SANTA ANA, Calif., Nov. 6 /PRNewswire-FirstCall/ -- Grubb & Ellis Company
(NYSE: GBE), a leading real estate services and investment firm, today
reported revenue of $159.2 million for the third quarter of 2008. Revenue for
the nine-month period ended September 30, 2008 was $486.8 million.
The company reported a net loss of $44.0 million, or $0.69 per share, for
the third quarter. The net loss for the first nine months of 2008 was
$55.0 million, or $0.87 per share. Earnings before interest, taxes,
depreciation and amortization (EBITDA) for the third quarter of 2008 was
negative $56.3 million, compared with EBITDA for the combined companies of
$17.3 million in the same period a year ago. For the first nine months of
2008, the company reported negative EBITDA of $48.3 million.
The third quarter 2008 EBITDA included the following charges, all of which
adversely affected the EBITDA result:
-- A $45.8 million real estate impairment charge related to real estate
assets the company owns and has decided to market for sale;
-- A $16.3 million charge related to the company's investment management
programs; and
-- $2.7 million of merger-related and integration costs.
Excluding the above charges, which primarily had no cash impact to the
current quarter, and certain other items totaling $1.0 million of net
earnings, adjusted EBITDA for the three month period ended September 30, 2008
was a positive $7.4 million. Excluding certain charges and other non-cash
items totaling $75.8 million, adjusted EBITDA for the nine-month period ended
September 30, 2008 was a positive $27.5 million. (Combined non-GAAP
supplemental disclosure follows this release.)
"Given the difficult market conditions our underlying operations continued
to perform well and we have clearly benefited from the impacts of cost
reductions and operational changes implemented post merger," said interim
Chief Executive Officer Gary Hunt. "We continue to identify synergies and
eliminate redundancies in an effort to maximize cost efficiencies. At the
same time, we are taking advantage of the current environment to recruit
high-quality professionals who understand that our expanded platform will
create additional revenue opportunities."
Hunt added, "We are also capitalizing on the increasing trend of corporate
owners and users to outsource their real estate services needs. We secured
several important new business wins during the period, many of which would not
have been possible without the restructuring resulting from the merger."
Business Highlights
-- Raised an aggregate of approximately $245 million in the company's
investment programs during the third quarter, an approximately
35 percent increase over the prior year period, bringing the total
equity raised for the year to approximately $761 million.
-- According to the most recent Stanger Report, Grubb & Ellis ranked fifth
among all public non-traded REIT sponsors in total sales for the third
quarter of 2008. The total equity raise for the company's public
non-traded programs is up more than 90 percent during the nine months
of 2008, compared with the same period of 2007.
-- Won or renewed six major corporate services accounts, including being
selected by Kraft Foods Global Inc. as its facilities services provider
for more than 4 million square feet of property.
-- Amended the company's credit facility, adjusting the covenants to more
appropriately reflect the impact of the current environment on the
company's businesses and the timing of potential asset sales.
-- Increased annualized net cost saving synergies to in excess of
$20 million during the third quarter as a direct result of the
company's continued merger integration.
-- Took significant steps toward the company's goal of increasing the
productivity of its brokerage sales force with the addition of more
than two dozen senior-level professionals during the third quarter.
Earlier this week, the company eliminated more than 10 percent of its
brokerage sales professionals, all of whom did not meet production
expectations.
"In light of the unprecedented events taking place throughout the
financial services and real estate industries, we no longer expect to meet our
previously stated 2008 adjusted EBITDA goal of $74.8 million and we do not
anticipate providing guidance going forward," said Richard W. Pehlke,
executive vice president and chief financial officer. "Conditions in the
credit markets also prompted us to accelerate our strategy related to our real
estate assets, which resulted in the impairment charges that we recorded in
the quarter."
Pehlke added, "We are confident that Grubb & Ellis is taking the actions
necessary to both successfully navigate through this difficult period and have
adequate resources to meet the needs of our clients."
Pehlke noted that the recent turmoil in the credit markets and resulting
impact on the real estate industry impacted both the value of its real estate
assets and the operating and return potential of its investment programs. As
a result, in the third quarter, the company recorded an impairment to the
carrying value of certain real estate assets totaling $45.8 million. During
the quarter, the company also recognized charges totaling $16.3 million
related to its investment programs, consisting primarily of additional
reserves against advances and receivables to certain programs, charges for
recourse guarantee obligations on two property mortgages and forfeited
deposits on potential real estate acquisitions.
