Equity Commonwealth (NYSE:EQC) Q3 2023 Earnings Call Transcript

Equity Commonwealth (NYSE:EQC) Q3 2023 Earnings Call Transcript October 31, 2023

Operator: Good morning and thanks for joining this call to discuss Equity Commonwealth’s Results for the quarter ending September 30, 2023 and provide an update on the company. [Operator Instructions] As a reminder, this conference is being recorded. Please be advised that certain matters discussed during this conference call may constitute forward-looking statements within the meaning of federal securities laws. Please refer to the section titled forward-looking statements in the press release issued yesterday as well as the section titled Risk Factors in the company’s annual report on Form 10-K and quarterly report on Form 10-Q for subsequent quarter for a discussion of factors that could cause the company’s actual results to differ materially from any forward-looking statements.

Aerial view of a standard residential neighborhood with multiple rows of relatively new houses representing the company's real estate investments.

The company assumes no obligation to update or supplement any forward-looking statements made today. The company posts important information on its website at www.eqcre.com, including information that maybe material. The portion of today’s remarks on the company’s quarterly earnings also includes certain non-GAAP financial measures. Please refer to yesterday’s press release and supplemental containing the company’s results for a reconciliation of these non-GAAP measures to the company’s GAAP financial results. On the call today are David Helfand, Chair of Board, President and CEO; Dave Weinberg, COO; and Bill Griffiths, CFO. With that, I would turn the call over to David Weinberg. Please go ahead.

Dave Weinberg: Good morning, everyone. Thanks for joining us. Today, I will review the company’s results for the quarter as well as provide an update on our investment activities. For the quarter, same property NOI decreased 6.8% and same property cash NOI was 6.6% lower, compared to last year, both primarily due to a decrease in average commenced occupancy and an increase in preleasing demolition cost. At our properties in the quarter, we signed 54,000 square feet of new leases and renewals.Rents on those leases were down 1.8% on a cash basis and up 6% on a GAAP basis. As of September 30, 2023, leased occupancy was 80.8% and commenced occupancy was 79.9%. In terms of leasing, we continue to see a range of deals with some tenants giving back space, some looking for short term extensions and others more comfortable committing to term.

Turning to the balance sheet we have approximately $2.1 billion of cash or roughly $19.61 per share and no debt. The interest rate we earn on our cash has increased as the Fed has moved rates and we currently earning roughly 5.5% compared to 3.2% a year ago. With the Feds continued rate increases over the past year, our interest income has grown from $15 million in the third quarter 2022 to $29 million in the third quarter 2023. Regarding share buybacks, through the end of last week we have purchased $3 million shares year-to-date for $56.7 million at aaverage price of $18.78. Since we began buying back stock in 2015, we have repurchased a total 25.4 million shares for an aggregate of $652 million at an average dividend adjusted price of $17.63.

We currently have $93.3 million of remaining capacity. Touching on our REIT status, we expect to qualify as a REIT in 2024. Turning to the capital markets, transaction volumes remain down across all asset classes. Owners do not want to transact at today's pricing and lenders are often willing to work with their borrowers.Nonetheless, we believe it is different today. With a 10 year rate around 5% and the credit markets continuing to be challenged. Owners are more pressure and have fewer options. Given these conditions we are more optimistic that our patience and discipline will be rewarded. While we evaluate a range of asset classes, we still prefer the industrial and residential sectors and continue to work hard to find a compelling investment opportunity.

With that, David, Bill and I are happy to take your questions.

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