Equity Commonwealth

Good morning and thanks for joining this call to discuss equity commonwealth results for the fourth quarter and full year ending December 31st, 2023 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 one on your telephone keypad. A confirmation tone will indicate your line is in the question queue. You may press star two 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 federal securities law. 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 10K and quarterly reports on form 10Q for subsequent quarters for a discussion of factors that could cause the company's actual results to materially defer from any forward-looking statements. The company assumes no obligation to update or supplement any forward-looking statements made today. The company posts important information on its website at .eqcre.com, including information that may be material. The portion of today's remark on the company's quarterly and 2023 earnings also include certain non-GAAP financial measures. Please refer to yesterday's press release and supplement 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 Helfen, President and CEO, David Weinberg, COO, and Bill Griffiths, CFO. With that, I will turn the call to David Weinberg. Please go ahead, sir.

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 our investment activities. For the quarter, funds from operations were 27 cents per share compared to 21 cents per share in the fourth quarter 2022. Normalized FFO was 26 cents per share compared to 21 cents per share a year ago. The growth in FFO and normalized FFO was largely the result of a five cents per share increase in interest in other income. Same property NOI was down .3% and same property cash NOI was 12% lower compared to the fourth quarter 2022. For the full year 2023, funds from operations were 91 cents per share compared to 41 cents per share for the full year 2022. Normalized FFO was 97 cents per share compared to 42 cents per share a year ago. The growth in FFO was largely the result of a 61 cents per share increase in interest in other income, a six cent per share increase in GNA expense, and a four cent per share decrease in same property NOI. The growth in normalized FFO was largely driven by the 61 cents per share increase in interest in other income and the four cents per share decrease in same property cash NOI. Same property NOI was down .5% and same property cash NOI was .4% lower compared to the full year 2022. Excluding a one time collection in early 2022, same property NOI and same property cash NOI declined .7% and .5% respectively. At our properties, leasing activity remains slow in the fourth quarter as office tenants continue to work through their space requirements. For the quarter, we signed 32,000 square feet of new leases and renewals. Rents on those leases were up .9% on a cash basis and up .4% on a gap basis. For the year, we signed 214,000 square feet of new leases and renewals. Rents on those leases were up .6% on a cash basis and up .7% on a gap basis. As of December 31st, lease to occupancy was .2% and commence to occupancy was 80%. Turning to the balance sheet, we have approximately 2.2 billion of cash or roughly $20 per share and no debt. Net of our preferred stock, our cash balance is just under $19 per share. The change in our cash balance during 2023 was primarily caused by the interest income on our cash, net of the $4.25 per share common distribution in March and share buybacks. The interest rate on our cash increased during the year from an average of .75% during 2022 to an average of .5% during 2023. With respect to share buybacks, during 2023, we repurchased 3 million shares at a cost of $56.7 million at an average price of $18.78. Since we began buying back stock in 2015, we have repurchased a total of 25.4 million shares for an aggregate of $652 million at an average dividend adjusted price of $17.63. We currently have $93 million remaining on our existing share buyback authorization. Earlier this month, we completed a contribution of cash to a subsidiary REIT, which makes the interest income from that cash qualified income for the 75% REIT income test for the next 12 months. With that, we expect to qualify as a REIT in 2024. With respect to the capital markets, investment sales volumes remain down across all asset classes as buyers and sellers sort through the impact of the changing credit markets and try to gauge the strength of different sectors. At EQC, we continue to work to identify an investment opportunity and to create value at our four office assets. As we have said previously, we believe a compelling investment opportunity is one where we are getting paid for the risk we are taking. We also believe that investments with strong long-term growth prospects are good businesses for public REIT. Accordingly, while we look across sectors, we are spending more time on industrial and residential investments, including workforce housing. We remain hopeful that we will find a deal. In the meantime, the team remains focused and disciplined. With that, David, Bill, and I are happy to take your questions.

Thank you. Ladies and gentlemen, we will now be conducting a question and answer session. If you would like to ask a question, please press star and one on your telephone keypad. The confirmation tone will indicate your line is in the question queue. Our first question is from the line of Craig Millman with Citi. Please go ahead.

Hi, good morning. This is Seth Bergeon for Craig. I guess my first question would be, you know, how do you see the number of opportunities you're evaluating today? Like, how does that volume compare to the opportunity set that you've been looking at over the prior quarter? Has it increased or decreased?

Hey, it's David Weinberg. I'd say just from quarter to quarter, I'm not sure there's that much of a difference. While there's a lot more chatter in the market and you're seeing more references to one-off sales, please keep in mind we're looking for larger transformative investments, and maybe there's an uptick on those. But from my perspective, we saw opportunities last year, and we're continuing to look at opportunities early into this year.

Okay, great. And then just another one. In the past, you've kind of mentioned, you know, catalysts for a transaction would be COVID, which then turned out to be a catalyst, and then kind of the dislocation in the capital markets. Kind of alluding to some of that chatter you've talked about, you know, increasing, you know, kind of, how do you view that window of opportunity? Do you see that, you know, still plenty of opportunity, or do you kind of see that window narrowing just in terms of the timeframe you're looking at?

I'd say the window's open. It's hard to predict if and when it shuts. But for the reasons we've discussed before, you know, given the changing credit markets, proceeds down, interest rates up, harder for private companies to get public, pressure on private real estate companies to create some liquidity and things we can do in addition to just providing cash, we think we are an attractive option for lots of large owners. And in this environment in general, we think there are conversations that are being had and will continue to be had. But to specifically address your question, I can't predict, you know, if and when that window will shut, and we need to look longer and harder at perhaps selling the four remaining properties and liquidating the company.

Great. Thank you. Thank you.

As there are no further questions, I will now hand the conference over to David. David, please go ahead.

All right. Well, thank you again, and we appreciate your time.

Thank you. The Conference of Equity, Commonwealth has now concluded. Thank you for your participation. You may now disconnect your lines.