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TIER REIT, Inc.$23.21$.18.78%

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 TIER REIT Announces Fourth Quarter & Full Year 2017 Financial Results
   Monday, February 12, 2018 4:40:00 PM ET

--FFO, Excluding Certain Items, for Full Year 2017 of $1.57 per Diluted Common Share

--Net Loss for Fourth Quarter of $0.21 per Diluted Common Share

--FFO, Excluding Certain Items, for Fourth Quarter of $0.40 per Diluted Common Share

--3.1% and 4.2% Same Store NOI Growth & Same Store Cash NOI Growth, Respectively, for Full Year 2017

--Announces 500 East Pratt, Loop Central & Centreport Under Contract for Sale

--Acquires Domain Point in Strategic Expansion of The Domain

--Announces Appointment of Certain Officers

--2018 Outlook Provided

TIER REIT, Inc. (TIER ), a Dallas-based real estate investment trust that specializes in owning and operating best-in-class office properties in select U.S. markets, today announced financial and operating results for the fourth quarter and full year ended December 31, 2017.

Fourth Quarter & Full Year 2017 Highlights

-- Recognized a net loss of $0.21 per diluted common share for the fourth quarter and net income of $1.75 per diluted common share for the full year 2017

-- Reported Funds from Operations (FFO) attributable to common stockholders of $0.39 per diluted common share for the fourth quarter and $1.50 per diluted common share for the full year 2017

-- Reported FFO, Excluding Certain Items, attributable to common stockholders of $0.40 per diluted common share for the fourth quarter and $1.57 per diluted common share for the full year 2017

-- Recognized Same Store NOI Growth of 3.1% for the full year 2017

-- Recognized Same Store Cash NOI Growth of 4.2% for the full year 2017

-- Increased occupancy by 80 basis points during the fourth quarter to 89.1% at December 31, 2017

"We continue to make strong progress on our strategic plan," stated Scott W. Fordham, President & Chief Executive Officer, "and are pleased to have successfully executed on our key objectives this past year."

"We exited five markets during 2017," continued Mr. Fordham, "and we announced today that we are under contract on 500 East Pratt in Baltimore, Loop Central in Houston, and Centreport Office Center in Fort Worth. Exiting Baltimore and downsizing our Houston and Fort Worth portfolios will further our continued efforts to sharpen our geographic footprint and improve the overall quality of our portfolio. Subject to normal closing conditions, we expect to complete these transactions during the first quarter."

"Looking forward, we are excited by the opportunity to continue creating value within Austin," added Mr. Fordham. "This includes our recent acquisition of Domain Point, which is comprised of two office buildings that total approximately 240,000 square feet on over 9.5 acres of land. As part of our acquisition, we exercised our exclusive rights to rebrand and include the property as part of The Domain, bringing our total Austin office ownership to over 2.1 million square feet, including properties under construction that are over 95% leased."

"We’ve always known Austin is a special city," remarked Mr. Fordham, "and we are pleased to see its prominence grow not only within our portfolio, but also as one of the nation’s most desirable places to live, work and play. Our existing ability to develop at least 1.2 million square feet inside The Domain, plus future redevelopment opportunities, positions us for significant additional value creation opportunities within Austin."

Fourth Quarter & Full Year Financial Results

For the fourth quarter of 2017, net loss attributable to common stockholders was $9.9 million, or $0.21 per diluted common share, as compared to a net loss of $6.3 million, or $0.13 per diluted common share, for the fourth quarter of 2016. For the full year 2017, net income was $84.3 million, or $1.75 per diluted common share, as compared to a net loss of $29.4 million, or $0.62 per diluted common share, for 2016.

For the fourth quarter of 2017, NAREIT-defined FFO attributable to common stockholders was $19.0 million, or $0.39 per diluted common share, as compared to $18.9 million, or $0.40 per diluted common share, for the fourth quarter of 2016. For 2017, NAREIT-defined FFO was $71.9 million, or $1.50 per diluted common share, as compared to $76.5 million, or $1.60 per diluted common share, for 2016.

For the fourth quarter of 2017, FFO attributable to common stockholders, excluding certain items, was $19.4 million, or $0.40 per diluted common share, as compared to $19.1 million, or $0.40 per diluted common share, for the fourth quarter of 2016. For the full year 2017, FFO, excluding certain items, was $75.1 million, or $1.57 per diluted common share, as compared to $79.5 million, or $1.66 per diluted common share, for 2016.

Property Results

Our occupancy at December 31, 2017, was 89.1%, an increase of 80 basis points from September 30, 2017.

During the fourth quarter of 2017, we leased 165,000 square feet, which included 30,000 square feet of renewals, 2,000 square feet of expansions, and 133,000 square feet of new leasing.

During the fourth quarter of 2017, we continued to abate rent at One & Two Eldridge Place and Three Eldridge Place (collectively known as the "Eldridge Properties"), located in Houston, Texas, because the properties had not been restored to pre-loss condition following Hurricane Harvey. Rent abatements of $5.1 million and $7.0 million were provided to tenants for the fourth quarter of 2017 and for the year, respectively. A total of $6.2 million of these losses was recovered from business interruption insurance proceeds in the fourth quarter, which included $1.9 million for the third quarter and $4.3 million for the fourth quarter, net of a deductible and estimated saved expenses.

