UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C.  20549

 

FORM 8-K

 

CURRENT REPORT

Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

 

Date of Report (Date of earliest event reported): August 14, 2014

 

TIER REIT, Inc.

(Exact Name of Registrant as Specified in Its Charter)

 

Maryland

 

000-51293

 

68-0509956

(State or other jurisdiction of
incorporation
or organization)

 

(Commission File Number)

 

(I.R.S. Employer
Identification No.)

 

17300 Dallas Parkway, Suite 1010, Dallas, Texas

75248

(Address of principal executive offices)

(Zip Code)

 

(972) 931-4300

(Registrant’s telephone number, including area code)

 

None

(Former name or former address, if changed since last report)

 

Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions:

 

o            Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)

 

o            Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)

 

o            Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))

 

o            Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))

 

 

 


 

Item 7.01                                           Regulation FD.

 

On August 14, 2014, TIER REIT, Inc., a Maryland corporation (which may be referred to herein as the “Registrant,” “we,” “our” or “us”), first used the presentation attached hereto as Exhibit 99.1 in connection with a conference call with stockholders and financial advisors to review second quarter 2014 results.  The information included in Item 7.01 of this Current Report on Form 8-K, including Exhibit 99.1, is being furnished and shall not be deemed “filed” for purposes of Section 18 of the Securities Exchange Act of 1934, as amended, or otherwise subject to the liabilities of that section, nor shall such information be deemed incorporated by reference in any filing under the Securities Act of 1933, as amended, or the Securities Exchange Act of 1934, as amended.

 

The presentation materials include information about Modified Funds from Operations (“MFFO”) and Same Store Cash Net Operating Income.  In order to derive MFFO, we begin with Funds from Operations (“FFO”), which is a non-GAAP financial measure that is widely recognized as a measure of REIT operating performance.  FFO is defined by the National Association of Real Estate Investment Trusts (“NAREIT”) in the April 2002 “White Paper on Funds From Operations” as net income (loss), computed in accordance with accounting principles generally accepted in the United State of America (“GAAP”), excluding extraordinary items, as defined by GAAP, gains (or losses) from sales of property and impairments of depreciable real estate (including impairments of investments in unconsolidated joint ventures and partnerships which resulted from measurable decreases in the fair value of the depreciable real estate held by the joint venture or partnership), plus depreciation and amortization on real estate assets, and after related adjustments for unconsolidated partnerships, joint ventures and subsidiaries, and noncontrolling interests.

 

Since FFO was promulgated, several new accounting pronouncements have been issued, such that management, industry investors and analysts have considered the presentation of FFO alone to be insufficient to evaluate operating performance. Accordingly, we use MFFO, as defined by the Investment Program Association (“IPA”), which excludes from FFO the following items:

 

(1)         acquisition fees and expenses;

(2)         straight line rent amounts, both income and expense;

(3)         amortization of above- or below-market intangible lease assets and liabilities;

(4)         amortization of discounts and premiums on debt investments;

(5)         impairment charges on real estate related assets to the extent not already excluded from net income in the calculation of FFO, such as impairments of non-depreciable properties, loans receivable, and equity and debt investments;

(6)         gains or losses from the early extinguishment of debt;

(7)         gains or losses on the extinguishment or sales of hedges, foreign exchange, securities and other derivative holdings except where the trading of such instruments is a fundamental attribute of our operations;

(8)         gains or losses related to fair value adjustments for interest rate swaps and other derivatives not qualifying for hedge accounting, foreign exchange holdings and other securities;

(9)         gains or losses related to consolidation from, or deconsolidation to, equity accounting;

(10)  gains or losses related to contingent purchase price adjustments; and

(11)  adjustments related to the above items for unconsolidated entities in the application of equity accounting.

 

The determination of whether impairment charges have been incurred is based partly on anticipated operating performance and hold periods.  Estimated undiscounted cash flows from a property, derived from estimated future net rental and lease revenues, net proceeds on the sale of the property, and certain other ancillary cash flows are taken into account in determining whether an impairment charge has been incurred.  While impairment charges for depreciable real estate are excluded from net income (loss) in the calculation of FFO and impairment charges for other real estate related assets are excluded in the calculation of MFFO as described above, impairments reflect a decline in the value of the applicable property that we may not recover.