The merger between Grubb & Ellis and NNN Realty Advisors, Inc. was
consummated on December 7, 2007. As required by generally accepted accounting
principles (GAAP), the transaction was accounted for as a reverse merger. The
company's results of operations commencing and subsequent to December 7, 2007
include the operations of the combined entity. Reported results of operations
prior to December 7, 2007, including third quarter 2007 results, reflect only
the operations of NNN Realty Advisors.
COMBINED COMPANIES SUPPLEMENTAL DISCLOSURE
In an effort to present a more complete financial and narrative
description of the results of operations, the company has also provided
non-GAAP financial measures. The non-GAAP financial measures are intended to
reflect the company's results of operations on a combined basis, exclusive of
the total financial or accounting impact associated with the merger
transaction, such as amortization associated with purchase price adjustments
or identified intangible assets. The non-GAAP combined results for the three
and nine months ended September 30, 2007 do not purport to show the results as
if the companies were merged as of January 1, 2007, but rather represent an
arithmetic combination of results of the two companies, Grubb & Ellis and NNN
Realty Advisors. Results do not reflect the elimination of transactions
between the two companies and certain estimated synergies and expenses related
to the combination of the two companies for the periods presented. (Please
refer to the Combined Statements of Operations tables that follow.)
Third Quarter Operations
For the third quarter of 2008, the company generated revenue of
$159.2 million, compared with combined revenue of $181.5 million in the third
quarter of 2007. The company posted a third quarter net loss of $44.0 million
in 2008, compared with net income of $2.6 million for the companies on a
combined basis in the same period of 2007. EBITDA was negative $56.3 million
for the third quarter of 2008, compared with combined positive EBITDA of
$17.3 million in the third quarter of 2007. The 2008 negative EBITDA includes
charges of $45.8 million for real estate-related impairments, $16.3 million
related to the company's investment management programs, $2.7 million of
merger-related and integration costs and $2.9 million of non-cash stock-based
compensation, offset by real estate operations and other items totaling
$3.9 million. Excluding these items, adjusted EBITDA for the third quarter of
2008 was $7.4 million, compared with the combined companies' adjusted EBITDA
of $18.2 million on the same basis for the third quarter of 2007. (See Tables)
Nine-Month Operations
For the first nine months of 2008, the company generated revenue of
$486.8 million, compared with combined revenue of $512.8 million for the same
period in 2007. The company posted a net loss of $55.0 million during the
nine months of 2008, compared with net income of $14.4 million for the
companies on a combined basis in the first nine months of 2007. EBITDA was
negative $48.3 million for the first nine months of 2008, compared with
combined positive EBITDA of $47.4 million in the first nine months of 2007.
EBITDA for the first nine months of 2008 includes the aforementioned charges
of $45.8 million for real estate-related impairments and $16.3 million related
to the company's investment management programs as well as $10.2 million of
merger-related and integration costs, a $5.8 million charge related to the
company's write-off of its sponsorship of Grubb & Ellis Realty Advisors and
$8.5 million of non-cash stock based compensation. These charges were
partially offset by rental-related operations and other non-cash items
totaling $10.8 million. Excluding these items, adjusted EBITDA for the first
nine months of 2008 was $27.5 million, compared with combined companies'
adjusted EBITDA of $52.3 million for the first nine months of 2007. (See
Tables)
OPERATING SEGMENTS
Transaction Services
Transaction Services revenue for the third quarter of 2008, including
brokerage commission, valuation and consulting revenue, was $57.5 million,
compared with $73.1 million for the combined companies for the same period a
year ago. For the nine-month period ended September 30, 2008, the segment
generated revenue of $173.2 million, compared with $218.7 million for the
combined companies during the first nine months of 2007.
The company's Transaction Services business was negatively impacted by the
current economic environment, which has reduced commercial real estate
transaction velocity, particularly investment sales.
Investment Management
Investment Management revenue for the third quarter of 2008, which
includes transaction fees, captive management fees and dealer-manager fees,
totaled $25.0 million, compared with fees of $40.1 million in the same period
a year ago. Investment Management revenue for the first nine months of 2008
totaled $86.6 million, compared with $110.6 million during the first nine
months of 2007. The decrease in revenue over prior-year periods can be
attributed to lower acquisition fees resulting from a decrease in equity
raised by the company's tenant-in-common programs and lower disposition fees,
which were partially offset by higher acquisition fees related to the
company's public non-traded REITs as a result of a significant increase in the
amount of equity being raised by these programs and fees from the company's
Wealth Management platform.
