reposition" and "non-core" as they relate to our
portfolio, can be found in our Third Quarter 2016 Supplemental
Financial Information Report, which is posted on our website,
www.first-potomac.com.
Dispositions
On July 25, 2016, we sold Storey
Park, a development site located in the NoMa submarket of
Washington, D.C., for net proceeds
of $52.7 million. We used the
proceeds from the sale to prepay, without penalty, debt encumbering
the Storey Park land, to make a distribution to our 3% joint
venture partner for its allocable share of the joint venture's net
assets and to pay down a portion of the outstanding balance of our
unsecured revolving credit facility.
Aggregate gross proceeds from dispositions identified as part of
our Strategic Plan now total $205.9
million toward our stated goal of $350 million. This amount reflects the sales of
Storey Park, the combined sale of Enterprise Center, Gateway Centre
Manassas, Linden Business Center, Herndon Corporate Center,
Prosperity Business Center, Reston Business Campus, Windsor at Battlefield and Van Buren Office Park (collectively, the "NOVA
Non-Core Portfolio"), which was sold in the first quarter of 2016,
as well as Cedar Hill I and III and Newington Business Park Center,
which were both sold in the fourth quarter of 2015.
Consistent with our previously announced plan to sell at least
$350 million of assets, we have
engaged sales brokers to sell Plaza 500 and One Fair Oaks, which are located in Northern Virginia, as well as Aviation
Business Park and Rivers Park I and II, which are located in
Maryland and are owned through
unconsolidated joint ventures. We anticipate completing the sales
in late 2016 or early 2017. However, we can provide no assurances
regarding the timing or pricing of such sales, or that such sales
will ultimately occur.
Northern Virginia Build-to-Suit
During the third quarter of 2016, we substantially completed
construction of the tenant improvements at the build-to-suit office
building in Northern Virginia (the
"NOVA build-to-suit"). We commenced revenue recognition of the
fully leased building in August 2016,
at which time the building was placed into service.
7.750% Series A Preferred Shares Redemption
As previously disclosed, on January 19,
2016 and April 27, 2016, we
used proceeds from dispositions to redeem 2.2 million shares and
3.6 million shares, respectively, of our 7.750% Series A Preferred
Shares at a redemption price of $25.00 per share, plus accrued dividends up to
the date of redemption.
On July 6, 2016, we used a portion
of the proceeds from the repayment of the 950 F Street, NW
mezzanine loan in June 2016 to redeem
the remaining 0.6 million outstanding shares of our 7.750% Series A
Preferred Shares at a redemption price of $25.00 per share, plus accrued dividends up to
the date of redemption. Subsequent to the redemption, the 7.750%
Series A Preferred Shares (NYSE: FPO-PA) were delisted from trading
on the New York Stock Exchange.
Financing Activity
On July 25, 2016, we used a portion of the proceeds from
the sale of Storey Park to prepay, without penalty, the
$22.0 million loan encumbering the
Storey Park land. The loan had a variable interest rate of LIBOR +
2.50% and was scheduled to mature in October
2016.
On October 6, 2016, we prepaid, without penalty, the
$12.2 million loan encumbering
Hillside I and II. The loan had a fixed interest rate of 5.75% and
was scheduled to mature in December
2016. The prepayment was funded with a draw on the unsecured
revolving credit facility.
Balance Sheet
We had $745.5 million of
gross debt outstanding at September 30, 2016, of which
$245.7 million was fixed-rate
debt, $240.0 million was hedged
variable-rate debt and $259.8 million was unhedged variable-rate
debt. The weighted average interest rate of our debt was 3.5% at
September 30, 2016.
Dividends
On October 24, 2016, we declared a dividend of $0.10 per common share, equating to an annualized
dividend of $0.40 per common share.
The dividend will be paid on November 15, 2016 to common
shareholders of record as of November 8, 2016.
