Q3 2022 Equity Commonwealth Earnings Call

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Good morning, and thanks for joining this call to discuss equity Commonwealth's results for the third quarter ending September 32022, 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'd like to ask a question. Please press star one.

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Please be advised that certain matters discussed during this conference call may constitute forward looking statements within the meaning of federal security 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.

Orderly and 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 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 Www Dot EQT C. R E dot com, including information that may be material proportion of today's remarks on the company's quarterly earnings also included certain non-GAAP financial measures. Please refer to yesterday's press release and supplemental supplemental containing.

The company's results for a reconciliation of these non-GAAP measures to the company's GAAP financial results on.

On the call today are David Helfand, President and CEO , David Weinberg, COO, and Bill Griffith CFO and with that I will turn the call over to David Helfand. Please go ahead Sir.

Thank you.

Thanks for joining us this morning, I will review the company's results for the quarter.

As well as to provide a brief update on the capital markets are dispositions and investment activities.

Funds from operations were <unk> 13 per share compared to zero cents per share in the third quarter 2021.

One per share increase in Saint property cash NOI.

Same property NOI was up 16.8% and same property cash NOI was 19.

1% higher compared to the third quarter of 2021.

At the properties in the third quarter, we signed 55000 square feet of new leases and renewals.

<unk> on those leases were down three three per cent on a cash basis and up $2, 2% on a gap it's.

As of September 30th least occupancy was 83.4%.

Commenced occupancy was 88%.

Turning to the balance sheet, we have approximately 2.6 billion of cash for $23 per share.

Adjusted for the recently paid one dollar per share dividend.

We have no debt.

With respect to share buybacks in the quarter, we repurchased 590000 shares for $15 million.

And an average price of $25 40 per share for 2440 dividend adjusted.

Year to date, we have repurchased $6 1 million shares for $155 million at an average dividend adjusted price of $24.64.

Since 2015, we have repurchased a total of 22.4 million shares.

For $595 million and the average dividend adjusted price $21.73.

And today, we have $120 million remaining on our existing share buyback authorization.

During the quarter, we completed the 351 transaction that we discussed in last quarter's call.

The transaction generated $82 million, a taxable gain from two of our assets.

And that being made up a significant portion of the one dollar per share special distributions.

And we paid on October 18th.

In terms of the current environment.

Today's debt and equity capital markets are markedly changed from the earlier this year.

The first half of 2022.

Completed transactions that aggressive pricing driven by significant equity and debt availability.

Today to that market is experiencing disruption.

And get funding costs more than double with certain asset classes facing a significant shortage of capacity.

Given the dearth of financing and the tepid buyer interest for value at office, we have decided to hold the three properties, we were marketing for sale for the time being.

With respect to acquisitions as we've setup past quarterly call. We are continuing to evaluate a wide range of potential opportunities across a variety of sectors.

As most of you are well aware, we've been looking for a long time.

I want to assure you that showing patients has been challenging for us as I know it's been for our investors.

While we would love to be doing deals we have a responsibility to be thoughtful stewards of our shareholders capital we take that to heart.

We will continue to work to identify an acquisition opportunity that offers attractive long term fundamentals.

Price that reflects the risks were taken.

We are hopeful challenges in the capital markets will be a catalyst for a compelling transaction <unk>.

Service Foundation for long term growth and outperformance screen QC.

The team and the QC range focused disciplined and optimistic.

That David Bill and I are happy to take your questions.

Thank you we will now be conducting a question and answer session.

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One moment, please while we pull for a question.

Our first question comes from Craig Mountain in what city. Please proceed with your question.

Hey, guys. Good morning, Alright, I just wanted to start on the the acquisition environment not surprisingly clearly.

Price discovery still going on and really just a lack of transactions, but are you guys are probably and.

And the position here holding onto so much cash no debt.

Can you just talk about.

What property types in this environment may look more attractive than others, obviously can't fill office.

Here, maybe offices less interesting, but as you kind of look across the property sectors.

If the pricing does come in.

Where you think you want to deploy the capital today.