In total, approximately $245 million in equity was raised for the
company's investment programs in the third quarter of 2008, compared with
$182 million in the third quarter of 2007. For the nine-month period ended
September 30, 2008, approximately $761 million was raised for the company's
investment programs, compared with $547 million raised during the first nine
months of 2007. This increase in equity raised was driven by additional
equity raised for the company's public non-traded REITs as well as its new
Wealth Management platform. During the first nine months of 2008, the
company's public non-traded REIT programs raised approximately $396 million,
compared with $206 million in the same period of 2007. The Wealth Management
platform placed $193 million in real estate investments on behalf of investors
during the first nine months of 2008. The company's tenant-in-common 1031
exchange programs raised $153 million in equity during the first three
quarters of 2008, compared with $341 million in the same period of 2007. At
September 30, 2008, the value of the company's assets under management was
$6.7 billion, up from $6.5 billion at June 30, 2008.
Management Services
Management Services revenue includes asset and property management fees as
well as reimbursed salaries, wages and benefits from the company's captive
management and third party property management and facilities outsourcing
services, along with business services fees. Management Services revenue was
$63.5 million for the third quarter of 2008, compared with $53.4 million for
the combined companies for the same period a year ago. For the first nine
months of 2008, the company reported Management Services revenue of
$185.9 million, compared with $158.0 million for the combined companies in the
same period of 2007. Approximately 25.8 million square feet of the company's
management portfolio relates to a significant portion of Grubb & Ellis Realty
Investors' (formerly Triple Net Properties, LLC, a wholly owned subsidiary of
NNN Realty Advisors) captive property portfolio being transferred to Grubb &
Ellis Management Services, Inc.
Rental-Related Operations
Rental-related revenue and rental-related expense includes revenue and the
related expense from the warehousing of properties held for investment
primarily related to the company's Investment Management programs and the
company's prior affiliate Grubb & Ellis Realty Advisors, Inc., which has been
liquidated and dissolved. The combined benefit from the operations for the
properties held for sale is included in the Reconciliation of Net Income to
EBITDA disclosure which follows the release and is identified as real estate
operations. These line items also include pass-through revenue and related
expense for master lease accommodations related to the company's
tenant-in-common programs.
Conference Call & Webcast
The conference call will be webcast on the investor relations section of
Grubb & Ellis' Web site at http://www.grubb-ellis.com or may be accessed by
dialing 1.800.659.1966 for domestic callers and 1.617.614.2711 for
international callers. The conference call ID number is 99398901.
The company's 2008 third quarter earnings conference call will be held
today at 11 a.m. ET. A live webcast will be accessible through the Investor
Relations section of the company's Web site at http://www.grubb-ellis.com. The
direct dial-in number for the conference call is 1.800.659.1966 for domestic
callers and 1.617.614.2711 for international callers. The conference call ID
number is 99398901. An audio replay will be available beginning today at
1 p.m. ET until 7 p.m. ET on Thursday, November 20, and can be accessed by
dialing: 1.888.286.8010, and 1.617.801.6888 for international callers and
entering conference call ID 84927757. In addition, the conference call audio
will be archived on the company's Web site following the call.
About Grubb & Ellis
Grubb & Ellis Company (NYSE: GBE) is one of the largest and most respected
commercial real estate services and investment companies. With more than 130
owned and affiliate offices worldwide, Grubb & Ellis offers property owners,
corporate occupants and investors comprehensive integrated real estate
solutions, including transaction, management, consulting and investment
advisory services supported by proprietary market research and extensive local
market expertise.
Grubb & Ellis and its subsidiaries are leading sponsors of real estate
investment programs that provide individuals and institutions the opportunity
to invest in a broad range of real estate investment vehicles, including tax-
deferred 1031 tenant-in-common (TIC) exchanges, public non-traded real estate
investment trusts (REITs) and real estate investment funds. As of September
30, 2008, more than $3.8 billion in investor equity has been raised for these
investment programs. The company and its subsidiaries currently manage a
growing portfolio of more than 225 million square feet of real estate. In
2007, Grubb & Ellis was selected from among 15,000 vendors as Microsoft
Corporation's Vendor of the Year. For more information regarding Grubb & Ellis
Company, please visit http://www.grubb-ellis.com.