2016 Core FFO Guidance
We are raising our full-year 2016 Core FFO guidance from our
previous range of $1.00 to$1.05 to a
current range of $1.03 to $1.06 per
diluted share. The following is a summary of the assumptions
that we used in arriving at our guidance (unaudited, amounts in
thousands except percentages and per share amounts):
|
|
Expected
Ranges
|
Portfolio Net
Operating Income
|
|
$
|
100,000
|
|
-
|
$
|
103,000
|
|
Interest and Other
Income(1)
|
|
|
$
|
2,300
|
|
|
FFO from
Unconsolidated Joint Ventures
|
|
$
|
5,750
|
|
-
|
$
|
6,250
|
|
Interest
Expense
|
|
$
|
26,500
|
|
-
|
$
|
27,500
|
|
General and
Administrative Expense
|
|
$
|
17,000
|
|
-
|
$
|
18,000
|
|
Preferred
Dividends(2)
|
|
|
$
|
3,050
|
|
|
Weighted Average
Shares and OP Units
|
|
60,200
|
|
-
|
60,500
|
|
Year-End
Occupancy
|
|
92.0%
|
|
-
|
93.0%
|
|
Same Property NOI
Growth - Accrual Basis
|
|
+2.0%
|
|
-
|
+3.5%
|
|
|
(1)
The $34.0 million 950 F Street, NW mezzanine loan was prepaid in
the second quarter of 2016.
|
(2) As
of July 6, 2016 there were no remaining preferred shares
outstanding.
|
Our guidance is also based on a number of other assumptions,
many of which are outside our control and all of which are subject
to change. We may change our guidance as actual and anticipated
results vary from these assumptions.
Guidance Range for
2016
|
|
Low Range
|
|
High Range
|
Net loss attributable
to common shareholders per diluted share
|
|
$
|
(0.21)
|
|
|
$
|
(0.20)
|
|
Real estate
depreciation(1)
|
|
1.06
|
|
|
1.08
|
|
Net loss attributable
to noncontrolling interests and items excluded
from
Core FFO per diluted share(2)
|
|
0.18
|
|
|
0.18
|
|
Core FFO per diluted
share
|
|
$
|
1.03
|
|
|
$
|
1.06
|
|
|
|
|
|
|
|
(1)
Includes our pro-rata share of depreciation from our unconsolidated
joint ventures and depreciation related to disposed
properties.
|
(2)
Items excluded from Core FFO consist of personnel separation costs,
the gains or losses associated with disposed properties,
property
impairment, loss on debt extinguishment, original issuance costs on
redeemed preferred shares and other non-recurring items.
|
Investor Conference Call and Webcast
We will host a conference call on October 28, 2016 at
9:00 AM ET to discuss third quarter
2016 results. The conference call can be accessed by dialing (877)
705-6003 or (201) 493-6725 for international participants. A
replay of the call will be available from 12:00 PM ET on October 28, 2016, until
midnight ET on November 4, 2016. The replay can be
accessed by dialing (844) 512-2921 or (412) 317-6671 for
international callers, and entering pin number 13646097.
A live broadcast of the conference call will also be available
online at the Company's website, www.first-potomac.com, on
October 28, 2016 beginning at 9:00 AM
ET. An online replay will follow shortly after the
call and will continue for 90 days.
About First Potomac Realty Trust
First Potomac Realty Trust is a self-administered, self-managed
real estate investment trust that focuses on owning, operating,
developing and redeveloping office and business park properties in
the greater Washington, D.C.
region. FPO common shares (NYSE: FPO) are publicly traded on
the New York Stock Exchange. As of
September 30, 2016, our consolidated portfolio totaled
6.7 million square feet. Based on annualized cash basis rent, our
portfolio consists of 65% office properties and 35% business park
and industrial properties. A key element of First Potomac's
overarching strategy is its dedication to sustainability. Over one
million square feet of First Potomac property is LEED Certified and
over half of the portfolio's multi-story office square footage
is LEED or Energy Star Certified.