Subsequent to quarter end, the total office space leased at our Third + Shoal development property increased to over 90% (88.7% of the total rentable space).

Real Estate Activity

Subsequent to quarter end, on January 4, 2018, we acquired a 96.5% promoted economic interest in Domain Point. Domain Point is located in Austin, Texas, adjacent to our other Domain office properties and includes two buildings with 240,000 rentable square feet (combined).

Further, we are currently under contract to sell three properties that are outside of our target growth markets or our target submarkets. These properties consist of 500 East Pratt, located in Baltimore, Maryland, with approximately 280,000 rentable square feet; Loop Central, located in Houston, Texas, with approximately 575,000 rentable square feet; and Centreport Office Center, located in Fort Worth, Texas, with approximately 133,000 rentable square feet. These properties are under contracts for an aggregate anticipated sales price of approximately $145.0 million, and each is expected to close during the first quarter of 2018. The sale of each of these properties is subject to closing conditions, and there is no assurance we will sell these properties on the terms or timing we expect or at all.

Capital Markets Activity

On October 27, 2017, we entered into a construction loan secured by Third + Shoal with available borrowings of up to $103.8 million (at 100%). The loan is scheduled to mature in October 2021, with two, one-year extension options, subject to certain conditions and our payment of an extension fee.

On November 3, 2017, our board of directors authorized a distribution of $0.18 per share of common stock for the fourth quarter of 2017, which was paid on December 29, 2017.

Subsequent to quarter end, on February 7, 2018, our board of directors authorized a distribution of $0.18 per share of common stock for the first quarter of 2018, payable on March 29, 2018.

Subsequent to quarter end, on January 18, 2018, we amended our existing multi-bank unsecured credit facility. The amendment provides for total unsecured borrowings under the credit facility to increase from $860 million to $900 million, with the ability to further increase total borrowings by up to an additional $300 million in the aggregate subject to certain requirements. The revolving line of credit was increased to $325 million and the maturity date extended from December 2018 to January 2022, which can be extended one additional year subject to certain conditions and our payment of an extension fee, and the maturity date of the $300 million term loan was extended from December 2019 to January 2025.

Appointment of Certain Officers

On February 8, 2018, our board of directors appointed Dallas E. Lucas as our President and Chief Operating Officer, James E. Sharp as our Chief Financial Officer and Treasurer, and Hannah Wrenn as our Chief Accounting Officer, in each case effective as of February 15, 2018. Mr. Fordham will remain our Chief Executive Officer and a director.

2018 Outlook

We have released our 2018 outlook to reflect management’s view of current and future market conditions, including assumptions such as acquisition and disposition activity, rental rates, occupancy levels, operating and general and administrative expenses, weighted average diluted shares outstanding, and interest rates.

Our 2018 outlook and assumptions are as follows:

 
                                                                    2018 Outlook
-----------------------------------------------------------------------------------------------------------------------------------------------------
Projected net loss per basic & diluted common share                      ($0.15) - ($0.08)
Adjustments:
   Real estate depreciation and amortization                                                                                            $1.92
   Gain on sale of depreciable real estate                                    ($0.55)
---------------------------------------------------------------- -------------------- -------------------- -------------------- --------------------
Projected FFO per diluted common share                                                                                              $1.22 - $1.29
Adjustments:
   Reversal of Fifth Third Center default interest                                                                                      $0.05
   Loss on early extinguishment of debt(1)                                     $0.18
---------------------------------------------------------------- -------------------- -------------------- -------------------- --------------------
Projected FFO, excluding certain items, per diluted common share                                                                    $1.45 - $1.52
                                                                                                                                 
Assumptions used in 2018 outlook above:
Dispositions of non-target properties                                                                                              $145mm - $270mm
Strategic acquisitions                                                                                                             $75mm - $175mm
Same store cash NOI growth                                                                                                           6.5% - 7.5%
Same store NOI growth                                                                                                                0.5% - 1.5%
Straight line rent and lease incentive revenue                                                                                     $5.5mm - $6.5mm
Above- and below-market rent amortization                                                                                          $5.5mm - $6.5mm
General & administrative expenses, excluding certain items                                                                        $21.0mm - $22.0mm
Year-end occupancy                                                                                                                  88.5% - 90.5%
Weighted average shares of common stock outstanding                           48.5mm
---------------------------------------------------------------- -------------------- -------------------- -------------------- --------------------

(1) Represents $8.5mm loss from write-off of deferred financing costs upon recast of our credit facility on January 18, 2018

Supplemental Information

A copy of our supplemental information regarding our financial results and operations for the quarter ended December 31, 2017, is available on our Investor Relations website at www.tierreit.com/ir, or by contacting our Investor Relations department by email to ir@tierreit.com.

Conference Call

A conference call will be held on Tuesday, February 13, 2018, at 11:00 a.m. Eastern time/10:00 a.m. Central time to discuss matters pertaining to this release. Callers in the US or Canada may join the conference call by dialing 877.407.0789.

A live, listen-only webcast and subsequent replay will also be available on our Investor Relations website at www.tierreit.com/ir.

About TIER REIT, Inc.