 

1


 

Historical cost accounting for real estate assets in accordance with GAAP implicitly assumes that the value of real estate and intangibles diminishes predictably over time.  Since real estate values have historically risen or fallen with market conditions, many industry investors and analysts have considered the presentation of operating results for real estate companies that use historical cost accounting alone to be insufficient.  As a result, we believe that the use of MFFO, together with the required GAAP presentation, provides a more complete understanding of our performance because it excludes the adjustments in FFO and MFFO outlined above.  Factors that impact MFFO include fixed costs, lower yields on cash held in accounts, income from portfolio properties and other portfolio assets, interest rates on debt financing, and operating expenses.  When compared period over period, MFFO reflects the impact on operations from trends in occupancy rates, rental rates, operating costs, development activities, general and administrative expenses, and interest costs that are not immediately apparent from net income.  We believe fluctuations in MFFO are indicative of changes and potential changes in operating activities.

 

Accordingly, we believe that MFFO can be a useful metric to assist management, stockholders, and analysts in assessing the sustainability of operating performance.  MFFO is also more comparable in evaluating our performance over time.  We also believe that MFFO is a recognized measure of sustainable operating performance by the real estate industry and is useful in comparing the sustainability of our operating performance with the sustainability of the operating performance of other real estate companies that do not have a similar level of involvement in acquisition activities or are not similarly affected by impairments and other non-operating charges.  By providing MFFO, we believe we are presenting useful information that assists stockholders in better aligning their analysis with management’s analysis of long-term, core operating activities.

 

MFFO should neither be considered as an alternative to net income (loss), nor as an indication of our liquidity, nor is it indicative of funds available to fund our cash needs, including our ability to make distributions.  Additionally, the exclusion of impairments limits the usefulness of MFFO as an historical operating performance measure since an impairment charge indicates that operating performance has been permanently affected.  MFFO is not a useful measure in evaluating net asset value because impairments are taken into account in determining net asset value but not in determining MFFO.  MFFO is a non-GAAP measurement and should be reviewed in connection with other GAAP measurements.  Our MFFO attributable to common stockholders as presented may not be comparable to amounts calculated by other REITs that do not define FFO in accordance with the current NAREIT definition or MFFO in accordance with the current IPA definition or that interpret the definitions differently.

 

2


 

The following section presents our calculations of FFO attributable to common stockholders and MFFO attributable to common stockholders for the three months ended June 30 and March 31, 2014 (in thousands, except per share amounts):

 

 

 

Three Months Ended

 

 

 

June 30,

 

March 31,

 

 

 

2014

 

2014

 

 

 

 

 

 

 

Net loss

 

$

(17,300

)

$

(29,657

)

Net loss attributable to noncontrolling interests

 

21

 

43

 

 

 

 

 

 

 

Adjustments (1):

 

 

 

 

 

Real estate depreciation and amortization from consolidated properties

 

35,120

 

34,622

 

Real estate depreciation and amortization from unconsolidated properties

 

1,278

 

1,301

 

Impairment of depreciable real estate assets

 

—

 

8,225

 

Noncontrolling interest (OP units) share of above adjustments

 

(53

)

(64

)

FFO attributable to common stockholders

 

$

19,066

 

$

14,470

 

 

 

 

 

 

 

Adjustments (1) (2):

 

 

 

 

 

Straight-line rent adjustment

 

(1,646

)

(1,765

)

Amortization of above- and below-market rents, net

 

(1,210

)

(1,250

)

Noncontrolling interest (OP units)share of above adjustments

 

4

 

4

 

MFFO attributable to common stockholders

 

$

16,214

 

$

11,459

 

 

 

 

 

 

 

Weighted average common shares outstanding - basic

 

299,264

 

299,229

 

Weighted average common shares outstanding - diluted (3)

 

299,624

 

299,940

 

 

 

 

 

 

 

Net loss per common share - basic and diluted (3)

 

$

(0.06

)

$

(0.10

)

FFO per common share - basic and diluted

 

$

0.06

 

$

0.05

 

MFFO per common share - basic and diluted

 

$

0.05

 

$

0.04

 

 

(1)         Reflects the adjustments of continuing operations, as well as discontinued operations.