Non-GAAP Financial Measures
Funds from Operations - Funds from operations ("FFO"),
which is a non-GAAP measure used by many investors and analysts
that follow the public real estate industry, represents net income
(computed in accordance with U.S. generally accepted accounting
principles ("GAAP")), excluding gains (losses) on sales of rental
property and impairments of rental property, plus real
estate-related depreciation and amortization and after adjustments
for unconsolidated partnerships and joint ventures. We also exclude
from our FFO calculation, the impact related to third parties from
our consolidated joint venture. FFO available to common
shareholders and unitholders is calculated as FFO less accumulated
dividends on our preferred shares for the applicable periods
presented. We compute FFO in accordance with standards
established by the National Association of Real Estate Investment
Trusts ("NAREIT"), which may differ from the methodology for
calculating FFO, or similarly titled measures, utilized by other
equity REITs and, accordingly, may not be comparable to such other
REITs.
We consider FFO and FFO available to common shareholders and
unitholders useful measures of performance for an equity real
estate investment trust ("REIT") as they facilitate an
understanding of the operating performance of our properties
without giving effect to real estate depreciation and amortization,
which assume that the value of rental property diminishes
predictably over time. Since real estate values have historically
risen or fallen with market conditions, we believe that FFO
provides a meaningful indication of our performance. We also
consider FFO an appropriate supplemental performance measure given
its wide use by investors and analysts. However, FFO does not
represent amounts available for our discretionary use because of
needed capital replacement or expansion, debt service obligations
or other commitments and uncertainties, nor is it indicative of
funds available to fund our cash needs, including our ability to
make distributions. Our methodology for computing FFO adds back
noncontrolling interests in the income from our Operating
Partnership in determining FFO. We believe this is appropriate as
common Operating Partnership units are presented on an
as-converted, one-for-one basis for shares of stock in determining
FFO per diluted share.
Our presentation of FFO in accordance with NAREIT's definition
should not be considered as an alternative to net (loss) income
attributable to common shareholders (computed in accordance with
GAAP) as an indicator of our financial performance.
Core FFO - We believe that the computation of FFO in
accordance with NAREIT's definition includes certain items that are
not indicative of the results provided by our operating portfolio
and affect the comparability of our period-over-period performance.
These items include, but are not limited to, gains and losses on
the retirement of debt, legal costs associated with the informal
U.S. Securities and Exchange Commission's ("SEC") inquiry,
personnel separation costs, contingent consideration charges,
acceleration of deferred abatement and straight-line amortization,
gains on the receipt of yield maintenance payments from the
prepayment of a note receivable, issuance costs of redeemed
preferred shares and acquisition costs. Core FFO is presented less
accumulated dividends on our preferred shares for all the periods
presented.
Our presentation of Core FFO should not be considered as an
alternative to net (loss) income attributable to common
shareholders (computed in accordance with GAAP) as an indicator of
our financial performance. Our FFO and Core FFO calculations
are reconciled to net (loss) income attributed to common
shareholders in this release.
Same Property NOI - Same Property Net Operating Income
("Same Property NOI"), defined as property revenues (rental and
tenant reimbursements and other revenues) less property operating
expenses (real estate taxes, property operating and insurance
expenses) from the consolidated properties owned by us and
in-service for the entirety of the periods presented, is a primary
performance measure we use to assess the results of operations at
our properties. Same Property NOI is a non-GAAP
measure. As an indication of our operating performance, Same
Property NOI should not be considered an alternative to net income
(loss) calculated in accordance with GAAP. A reconciliation
of our Same Property NOI to net income is presented below.
The Same Property NOI results exclude the collection of termination
fees, as these items vary significantly period-over-period, thus
impacting trends and comparability. Also, Same Property NOI
includes a normalized management fee percentage in lieu of an
administrative overhead allocation for comparative purposes.
We eliminate depreciation and amortization expense, which are
property level expenses, in computing Same Property NOI as these
are non-cash expenses that are based on historical cost accounting
assumptions and management believes these expenses do not offer the
investor significant insight into the operations of the property.