Forward-looking Statement
Certain statements included in this announcement may constitute
forward-looking statements regarding, among other things, future revenue
growth, market trends, new business opportunities and investment programs,
synergies resulting from the merger of Grubb & Ellis Company and NNN Realty
Advisors, certain combined financial information regarding Grubb & Ellis
Company and NNN Realty Advisors, new hires, results of operations, changes in
expense levels and profitability and effects on the company of changes in the
real estate markets. These statements involve known and unknown risks,
uncertainties and other factors that may cause the company's actual results
and performance in future periods to be materially different from any future
results or performance suggested by these statements. Such factors which could
adversely affect the company's ability to obtain these results include, among
other things: (i) the slowdown in the volume and the decline in transaction
values of sales and leasing transactions; (ii) the general economic downturn
and recessionary pressures on businesses in general; (iii) a prolonged and
pronounced recession in real estate markets and values; (iv) the
unavailability of credit to finance real estate transactions in general and
the company's tenant-in-common programs, in particular; (v) the reduction in
borrowing capacity under the company's current credit facility, and the
additional limitations with respect thereto; (vi) the company's continuing
ability to make interest and principal payments with respect to its credit
facility; (vii) an increase in expenses related to new initiatives,
investments in people, technology and service improvements; (viii) the success
of current and new investment programs; (ix) the success of new initiatives
and investments; (x) the inability to attain expected levels of revenue,
performance, brand equity and expense synergies resulting from the merger of
Grubb & Ellis Company and NNN Realty Advisors in general, and in the current
macroeconomic and credit environment, in particular and (xi) other factors
described in the company's annual report on Form 10-K for the fiscal year
ending December 31, 2007 and in the company's quarterly reports on Form 10-Q
for the quarters ended March 31, 2008 and June 30, 2008 filed with the SEC.
Non-GAAP Financial Information
In addition to the results reported in accordance with U.S. generally
accepted accounting principles (GAAP) included within this press release,
Grubb & Ellis has provided certain information, which includes non-GAAP
financial measures. Such information is reconciled to its closest GAAP measure
in accordance with the Securities and Exchange Commission rules and is
included in the attached supplemental data. Management believes that these
non-GAAP financial measures are useful to both management and the company's
stockholders in their analysis of the business and operating performance of
the company. Management also uses this information for operational planning
and decision-making purposes. Non-GAAP financial measures are not and should
not be considered a substitute for any GAAP measures. Additionally, non-GAAP
financial measures as presented by Grubb & Ellis may not be comparable to
similarly titled measures reported by other companies.
TABLES FOLLOW
Grubb & Ellis Company
Consolidated Statements of Operations
(in thousands)
(Unaudited)
Three Months Ended Nine Months Ended
September 30, September 30, September 30, September 30,
2008 2007 (1) 2008 2007 (1)
REVENUE
Transaction
services $57,502 $- $173,191 $-
Investment
management (2) 25,035 40,137 86,561 110,603
Management
services 63,479 - 185,855 -
Rental related 13,220 9,565 41,146 17,625
TOTAL REVENUE 159,236 49,702 486,753 128,228
OPERATING EXPENSE
Compensation
costs 33,464 16,615 106,531 43,999
Transaction
commissions
and related
costs 39,186 - 117,979 -
Reimbursable
salaries,
wages, and
benefits 46,224 527 135,343 1,044
General and
administrative 40,263 10,049 84,399 29,769
Depreciation and
amortization 8,910 5,012 27,385 6,018
Rental related 7,643 7,687 26,258 13,743
Interest 4,410 3,200 14,534 6,685
Merger related
costs 2,657 140 10,217 201
Real estate
related
impairments 45,767 - 45,767 -
Total
operating
expense 228,524 43,230 568,413 101,459
OPERATING (LOSS)
INCOME (69,288) 6,472 (81,660) 26,769
OTHER (EXPENSE)
INCOME
Equity in
(losses
earnings of
unconsolidated
entities (120) (519) (6,318) (40)
Interest income 235 915 757 2,182
Other (expense)
income 195 (544) (1,793) 524
Total other
(expense)
income 310 (148) (7,354) 2,666
(Loss) income from
continuing operations
before income tax
provision (68,978) 6,324 (89,014) 29,435
Income tax benefit
(provision) 25,346 (2,039) 34,434 (11,423)
(Loss) income from
continuing
operations (43,632) 4,285 (54,580) 18,012
Loss from
discontinued
operations (384) (232) (419) (88)
NET (LOSS) INCOME $(44,016) $4,053 $(54,999) $17,924
Basic earnings
per share:
(Loss) income from
continuing
operations $(0.69) $0.10 $(0.86) $0.43
Loss from
discontinued
operations - - (0.01) -
Net (loss) earnings
per share $(0.69) $0.10 $(0.87) $0.43
Diluted earnings
per share:
(Loss) income
from continuing
operations $(0.69) $0.10 $(0.86) $0.43
Loss from
discontinued
operations - - $(0.01) -
Net (loss) earnings
per share $(0.69) $0.10 $(0.87) $0.43
Shares used in
computing basic
net earnings
per share 63,601 41,943 63,574 41,943
Shares used in
computing diluted
net earnings
per share 63,601 42,127 63,574 42,057
(1) In accordance with Generally Accepted Accounting Principles (GAAP),
the operating results for the three and nine months ended September
30, 2007 only includes the results of legacy NNN Realty Advisors.
