EQC - Earnings call transcript Q3 2018

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Operator

Greetings and welcome to the Equity Commonwealth Third Quarter 2018 Earnings Conference Call. At this time, all participants are in a listen-only mode. A brief question and answer session will follow the formal presentation. [Operator Instructions] As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Sarah Byrnes, Vice President, Investor Relations. you. Thank

begin. may You

Sarah Byrnes

Good Equity thank quarter Commonwealth's XX, Christine. us ended for to XXXX. discuss results morning you, you and joining September Thank for the

as yesterday’s COO; President for today well laws. that advised We titled federal could Factors the statements discussed press today. made call of to CEO; supplement David within as Company speakers materially conference section release, matters to Report no Markman, The Risk statement. to section Helfand, refer that assumes in this or Statements constitute Our the David Please you are any Annual differ certain in obligation Weinberg, recent forward-looking titled on factors securities forward-looking may update from and during be cause results statements the our a most Adam CFO. actual of Form the any and XX-K Forward-Looking forward-looking meaning discussion to

including and David on certain non-GAAP measures We may non-GAAP information include yesterday’s also the our Please supplemental for financial to post XXXX financial also quarter be will press important GAAP I With at Helfand. measures. to performance our results. refer information material. remarks deemed to that be Today's release www.eqcre.com, website that, call to of reconciliation over containing turn third a our these results

David Helfand

an monthly is that results of provide beginning down X.X% X.X%, XX begin new rates, up basis year. past comments respect on its XXX,XXX in to year-to-date. from brief yield and with market compares continued in to XX-year at on months. points XX Good X.X% Sarah. over the I’ll jobs U.S. rate September XXX,XXX our Treasury the the of for and was on The the With roughly adding interest an the at morning third review the September, end unemployment us. Thanks average growth the jobs economy quarter joining thanks conditions, gain company. update

yield roughly the X.XX%, since currently an curve, one-month LIBOR of increase the of points basis XX On short-end is January.

Stanley Morgan for Index August. XXX basis year fundamentals has is year-to-date. Turning as points to XX roughly BPS late and The remain the down considerably decent. up XX recruited REIT broader market is since the the the Office equity the S&P NASDAQ is X% markets, up

During absorption the national XX to National quarter positive to new feet, new at net added and quarter. grew basis square million X.X end third feet XX million vacancy the square was down weigh the XX.X% rate supply The continue the second inventory. rents was points end with of lease capital Base cost economics. on the leasing increased while third of quarter, from moderately of

estate extended. investment sensed it are country recent diverse and stable CMBS. a strong that first forward, picked the capital of the life by elevated companies, generally rates brokers and buyer borrowing funds Cap the up volatility though rates, transaction over office par are to a seeing half programs is readily characterized supply square levels. markets transaction now speaking, Despite across markets, feet in up with a the that bit respect demand. soft the volumes construction in with third the from in cost volume XXXX on Debt to quarter, and is year-to-date slightly after to year remain available interest lending capital sources real in are capital new floating With the with rates, rate remains currently under and values supply banks, healthy. including estate fixed debt pipeline interest on real nationally, is with concentrated cycle markets million active debt is spike XXX and pushback Looking some higher due sale

supply the become have certain move market. remains recent in rates, exceeds liquid of and debt demand lenders, more capital life companies particular the in selective Given a general in it though very

EQC, to through at opportunistic robust dispositions. creative management focus leasing, in and also foot aggressive The with Overall XXX,XXX risk. and continue results with of volume quarter. asset square lease included in Turning creating we the creates a one our value significant Amazon value on Amazon was third assets make mitigating Leasing lease to were strong Bellevue. while

portfolio We at with financial XXX a the was also square XX% and points versus in last basis for XXXX filled quarter Philadelphia stabilizing occupancy. same-property Market leased XX,XXX cash our Leased largest Street asset grew firm to vacancy at services a occupancy foot the NOI X.X%. up

East XXX,XXX we square Arbor, of XXX Eisenhower to sale a on feet Parkway, closed quarter leased the in Turning in $XX.X XX% gross for million. the a of property Ann dispositions, third totaling Michigan, price

sale XXXX on property feet X% of $XXX XX% range. cap Mawr square totaling Chicago, gross We also the price was in a Bryn leased point out of Pricing for a Avenue, that would the rate closed in creating low in million. asset the and the I value. dispositions XX XXXX, the totaled preceding Since feet $X assets sold over the billion. leased of sale team billion $X liabilities. billion XXX,XXX of have EQC months square significant $X just we’ve repaid Year-to-date over of XXX,XXX

case We pricing. achieve pro $X.X aggressive creative we continue asset on to properties progress meet our position We on to-date year totaled September have over we focus announced taxable and the these and we share. a as income a requirement share special and and distribution from unique from management had billion the dividend proceeds per sale cash the sales. selective This of to no have and primarily retain leasing, is strong to to longer XX, a distribution, when cash unique benefit this made ability $X.XX can the result, securities $XX tremendous marketing forma for marketable

that totaling Connecticut. XXX, Street and XX feet Park East in we will Our in by conditions. Austin, in currently four end, Market informed Research square Avenue be continue Texas, to market To in Philadelphia, strategy million properties Bellevue, including XXXX XXXth are marketing Newberry X.X Windsor, Washington,

high-quality deploy itself an there lend superior our increasing opportunities. rate for low to of period capital. remained In pricing the to be view, opportunities assets pricing environment not and attractive achieving rates elevated identifying have environment returns. time on in more focus prolonged and remains Continued for may a Interest current

