Q4 2021 Equity Commonwealth Earnings Call
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Speaker 1: So.
Speaker 1: I just.
Speaker 1: The and.
Speaker 1: Now she ES.
Speaker 2: Greetings and welcome to Equity Commonwealth fourth quarter 2021 earnings conference call. At this time, we'll participate in the conference call.
Fourth quarter 2021 earnings conference call.
At this time all participants are in a listen only mode.
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Speaker 2: It is now my pleasure to introduce your host, Sarah Burns, Senior Vice President, Investor Relations in Capital Markets.
It's now my pleasure to introduce your host Sarah Byrnes Senior Vice President Investor Relations and capital markets. Thank you you may begin.
Thank you Doug good morning, and thanks for joining us to discuss equity Commonwealth's results for the quarter and full year ended December 31 2021.
Speaker 3: Thank you, Doug. Good morning and thanks for joining us to discuss Equity Commonwealth's results for the quarter and full year ending December 31, 2021.
On the call today are David Helfand, President and CEO , David Weinberg, COO and Bill Griffin.
Speaker 3: On the call today are David Helfand, President and CEO , David Weinberg, COO, and Bill Griffith, CFO .
CFO please.
Speaker 3: Please be advised certain matters discussed during the conference call may constitute forward-looking statements within the meaning of federal securities laws. We refer you to the section titled forward-looking statements in the press release issued yesterday, as well as the section titled risk factors in our annual report on Form 10-K and quarterly reports on Form 10-Q for subsequent quarters for discussion of factors that could cause actual results to materially differ from any forward-looking statement.
Please be advised certain matters discussed during the conference call may constitute forward looking statements within the meaning of federal Securities laws. We refer you to the section titled forward looking statements in the press release issued yesterday as well as the section titled Risk factors in our annual report on Form 10-K , and quarterly reports on form.
Thank you for subsequent quarters for a discussion of factors that could cause actual results to materially differ from any forward looking statements.
Speaker 3: The company assumes no obligation to update or supplement any forward-looking statements made today. We post important information on our website at eqcre.com, including information that may be material. The portion of today's remarks on our quarterly earnings also includes certain non-GAAP financial measures. Please refer to yesterday's press release and our supplemental containing our results for a reconciliation of these non-GAAP measures to our GAAP financial results. With that, I will turn the call over to David Helfand. Thanks, Sharon. Good morning, everyone.
The company assumes no obligation to update or supplement any forward looking statements made today, we post important information on our website at EQ CRE dot com, including information that may be material. The portion of today's remarks on our quarterly earnings also included certain non-GAAP financial measures. Please refer to yesterday's press release.
And our supplemental containing our results for a reconciliation of these non-GAAP measures to our GAAP financial results with that I will turn the call over to David Helfand.
Thanks, Sharon good morning, everyone. Thanks for joining us I.
Speaker 4: I'll provide an update on the company's results for the quarter and full year, as well as comment on our plans for 22.
I will provide an update on the company's results for the quarter and full year as well as comment on our plans for 'twenty two.
Net loss <unk> and then both.
Speaker 4: Net loss, FFO and NFFO, were roughly flat in the fourth quarter compared to the fourth quarter 2020.
We're roughly flat in the fourth quarter compared to the fourth quarter of 2020.
Speaker 4: We've seen leasing activity pick up in the fourth quarter, with 51,000 square feet of new and renewal leases signed and greater tour activity.
We've seen leasing activity pick up in the fourth quarter with 51000 square feet of new and renewal leases signed and greater tour activity.
Speaker 4: Rents on new and renewal leases were flat on a cash basis and up 2.8% on a gap basis versus expiring leases.
Rents on new and renewal leases were flat on a cash basis and up two 8% on a GAAP basis versus expiring leases.
Speaker 4: Leased occupancy was 82.3%, and commenced occupancy was 79.2% at 2021 year end.
Leased occupancy was 82, 3% commenced occupancy was 79, 2% in 2021 year end.
Speaker 4: For the full year 2021, net loss was $0.20 per share, compared to $3.56 per share of net income in 2020.
For the full year 2021, net loss was <unk> 20 per share compared to $3.56 per share of net income in 2020 the.
Speaker 4: the decline was primarily the result of a decrease from gains on property sales and a decrease in
The decline was primarily the result of a decrease from gains on property sales.
And a decrease in interest income.
The <unk> 19 per share decline in <unk> for the full year 2021.
Speaker 4: The 19 cent per share decline in FFO for the full year 2021.
Speaker 4: compared to 2020 was largely the result of a decrease in interest income, an increase in GNA expense.
Compared to 2020 was largely the result of a decrease in interest income and increase in G&A expense.