(2) The investment management segment represents legacy NNN Realty
Advisors' transaction, management and dealer-manager businesses.
Grubb & Ellis Company
Consolidated Balance Sheets
(in thousands)
(Unaudited)
September 30, December 31,
2008 2007
ASSETS
Cash and cash equivalents $34,426 $49,328
Restricted cash 33,419 69,098
Investment in marketable securities 4,915 9,052
Current portion of accounts
receivable from related parties - net 25,403 32,575
Current portion of advances to
related parties - net 8,634 7,010
Note receivable from related party - net 9,100 7,600
Services fees receivable - net 20,620 19,521
Current portion of professional
service contract - net 7,477 7,235
Real estate deposits and
preacquisition costs 7,549 11,818
Properties held for sale including
investments in unconsolidated real
estate - net 17,570 98,206
Identified intangible assets and
other assets held for sale - net 2,155 23,569
Prepaid expenses and other current assets 24,894 13,032
Deferred tax assets 5,347 7,854
TOTAL CURRENT ASSETS 201,509 355,898
Accounts receivable from related
parties - net 7,168 10,360
Advances to related parties - net 7,733 3,751
Professional service contracts - net 11,604 13,088
Investments in unconsolidated real
estate 6,944 11,028
Properties held for investment - net 183,646 234,422
Property, equipment and leasehold
improvements - net 14,628 16,291
Goodwill 171,723 169,317
Identified intangible assets - net 133,841 145,427
Other assets - net 14,466 16,858
TOTAL ASSETS $753,262 $976,440
LIABILITIES, MINORITY INTEREST
AND STOCKHOLDERS' EQUITY
Accounts payable and accrued expenses $61,622 $100,867
Due to related parties 1,112 3,329
Current portion of line of credit 63,000 -
Current portion of notes payable and
capital lease obligations 453 30,447
Notes payable of properties held for sale 10,656 91,020
Liabilities of properties held for
sale - net 72 902
Other liabilities 9,204 6,716
TOTAL CURRENT LIABILITIES 146,119 233,281
Line of credit - 8,000
Senior notes 16,277 16,277
Notes payable and capital lease obligation 215,027 228,254
Other long-term liabilities 20,598 30,421
Deferred tax liability 2,984 32,837
TOTAL LIABILITIES 401,005 549,070
MINORITY INTEREST 4,027 18,725
Common Stock 653 648
Additional paid-in capital 400,589 393,665
(Accumulated deficit) retained earnings (53,012) 15,381
Accumulated other comprehensive loss - (1,049)
TOTAL STOCKHOLDERS' EQUITY 348,230 408,645
LIABILITIES, MINORITY INTEREST AND
STOCKHOLDERS' EQUITY $753,262 $976,440
Grubb & Ellis Company
Combined Statements of Operations
(in thousands)
Three Months Ended Three Months Ended
September 30, 2008 September 30, 2007
(Unaudited) (Unaudited)
Grubb & Ellis NNN Realty Grubb & Ellis Combined
Company Advisors Company Companies(1)
REVENUE
Transaction
services $57,502 $- $73,124 $73,124
Investment
management (2) 25,035 40,137 - 40,137
Management services 63,479 - 53,392 53,392
Rental related 13,220 9,565 5,324 14,889
TOTAL REVENUE 159,236 49,702 131,840 181,542
OPERATING EXPENSES
Compensation costs 33,464 16,615 21,657 38,272
Transaction
commissions and
related costs 39,186 - 50,988 50,988
Reimbursable salaries,
wages, and benefits 46,224 527 38,496 39,023
General and
administrative 40,263 10,049 12,626 22,675
Depreciation and
amortization 8,910 5,012 2,691 7,703
Rental related 7,643 7,687 3,524 11,211
Interest 4,410 3,200 3,391 6,591
Merger related costs 2,657 140 741 881
Real estate related
impairments 45,767 - - -
Total operating
expense 228,524 43,230 134,114 177,344
OPERATING (LOSS)
INCOME (69,288) 6,472 (2,274) 4,198
OTHER (EXPENSE) INCOME
Equity in (losses)
earnings of
unconsolidated
entities (120) (519) 98 (421)
Interest income 235 915 161 1,076
Other (expense) income 195 (544) - (544)
Total other (expense)
income 310 (148) 259 111
(Loss) income from
continuing operations
before income tax
provision (68,978) 6,324 (2,015) 4,309