This presentation allows management and investors to determine
whether growth or declines in net operating income are a result of
increases or decreases in property operations or the acquisition or
disposition of additional properties. While this presentation
provides useful information to management and investors, the
results below should be read in conjunction with the results from
the consolidated statements of operations to provide a complete
depiction of our total performance.
Forward Looking Statements
The forward-looking statements contained in this press release,
including statements regarding our 2016 Core FFO guidance and
related assumptions, the execution of our strategic plan, potential
dispositions and the timing and pricing of such dispositions,
future acquisition and growth opportunities, and the timing of
future tenant occupancies, are subject to various risks and
uncertainties. Although we believe the expectations reflected in
any forward-looking statements contained herein are based on
reasonable assumptions, there can be no assurance that our
expectations will be achieved. Certain factors that could cause
actual results to differ materially from our expectations include
changes in general or regional economic conditions; our ability to
timely lease or re-lease space at current or anticipated rents;
changes in interest rates; changes in operating costs; our ability
to complete acquisitions and dispositions on acceptable terms, or
at all; our ability to manage our current debt levels and repay or
refinance our indebtedness upon maturity or other required payment
dates; our ability to maintain financial covenant compliance under
our debt agreements; our ability to maintain effective internal
controls over financial reporting and disclosure controls and
procedures; any impact of the informal inquiry initiated by the
SEC; our ability to obtain debt and/or financing on attractive
terms, or at all; changes in the assumptions underlying our
earnings and Core FFO guidance and other risks detailed in our
Annual Report on Form 10-K and described from time to time in our
filings with the SEC. Many of these factors are beyond our ability
to control or predict. Forward-looking statements are not
guarantees of performance. For forward-looking statements herein,
we claim the protection of the safe harbor for forward-looking
statements contained in the Private Securities Litigation Reform
Act of 1995. We assume no obligation to update or supplement
forward-looking statements that become untrue because of subsequent
events. We do not intend to, and expressly disclaim any duty to,
update or revise the forward-looking statements in this discussion
to reflect changes in underlying assumptions or factors, new
information, future events or otherwise, after the date hereof,
except as may be required by law. In light of these risks and
uncertainties, you should not rely upon these forward-looking
statements after the date of this report and should keep in mind
that any forward-looking statement made in this discussion, or
elsewhere, might not occur.
Consolidated