Speaker 4: a decrease in NOI for property sold, and a decrease in same property NOI.
And a decrease in NOI from property sold and a decrease in same property NOI.
Speaker 4: The $0.16 per share decline in NFFO for the full year 2021 compared to 2020 was largely the result of a decrease in interest in other income, a decrease in same-property cash NOI and lease termination fees, and a decline in NOI from properties sold, which was offset by a decrease in G&A expense, excluding interest.
The 16th per share decline and then.
<unk> for the full year 2021, compared to 2020 was largely the result of a decrease in interest and other income the decrease in same property cash NOI at lease termination fees and a decline in NOI from properties sold which was offset by a decrease in G&A expense, excluding executive severance.
General and administrative expense for the year totaled $37 4 million and includes $7 $1 million of executive severance expense and a $1 $4 million tax related to a 2020 disposition.
Speaker 4: General and administrative expense for the year totaled $37.4 million and included $7.1 million of executive severance expense and a $1.4 million tax related to a 2020 disposition.
Speaker 4: Excluding those two items, GNA in 2021 was 30.3 million compared to 31.8 million in 2020.
Excluding those two items G&A in 2021 was $30 3 million compared to $31 8 million in 2020.
Speaker 4: We expect GNA to be approximately $30 million this year.
We expect G&A to be approximately $30 million this year.
Same property NOI increased five 2% in the fourth quarter 2021, compared to the fourth quarter 2020.
Speaker 4: Same property NOI increased 5.2% in the fourth quarter 2021 compared to the fourth quarter 2020. The increase was largely due to an increase in NOI at 1225 17th Street in Denver, as the property experienced an increase in parking revenues and tenant reimbursement.
The increase was largely due to an increase in NOI of 12 25, 17th Street in Denver.
The property experienced an increase in parking revenues and tenant reimbursements.
Same property cash NOI was up 8% during the quarter due to improved parking revenues lower real estate tax expense.
Speaker 4: Same property cash NOI was up 0.8% during the quarter due to improved parking revenues. Lower real estate tax expense.
Speaker 4: an expiration of free rent at 1225 17th Street, which was offset by an increase in free rent and occupancy decreases at 1258 Street in Washington, DC and 206 East 9th Street in Austin.
And exploration of free rent at 12, 25, 17th Street, which was offset by an increase in free rent and occupancy decreases at $12 50, H Street in Washington D. C. In 206 East Ninth Street in Austin.
Same property NOI decreased seven 2% for the full year 2021 compared to the full year 2020.
Speaker 4: Same property NOI decreased 7.2% for the full year 2021 compared to the full year 2020.
Speaker 4: Decrease was largely due to decreases in occupancy at 1258 Street in Washington, DC, and 206 East 9th in Austin.
The decrease was largely due to decreases in occupancy of 250, H Street in Washington, D C and 269th in Austin.
Speaker 4: as well as decrease in early termination income and lower parking revenue for the full year.
As well as decrease in early termination income and lower parking revenue for the full year.
Speaker 4: This was offset by increased occupancy at 12-25-17 and higher tenant reimbursement.
This was offset by increased occupancy at 12, $25 17 in higher tenant reimbursements.
Speaker 4: Same property cash NOI decreased 8.8% during the full year 2021 due to lower occupancy, an increase in free rent, and a decrease in parking revenue for the year offset by free rent expiration at 12-25-17.
Same property cash NOI decreased eight 8% during the full year 2021, due to lower occupancy and increase in free rent and a decrease in parking revenue for the year.
Offsetting by free rent exploration at 12 25, 17th Street.
Speaker 4: We have approximately $2.8 billion of cash, or over $24 per share.
We have approximately $2 $8 billion of cash or over $24 per share.
Speaker 4: In 2021, we repurchased $6.7 million of our common shares for $174 million, or $25.85 per share.
In 2021, we repurchased $6 $7 million of our common shares for $174 million or $25 $825 85 per share.
Speaker 4: This year through February , we've repurchased an additional 2.2 million shares for $57 million at an average price of $25.78 per share.
This year through February we've repurchased an additional two 2 million shares for $57 million at an average price of $25 78 per share.
With more than $23 a share in net cash we view the share repurchases as a low risk means of investing eqt's capital.
Speaker 4: With more than $23 a share in net cash, we view the share repurchases as a low-risk means of investing EQC's capital.
Speaker 4: In total, since we began buying back shares in 2015, we've repurchased 18.5 million shares for just under $500 million at an average dividend-adjusted price of $22.13.
In total since we began buying back shares in 2015, we have repurchased 18 5 million shares for just under $500 million.
At an average dividend adjusted price of $22 13.
Speaker 4: Currently have $69 million remaining on our existing share buyback authorization.