TIER REIT, Inc. is a publicly traded (TIER ), self-managed, Dallas-based real estate investment trust focused on owning quality, well-managed commercial office properties in dynamic markets throughout the U.S. Our vision is to be the premier owner and operator of best-in-class office properties in TIER1 submarkets, which are primarily higher density and amenity-rich locations within select, high-growth metropolitan areas that offer a walkable experience to various amenities. Our mission is to provide unparalleled, TIER ONE Property Services to our tenants and outsized total return through stock price appreciation and dividend growth to our stockholders.

For additional information regarding TIER REIT, please visit www.tierreit.com or call 972.483.2400.

Forward-Looking Statements

This press release contains forward-looking statements within the meaning of the federal securities laws relating to the business and financial outlook of TIER REIT that are based on our current expectations, estimates, forecasts and projections and are not guarantees of future performance. These forward-looking statements include discussion and analysis of the financial condition of us and our subsidiaries, including our ability to rent space on favorable terms, our ability to address debt maturities and fund our capital requirements, our intentions to acquire and sell certain properties, our intentions with respect to development activity, the value of our assets, our anticipated capital expenditures, the amount and timing of any anticipated future cash distributions to our stockholders, and other matters. Words such as "may," "will," "anticipates," "expects," "intends," "plans," "believes," "seeks," "estimates," "outlook," "would," "could," "should," "objectives," "strategies," "opportunities," "goals," "position," "future," "vision," "mission," "strive," "project" and variations of these words and similar expressions are intended to identify forward-looking statements.

Actual results may differ materially from those expressed in these forward-looking statements, and you should not place undue reliance on any such statements. Factors that could cause actual results to vary materially from those expressed in forward-looking statements include changes in real estate conditions and in the capital markets, as well as the risk factors included in our Annual Report on Form 10-K for the fiscal year ended December 31, 2017, and in our other filings with the Securities and Exchange Commission. Forward-looking statements in this press release speak only as of the date on which such statements were made and, except as required by law, we undertake no obligation to update any such statements that may become untrue because of subsequent events.

 
 
                                                                                                                               TIER REIT, Inc.
                                                                                                                         Consolidated Balance Sheets
                                                                                                             (in thousands, except share and per share amounts)
 
                                                                                                 December 31,                                                 December 31,
                                                                                                                        2017                                                         2016       
                                                                                                                 -------------------- -------------- --------------------                                           -------------------- -------------- --------------------
Assets
   Real estate
      Land                                                                                                                          $        139,951                                                                                   $        143,537
      Land held for development                                                                                                               45,059                                                                                             45,059
      Buildings and improvements, net                                                                                                      1,061,418                                                                                          1,043,641
      Real estate under development                                                                                        29,525                                                       17,961  
                                                                                                                 -------------------- -------------- --------------------                                           -------------------- -------------- --------------------
   Total real estate                                                                                                                       1,275,953                                                                                          1,250,198
   Cash and cash equivalents                                                                                                                  13,800                                                                                             14,884
   Restricted cash                                                                                                                             8,510                                                                                              7,509
   Accounts receivable, net                                                                                                                   81,129                                                                                             71,459
   Prepaid expenses and other assets                                                                                                          28,112                                                                                             25,305
   Investments in unconsolidated entities                                                                                                     31,852                                                                                             76,813
   Deferred financing fees, net                                                                                                                1,387                                                                                              2,395
   Lease intangibles, net                                                                                                                     87,047                                                                                             61,844
   Other intangible assets, net                                                                                                       --                                                                                              9,787
   Assets associated with real estate held for sale                                                                        53,348                                                       32,346  
                                                                                                                 -------------------- -------------- --------------------                                           -------------------- -------------- --------------------
Total assets                                                                                                                        $      1,581,138                                                                $      1,552,540  
                                                                                                                 ==================== ============== ====================                                           ==================== ============== ====================
                                                                                                                                                                                                                     
Liabilities and equity
                                                                                                                                                                                                                     
Liabilities
   Notes payable, net                                                                                                               $        794,538                                                                                   $        826,783
   Accounts payable and accrued liabilities                                                                                                   81,166                                                                                             74,458
   Acquired below-market leases, net                                                                                                          17,942                                                                                              6,886
   Distributions payable                                                                                                              --                                                                                              8,601
   Other liabilities                                                                                                                           7,567                                                                                             14,353
   Obligations associated with real estate held for sale                                                                    2,354                                                          943  
                                                                                                                 -------------------- -------------- --------------------                                           -------------------- -------------- --------------------
Total liabilities                                                                                                         903,567                                                      932,024  
                                                                                                                 -------------------- -------------- --------------------                                           -------------------- -------------- --------------------
                                                                                                                                                                                                                     
Commitments and contingencies
                                                                                                                                                                                                                     
Equity
   Preferred stock, $.0001 par value per share; 17,500,000 shares                                                                     --                                                                                     --
   authorized at December 31, 2017 and 2016, respectively, none
   outstanding
   Convertible stock, $.0001 par value per share; 1,000 shares                                                                        --                                                                                     --
   authorized, none outstanding
   Common stock, $.0001 par value per share; 382,499,000 shares                                                                                    5                                                                                                  5
   authorized, 47,623,324 and 47,473,218 shares issued and outstanding
   at December 31, 2017 and 2016, respectively
   Additional paid-in capital                                                                                                              2,609,540                                                                                          2,606,098
   Cumulative distributions and net loss attributable to common                                                                           (1,936,960 )                                                                                       (1,986,515 )
   stockholders
   Accumulated other comprehensive income (loss)                                                                            4,218                                                       (1,042 )
                                                                                                                 -------------------- -------------- --------------------                                           -------------------- -------------- --------------------
Stockholders’ equity                                                                                              676,803                                                                                            618,546
Noncontrolling interests                                                                                                      768                                                        1,970  
                                                                                                                 -------------------- -------------- --------------------                                           -------------------- -------------- --------------------
Total equity                                                                                                              677,571                                                      620,516  
                                                                                                                 -------------------- -------------- --------------------                                           -------------------- -------------- --------------------
Total liabilities and equity                                                                                                        $      1,581,138                                                                $      1,552,540  
                                                                                                                 ==================== ============== ====================                                           ==================== ============== ====================
 