Hey, Craig David Weinberg, Good question, and let me just add to some of your comments as I answer not only do we have cash. We also have equity to LP units. So we provide a lot of flexibility in terms of the deal structure.

And then in terms of wherever looking.

It's across a variety of sectors as David said with the key being.

We want to find the deal provides long term attractive.

Fundamentals at a price that we think reflects the risk or taking so if you line them up on a spectrum.

As you mentioned on one end may be office, I'd say hospitality.

We're clearly there are more capital intensive.

A lot more risk in those businesses.

If we were to find it attractive deal there we would have to.

Make sure we get priced scam priced at a level, Oregon paid for that risk compared to perhaps other sectors that we think still have strong tailwinds. Despite some short term headwinds.

And those buckets I'd say as we've covered for industrial and single family residential.

We like both of those businesses. The former clearly we took a good run at recently and the latter as we've discussed it's just hard to access that and scale.

So I can't say we've.

Circled a specific sector I'd say, we continue to look across the different sectors and we're having conversations with owners brokers are bankers.

That represent a variety of asset classes as we look.

Okay.

I fully understand the private market hasn't been too much and so and they're just not as much on the market there, but clearly.

The public market has.

More swiftly and re pricing the equity here I mean.

Is is that a better place to be looking today versus holding out for a bigger private market transaction.

I think that's a good question Craig David Health fan clearly the public markets reflect what's going on more so than the private markets where cell.

Sellers don't have to.

Sort of except the change in rates and the changing environment at least not yet.

I don't know if it's a better place to look I think our general judgment is it's early things have changed pretty dramatically in terms of availability of that.

Cost of debt in all sectors.

And there is going to take a little time for <unk>.

Two acknowledged that.

I think we're well positioned I think we're going to continue to show patients, but hopefully we will get a shot and you could find a really attractive business.

We can both invest in and then build on after the initial transaction.

Moving.

My questions will be more focused on the equity side, but just looking at the that side.

There's clearly as you said a dearth of funding right now I mean from a risk adjusted perspective, it would seem like there should be some opportunities there to either <unk> two people or maybe even.

Find the loan to own situation, maybe through some type of that investment maybe even in the secondary market I mean, what's the.

Kind of a landscape there look and clear that will be.

Less capital out the door, but it should be.

<unk> relative to your cost of capital.

Yes.

Fair point, and we've discussed it on some prior calls.

Sometimes a strategy of providing that capital that turns into equity is the best way to attach and we would be open to that we're not going to be a lender to be a lender, but we might provide that capital to pursue the equity.

Okay, and then just one last one.

This is.

Maybe a little bit.

Outside the scope here, but Sam shut down his his back here back in August because of a lack of of of deal opportunities here and if he dislocated QC you guys had control of the company for awhile hasn't been able to make anything work, but clearly continue to.

Keep chugging, along I mean from from his perspective.

What is the the new once they're between <unk> and you know the stack clear so I would just.

The side effects of this back, but I'm, just kind of high high level of thoughts.

On that decision versus you know getting Eq's you continue to run.

Yeah well.

You're referring to the stack that was was designed to pursue industrial distribution businesses.

Sam was the controlling shareholder for almost 30 years, So a company called Anixter, which was in the distribution business.

When they sold that business, Sam and the CEO decided to raise capital in the stack to try to find an acquisition they weren't able to find one of course, you know those stacks of a specific timeframe for the use of that capital EQ C. As the opposite we have no specific timeframe for the use.

To the capital.

I think I acknowledged in my opening comments this is gone longer than the tooth in any of us expected.

I think absolutely what's happened in the capital markets and the economy the uncertainty the volatility we.

We probably we're on a path to.

Return the capital because we haven't found anything.

But we think there's new life here in new opportunity and having the capital now and being patient and looking for an attractive business at a fair price seems likely are to us today than it was in the past.

Great. Thank you.

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Okay, well, thank you for joining us we appreciate it.

And.

Well.

This concludes today's teleconference. You may disconnect your lines at this time. Thank you for your participation.

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