Equity Commonwealth - Q4 2021
February 10, 2022
Transcript
Speaker 0
Greetings, and welcome to Equity Commonwealth 4th Quarter 2021 Earnings Conference Call. At this time, all participants are in a listen only mode. A question and answer session will follow the formal presentation. A confirmation tone will indicate your line is in the question As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Sarah Burns, Senior Vice President, Investor Relations and Capital Markets.
Thank you. You may begin.
Speaker 1
Thank you, Doug. Good morning, and thanks for joining us to discuss Equity CommonWell'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 Griffith, CFO. 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 ks and quarterly reports on Form 10 Q for subsequent quarters For a discussion of factors that could cause actual results to materially differ from any forward looking statements.
The company assumes no obligation to update or supplement We post important information on our website ateqcre.com, including information that may be material. The portion of today's remarks on our quarterly earnings also include 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.
Speaker 2
Thanks, Eric. Good morning, everyone. Thanks for joining us. I'll provide an update on the company's results for the quarter and full year as well as comment on our plans 22. Net loss FFO and NFFO were roughly flat in the Q4 compared to the Q4 2020.
We've seen leasing activity pick up in the 4th quarter with 51,000 square feet of new and renewal leases signed and greater tour activity. Rents on new and renewal leases were flat on a cash basis and up 2.8% on a GAAP basis versus expiring leases. Leased occupancy was 82.3% and commenced occupancy was 79.2% at 2021 year end. For the full year 2021, net loss was $0.20 per share compared to $3.56 per share of net income in 2020. The decline is primarily the result of a decrease from gains on property sales and a decrease in interest income.
The $0.19 per share decline in FFO for the full year 2021 compared to 2020 was largely the result of a decrease in interest income, An increase in G and A expense and a decrease in NOI from properties sold and a decrease in same property NOI. The $0.16 per share decline in NFFO for the full year 2021 compared to 2020 It was largely the result of a decrease in interest and 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 and A expense, excluding executive severance. General and administrative expense for the year totaled $37,400,000 and included $7,100,000 of executive severance expense And a $1,400,000 tax related to a 2020 disposition. Excluding those two items, G and A in 2021 was $30,300,000 compared to $31,800,000 in 2020. We expect G and A to be approximately $30,000,000 this year.
Same property NOI increased 5.2% in the Q4 of 2021 Compared to the Q4 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 reimbursements. Same property cash NOI was up 0.8% during the quarter due to improved parking revenues, lower real estate tax expense and 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 In 206 East 9th Street in Austin. Same property NOI decreased 7.2% for the full year 2021 compared to the full year 20 The decrease was largely due to decreases in occupancy at 1258 Street in Washington DC and 206 East 9th in Austin, As well as decrease in early termination income and lower parking revenue for the full year, this was offset by increased occupancy at twelvetwenty fiveseventeen And higher tenant reimbursements. 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 1225 17th Street.
We have approximately $2,800,000,000 of cash or over $24 per share. In 2021, we repurchased 6,700,000 of our common shares for $174,000,000 or 25.80 $25.85 per share. This year through February 8, we've repurchased an additional 2 point 2,000,000 shares for $57,000,000 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 EQC's capital. In total, since we began buying back shares in 2015, we have repurchased 18,500,000 shares for just under $500,000,000 At an average dividend adjusted price of $22.13 currently have $69,000,000 remaining on our existing share buyback Turning to the current market environment, leasing activity in our portfolio accelerated noticeably With more tours and generally more activity in the Q4, 2021 saw sales volumes Recover for U.
S. Office properties. The $110,000,000,000 of sales marked a significant increase from 2020's level of 66,000,000,000 That was on par with sales volumes in 2018 2019. Clearly, there remains abundant equity capital targeting real estate assets. Debt capital remains readily available as well.
And despite the recent move in base rates and spreads, debt remains priced at historically attractive levels. Against this backdrop, we continue to evaluate a wide range of investment opportunities, including portfolio purchases and corporate transactions, Public and private. As we've mentioned in the past, we are 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. For 2022, our focus remains capital allocation, Leasing and Asset Management. In addition, we expect to market 1 or more of our 4 properties for sale.
Finally, we know that Sheryls would like more clarity on timing. It's reasonable to ask how much longer we'll continue the effort to find the right opportunity. Well, I don't have a clear answer. What I can say is that we're mindful of the cost of pursuing opportunity and continue to evaluate the best course of action to maximize shareholder value. Before we go to questions, I want to take a minute and acknowledge Jeff Brown's many contributions over the past 8 years.
As Chief Accounting Officer, Jeff has been a meaningful part of EQC's success. All of us at EQC wish you the best, appreciate your leadership And thank you for your mentoring of our outstanding accounting team. I'd also like to congratulate Andrew Levy on his promotion to Chief Accounting Officer. 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 your questions.
Speaker 0
Thank you.
Speaker 1
Our first question comes from
Speaker 0
the line of Manny Korchman with Citigroup. Please proceed with your question. Hey, thanks for all that, David, and
Speaker 3
thanks for leading with what I guess investors are asking about. Maybe if
Speaker 0
we dive in, You talked
Speaker 3
about increasing leasing in a few office assets that you continue to own. How does that Maybe new found momentum in leasing in office change your views on that asset class overall, and especially contrasting that to the fact that you're talks about selling at least one of those assets.
Speaker 4
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. 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. And then I would say in the next tier of assets, overall, it's still very competitive and there's still some sublease That is a nice alternative for tenants looking at that price point. We're fortunate in that our portfolio, we've got assets In Denver, 2 in Austin, which are clearly winners coming out of COVID. And our DC asset, it's a nice asset, but in a very competitive market. 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 the good office properties And those that may be challenged for some time.
Speaker 3
And maybe 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 4
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 in growth markets with term and credit, they are pricing at Pre COVID levels, low 4 caps above replacement cost. So those other offices In the secondary non growth markets, commodity buildings, vacancy enroll, 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 out.
Speaker 3
Great. And then, I think you guys gave a View on where G and A would be, if I got this correctly, for 2022 at $30,000,000 What's if you can, what's specifically driving those G and A savings?
Speaker 2
I don't think savings, I think if you adjust our 2021 number, we're flat to Roughly flat to $21,000,000 with that $30,000,000 estimate.
Speaker 3
Thank you.
Speaker 2
Thanks, Manny.
Speaker 0
There are no other questions at this time. I'd like to hand the call back over to David Helfand for closing remarks.
Speaker 2
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. I appreciate everyone's time. Look forward to catching up with you and be well.
Speaker 0
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.