 
                                                                                                                                                                                                                                 TIER REIT, Inc.
                                                                                                                                                                                                         Consolidated Statements of Operations and Comprehensive Income
                                                                                                                                                                                                                                     (Loss)
                                                                                                                                                                                                               (in thousands, except share and per share amounts)
 
                                                                                                                                                 Three Months Ended                                                                                                                                                Year Ended
                                                                                                                  ------------------------------------------------------------------------------------------------------------------------------------------------------------                                          --------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                                                                                        December 31,                                                 December 31,                                                                                     December 31,                                               December 31,
                                                                                                                                            2017                                                                                               2016                                                                                             2017                                                                                             2016
                                                                                                                  ---------------------------------------------------------                                          ---------------------------------------------------------                                          -----------------------------------------------------                                          ---------------------------------------------------------
Rental revenue                                                                                                                       $         54,626                                                                $         54,075                                                                $    216,461                                                                $        242,818  
                                                                                                                  -------------------- -------------- --------------------                                           -------------------- -------------- --------------------                                           -------------------- ---------- --------------------                                           -------------------- -------------- --------------------
Expenses
   Property operating expenses                                                                                                                 14,131                                                                                             15,998                                                                                         55,921                                                                                             72,603
   Interest expense                                                                                                                             8,155                                                                                              8,565                                                                                         33,576                                                                                             43,257
   Real estate taxes                                                                                                                            8,512                                                                                              7,454                                                                                         34,264                                                                                             36,297
   Property management fees                                                                                                                        51                                                                                                197                                                                                            232                                                                                                917
   Asset impairment losses                                                                                                                      5,250                                                                                     --                                                                                          5,250                                                                                              8,977
   General and administrative                                                                                                                   4,956                                                                                              5,796                                                                                         21,446                                                                                             23,649
   Depreciation and amortization                                                                                            23,788                                                       23,856                                                   94,754                                                      111,830  
                                                                                                                  -------------------- -------------- --------------------                                           -------------------- -------------- --------------------                                           -------------------- ---------- --------------------                                           -------------------- -------------- --------------------
Total expenses                                                                                                              64,843                                                       61,866                                                  245,443                                                      297,530  
                                                                                                                  -------------------- -------------- --------------------                                           -------------------- -------------- --------------------                                           -------------------- ---------- --------------------                                           -------------------- -------------- --------------------
Interest and other income                                                                                                                          88                                                                                                303                                                                                          1,359                                                                                              1,169
Loss on early extinguishment of debt                                                                                --                                               --                                                     (545 )                                                                --  
                                                                                                                  -------------------- -------------- --------------------                                           -------------------- -------------- --------------------                                           -------------------- ---------- --------------------                                           -------------------- -------------- --------------------
Loss before income taxes, equity in operations of investments,                                                                                (10,129 )                                                                                           (7,488 )                                                                                      (28,168 )                                                                                          (53,543 )
and gains
Provision for income taxes                                                                                                                       (171 )                                                                                             (188 )                                                                                         (468 )                                                                                             (655 )
Equity in operations of investments                                                                                             32                                                          685                                                    6,399                                                        2,569  
                                                                                                                  -------------------- -------------- --------------------                                           -------------------- -------------- --------------------                                           -------------------- ---------- --------------------                                           -------------------- -------------- --------------------
Loss before gains                                                                                                          (10,268 )                                                                        (6,991 )                                                                   (22,237 )                                                                       (51,629 )
                                                                                                                  -------------------- -------------- --------------------                                           -------------------- -------------- --------------------                                           -------------------- ---------- --------------------                                           -------------------- -------------- --------------------
Gain on sale of assets                                                                                                                            384                                                                                                650                                                                                         92,396                                                                                             22,176
Gain on remeasurement of investment in unconsolidated entities                                                      --                                               --                                                   14,168                                               --  
                                                                                                                  -------------------- -------------- --------------------                                           -------------------- -------------- --------------------                                           -------------------- ---------- --------------------                                           -------------------- -------------- --------------------
Net income (loss)                                                                                                                              (9,884 )                                                                                           (6,341 )                                                                                       84,327                                                                                            (29,453 )
   Noncontrolling interests                                                                                                      9                                                            8                                                      (41 )                                                                            36  
                                                                                                                  -------------------- -------------- --------------------                                           -------------------- -------------- --------------------                                           -------------------- ---------- --------------------                                           -------------------- -------------- --------------------
Net income (loss) attributable to common stockholders                                                                                $         (9,875 )                                                                                 $         (6,333 )                                                                                 $     84,286                                                                $        (29,417 )
                                                                                                                  ==================== ============== ====================                                           ==================== ============== ====================                                           ==================== ========== ====================                                           ==================== ============== ====================
                                                                                                                                                                                                                                                                                                                                                                                                                        