(2)         Includes adjustments for unconsolidated properties and noncontrolling interests.

(3)         There are no dilutive securities for purposes of calculating the net loss per common share.

 

Same Store Cash Net Operating Income (“Same Store Cash NOI”) is a non-GAAP financial measure equal to rental revenue, less lease termination fee income and non-cash revenue items, including straight-line rent adjustments and the amortization of above- and below-market rent, property operating expenses (excluding tenant improvement demolition costs), real estate taxes, and property management expenses for our same store properties. The same store properties include our consolidated operating properties owned and operated for the entirety of the current and comparable periods.  We view Same Store Cash NOI as an important measure of the operating performance of our properties because it allows us to compare operating results of consolidated properties owned for the entirety of the current and comparable periods and therefore eliminates variations caused by acquisitions or dispositions during the periods under review.

 

Same Store Cash NOI presented by us may not be comparable to Same Store Cash NOI reported by other REITs that do not define Same Store Cash NOI exactly as we do. We believe that in order to facilitate a clear understanding of our operating results, Same Store Cash NOI should be examined in conjunction with net income (loss) as presented in our condensed, consolidated financial statements and notes thereto. Same Store Cash NOI should not be considered as an alternative to net income (loss), as an indication of our performance or to cash flows as a measure of liquidity or our ability to make distributions.

 

3


 

The following table presents our calculations of Same Store Cash NOI with a reconciliation to net income (loss) for the three months ended June 30 and March 31, 2014 (in thousands). The same store properties for these comparisons consist of 36 properties and 13.5 million square feet.

 

 

 

Three Months Ended

 

 

 

June 30,

 

March 31,

 

 

 

2014

 

2014

 

 

 

 

 

 

 

Same Store Revenue:

 

 

 

 

 

Total revenue

 

$

85,044

 

$

83,767

 

Less:

 

 

 

 

 

Straight-line rent revenue adjustment

 

(1,367

)

(1,562

)

Amortization of above- and below-market rents, net

 

(1,109

)

(1,154

)

Lease termination fees

 

(740

)

(195

)

 

 

 

 

 

 

 

 

81,828

 

80,856

 

 

 

 

 

 

 

Same Store Expenses:

 

 

 

 

 

Property operating expenses (less tenant improvement demolition costs)

 

27,011

 

29,090

 

Real estate taxes

 

12,626

 

12,726

 

Property management fees

 

2,526

 

2,541

 

Property Expenses

 

42,163

 

44,357

 

 

 

 

 

 

 

Same Store Cash NOI

 

$

39,665

 

$

36,499

 

 

 

 

 

 

 

Reconciliation of net loss to Same Store Cash NOI:

 

 

 

 

 

Net loss

 

$

(17,300

)

$

(29,657

)

Adjustments to reconcile net loss to Same Store Cash NOI:

 

 

 

 

 

Interest expense

 

21,335

 

21,081

 

Asset impairment losses

 

—

 

8,225

 

Tenant improvement demolition costs

 

84

 

746

 

General and administrative expense

 

4,606

 

4,695

 

Depreciation and amortization expense

 

35,120

 

34,622

 

Interest and other income

 

(94

)

(246

)

Provision (benefit) for income taxes

 

(59

)

68

 

Equity in (earnings) of investments

 

(795

)

(88

)

Income from discontinued operations

 

(16

)

(36

)

Straight-line rent revenue adjustment

 

(1,367

)

(1,562

)

Amortization of above- and below-market rents, net

 

(1,109

)

(1,154

)

Lease termination fees

 

(740

)

(195

)

Same Store Cash NOI

 

$

39,665

 

$

36,499

 

 

Item 9.01.                                        Financial Statements and Exhibits.

 

(d)                                 Exhibits.

 

99.1                       TIER REIT, Inc. — Second Quarter 2014 Conference Call Presentation

 

4


 

SIGNATURE

 

Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

 

 

 

 

TIER REIT, INC.