Income tax benefit
(provision) 25,346 (2,039) 563 (1,476)
(Loss) income from
continuing
operations (43,632) 4,285 (1,452) 2,833
Loss from
discontinued
operations (384) (232) - (232)
NET (LOSS) INCOME $(44,016) $4,053 $(1,452) $2,601
(1) To provide additional insight into its underlying results of
operations, the Company has also presented selected non-GAAP financial
measures intended to reflect its results of operations on a combined
basis and such numbers are exclusive of the total financial or
accounting impact associated with the merger transaction, such as
amortization associated with purchase price adjustments or identified
intangible assets. These non-GAAP combined results do not purport to
show the results as if the companies were merged as of January 1,
2007, but rather is an arithmetic combination of the results of the
two companies, Grubb & Ellis and NNN Realty Advisors. Results do not
reflect the elimination of transactions between the two companies and
certain estimated synergies and expenses related to the combination of
the two companies for the periods presented.
(2) The investment management segment represents legacy NNN Realty
Advisors' transaction, management and dealer-manager businesses.
Grubb & Ellis Company
Reconciliation of Combined Net Income to Adjusted EBITDA
(in thousands)
Three Months Ended Three Months Ended
September 30, 2008 September 30, 2007
(Unaudited) (Unaudited)
Grubb & Ellis NNN Realty Grubb & Ellis Combined
Company Advisors Company Companies (1)
Net (loss) income $(44,016) $4,053 $(1,452) $2,601
Interest expense 4,410 3,200 3,391 6,591
Interest income (235) (915) (161) (1,076)
Depreciation and
amortization 8,910 5,012 2,691 7,703
Taxes (25,346) 2,039 (563) 1,476
EBITDA (2) (56,277) 13,389 3,906 17,295
Charges related to
sponsored programs 16,296 - - -
Real estate related
impairment 45,767 - - -
Stock based
compensation 2,851 2,416 601 3,017
Loss on marketable
securities 169 700 - 700
Merger related costs 2,657 141 741 882
Amortization of
contract rights 193 857 - 857
Real estate
operations (4,405) (2,716) (1,800) (4,516)
Other 190 80 (98) (18)
Adjusted EBITDA (2) $7,441 $14,867 $3,350 $18,217
(1) To provide additional insight into its underlying results of
operations, the Company has also presented selected non-GAAP financial
measures intended to reflect its results of operations on a combined
basis and such numbers are exclusive of the total financial or
accounting impact associated with the merger transaction, such as
amortization associated with purchase price adjustments or identified
intangible assets. These non-GAAP combined results do not purport to
show the results as if the companies were merged as of January 1,
2007, but rather is an arithmetic combination of the results of the
two companies, Grubb & Ellis and NNN Realty Advisors. Results do not
reflect the elimination of transactions between the two companies and
certain estimated synergies and expenses related to the combination of
the two companies for the periods presented.
(2) EBITDA represents earnings before net interest expense, interest
income, realized gains or losses on sales of marketable securities,
income taxes, depreciation and amortization. Management believes EBITDA
is useful in evaluating our performance compared to that of other
companies in our industry because the calculation of EBITDA generally
eliminates the effects of financing and income taxes and the accounting
effects of capital spending and acquisition, which items may vary for
different companies for reasons unrelated to overall operating
performance. As a result, management uses EBITDA as an operating
measure to evaluate the operating performance of the Company's various
business lines and for other discretionary purposes, including as a
significant component when measuring performance under employee
incentive programs.