Basic weighted average common shares outstanding                                                                                           47,553,564                                                                                         47,414,021                                                                                     47,537,758                                                                                         47,405,564
Diluted weighted average common shares outstanding                                                                                         47,553,564                                                                                         47,414,021                                                                                     47,882,642                                                                                         47,405,564
                                                                                                                                                                                                                                                                                                                                                                                                                        
Basic income (loss) per common share                                                                                                 $          (0.21 )                                                                                 $          (0.13 )                                                                                 $       1.76                                                                                   $          (0.62 )
Diluted income (loss) per common share                                                                                               $          (0.21 )                                                                                 $          (0.13 )                                                                                 $       1.75                                                                                   $          (0.62 )
                                                                                                                                                                                                                                                                                                                                                                                                                        
Comprehensive income (loss):
   Net income (loss)                                                                                                                 $         (9,884 )                                                                                 $         (6,341 )                                                                                 $     84,327                                                                                   $        (29,453 )
      Other comprehensive income: unrealized gain on interest rate                                                           3,963                                                       15,634                                                    5,262                                                        2,824  
      derivatives
                                                                                                                  -------------------- -------------- --------------------                                           -------------------- -------------- --------------------                                           -------------------- ---------- --------------------                                           -------------------- -------------- --------------------
Comprehensive income (loss)                                                                                                                    (5,921 )                                                                                            9,293                                                                                         89,589                                                                                            (26,629 )
   Comprehensive (income) loss attributable to noncontrolling interests                                                          7                                                           (6 )                                                                       (43 )                                                                            30  
                                                                                                                  -------------------- -------------- --------------------                                           -------------------- -------------- --------------------                                           -------------------- ---------- --------------------                                           -------------------- -------------- --------------------
Comprehensive income (loss) attributable to common stockholders                                                                      $         (5,914 )                                                                                 $          9,287                                                                $     89,546                                                                $        (26,599 )
                                                                                                                  ==================== ============== ====================                                           ==================== ============== ====================                                           ==================== ========== ====================                                           ==================== ============== ====================
 
 
                                                                                                                                                                                                              Calculations of FFO and FFO, excluding certain items
                                                                                                                                                                                                                    (in thousands, except per share amounts)
 
                                                                                                                                              Three Months Ended                                                                                                                                                  Year Ended
                                                                                                               ------------------------------------------------------------------------------------------------------------------------------------------------------------                                          ------------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                                                                                     December 31,                                                 December 31,                                                                                       December 31,                                                 December 31,
                                                                                                                                         2017                                                                                               2016                                                                                               2017                                                                                               2016
                                                                                                               ---------------------------------------------------------                                          ---------------------------------------------------------                                          ---------------------------------------------------------                                          ---------------------------------------------------------
Net income (loss)                                                                                                                 $         (9,884 )                                                                                 $         (6,341 )                                                                                 $         84,327                                                                                   $        (29,453 )
Noncontrolling interests                                                                                                      9                                                            8                                                          (41 )                                                                            36  
                                                                                                               -------------------- -------------- --------------------                                           -------------------- -------------- --------------------                                           -------------------- -------------- --------------------                                           -------------------- -------------- --------------------
Net income (loss) attributable to common stockholders                                                                                       (9,875 )                                                                                           (6,333 )                                                                                           84,286                                                                                            (29,417 )
Adjustments (1):
--------------------------------------------------------------------
Real estate depreciation and amortization from consolidated                                                                                 23,655                                                                                             23,771                                                                                             94,296                                                                                            111,122
properties
Real estate depreciation and amortization from unconsolidated                                                                                  391                                                                                              2,150                                                                                              1,377                                                                                              8,258
properties
Real estate depreciation and amortization - noncontrolling interests                                                                --                                                                                     --                                                                                     --                                                                                                 (6 )
Impairment of depreciable real estate assets                                                                                                 5,250                                                                                     --                                                                                              5,250                                                                                              8,977
Gain on sale of depreciable real estate                                                                                                       (384 )                                                                                             (650 )                                                                                          (99,109 )                                                                                          (22,236 )
Gain on remeasurement of investment in unconsolidated entities                                                                                                                                                                                                                                                                                   (14,168 )                                                                                   --
Taxes associated with sale of depreciable real estate                                                                               --                                                                                     --                                                                                     --                                                                                                (88 )
Noncontrolling interests                                                                                                    (17 )                                                                           (21 )                                                                             6                                                          (78 )
                                                                                                               -------------------- -------------- --------------------                                           -------------------- -------------- --------------------                                           -------------------- -------------- --------------------                                           -------------------- -------------- --------------------
FFO attributable to common stockholders                                                                                                     19,020                                                                                             18,917                                                                                             71,938                                                                                             76,532
                                                                                                                                                                                                                                                                                                                                                                                                                         
