Equity Commonwealth

Good morning, and thanks for joining this call to discuss Equity Commonwealth's results for the quarter ending March 31, 2022, and an update on the company. At this time, all participants are in a listen-only mode. A question and answer session will follow the formal presentation. If you would like to ask a question, please press star 1 on your telephone keypad. A confirmation tone will indicate your line is in the question queue. You may press star 2 if you would like to remove your question from the queue. For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star key. If anyone should require operator assistance during the conference, please press star zero on your telephone keypad. 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 the Federal Securities Law. Please refer to this section for 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 reports on Form 10-Q for subsequent quarters for discussion with factors that could cause actual results to materially differ from any forward-looking statement. 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 may be 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 reconciliation of the non-GAAP measures to the company's GAAP financial results. On the call today are David Helfand, President and CEO David Weinberg, COO at CFO. With that, I will turn the call over to David Helfand.

Thank you. Good morning. Appreciate you joining us.

I'll review the company's results for the quarter, as well as provide an update on our disposition and investment activities. Funds from operations were $0.03 per share compared to a loss of $0.06 per share in the first quarter of 2021. Normalized FFO was also $0.03 per share compared to a loss of one cent per share a year ago. The growth in FFO and normalized FFO was largely the result of a decrease in G&A expense due to lower severance, the collection of a previously reserved receivable, and a real estate tax refund related to a sold property. The same property net operating income was up 29% in the first quarter compared to a year ago, and cash NOI was 30% higher. excluding the collection of the receivable, same property NOI was up 5.4% and cash NOI increased 5.5% compared to the first quarter 2021. At the properties, leasing activity has picked up. We are seeing more inquiries and tours today than we have since the COVID outbreak began in March of 2020. In the first quarter, we signed $40,000 worth of new leases, including renewals, And rents on those leases were up 2.8% on a cash basis and up 5% on a gap basis. As of March 31st, leased occupancy was 83.3%. Commenced occupancy was 79.5%. Turning to the balance sheet, we have approximately $2.7 billion of cash and more than $24 per share and no debt. With respect to share buybacks year-to-date, we've repurchased 3 million shares for $77.7 million, an average price of $25.83 per share. Since we began buying back shares in 2015, we have repurchased a total of 19.3 million shares for $517 million, an average dividend adjusted price of approximately $22.30. We have $198 million remaining on our existing share buyback authorization. Turning to dispositions, we currently have two properties in the market, 1250H in Washington, D.C., and Bridpoint Square in suburban Austin. Both are attractive assets and well-positioned in their competitive stack. The market in these assets commenced a few weeks ago. Closings, if any, are likely to occur by late summer or early fall. In addition, it's likely we will mark a capital tower in downtown Austin in the near term. Each of the assets, if sold, are expected to generate taxable gain. We will monitor the progress of dispositions with the REIT income test in mind. Given the small size of our real estate portfolio, significant cash balance, and rising interest rates, we may need to generate additional qualified income if none of the assets being marketed for sale close this year. In terms of investments, we continue to pursue a wide range of opportunities, including portfolio purchases and corporate transactions, both private and public. As we've said in the past, we're evaluating opportunities in a number of different sectors, including single-family residential, industrial, office, retail, and hospitality. Every deal has a different risk profile, and we remain mindful of needing to get paid for the risk we're taking. Some of the opportunities involve substantial real estate companies, that are private, and a deal would mean that EQC is the way they go public. In certain cases, the EQC team would steward the go-forward business. In other cases, the management team of the target business could lead the company going forward. Our analysis of these opportunities begins with fundamental questions. Should the business be public? What is its growth potential? And what value can EQC add? If we're satisfied with the answers, then we'll take the time to dig further into the business to better understand the risks and warrants of returns. We know that shareholders would like more clarity on timing, and a minimum of dispositions will keep us busy the next few quarters. During that time, we will continue management's dialogue with our board about what makes the most sense for shareholders. Markets are dynamic, and we can't predict the facts and circumstances that will form such a decision at that time. For example, the 10-year Treasury is currently trading yielding around 3%, up from 1.5% roughly four months ago. Spreads are 30 to 50 basis points wider, resulting in substantially higher borrowing costs for leveraged buyers. Should rates continue to rise, that might be a catalyst for future investment opportunities. As always, we remain mindful of the cost of pursuing opportunity and continue to evaluate the best course of action to maximize value, including returning the cash to shareholders. We intend to remain disciplined and are optimistic that we'll find a compelling investment. Before we go to questions, I'd like to acknowledge Sarah Burns, who left EQC earlier this year to pursue new opportunities. Sarah's contribution to EQC was significant, and we wish her the very best. With that, David, Bill, and I are happy to take your questions.