Currently up $69 million remaining on our existing share buyback authorization.
Turning to the current market environment leasing activity, our portfolio accelerated noticeably with mortars, and generally more activity in the fourth quarter.
Speaker 4: Turning to the current market environment, leasing activity in our portfolio accelerated noticeably with more TERS and generally more activity in the fourth quarter.
Speaker 4: 2021 saw sales volumes recover for US office properties. $110 billion of sales marked a significant increase from 2020's level of $66 billion. That was on par with sales volumes in 2018 and 2019.
2021 saw sales volumes recover for U S office properties of $110 billion of sales marked a significant increase from 2000 twenty's level of 66 billion.
That was on par with sales volumes in 2018 to 2019.
Clearly there remains abundant equity capital targeting real estate assets.
Speaker 4: Clearly, there remains abundant equity capital targeting real estate assets.
Speaker 4: Debt capital remains readily available as well, and despite the recent move in base rates and spreads, debt remains priced at historically attractive levels.
<unk> capital remains readily available as well and despite the recent move in base rates and spreads that remains priced at historically attractive levels.
Speaker 4: Against this backdrop, we continue to evaluate a wide range of investment opportunities.
Against this backdrop, we continue to evaluate a wide range of investment opportunities.
Speaker 4: including portfolio purchases and corporate transactions, both public and private.
Including portfolio purchases of corporate transactions, both public and private.
Speaker 4: As we've mentioned in the past, we're evaluating opportunities where the EQC team would steward the go-forward business, as well as opportunities where the management team of the acquired business would lead the company going forward.
As we've mentioned in the past, we are evaluating opportunities where the EQT team with stored the go forward business as.
As well as opportunities where the management team of the acquired business would lead the company.
Going forward.
For 2022, our focus remains capital allocation leasing and asset management.
Speaker 4: For 2022, our focus remains capital allocation, leasing, and asset management. In addition, we expect to market one or more of our four properties for sale.
In addition, we expect to market, one or more of our core properties for sale.
Finally, we know that shareholders would like more clarity on timing, which.
Speaker 4: Finally, we know that shareholders would like more clarity on timing. It's reasonable to ask how much longer we'll continue the effort to find the right opportunity.
It's reasonable to ask how much longer will continue the effort to find the right opportunity.
Speaker 4: While I don't have a clear answer, what I can say is that we're mindful of cost of pursuing opportunity and continue to evaluate the best course of action to maximize shareholder value.
Well I don't have a clear answer what I can say is that we're mindful of costs pursuing opportunity and continuing to evaluate the best course of action to maximize shareholder value.
Before we go to questions.
Speaker 4: Before we go to questions, I want to take a minute and acknowledge Jeff Brown's many contributions over the past eight years.
I wanted to take a minute and acknowledge Jeff Brown his many contributions over the past eight years.
Speaker 4: As Chief Accounting Officer, Jeff has been a meaningful part of EQC's success.
As Chief Accounting Officer, Jeff has been a meaningful carvey QC success.
Speaker 4: All of us at EQC wish you the best, appreciate your leadership, and thank you for your mentoring of our outstanding accounting team.
All of us at EQT I wish you. The best appreciate your leadership and thank you for your mentoring of our outstanding accounting team.
Speaker 4: I'd also like to congratulate Andrew Levy on his promotion to Chief Accounting Officer.
I'd also like to congratulate Andrew Levy on his promotion to Chief Accounting Officer.
Andrew has worked with US since we took over <unk> in 2014 and is well prepared for this new opportunity.
Speaker 4: Andrew has worked with us since we took over EQC in 2014 and is well-prepared for this new opportunity. With that, David, Bill, and I are happy to take questions.
With that David Bill and I are happy to take your questions.
Yes.
Speaker 2: Thank you. Ladies and gentlemen, as a reminder, it is star one to ask a question.
Thank you, ladies and gentlemen, as a reminder, star one to ask a question.
Speaker 2: Our first question comes from the line of Manny Kortsman with Citigroup.
First question comes from the line of Manny Korchman with Citigroup. Please proceed with your question.
Speaker 2: Hey, thanks for all that, David, and thanks for, you know, leading with what I guess investors are asking about.
Hey, Thanks for that David and thanks for a leading whats well, that's what I guess investors are asking about.
Speaker 2: If we dive in, you talk about increasing leasing in a few office assets that you continue to own.
If we dive in you talked about increasing leasing and in a few office assets that you continue to own.
Speaker 2: How does that maybe newfound momentum in leasing an office change your views on that asset class overall? And especially contrasting that to the fact that you're still talking about selling at least one of those.
How does that maybe new found momentum in leasing and office change your views on that asset class overall.