Severance charges                                                                                                                   --                                                                                                532                                                                                                451                                                                                              1,025
Interest rate hedge ineffectiveness income (2)                                                                                                (262 )                                                                                             (979 )                                                                                             (253 )                                                                                             (572 )
Loss on early extinguishment of debt                                                                                                --                                                                                     --                                                                                                545                                                                                     --
Default interest (3)                                                                                                                           616                                                                                                616                                                                                              2,443                                                                                              2,468
Noncontrolling interests                                                                                         --                                               --                                                           (2 )                                                                            (2 )
                                                                                                               -------------------- -------------- --------------------                                           -------------------- -------------- --------------------                                           -------------------- -------------- --------------------                                           -------------------- -------------- --------------------
FFO attributable to common stockholders, excluding certain items                                                                  $         19,374                                                                $         19,086                                                                $         75,122                                                                $         79,451  
                                                                                                               ==================== ============== ====================                                           ==================== ============== ====================                                           ==================== ============== ====================                                           ==================== ============== ====================
                                                                                                                                                                                                                                                                                                                                                                                                                         
Weighted average common shares outstanding - basic                                                                                          47,554                                                                                             47,414                                                                                             47,538                                                                                             47,406
Weighted average common shares outstanding - diluted (4)                                                                                    48,207                                                                                             47,888                                                                                             47,883                                                                                             47,819
Net income (loss) per common share - diluted (4)                                                                                  $          (0.21 )                                                                                 $          (0.13 )                                                                                 $           1.75                                                                                   $          (0.62 )
FFO per common share - diluted                                                                                                    $           0.39                                                                                   $           0.40                                                                                   $           1.50                                                                                   $           1.60
FFO, excluding certain items, per common share - diluted                                                                          $           0.40                                                                                   $           0.40                                                                                   $           1.57                                                                                   $           1.66
______________________
 
From August 28, 2017 through December 31, 2017, we provided rent
abatements of approximately $7.0 million to tenants at the Eldridge
Properties because the properties had not been restored to pre-loss
condition following Hurricane Harvey. Approximately $6.2 million of
these losses were recovered from business interruption insurance
proceeds, net of a deductible and estimated saved expenses.
 
(1)                        Includes our pro rata share of consolidated and unconsolidated
                                              amounts, including for our period of ownership of properties sold.
(2)                                           Interest rate swaps are adjusted to fair value through other
                                              comprehensive income (loss). However, because our interest rate
                                              swaps do not have a LIBOR floor while the hedged debt is subject to
                                              a LIBOR floor, the portion of the change in fair value of our
                                              interest rate swaps attributable to this mismatch is reclassified to
                                              interest rate hedge ineffectiveness income within "interest expense"
                                              on our consolidated statements of operations and comprehensive
                                              income (loss).
(3)                                           We have a non-recourse loan in default which subjects us to incur
                                              default interest at a rate that is 500 basis points higher than the
                                              stated interest rate. Although there can be no assurance, we
                                              anticipate that when this property is sold or when ownership of this
                                              property is conveyed to the lender, this default interest will be
                                              forgiven.
(4)                                           There are no dilutive securities for purposes of calculating net
                                              loss per common share.
 
 
                                                                                                                                                                                                                      Same Store NOI and Same Store Cash NOI
                                                                                                                                                                                                                        (in thousands, except percentages)
 
                                                                                                                                                      Three Months Ended                                                                                                                                              Year Ended
                                                                                                                       ------------------------------------------------------------------------------------------------------------------------------------------------------------                                          -----------------------------------------------------------------------------------------------------------------------------------------------------
                                                                                                                                             December 31,                                                 December 31,                                                                                    December 31,                                             December 31,
                                                                                                                                                 2017                                                                                               2016                                                                                            2017                                                                                           2016
                                                                                                                       ---------------------------------------------------------                                          ---------------------------------------------------------                                          --------------------------------------------------                                          ---------------------------------------------------------
Same Store Revenue:
   Rental revenue (1)                                                                                                                     $         44,342                                                                                   $         42,165                                                                                   $ 170,997                                                                                   $        173,005
      Less:
         Lease termination fees                                                                                                    (254 )                                                                           (62 )                                                                   (463 )                                                                        (1,504 )
                                                                                                                       -------------------- -------------- --------------------                                           -------------------- -------------- --------------------                                           -------------------- ------- --------------------                                           -------------------- -------------- --------------------
                                                                                                                                 44,088                                                       42,103                                               170,534                                                      171,501  
                                                                                                                       -------------------- -------------- --------------------                                           -------------------- -------------- --------------------                                           -------------------- ------- --------------------                                           -------------------- -------------- --------------------
                                                                                                                                                                                                                                                                                                                                                                                                                          
Same Store Expenses:
      Property operating expenses (less tenant improvement demolition                                                                               11,836                                                                                             11,920                                                                                      44,872                                                                                             46,375
      costs)
      Real estate taxes                                                                                                                              7,032                                                                                              6,730                                                                                      28,463                                                                                             29,154
      Property management fees                                                                                                       25                                                           42                                                    91                                                          192  
                                                                                                                       -------------------- -------------- --------------------                                           -------------------- -------------- --------------------                                           -------------------- ------- --------------------                                           -------------------- -------------- --------------------
   Property Expenses                                                                                                             18,893                                                       18,692                                                73,426                                                       75,721  
                                                                                                                       -------------------- -------------- --------------------                                           -------------------- -------------- --------------------                                           -------------------- ------- --------------------                                           -------------------- -------------- --------------------
Same Store NOI - consolidated properties                                                                                                            25,195                                                                                             23,411                                                                                      97,108                                                                                             95,780
Same Store NOI - unconsolidated properties (at ownership %)                                                                       1,326                                                        1,266                                                 5,394                                                        3,605  
                                                                                                                       -------------------- -------------- --------------------                                           -------------------- -------------- --------------------                                           -------------------- ------- --------------------                                           -------------------- -------------- --------------------
Same Store NOI                                                                                                                            $         26,521                                                                $         24,677                                                                $ 102,502                                                                $         99,385  
                                                                                                                       ==================== ============== ====================                                           ==================== ============== ====================                                           ==================== ======= ====================                                           ==================== ============== ====================
                                                                                                                                                                                                                                                                                                                                                                                                                          
