TIER REIT, Inc. (TIER)

[Enterprising Investor]

TIER REIT Reports Second Quarter 2015 Results (8/05/15)

DALLAS--(BUSINESS WIRE)--TIER REIT, Inc. (NYSE: TIER) today reported results for the quarter ended June 30, 2015.

Highlights for the Quarter Ended June 30, 2015:

• Sold five assets totaling approximately $445.6 million;

• Acquired two development sites for approximately $13.7 million;

• Expanded credit facility to $750 million;

• Completed approximately 857,000 square feet of leasing, including approximately 235,000 square feet of new and expansion leasing;

• Terminated third party property management and administrative services; and

• Achieved Funds from Operations, excluding certain items, of $0.34 per common share.

“In addition to the recent listing of our common stock on the New York Stock Exchange, during the second quarter we continued to make excellent progress on our 2015 business plan,” said Scott Fordham, chief executive officer and president of TIER REIT. “Our recently announced acquisitions and development projects are right in line with the strategic objectives for the portfolio, which include owning office properties in high growth markets by utilizing recycled capital from dispositions of non-strategic assets.”

Disposition Activity

In April 2015, the Company completed the sales of the Fifth Third Center (Cleveland, Ohio) for a sales price of $52.8 million and 1650 Arch Street and United Plaza (Philadelphia, Pennsylvania) for an aggregate sales price of $190.8 million. Net cash proceeds from these dispositions after debt assumption by the buyer of Fifth Third Center totaled $196.0 million, resulting in a combined gain on sale of $33.6 million.

In June 2015, the Company completed the sale of the Colorado Building and 1325 G Street (Washington, D.C.) for an aggregate sales price $202.0 million. The Company retained 10% ownership interests in these properties, and combined net cash proceeds after repayment of the mortgage debt on 1325 G Street totaled $80.5 million, resulting in a combined gain on sale of $17.1 million.

Acquisition Activity

In June 2015, the Company acquired a 95% interest in a land development project in the central business district of Austin, Texas, that can accommodate 325,000 square feet for $7.5 million, and a 95% interest in a land development project in the Legacy Town Center submarket of Plano (Dallas), Texas, that can accommodate 570,000 square feet for $6.2 million.

In July 2015, the Company acquired various real estate interests in The Domain (Austin, Texas), a premier mixed-use development, for a contract purchase price of $201.1 million and subsequently sold parcels of land to an unrelated buyer for a price of $22.0 million. The transaction included the acquisition of two Class A, creative-space office buildings totaling 332,000 square feet and a partnership interest in two additional Class A office buildings totaling 337,000 square feet, as well as fee simple ownership of various land parcels totaling over 24 acres (exclusive of parcels sold) for future office development.

Financing Activity

In June 2015, the Company expanded its credit facility to $750.0 million through the issuance of a new, seven-year $275.0 million term loan that matures in June 2022, with an initial swapped-to-fixed interest rate of 3.67%. Proceeds of the new term loan were used to repay mortgage debt secured by the Company’s Bank of America Plaza and Terrace Office Park properties.

Leasing Update

During the second quarter, the Company entered into leases for 857,000 square feet with an average lease term of 7.5 years, including 235,000 square feet of new and expansion leases. During the second quarter the Company was successful in completing three key leases: first, a 151,000 square foot, 5-year renewal with Xerox at the Woodcrest Corporate Center property in Cherry Hill, NJ; second, an 11-year renewal with Disney for 113,000 square feet at the Buena Vista property in Burbank, CA; and lastly, a 7-year extension and expansion with Americredit for 185,000 square feet at the Burnett Plaza property in Fort Worth, TX.

Occupancy at the Company’s 31 operating office properties was 89.0% at June 30, 2015, compared to occupancy of 86.7% for those properties at June 30, 2014. As of June 30, 2015, the Company had approximately 688,000 square feet of commenced leases that were in free rent, as well as approximately 54,000 square feet of executed leases for currently vacant space yet to commence.

