Equity Commonwealth

Good morning, and thanks for joining this call to discuss Equity Commonwealth's results for the fourth quarter and full year ending December 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'd 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 federal securities laws. Please refer to the section titled Forward-Looking Statements in the press release issued yesterday as well as a 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 a discussion of factors that could cause the company's 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 and 2022 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 these non-GAAP measures to the company's GAAP financial results. On the call today are David Helfand, President and CEO, David Weinberg, COO, and Bill Gredis, CFO, With that, I will turn the call over to David Helfand.

Thank you. Good morning, everyone. Thanks for joining us. I'll review the company's results for the quarter and the full year, as well as provide an update on the capital markets and our investment activities. For the quarter, funds from operations were 21 cents per share, compared to one cent per share in the fourth quarter of 2021. Normalized FFO was also 21 cents per share, compared to less than a penny per share a year ago. Growth in FFO and normalized FFO was largely the result of a 20 cent per share increase in interest and other income, as well as a one cent per share increase in same property cash NOI. Same property NOI was up 14.5% and same property cash NOI was 14.9% higher compared to the fourth quarter of 2021. For the full year 2022, funds from operations were $0.41 per share compared to a $0.06 per share loss for the full year 2021. Normalized FFO was $0.42 per share compared to $0.01 per share loss a year ago. Growth in FFO was largely the result of a $0.35 per share increase in interest and other income, a $0.06 per share decrease in G&A expense, and a $0.05 per share increase and same property NOI. The growth in normalized FFO was largely driven by a $0.36 per share increase in interest and other income and a $0.06 per share increase in same property cash NOI. Same property NOI was up 17% and same property cash NOI was 19.1% higher compared to the full year 2021. At our properties, leasing activity increased in the fourth quarter. We signed 76,000 square feet of new and renewal leases. Rents on those leases were flat on a cash basis and up 3.6% on a gap basis. For the year, we signed 205,000 square feet of new leases and renewals. Rents on those leases were flat on a cash basis and up 3.8% on a gap basis. As of December 31st, leased occupancy was 82.8% and commenced occupancy was 78.7%. Turning to the balance sheet, we have approximately $2.6 billion of cash, or $23 per share, and no debt. Change in our cash balance during 2022 was driven by the Fed's rapid pace of interest rate increases, our common distribution in October, and our share buyback activity. The interest rate on our cash increased substantially during the year, from 22 basis points at year end 2021 to 4.5% at year end 2022. Currently, we're earning roughly 4.75% on our cash balances. In October, we paid a distribution of common shareholders totaling $111 million, or a dollar a share. respect to share buybacks during 2022, we repurchased 6.1 million shares at a cost of $155 million at an average dividend adjusted price of $24.64. Since we began buying back stock in 2015, we've repurchased a total of 22.4 million shares or roughly 17% of our float as of 2014 for an aggregate of $595 million or an average dividend adjusted price of $21.73. We currently have $120 million of remaining capacity under our existing share buyback authorization. Commercial real estate is in flux and is currently trying to find a bottom in terms of value. In certain sectors, property level performance remains strong. Other sectors have weakening near-term fundamentals. Investment sales volumes are down across all asset classes as buyers and sellers sort out the impact of the rapid change in the cost of debt capital. Since spring, the cost of floating rate debt nearly tripled, while the cost of fixed rate financing more than doubled. At EQC, we continue to work to identify a compelling investment opportunity and to create value in our existing assets. We remain hopeful that the challenges in the real estate credit markets might be a catalyst for a large deal. The team remains focused, disciplined, and optimistic. And with that, I'll turn this over to questions for myself, Bill, and David.

Thank you. We'll now be conducting a question and answer session. If you'd like to ask a question, please press star 1 on your telephone keypad. The confirmation tone will indicate your line is in the question queue. You may press star 2 if you'd 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. One moment, please, while we poll for questions. Thank you. Our first question is from Craig Mailman with Citi. Please proceed with your question. Good morning, guys.