However, EBITDA is not a recognized measurement under U.S. generally
accepted accounting principles, or GAAP, and when analyzing the
Company's operating performance, readers should use EBITDA in addition
to, and not as an alternative for, net income as determined in
accordance with GAAP. Because not all companies use identical
calculations, our presentation of EBITDA may not be comparable to
similarly titled measures of other companies. Furthermore, EBITDA is
not intended to be a measure of free cash flow for management's
discretionary use, as it does not consider certain cash requirements
such as tax and debt service payments. The amounts shown for EBITDA
also differ from the amounts calculated under similarly titled
definitions in the Company's debt instruments, which are further
adjusted to reflect certain other cash and non-cash charges and are
used to determine compliance with financial covenants and the Company's
ability to engage in certain activities, such as incurring additional
debt and making certain restricted payments.
Grubb & Ellis Company
Combined Statements of Operations
(in thousands)
Nine Months Ended Nine Months Ended
September 30, 2008 September 30, 2007
(Unaudited) (Unaudited)
Grubb & Ellis NNN Realty Grubb & Ellis Combined
Company Advisors Company Companies (1)
REVENUE
Transaction
services $173,191 $- $218,682 $218,682
Investment
management (2) 86,561 110,603 - 110,603
Management services 185,855 - 158,032 158,032
Rental related 41,146 17,625 7,848 25,473
TOTAL REVENUE 486,753 128,228 384,562 512,790
OPERATING EXPENSES
Compensation costs 106,531 43,999 67,939 111,938
Transaction
commissions
and related costs 117,979 - 147,504 147,504
Reimbursable
salaries, wages,
and benefits 135,343 1,044 114,612 115,656
General and
administrative 84,399 29,769 39,107 68,876
Depreciation and
amortization 27,385 6,018 7,547 13,565
Rental related 26,258 13,743 5,106 18,849
Interest 14,534 6,685 5,345 12,030
Merger related costs 10,217 201 3,078 3,279
Real estate related
impairments 45,767 - - -
Total operating
expense 568,413 101,459 390,238 491,697
OPERATING (LOSS)
INCOME (81,660) 26,769 (5,676) 21,093
OTHER (EXPENSE) INCOME
Equity in (losses)
earnings of
unconsolidated
entities (6,318) (40) 308 268
Interest income 757 2,182 521 2,703
Other (expense)
income (1,793) 524 - 524
Total other
(expense) income (7,354) 2,666 829 3,495
(Loss) income from
continuing operations
before income tax
provision (89,014) 29,435 (4,847) 24,588
Income tax benefit
(provision) 34,434 (11,423) 1,340 (10,083)
(Loss) income from
continuing
operations (54,580) 18,012 (3,507) 14,505
Loss from
discontinued
operations (419) (88) - (88)
NET (LOSS) INCOME $(54,999) $17,924 $(3,507) $14,417
(1) To provide additional insight into its underlying results of
operations, the Company has also presented selected non-GAAP financial
measures intended to reflect its results of operations on a combined
basis and such numbers are exclusive of the total financial or
accounting impact associated with the merger transaction, such as
amortization associated with purchase price adjustments or identified
intangible assets. These non-GAAP combined results do not purport to
show the results as if the companies were merged as of January 1,
2007, but rather is an arithmetic combination of the results of the
two companies, Grubb & Ellis and NNN Realty Advisors. Results do not
reflect the elimination of transactions between the two companies and
certain estimated synergies and expenses related to the combination of
the two companies for the periods presented.
(2) The investment management segment represents legacy NNN Realty
Advisors' transaction, management and dealer-manager businesses.