Other Events

On June 30, 2015, the Company closed on the buyout of the property management agreement with HPT Management Services, LLC (HPT Management) and made a payment of approximately $7.5 million. In connection with the closing of the buyout option, the property management agreement with HPT Management was terminated, HPT Management irrevocably waived certain non-solicitation and non-hire provisions, and the Company hired all of HPT Management’s property management personnel providing services to it. Such property management services are now performed internally.

On June 30, 2015, the Company terminated the administrative services agreement with BHT Advisors, LLC (BHT Advisors) terminating all administrative services provided by BHT Advisors to it and made a termination payment of approximately $2.7 million. BHT Advisors no longer provides services to the Company, such as human resources, shareholder services, or information technology, each of which is now performed internally.

On July 23, 2015, the Company listed its common stock on the NYSE under the ticker symbol “TIER” and commenced a modified “Dutch Auction” tender offer to purchase for cash up to $50.0 million of its shares of common stock at a price not to exceed $21.00 nor less than $19.00 per share.

Distributions

For the second quarter of 2015, the Company’s board of directors authorized a distribution in the amount of $0.18 per share on its common stock to stockholders of record as of the close of business on June 30, 2015, which was paid on July 8, 2015.

On July 30, 2015, the Company’s board of directors authorized a distribution for the third quarter of 2015 in the amount of $0.18 per share on its common stock to stockholders of record as of the close of business on September 30, 2015, payable on October 8, 2015.

Financial Results

Funds from Operations (FFO) attributable to common stockholders for the quarter ended June 30, 2015, was ($18.1) million, or ($0.36) per diluted share, as compared to $19.1 million, or $0.38 per diluted share, for the quarter ended June 30, 2014. FFO attributable to common stockholders, excluding certain items (acquisition expenses, costs associated with listing the Company’s shares of common stock on the NYSE and related tender offer, loss on early extinguishment of debt, and fees paid to terminate third party property management and administrative services) for the quarter ended June 30, 2015, was $17.2 million, or $0.34 per diluted share, as compared to $19.1 million, or $0.38 per diluted share, for the quarter ended June 30, 2014.

Net loss attributable to common stockholders was ($1.2) million, or ($0.02) per basic and diluted share for the quarter ended June 30, 2015, as compared to a net loss attributable to common stockholders of ($17.3) million, or ($0.35) per basic and diluted, share for the quarter ended June 30, 2014.

2015 Outlook

The Company initiated its outlook for 2015 FFO attributable to common stockholders at $0.58 to $0.65 per share and its outlook for 2015 FFO attributable to common stockholders, excluding certain items, at $1.41 to $1.45 per share. This outlook reflects management’s view of current and future market conditions, including assumptions such as rental rates, occupancy levels, operating and general and administrative expenses, weighted average diluted shares outstanding, interest rates, and the pending dispositions of the Wanamaker Building (Philadelphia, Pennsylvania) and Fifth Third Center (Columbus, Ohio). This outlook does not include any effects related to other potential acquisitions and dispositions that may occur after the date of this release. Factors that could cause actual 2015 FFO attributable to common stockholders results to differ materially from the Company’s current expectations are discussed below.

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Supplemental Information

A copy of the Company’s second quarter 2015 supplemental information regarding its financial results and operations for the quarter ended June 30, 2015, is available in the “Investor Relations” section of the Company’s website at www.tierreit.com. You may also obtain a copy by contacting the Investor Relations department by email to [e-mail].

Conference Call

A conference call will be held on Thursday, August 6, 2015, at 11:00 a.m. Eastern time/10:00 a.m. Central time. TIER REIT will host the conference call to discuss matters related to the Company’s financial results and operating performance, as well as business highlights and outlook. In addition, the Company may discuss business and financial developments and trends and other matters affecting the Company, some of which may not have been previously disclosed. A live audio webcast can be accessed through the Company’s website at www.tierreit.com under the “Investor Relations” section. A replay of the call will also be available on the website for 30 days.

About TIER REIT, Inc.

TIER REIT, Inc. is a self-managed, Dallas, Texas-based real estate investment trust focused on maximizing total return to stockholders through the combination of stock appreciation and income derived from a sustainable distribution. TIER REIT’s investment strategy is to acquire, develop, and operate a portfolio of best-in-class office properties in select U.S. markets that consistently lead the nation in population and office-using employment growth.

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