Especially contrasting that to the fact that you you're still talking about selling at least one of those assets.
Okay.
Speaker 5: Hey, Manny. It's David. That's a great question. I would say what we're seeing is consistent with the headlines regarding office in general.
Hey, Manny it's David that's a great question I would say what we're seeing is consistent with the headlines regarding office in general.
Speaker 5: There's clearly been a flight to quality, if you dig into the lease economics with respect to the better assets, better markets, better locations, you can kind of see rents holding and higher concession packages overall just given the competitive environment and cost of construction. So we still remain bullish on better assets and better markets.
There's clearly been a flight to quality.
Digging into the lease economics with respect to the better assets better markets better locations, you can kind of see rents holding and higher concession packages overall, just given the competitive environment. The cost of construction. So we're still remain bullish on better assets in better markets.
Speaker 5: And then, you know, I would say in the next year of assets, overall, it's still very competitive and there's still some sublease space that is a nice alternative for tenants looking at that price point.
And then you know I would say in the next tier of assets.
Overall, it's still very competitive and there is still some sublease space.
Is a nice alternative for tenants looking at that price point.
Speaker 5: We're fortunate in that our portfolio, we've got assets in Denver, two in Austin, which are clearly winners coming out of COVID, and our DC assets, a nice asset, but in a very competitive market.
We're fortunate in that our portfolio, we've got assets in Denver, two in Austin workshop, clearly winners coming out of Covid in our D. C assets, a nice asset, but in a very competitive market.
Speaker 5: So I think we remain bullish on office relative, perhaps, many of our peers. But I'd also say we're cautious at the same time because we recognize there's a clear distinction between, quote unquote, the good office properties and those that may be challenged for some time.
So I think we remain bullish on office relative perhaps many of our peers, but I'd also say we're cautious at the same time, because we recognize there is a clear distinction between quote unquote. The good office properties and those that may be challenged for some time.
Yeah.
And maybe.
Speaker 2: it's it may seem obvious but is that clear the capital markets if you wanted to buy the better office buildings are they pricing appropriately near you
It may seem obvious but is that clear in the capital markets. If you wanted to buy the better office buildings are they pricing appropriately in your view.
Speaker 5: Well, I would say if you go back to our comments on office, those still hold. So if by better office buildings, you mean those trophy assets and growth markets with term and credit, they are pricing at pre COVID levels.
Well I would say if you go back to our comments on office those still hope so just by better office buildings, you mean, those trophy assets and growth markets.
With term and credit they are pricing at pre COVID-19 levels.
Speaker 5: if low forecasts above replacement cost.
Low four caps above replacement cost.
Speaker 5: So his other office is that, you know, in the secondary non-growth markets, commodity buildings, vacancy enrolled, where it's a little murkier in terms of how the capital markets are pricing it, and I would describe that as more hand-to-hand combat, and it's very deal-specific, and to be determined how that plays.
So as other offices and the secondary non growth markets commodity buildings vacancy in a role where its a little murkier in terms of how the capital markets are pricing it and I would describe that as more hand to hand combat and it's very deal specific.
And to be determined how that plays out.
Speaker 2: Great. And then, I think you guys gave a view on where GNA would be, if I caught this correctly, for 2022 at $30 million. If you can, what's specifically driving those GNA sales?
Great and then I think you guys gave a view on where G&A would be if I caught this correctly for 2000 $20 million to $30 million.
Whats if you kind of what's specifically driving those G&A savings.
Speaker 4: I don't think savings, I think if you adjust our 21 number, we're flat to roughly flat to 21 with that $30 million estimate. Thank you.
I don't see I don't think savings I think if you adjust our 'twenty one number we're flat to <unk>.
Roughly flat to 21 with that $30 million estimate.
Thank you.
Thanks Manny.
Yes.
As a reminder, it is star one to ask a question.
Okay.
Speaker 2: There are no other questions at this time. I'd like to hand the call back over to David Helfand for closing remarks.
There are no other questions at this time I'd like to hand, the call back over to David Helfand for closing remarks.
Well. Thank you everyone for joining us and thank you to Manny for asking a question.
Speaker 4: Well, thank you, everyone, for joining us, and thank you to Manny for asking a question. Side note, we are definitely here for the donuts, but that's not all. Appreciate everyone's time. Look forward to catching up with you, and be well.
Side note, we are definitely here for the doughnuts, but that's not all.
We shoot everyone's time look forward to catching up with you and be well.
Speaker 2: Ladies and gentlemen, this does conclude today's teleconference. Thank you for your participation. You may disconnect your lines.
Ladies and gentlemen, this does conclude today's teleconference. Thank you for your participation you may disconnect. Your lines at this time and have a wonderful day.