Grubb & Ellis Company
Reconciliation of Combined Net Income to Adjusted EBITDA
(in thousands)
Nine Months Ended Nine Months Ended
September 30, 2008 September 30, 2007
(Unaudited) (Unaudited)
Grubb & Ellis NNN Realty Grubb & Ellis Combined
Company Advisors Company Companies (1)
Net (loss) income $(54,999) $17,924 $(3,507) $14,417
Interest expense 14,534 6,685 5,345 12,030
Interest income (757) (2,182) (521) (2,703)
Depreciation and
amortization 27,385 6,018 7,547 13,565
Taxes (34,434) 11,423 (1,340) 10,083
EBITDA (2) (48,271) 39,868 7,524 47,392
Write off of
investment in
Grubb & Ellis
Realty Advisors, net 5,828 - - -
Charges related to
sponsored programs 16,296 - - -
Real estate related
impairment 45,767 - - -
Stock based
compensation 8,484 5,014 1,756 6,770
Loss / (Gain) on
marketable securities 1,783 (412) - (412)
Merger related costs 10,217 202 3,078 3,280
Amortization of
contract rights 1,179 2,678 - 2,678
Real estate
operations (13,917) (5,157) (2,743) (7,900)
Other 163 818 (308) 510
Adjusted EBITDA (2) $27,529 $43,011 $9,307 $52,318
(1) To provide additional insight into its underlying results of
operations, the Company has also presented selected non-GAAP financial
measures intended to reflect its results of operations on a combined
basis and such numbers are exclusive of the total financial or
accounting impact associated with the merger transaction, such as
amortization associated with purchase price adjustments or identified
intangible assets. These non-GAAP combined results do not purport to
show the results as if the companies were merged as of January 1,
2007, but rather is an arithmetic combination of the results of the
two companies, Grubb & Ellis and NNN Realty Advisors. Results do not
reflect the elimination of transactions between the two companies and
certain estimated synergies and expenses related to the combination of
the two companies for the periods presented.
(2) EBITDA represents earnings before net interest expense, interest
income, realized gains or losses on sales of marketable securities,
income taxes, depreciation and amortization. Management believes
EBITDA is useful in evaluating our performance compared to that of
other companies in our industry because the calculation of EBITDA
generally eliminates the effects of financing and income taxes and the
accounting effects of capital spending and acquisition, which items
may vary for different companies for reasons unrelated to overall
operating performance. As a result, management uses EBITDA as an
operating measure to evaluate the operating performance of the
Company's various business lines and for other discretionary purposes,
including as a significant component when measuring performance under
employee incentive programs.
However, EBITDA is not a recognized measurement under U.S. generally
accepted accounting principles, or GAAP, and when analyzing the
Company's operating performance, readers should use EBITDA in addition
to, and not as an alternative for, net income as determined in
accordance with GAAP. Because not all companies use identical
calculations, our presentation of EBITDA may not be comparable to
similarly titled measures of other companies. Furthermore, EBITDA is
not intended to be a measure of free cash flow for management's
discretionary use, as it does not consider certain cash requirements
such as tax and debt service payments. The amounts shown for EBITDA
also differ from the amounts calculated under similarly titled
definitions in the Company's debt instruments, which are further
adjusted to reflect certain other cash and non-cash charges and are
used to determine compliance with financial covenants and the
Company's ability to engage in certain activities, such as incurring
additional debt and making certain restricted payments.
Grubb & Ellis Company
Supplemental Data
(in thousands)
(Unaudited)
Three Months Ended Nine Months Ended
September 30, September 30, September 30, September 30,
2008 2007 2008 2007
Investment
management
revenue:
Acquisition fees $6,863 $12,944 $31,790 $33,613
Property and
asset management
fees (1) 9,421 10,312 27,026 27,619
Disposition fees
(excluding
amortization
of intangible
contract
rights) 695 6,493 5,808 18,743
Amortization of
intangible
contract rights (193) (799) (1,179) (2,620)
Other (2) 8,249 11,187 23,116 33,248
Total investment
management
revenue $25,035 $40,137 $86,561 $110,603
Investment
management data:
Total properties
acquired 10 23 51 58
Total aggregate
purchase
price $209,850 $710,530 $1,056,232 $1,634,078
Total properties
disposed 4 9 11 24
Total aggregate
sales value at
disposition $54,450 $230,375 $233,875 $752,107
Total square
feet under
management 46,324 30,911 46,324 30,911
Assets under
management $6,660,015 $5,400,214 $6,660,015 $5,400,214
Equity raise:
Tenant-in-
common $46,218 $116,783 $152,944 $341,283
Non-traded
real estate
investment
trust 183,279 65,337 396,123 206,118
Wealth
management 4,851 - 193,290 -
Other 10,622 - 18,143 -
Total equity
raise $244,970 $182,120 $760,500 $547,401
(1) Does not include $1.9 million and $5.6 million of property management
fees that were recorded by the management services business for the
three and nine months ended September 30, 2008.
(2) Decrease in other investment management revenue a result of lower
tenant-in-common equity raise.