 

 

 

 

Dated:  August 14, 2014

By:

/s/ Telisa Webb Schelin

 

 

Telisa Webb Schelin

 

 

Senior Vice President — Legal, General Counsel & Secretary

 

5


 

Exhibit Index

 

Exhibit
Number

 

Description

99.1

 

TIER REIT, Inc. — Second Quarter 2014 Conference Call Presentation

 

6

Exhibit 99.1

 

Second Quarter 2014 Conference Call August 14, 2014 TIERREIT.COM © 2014 TIER REIT, Inc. Burnett Plaza–Ft. Worth, TX Winner of the 2013-2014 International TOBY Award As Outstanding Building of the Year

 


 

Forward-Looking Statements This presentation contains forward-looking statements, including discussion and analysis of the financial condition of us and our subsidiaries and other matters. These forward-looking statements are not historical facts but are the intent, belief or current expectations of our management based on their knowledge and understanding of our business and industry. Words such as “may,” “anticipates,” “expects,” “intends,” “plans,” “believes,” “seeks,” “estimates,” “would,” “could,” “should” and variations of these words and similar expressions are intended to identify forward-looking statements. We intend that such forward-looking statements be subject to the safe harbor provisions created by Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. These statements are not guarantees of future performance and are subject to risks, uncertainties and other factors, some of which are beyond our control, are difficult to predict and could cause actual results to differ materially from those expressed or forecasted in the forward-looking statements. Forward-looking statements that were true at the time made may ultimately prove to be incorrect or false. We caution you not to place undue reliance on forward-looking statements, which reflect our management’s view only as of the date of this presentation. We undertake no obligation to update or revise forward-looking statements to reflect changed assumptions, the occurrence of unanticipated events or changes to future operating results.

 


 

Forward-Looking Statements Factors that could cause actual results to differ materially from any forward-looking statements made in the presentation include but are not limited to: market and economic challenges experienced by the U.S. economy or real estate industry as a whole and the local economic conditions in the markets in which our properties are located; our ability to renew expiring leases and lease vacant spaces at favorable rates or at all; the inability of tenants to continue paying their rent obligations due to bankruptcy, insolvency or a general downturn in their business; the availability of cash flow from operating activities to fund distributions and capital expenditures; our ability to raise capital in the future by issuing additional equity or debt securities, selling our assets or otherwise to fund our future capital needs; our ability to strategically acquire or dispose of assets on favorable terms; our level of debt and the terms and limitations imposed on us by our debt agreements; our ability to retain our executive officers and other key personnel; conflicts of interest and competing demands faced by certain of our directors; limitations on our ability to terminate our property management agreement and certain services under our administrative services agreement; unfavorable changes in laws or regulations impacting our business or our assets; and factors that could affect our ability to qualify as a real estate investment trust. The forward-looking statements should be read in light of these and other risk factors identified in the “Risk Factors” section of our 2013 Annual Report on Form 10-K for the year ended December 31, 2013, as filed with the Securities and Exchange Commission.

 


 

Company Objectives Maximize stockholder value Generate cash flow sufficient to reinstate distributions Provide stockholder liquidity

 


 

Strategic Plan Positioning the Company for Liquidity and Reinstatement of Distributions Lease the portfolio and increase occupancy to drive internal growth Capitalize on strong debt markets to optimize leverage structure and lower borrowing costs Sharpen the geographic focus by selling non-strategic assets Redeploy capital in an accretive manner to provide external growth

 


 

*Measured by percent of net operating income generated during the three months ended June 30, 2014. Portfolio Characteristics as of June 30, 2014 Includes our pro rata ownership share of unconsolidated properties. Market Presence* Operating properties 38 Square feet(1) 14.4 million Occupancy(1) 86% Markets 19

 


 

Second Quarter 2014 Operating Results and Highlights Diluted MFFO for the second quarter was $0.05 per common share An increase of $0.01 per common share as compared to the first quarter 2014 Leased 447,000 SF during the quarter Increased occupancy to 86% Increased same store cash NOI in the second quarter as compared to the first quarter by $3.2 million, or 8.7% Primarily due to growth in same store occupancy and reductions in property operating expense Two BriarLake Plaza base building construction was completed Repaid our only remaining 2014 debt maturity of $26.3 million with cash on hand Note: Reconciliations of net income (loss) to MFFO attributable to common stockholders and same store cash NOI are contained in the Current Report on Form 8-K filed on August 14, 2014.

