Q2 2023 Equity Commonwealth Earnings Call

Alright, and can June 3rd 2023 and providing.

Provide an update on the company.

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Question and answer session will follow the formal presentation.

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David Weinberger. Please go ahead.

Good morning, everyone. Thanks for joining us today I'll review the company's results for the quarter as well as provide an update on the capital markets and our investment activities.

For the quarter funds from operations were 16 cents per share compared to five cents per share in the second quarter of 2022.

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Offset by five cents per share increase GMA related to compensation expense due to <unk>.

And one cent per share each from a decrease in same property NOI and an increase in income tax expense.

Normalized SFO was 22 cents per share compared to four cents per share a year ago.

Growth and normalized FFL was largely the result of a 19 per share increase in interest and other income partially offset by one cents per share decreased and same property NOI and a one cents per share increase in income tax expense.

Saint property NOI decreased 14.8% and same property cash NOI was nine 4% lower compared to last year.

Both primarily due to an increase of pre leasing demolition cost and a decrease in average commenced occupancy for this quarter.

At our properties in the quarter, we signed 68000 square feet of new leases and renewals grandson, those leases were down 0.7% on a cash basis and up 15.3% on a gap basis.

As of June 30th please occupancy was 82% and commenced occupancy was 78.2%.

Terms of leasing we continue to see a range of deals with some tenants, giving back space. So I'm looking for short term extensions and others more comfortable committing to term.

Okay.

Leasing environment, and we are more actively preparing spaces for release in addition to being more aggressive on terms.

Turning to the balance sheet, we have approximately 2.2 billion of cash or $19 per share and know that.

The interest rate, we earn on our caches increases the fed has moved rates and we are currently earning roughly 525% compared to 1.6% a year ago, we continue to actively manage.

Which our cash balances among our banks to minimize the risks and maximise yield.

Daily liquidity with.

With the Feds continued rate increases over the past year interest income has grown from $6 million in the second quarter of 2020 222007 $4 million in the second quarter of 2023.

Regarding share buybacks, we have not repurchased Amy share this year to date.

Since we began buying back stock in 2015, we repurchased a total of 22.4 million shares for an aggregate of $595 million and an average dividend adjusted price of $17.48.

We renewed our authorization as of June 30th.

Currently have $150 million of capacity.

Turning to the capital markets continue.

Continue to be slow and our pipeline is modest transaction volumes are down across all asset classes with just $35 billion in total investment sales for the second quarter, nearly 70% lower on an annualized basis with so little trading there has been limited price discovery and assets are difficult to value.

To date, there has not been a catalyst, creating actionable investment opportunities understood not want to transact today's pricing and lenders are often willing to work with the borrowers.

In terms of potential investments, we continue to evaluate a wide range of asset classes.

We still like industrial and residential with operating conditions remaining relatively strong, though decelerate for other asset classes fundamentals range from decent to challenging and the lack of that availability is a significant issue.

Against this backdrop, it's difficult to know where we might find a compelling opportunity to invest.

A prolonged period of this challenging credit environment may create such an opportunity.

Or perhaps it's a large private real estate company that believes that deal with US is the best way to access the public markets. It could also be a business with a broken balance sheets or one that is meaningful growth capital, we remain hopeful that such scenarios or others will be a catalyst for a transaction.

In the meantime, we will continue to be patient if we do not find an opportunity. During this cycle. However, long that might last we will likely sell the remaining properties and return the capital.

With that David Bill and I are happy to take your questions.

Thank you.

Now a.

Eight question and answer session, particularly like to ask a question. Please practice, Taiwan on your telephone keypad.

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In this Nathan Nathan Sandwich and pick up your headset for pricing Becky.

One moment please.

Both of our questions.

Our first question comes from Craig.

Mailmen, which city. Please go ahead.

Hi, Good morning is actually a Salzburg young for Craig.

Your remarks, you mentioned that current deal pipeline is flowing.

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Relative to the first half half the volume of transaction, you're looking about changed at all or.

And how are you thinking about what kind of underwriting different return hurdles for different asset classes.

Good questions, it's David Weinberg I'd say.

Our conversations have slowed down a little bit relative to perhaps first quarter, maybe not unusual. It is July so things tend to be slow anyway.

It also say many of our conversations earlier in the year where preliminary.

With groups that are perhaps kicking the can trying to see what the options may be and it's going to take more time to play out to see whether those translate into actionable investment opportunities.

In terms of just thinking about pricing.

That really hasn't changed we recognized as a higher interest rate environment. We also recognize where the public comps depending on the sector are trading all of that.

Thats baked into our pricing.

But I want to restate, what we've setup prior calls.

We're looking across sectors that are often begins with the story and then we figure out what price makes the most sense in the stories often why that D. A Y us and then it evolved into kind of what the basis is what the yields are what the all in return looks like and that's how we think about investments.

Thanks, and then speed on the last call you mentioned looking at industrial.

Single family rentals, as well as maybe taking or not taking a look at the office, we saw a large industrial transaction.

Happened.

August deal.

Did you take a look at that or have you talked to any you know private equity salaries that are kind of looking to sell industrial product.

So I don't want to comment on specific deals, we lift that but I would say we have looked at some large industrial portfolios.

But for different reasons, they do not translate into what were described as an actionable opportunity.

Okay, Great and then.

Touching an office is that something you're still interested in giving and kind of.

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I would say that varies day to day, I'd say rather than describing is interested in office right. Now we're interested in learning more about the opportunities with respect to office.

Still early fundamentals continue to weekend and we have yet to find a large owners with really high quality portfolios.

That one either have equity in them or two are willing to transact.

We think pricing should be today.

Great and then I guess, just one more on maintaining reed.

Or any kind of.

Additional restructuring you would need to do or special dividend that you would have.

To kind of maintain that read status.

Sure. It's bill last year as you know, we did do an internal restructuring to generate some gain to qualify.

For this year, we expect to qualify again by completing a similar restructuring.

And then looking forward, we have some options for 2004.

We are currently evaluating.

As far as the dividend goes we don't.

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Any sort of future.

Transaction, but the dividend that we paid in March will cover everything that we expect to do so far this year.

Great. Thanks.

Oh excuse me as a reminder, if you would like to pose a question. Please.

Five one.

Yeah.

No further questions at this time I would like to fly back alright, with David Weinberg.

Been coughing. Please go ahead.

Thank you again for joining us today, and we look forward to next time.

This concludes today's conference call.

May disconnect your lines that'd be fine. Thank you.

And then have a great day.

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