Statements of Operations
|
(unaudited,
amounts in thousands, except per share amounts)
|
|
|
|
Three Months
Ended
September 30,
|
|
Nine Months Ended
September 30,
|
|
2016
|
|
2015
|
|
2016
|
|
2015
|
Revenues:
|
|
|
|
|
|
|
|
Rental
|
$
|
32,416
|
|
|
$
|
34,828
|
|
|
$
|
97,813
|
|
|
$
|
104,051
|
|
Tenant reimbursements
and other
|
7,756
|
|
|
8,026
|
|
|
23,548
|
|
|
25,690
|
|
Total
revenues
|
40,172
|
|
|
42,854
|
|
|
121,361
|
|
|
129,741
|
|
Operating
expenses:
|
|
|
|
|
|
|
|
Property
operating
|
9,500
|
|
|
10,901
|
|
|
29,580
|
|
|
34,676
|
|
Real estate taxes and
insurance
|
4,755
|
|
|
4,815
|
|
|
14,891
|
|
|
14,668
|
|
General and
administrative
|
4,112
|
|
|
4,605
|
|
|
12,995
|
|
|
15,110
|
|
Depreciation and
amortization
|
13,928
|
|
|
16,758
|
|
|
44,075
|
|
|
49,909
|
|
Impairment of rental
property
|
—
|
|
|
—
|
|
|
2,772
|
|
|
—
|
|
Total operating
expenses
|
32,295
|
|
|
37,079
|
|
|
104,313
|
|
|
114,363
|
|
Operating
income
|
7,877
|
|
|
5,775
|
|
|
17,048
|
|
|
15,378
|
|
Other expenses
(income):
|
|
|
|
|
|
|
|
Interest
expense
|
6,414
|
|
|
6,589
|
|
|
19,798
|
|
|
20,222
|
|
Interest and other
income
|
(115)
|
|
|
(995)
|
|
|
(2,219)
|
|
|
(5,797)
|
|
Equity in earnings of
affiliates
|
(664)
|
|
|
(432)
|
|
|
(1,883)
|
|
|
(1,235)
|
|
(Gain) Loss on sale
of rental property
|
—
|
|
|
(3,384)
|
|
|
1,155
|
|
|
(3,384)
|
|
Loss on debt
extinguishment
|
—
|
|
|
—
|
|
|
48
|
|
|
—
|
|
Total other expenses
(income)
|
5,635
|
|
|
1,778
|
|
|
16,899
|
|
|
9,806
|
|
Income from
continuing operations
|
2,242
|
|
|
3,997
|
|
|
149
|
|
|
5,572
|
|
Discontinued
operations:
|
|
|
|
|
|
|
|
Loss from
operations
|
—
|
|
|
—
|
|
|
—
|
|
|
(975)
|
|
Loss on debt
extinguishment
|
—
|
|
|
—
|
|
|
—
|
|
|
(489)
|
|
Gain on sale of
rental property
|
—
|
|
|
—
|
|
|
—
|
|
|
857
|
|
Loss from
discontinued operations
|
—
|
|
|
—
|
|
|
—
|
|
|
(607)
|
|
Net income
|
2,242
|
|
|
3,997
|
|
|
149
|
|
|
4,965
|
|
Less: Net (income) loss
attributable to noncontrolling interests
|
(107)
|
|
|
(38)
|
|
|
430
|
|
|
189
|
|
Net income
attributable to First Potomac Realty Trust
|
2,135
|
|
|
3,959
|
|
|
579
|
|
|
5,154
|
|
Less: Dividends on preferred
shares
|
(11)
|
|
|
(3,100)
|
|
|
(3,053)
|
|
|
(9,300)
|
|
Less: Issuance costs of
redeemed preferred shares
|
(517)
|
|
|
—
|
|
|
(5,515)
|
|
|
—
|
|
Net income (loss)
attributable to common shareholders
|
$
|
1,607
|
|
|
$
|
859
|
|
|
$
|
(7,989)
|
|
|
$
|
(4,146)
|
|
|
|
|
|
|
|
|
|
Basic and diluted
earnings per common share:
|
|
|
|
|
|
|
|
Income (loss) from
continuing operations available to common shareholders
|
$
|
0.03
|
|
|
$
|
0.01
|
|
|
$
|
(0.14)
|
|
|
$
|
(0.06)
|
|
Loss from
discontinued operations available to common shareholders
|
—
|
|
|
—
|
|
|
—
|
|
|
(0.01)
|
|
Net income (loss) available
to common shareholders
|
$
|
0.03
|
|
|
$
|
0.01
|
|
|
$
|
(0.14)
|
|
|
$
|
(0.07)
|
|
Weighted average
common shares outstanding:
|
|
|
|
|
|
|
|
Basic
|
57,597
|
|
|
57,961
|
|
|
57,572
|
|
|
58,155
|
|
Diluted
|
57,825
|
|
|
58,045
|
|
|
57,572
|
|
|
58,155
|
|
Consolidated
Balance Sheets
|
(amounts in