 


 

Portfolio Occupancy Market Net rentable area (in thousands of SF) March 2014 June 2014 % Change Current Leasing Activity** Nashville, TN 361 65% 83% +18% Austin, TX 619 86% 89% +3% Charlotte, NC 891 87% 88% +1% Chicago, IL 2,225 78% 79% +1% Louisville, KY 1,111 82% 83% +1% Other* 2,204 84% 85% +1% Baltimore, MD 648 86% 86% - Houston, TX 1,901 94% 94% - Tampa, FL 130 57% 57% - Washington, D.C. 486 73% 73% - Philadelphia, PA 2,565 94% 92% -2% Dallas/Ft. Worth, TX 1,158 85% 81% -4% Atlanta, GA 65 85% 78% -7% Total 14,364 85% 86% +1% Note: Includes all properties owned as of June 30, 2014. Represents our pro rata ownership share of unconsolidated properties. * Represents seven of the Company’s non-strategic markets. ** Current leasing activity represents our leasing pipeline, which includes proposals, letters of intent and leases signed subsequent to quarter end.

 


 

Debt Maturities as of June 30, 2014 (includes share of unconsolidated debt) (In Millions) $195 - 222 S. Riverside Plaza $150 - Bank of America Plaza $126 - The Terrace Office Park $100 - 1325 G Street $97 - Fifth Third Cleveland & Columbus $65 - Three Parkway $48 – Woodcrest Corporate Center $33 – Two BriarLake Plaza $24 – Plaza at MetroCenter (1) Weighted average interest rate $103 – Burnett Plaza $92 - Louisville $59 - United Plaza $54 – Lawson Commons $43 - Loop Central $33 – 250 W. Pratt $26 - Other $410 (5.2%)1 $838 (5.7%)1 $139 (5.5%)1 $145 (5.5%)1

 


 

Strategic Plan Capitalize on strong debt markets to optimize leverage structure and lower borrowing costs Accelerate the refinance/repayment of $1.2 billion above-market mortgage debt maturing through 2016 by: Selling non-strategic properties and using net proceeds to repay or reduce 2015/2016 debt maturities Evaluate opportunities to issue new attractively priced debt Manage resources to provide sufficient capital to right-size overall company leverage as debt is refinanced through 2016

 


 

250 West Pratt Baltimore, MD Wanamaker Building Philadelphia, PA The Terrace Austin, TX Burnett Plaza Fort Worth, TX Three Eldridge Place Houston, TX FOUR40 Chicago, IL Colorado Building Washington, D.C. BriarLake Houston, TX Bank of America Plaza Charlotte, NC

 


 

Playback Information An audio link for a playback of today’s call will be on our website at www.tierreit.com/ir A recorded playback of today’s call will also be available for 30 days by calling toll free (800) 633-8284 and using passcode 21718884 Today’s presentation has been filed with the SEC on Form 8-K and is available on our website at www.tierreit.com/ir under the heading SEC Filings Save the date! TIER REIT’s third quarter conference call will be held on Thursday, November 13, 2014. Please check our website for details, and sign up at www.tierreit.com/ir for conference call information and other timely communications

 


 

Questions Terrace Office Park Austin, TX

 


 

Playback Information An audio link for a playback of today’s call will be on our website at www.tierreit.com/ir A recorded playback of today’s call will also be available for 30 days by calling toll free (800) 633-8284 and using passcode 21718884 Today’s presentation has been filed with the SEC on Form 8-K and is available on our website at www.tierreit.com/ir under the heading SEC Filings Save the date! TIER REIT’s third quarter conference call will be held on Thursday, November 13, 2014. Please check our website for details, and sign up at www.tierreit.com/ir for conference call information and other timely communications