Increase (decrease) in Same Store NOI                                                                                                                  7.5 %                                                                                                                                                                                          3.1 %
                                                                                                                                                                                                                                                                                                                                                                                                                          
Same Store NOI - consolidated properties                                                                                                  $         25,195                                                                                   $         23,411                                                                                   $  97,108                                                                                   $         95,780
   Less:
      Straight-line rent revenue adjustment                                                                                                           (505 )                                                                                           (1,283 )                                                                                    (5,558 )                                                                                           (5,269 )
      Amortization of above- and below-market rents, net                                                                           (656 )                                                                          (853 )                                                                 (2,586 )                                                                        (4,101 )
                                                                                                                       -------------------- -------------- --------------------                                           -------------------- -------------- --------------------                                           -------------------- ------- --------------------                                           -------------------- -------------- --------------------
Same Store Cash NOI - consolidated properties                                                                                                       24,034                                                                                             21,275                                                                                      88,964                                                                                             86,410
Same Store Cash NOI - unconsolidated properties (at ownership %)                                                                  1,104                                                        1,249                                                 4,418                                                        3,225  
                                                                                                                       -------------------- -------------- --------------------                                           -------------------- -------------- --------------------                                           -------------------- ------- --------------------                                           -------------------- -------------- --------------------
Same Store Cash NOI                                                                                                                       $         25,138                                                                $         22,524                                                                $  93,382                                                                $         89,635  
                                                                                                                       ==================== ============== ====================                                           ==================== ============== ====================                                           ==================== ======= ====================                                           ==================== ============== ====================
                                                                                                                                                                                                                                                                                                                                                                                                                          
Increase in Same Store Cash NOI                                                                                                                       11.6 %                                                                                                                                                                                          4.2 %
                                                                                                                                                                                                                                                                                                                                                                                                                          
Reconciliation of net income (loss) to Same Store NOI and Same Store
Cash NOI
   Net income (loss)                                                                                                                      $         (9,884 )                                                                                 $         (6,341 )                                                                                 $  84,327                                                                                   $        (29,453 )
      Adjustments:
         Interest expense                                                                                                                            8,155                                                                                              8,565                                                                                      33,576                                                                                             43,257
         Asset impairment losses                                                                                                                     5,250                                                                                     --                                                                                       5,250                                                                                              8,977
         Tenant improvement demolition costs                                                                                                            25                                                                                                277                                                                                         267                                                                                                722
         General and administrative                                                                                                                  4,956                                                                                              5,796                                                                                      21,446                                                                                             23,649
         Depreciation and amortization                                                                                                              23,788                                                                                             23,856                                                                                      94,754                                                                                            111,830
         Interest and other income                                                                                                                     (88 )                                                                                             (303 )                                                                                    (1,359 )                                                                                           (1,169 )
         Loss on early extinguishment of debt                                                                                               --                                                                                     --                                                                                         545                                                                                     --
         Provision for income taxes                                                                                                                    171                                                                                                188                                                                                         468                                                                                                655
         Equity in operations of investments                                                                                                           (32 )                                                                                             (685 )                                                                                    (6,399 )                                                                                           (2,569 )
      Gain on sale of assets                                                                                                                          (384 )                                                                                             (650 )                                                                                   (92,396 )                                                                                          (22,176 )
      Gain on remeasurement of investment in unconsolidated entities                                                                        --                                                                                     --                                                                                     (14,168 )                                                                                   --
         Net operating income of non-same store properties                                                                                          (6,508 )                                                                                           (7,230 )                                                                                   (28,740 )                                                                                          (36,439 )
         Lease termination fees                                                                                                                       (254 )                                                                                              (62 )                                                                                      (463 )                                                                                           (1,504 )
         Same Store NOI of unconsolidated properties (at ownership %)                                                             1,326                                                        1,266                                                 5,394                                                        3,605  
                                                                                                                       -------------------- -------------- --------------------                                           -------------------- -------------- --------------------                                           -------------------- ------- --------------------                                           -------------------- -------------- --------------------
Same Store NOI                                                                                                                                      26,521                                                                                             24,677                                                                                     102,502                                                                                             99,385
         Straight-line rent revenue adjustment                                                                                                        (505 )                                                                                           (1,283 )                                                                                    (5,558 )                                                                                           (5,269 )
         Amortization of above- and below-market rents, net                                                                                           (656 )                                                                                             (853 )                                                                                    (2,586 )                                                                                           (4,101 )
         Cash NOI adjustments for unconsolidated properties (at ownership %)                                                       (222 )                                                                           (17 )                                                                   (976 )                                                                          (380 )
                                                                                                                       -------------------- -------------- --------------------                                           -------------------- -------------- --------------------                                           -------------------- ------- --------------------                                           -------------------- -------------- --------------------
Same Store Cash NOI                                                                                                                       $         25,138                                                                $         22,524                                                                $  93,382                                                                $         89,635  
                                                                                                                       ==================== ============== ====================                                           ==================== ============== ====================                                           ==================== ======= ====================                                           ==================== ============== ====================
                                                                                                                                                                                                                                                                                                                                                                                                                          