thousands, except per share amounts)
|
|
|
September 30, 2016
|
|
December 31,
2015
|
|
(unaudited)
|
|
|
Assets:
|
|
|
|
Rental property,
net
|
$
|
1,079,970
|
|
|
$
|
1,130,266
|
|
Assets
held-for-sale
|
—
|
|
|
90,674
|
|
Cash and cash
equivalents
|
14,767
|
|
|
13,527
|
|
Escrows and
reserves
|
931
|
|
|
2,514
|
|
Accounts and other
receivables, net of allowance for doubtful accounts of $1,201 and
$876, respectively
|
6,750
|
|
|
9,868
|
|
Accrued straight-line
rents, net of allowance for doubtful accounts of $449 and $105,
respectively
|
40,975
|
|
|
36,888
|
|
Notes
receivable
|
—
|
|
|
34,000
|
|
Investment in
affiliates
|
49,109
|
|
|
48,223
|
|
Deferred costs,
net
|
44,702
|
|
|
36,537
|
|
Prepaid expenses and
other assets
|
6,755
|
|
|
6,950
|
|
Intangibles assets,
net
|
26,711
|
|
|
32,959
|
|
Total
assets
|
$
|
1,270,670
|
|
|
$
|
1,442,406
|
|
Liabilities:
|
|
|
|
Mortgage loans,
net
|
$
|
309,116
|
|
|
$
|
307,769
|
|
Unsecured term loan,
net
|
299,374
|
|
|
299,404
|
|
Unsecured revolving
credit facility, net
|
130,353
|
|
|
116,865
|
|
Liabilities
held-for-sale
|
—
|
|
|
1,513
|
|
Accounts payable and
other liabilities
|
44,373
|
|
|
47,972
|
|
Accrued
interest
|
1,512
|
|
|
1,603
|
|
Rents received in
advance
|
7,907
|
|
|
6,003
|
|
Tenant security
deposits
|
5,183
|
|
|
4,982
|
|
Deferred market rent,
net
|
1,874
|
|
|
2,154
|
|
Total
liabilities
|
799,692
|
|
|
788,265
|
|
Noncontrolling
interests in the Operating Partnership
|
26,155
|
|
|
28,813
|
|
Equity:
|
|
|
|
Preferred Shares,
$0.001 par value per share, 50,000 shares authorized:
|
|
|
|
7.750% Series A
Preferred Shares, $25 per share liquidation preference, 0 and
6,400 shares issued and outstanding, respectively
|
—
|
|
|
160,000
|
|
Common shares,
$0.001par value per share, 150,000 shares authorized; 58,315
and 57,718 shares issued and outstanding, respectively
|
58
|
|
|
58
|
|
Additional paid-in
capital
|
915,413
|
|
|
907,220
|
|
Noncontrolling
interests in consolidated partnerships
|
—
|
|
|
800
|
|
Accumulated other
comprehensive loss
|
(1,928)
|
|
|
(2,360)
|
|
Dividends in excess
of accumulated earnings
|
(468,720)
|
|
|
(440,390)
|
|
Total
equity
|
444,823
|
|
|
625,328
|
|
Total liabilities,
noncontrolling interests and equity
|
$
|
1,270,670
|
|
|
$
|
1,442,406
|
|
Same
Property Analysis
|
(unaudited,
dollars in thousands)
|
|
|
Reconciliation of
net income to same property
net operating income(1):
|
|
|
|
|
|
|
|
|
Three Months
Ended
September 30,
|
|
Nine Months Ended
September 30,
|
|
2016
|
|
2015
|
|
2016
|
|
2015
|
Number of
buildings
|
73
|
|
|
73
|
|
|
73
|
|
|
73
|
|
|
|
|
|
|
|
|
|
Net income
|
$
|
2,242
|
|
|
$
|
3,997
|
|
|
$
|
149
|
|
|
$
|
4,965
|
|
Loss from
discontinued operations
|
—
|
|
|
—
|
|
|
—
|
|
|
607
|
|
Total other expenses
(income)
|
5,635
|
|
|
1,778
|
|
|
16,899
|
|
|
9,806
|
|
Impairment of rental
property
|
—
|
|
|
—
|
|
|
2,772
|
|
|
—
|
|
Depreciation and
amortization
|
13,928
|
|
|
16,758
|
|
|
44,075
|
|
|
49,909
|
|
General and
administrative expenses
|
4,112
|
|
|
4,605
|
|
|
12,995
|
|
|
15,110
|
|
Non-comparable net
operating income(2)
