CommonWealth REIT (CWH)

CWH 
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CommonWealth REIT (CWH)

Q1 2013 Earnings Call

May 08, 2013 1:00 pm ET

Executives

Timothy A. Bonang - Vice President of Investor Relations

Adam David Portnoy - Principal Executive Officer, President and Managing Trustee

John Christopher Popeo - Chief Financial Officer, Principal Accounting Officer, Assistant Secretary and Treasurer

Analysts

Mitchell B. Germain - JMP Securities LLC, Research Division

Michael Bilerman - Citigroup Inc, Research Division

Richard C. Moore - RBC Capital Markets, LLC, Research Division

Presentation

Operator

Good day, and welcome to the CommonWealth REIT First Quarter Financial Results Conference Call. This call is being recorded. At this time, for opening remarks and introductions, I would like to turn the call over to Vice President of Investor Relations, Mr. Tim Bonang. Please go ahead, sir.

Timothy A. Bonang

Thank you, and good afternoon. Joining me on today’s call are Adam Portnoy, President and Managing Trustee; and John Popeo, Treasurer and Chief Financial Officer.

Before we begin today’s call, I would like to read our Safe Harbor statement. Today’s conference call contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995 and other securities laws. These forward-looking statements are based on CommonWealth REIT's present beliefs and expectations as of today, May 8, 2013.

Forward-looking statements are not guaranteed to occur. Actual results may differ materially from those projected or implied by any forward-looking statements. Information concerning factors that could cause those differences is contained in our annual report on Form 10-K and current reports on Form 8-K filed with the Securities and Exchange Commission or SEC; our first quarter quarterly report on Form 10-Q, which we expect to file with the SEC later this week; and in our Q1 supplemental operating and financial data package, which can be found in the Investor Relations section of our website at www.cwhreit.com.

Any matters described in forward-looking statements are not guaranteed to occur. The company undertakes no obligation to revise or publicly release the results of any revisions of the forward-looking statements made in today's conference call as a result of new information, future events or otherwise. Investors are cautioned not to place undue reliance upon any forward-looking statements.

In addition, this call may contain non-GAAP numbers, including funds from operations or FFO; normalized FFO; cash available for distribution or CAD; earnings before interest, taxes, depreciation and amortization or EBITDA; property net operating income or NOI; and cash basis property net operating income or cash NOI. The definition of each of these non-GAAP measures and a reconciliation of each of them to net income, and a reconciliation of normalized FFO to FFO, are available on our Q1 supplemental operating and financial data package.

I would also note that the transcription, recording and retransmission of today's conference call are strictly prohibited without the prior written consent of CommonWealth REIT.

And now I would like to turn the call over to Adam Portnoy.

Adam David Portnoy

Thank you, Tim. Before I review first quarter results, I want to remind everyone that the company, its manager and its trustees are currently involved in various lawsuits, including litigation, concerning the ability of certain shareholders to undertake a written consent solicitation to remove our Board of Trustees.

During today's call, we will only be discussing matters relating to the company's results of operations, and we will not be commenting on or answering questions regarding pending litigation, the alleged consent solicitation or any purported offer to acquire the company. The purpose of today's call is to discuss the company's first quarter results. We open the call up for Q&A. I ask that you please focus your questions on the company's results of operations.

Also, I wanted to let you know that in response to shareholder request, we have made some changes to our supplemental operating and financial data package. In order to report statistics comparable to some of our competitors, we have included the calculation of same property cash NOI, as well as calculated the percentage change in cash rents for leases signed during the quarter. Historically, both of these metrics were only reported on a GAAP basis. We hope this additional information will help investors to analyze and compare the performance of CommonWealth REIT.

Turning now to our first quarter results. For the quarter ended March 31, 2013, we're reporting fully diluted normalized FFO of $0.78 per share compared to $0.90 per share during the same period last year. During the quarter, we continue to implement our business plan of focusing on the ownership and operation, high-quality central business district or CBD office properties, selling suburban properties and other assets and paying down debt. We also made good progress in executing our business plan during the quarter, having increased the portfolio's concentration of CBD office properties to 60.4% of wholly-owned property NOI and by reducing our debt load by approximately $830 million.

On a consolidated basis, during the quarter, we signed over 120 individual leases for 1.7 million square feet, with 70% of this square feet representing renewals and 30% representing new leases. The average term for the leases entered into or renewed during the quarter was 5.9 years and the weighted average cash rental rates were 1% below prior rents for the same space. Capital cost commitments associated with leasing activity this quarter were $11.86 per square foot or about $2.01 per square foot per lease year.

Of the 1.7 million square feet of leasing activity during the first quarter, 25% of the square feet involves CBD office properties, which had a 4% roll-up in cash rents, and 38% involved industrial properties, which had a 6% roll-up in cash rents. The remaining 37% of our square feet leased during the quarter involved our suburban office properties, which had an 8% roll down in cash rents.

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