Operating properties (2)                                                                                                                                17                                                                                                                                                                                             17
Rentable square feet (% owned)                                                                                                                       6,346                                                                                                                                                                                          6,346
______________
 
(1)      From August 28, 2017 through December 31, 2017, we provided rent
                            abatements of approximately $7.0 million to tenants at the Eldridge
                            Properties because the properties had not been restored to pre-loss
                            condition following Hurricane Harvey. Approximately $6.2 million of
                            these losses were recovered from business interruption insurance
                            proceeds, net of a deductible and estimated saved expenses.
(2)                         Excludes certain operating properties that were not owned or not
                            fully operational during the entirety of the comparable periods. Our
                            Domain 2 and Domain 7 properties (two properties in which we
                            acquired full ownership in January 2017) are reflected above as
                            unconsolidated and at their prior year ownership percentage of
                            49.84% in both periods.
                             
                             

Non-GAAP Financial Measures

We compute our financial results in accordance with accounting principles generally accepted in the United States of America (GAAP). Although Funds from Operations and Funds from Operations, excluding certain items, are non-GAAP financial measures, we believe that these calculations are helpful to stockholders and potential investors and are widely recognized measures of real estate investment trust performance. We have provided a reconciliation of the non-GAAP financial measures to the most directly comparable GAAP measure in tables included in this press release.

Funds from Operations (FFO)

Historical cost accounting for real estate assets in accordance with GAAP implicitly assumes that the value of real estate 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 for evaluating operating performance. FFO is a non-GAAP financial measure that is widely recognized as a measure of a REIT’s operating performance. We use FFO as defined by the National Association of Real Estate Investment Trusts (NAREIT) which is net income (loss), computed in accordance with GAAP, excluding gains (or losses) from sales of property and impairments of depreciable real estate (including impairments of investments in unconsolidated entities which resulted from measurable decreases in the fair value of the depreciable real estate held by the unconsolidated entity), plus depreciation and amortization of real estate assets, and after related adjustments for unconsolidated entities and noncontrolling interests. 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 as described above, impairments reflect a decline in the value of the applicable property that we may not recover.

We believe that the use of FFO, together with the required GAAP presentations, is helpful in understanding our operating performance because it excludes real estate-related depreciation and amortization, gains and losses from property dispositions, and impairments of depreciable real estate assets, and as a result, when compared period to period, reflects the impact on operations from trends in occupancy rates, rental rates, operating costs, development activities, general and administrative expenses, and interest costs, which are not immediately apparent from net income. Factors that impact FFO include fixed costs, yields on cash held in accounts, income from portfolio properties and other portfolio assets, interest rates on debt financing, and operating expenses.

We also evaluate FFO, excluding certain items. The items excluded relate to certain non-operating activities or certain non-recurring activities that may create significant FFO volatility and affect the comparability of FFO across periods. We believe it is useful to evaluate FFO excluding these items because it provides useful information in analyzing comparability between reporting periods and in assessing the sustainability of our operating performance.

FFO and FFO, excluding certain items, should not be considered as alternatives to net income (loss), or as indicators of our liquidity, nor are they indicative of funds available to fund our cash needs, including our ability to make distributions. Additionally, the exclusion of impairments limits the usefulness of FFO and FFO, excluding certain items, as historical operating performance measures since an impairment charge indicates that operating performance has been permanently affected. FFO and FFO, excluding certain items, are non-GAAP measurements and should be reviewed in connection with other GAAP measurements. Our FFO and FFO, excluding certain items, 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 interpret it differently, or that identify and exclude different items related to non-operating activities or certain non-recurring activities.

Same Store NOI and Same Store Cash NOI

Same Store NOI is equal to rental revenue, less lease termination fee income, property operating expenses (excluding tenant improvement demolition costs), real estate taxes, and property management expenses for our same store properties and is considered a non-GAAP financial measure. Same Store Cash NOI is equal to Same Store NOI less non-cash revenue items including straight-line rent adjustments and the amortization of above- and below-market rent. The same store properties include our operating office properties not held for sale and owned and operated for the entirety of both periods being compared and include our comparable ownership percentage in each period for properties in which we own an unconsolidated interest that is accounted for using the equity method. We view Same Store NOI and Same Store Cash NOI as important measures of the operating performance of our properties because they allow us to compare operating results of properties owned and operated for the entirety of both periods being compared and therefore eliminate variations caused by acquisitions or dispositions during such periods.

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

http://cts.businesswire.com/ct/CT?id=bwnews&sty=20180212006287r1&sid=cmtx6&distro=nx&lang=en

View source version on businesswire.com: http://www.businesswire.com/news/home/20180212006287/en/

SOURCE: TIER REIT, Inc.

TIER REIT, Inc. 
Scott McLaughlin, 972-483-2465 
smclaughlin@tierreit.com


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