|
(984)
|
|
|
(3,192)
|
|
|
(2,558)
|
|
|
(9,701)
|
|
Same property net
operating income
|
$
|
24,933
|
|
|
$
|
23,946
|
|
|
$
|
74,332
|
|
|
$
|
70,696
|
|
|
|
|
|
|
|
|
|
Same property
revenues
|
|
|
|
|
|
|
|
Rental
|
$
|
31,922
|
|
|
$
|
30,750
|
|
|
$
|
94,626
|
|
|
$
|
90,863
|
|
Tenant reimbursements
and other(3)
|
7,128
|
|
|
6,815
|
|
|
21,837
|
|
|
21,542
|
|
Total same property
revenues
|
39,050
|
|
|
37,565
|
|
|
116,463
|
|
|
112,405
|
|
Same property
operating expenses
|
|
|
|
|
|
|
|
Property(4)
|
9,437
|
|
|
9,195
|
|
|
28,044
|
|
|
28,612
|
|
Real estate taxes and
insurance
|
4,680
|
|
|
4,424
|
|
|
14,087
|
|
|
13,097
|
|
Total same property
operating expenses
|
14,117
|
|
|
13,619
|
|
|
42,131
|
|
|
41,709
|
|
Same property net
operating income
|
$
|
24,933
|
|
|
$
|
23,946
|
|
|
$
|
74,332
|
|
|
$
|
70,696
|
|
|
|
|
|
|
|
|
|
Same property net
operating income growth
|
4.1
|
%
|
|
|
|
5.1
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted Average
Occupancy For the
Three Months Ended September 30,
|
|
Weighted Average
Occupancy For the
Nine Months Ended September 30,
|
|
2016
|
|
2015
|
|
2016
|
|
2015
|
Same
Properties
|
92.8
|
%
|
|
91.5
|
%
|
|
92.4
|
%
|
|
90.1
|
%
|
|
|
|
|
|
|
|
|
Change in Same
Property NOI (accrual basis)
|
|
|
|
|
|
|
|
By
Region
|
Three Months
Ended
September 30, 2016
|
|
Percentage
of
Base Rent
|
|
Nine Months Ended
September 30, 2016
|
|
Percentage of
Base Rent
|
Washington,
D.C.
|
1.1%
|
|
29%
|
|
4.0%
|
|
29%
|
Maryland
|
7.9%
|
|
29%
|
|
9.1%
|
|
29%
|
Northern
Virginia
|
(1.2)%
|
|
23%
|
|
(0.9)%
|
|
23%
|
Southern
Virginia
|
9.3%
|
|
19%
|
|
8.2%
|
|
19%
|
|
|
|
|
|
|
|
|
By
Type
|
|
|
|
|
|
|
|
Business Park /
Industrial
|
3.8%
|
|
32%
|
|
3.2%
|
|
32%
|
Office
|
4.3%
|
|
68%
|
|
6.4%
|
|
68%
|
(1)
|
Same property
comparisons are based upon those consolidated properties owned and
in-service for the entirety of the periods presented. Same property
results for the three and nine months ended September 30, 2016 and
2015 exclude the operating results of all disposed properties and
the results of the following non-same property that was owned as of
September 30, 2016: the NOVA build-to-suit.
|
(2)
|
Includes property
results for the NOVA build-to-suit, and all properties that were
disposed of prior to September 30, 2016 and whose operations
remained classified within continuing operations for the periods
presented. Also includes an administrative overhead allocation,
which was replaced by a normalized management fee for comparative
purposes, and termination fee income.
|
(3)
|
Excludes termination
fee income for comparative purposes.
|
(4)
|
Same property
operating expenses have been adjusted to reflect a normalized
management fee in lieu of an administrative overhead allocation for
comparative purposes.
|
Company Contact:
Jaime N. Marcus
Director, Investor Relations
(301) 986-9200
jmarcus@first-potomac.com
To view the original version on PR Newswire,
visit:http://www.prnewswire.com/news-releases/first-potomac-realty-trust-reports-third-quarter-2016-results-300352902.html
SOURCE First Potomac Realty Trust