We have patient. that believe perspective and investment we are a long-term

We to the And will find turn David. with that I'll over call invest. compelling opportunities to

David Weinberg

everyone. lease will of you, good reviewing second and markets. begin David by year-end Then overview through and quarter largest I morning an our our our Thank in leasing and I’ll activity cover giving XXXX. flow

$X.X up the of basis Commenced up In million the quarter, points basis the points of feet at feet XXX,XXX quarter properties up points portfolio year-over-year. and we XXX was new. XXX end basis feet. quarter second from XX.X%, same-property signed leases, was leased, but of square comprised occupancy up and Our XXX all points XX% second year-over-year. XX portfolio The the totaling basis square from were the XXXX XXX quarter square which

it risks will lease we and X.X% year and For and basis. new backfills lease lease the of quarter, space. rental a The XXX. downtime in There GAAP lease a a commences increased late up. out There significant the at rents largest decreased down GAAP This was on Tower Expedia’s rents. XXXX roll in in quarter set minimal rates a cash in foot, a rollup and be multi-tenant was basis XX% slight with Bellevue, cash the Amazon signed on XX square XXX,XXX

a We have secured credit net a long-term tenant. lease with

by win. created value the with thrilled this are We

signed Philadelphia. recognize legal we engineering, and X.X%. with the contributions XXXX effort be in the next we and largest to was investments asset the square feet The continues the Bellevue The to from want So in lease one vacancy our strongest management, country of Street with teams. of at a markets team CBD rate Market XX,XXX

may move years this As of recall, ups XXX,XXX ago, we you a property. stepped into square vacancies few totaling feet and

Philadelphia XX% vacancy is is rate We under for XXXX Trophy have The backfilled this and CBD leased. most of X%. space Market now Properties

also leased. This East lease a floor We Austin. Downtown, now in at property Street signed XX% is full Xth XXX

month. square feet continuing XX% market a is leased. earlier this get multi-tenant of got competitive to XX.X%. remains building at In The next impact. rate Street But in but also will Square Another have Austin, we market well square leased, vacancy of was Austin supply Denver, of new and back we the do a Plaza continues feet with an XXth year. This XX.X%, to XX% vacancy Bridgepoint XX,XXX XX,XXX beginning back rate with office

this recently in uptick tenant have an small seen at property. activity We

Finally, to comment like I XXXX. lease would on in roll year end and through

XXX,XXX XXXX, the square XXXX, square Georgetown we next is of in of exposure we September get feet back feet XX,XXX year to quarter largest fourth to University. feet. the the XX, square building Washington leased through foot rolling rolling. square The expect have For In XX,XXX DC XXX,XXX

private which As foot this was you may square property a school. XXX,XXX two long-term previously includes lease another building building backfilled with a recall, to

to users about We plans are with we backfill space get Georgetown to alternative back. may its working any and find speaking

XXX XX,XXX and Market feet Asset Brookline square addition, July at on square will Americas XX,XXX BTA at XX. In will on vacate XXst September Aberdeen vacate feet XXXX Management

David made lot set markets better up last will we the greater to few As years. growth in and higher said, fewer We of and have portfolio create stability. progress that quality in a a provide

XXX we profile, stronger reflected assets NOI The is which our quality in today portfolio Our is of our in with properties significantly markets. as improved concentration as growth our that well from started XXXX. at

over With creating We the and to have that, to we management, success dispositions. proactive on through a continue great that turn asset value achieved Adam. focus team call that and leasing I'll

Adam Markman

caused of a of share decrease was dispositions $X.XX our information for $X.XX G&A. per $X.X third share, per share $X.XX other Thanks quarter to from partially financial were and Good as five I'll $X.XX which share decrease year well per our of higher result share interest in compared billion asset $X.XX David. of by and sales share in per to review in the operations Normalized offset the results quarter FFO special per $X.XX interest trailing a on a share is provide lower a as from of for recent was These approximately per $X.XX quarters. the over income $X.XX the distribution. per ago. of Funds The morning. the XXXX. quarter, expense, compared decline

by decrease income increased due leases the to balances. in same-property rent in in XXX,XXX occupancy was over as year expense the expenses Market higher termination than has rates year, with square of X.X% the was dispositions As taxes increase third of in the have our offsetting higher in income NOI, from with contribution quarter GAAP with rollups savings Boston cash fees, FFO estate commenced to was assessed the offset higher and The higher cash in commenced of Philadelphia tenants rent income decrease periods. and portfolio in largely repayments, G&A, higher by NOI revenues were up in cash with to FFO, through to interest risen debt from quarter and a combination Street asset. was newly coming operating same-property compared last occupancy a higher third interest higher normalized to several increased rental early free lower due XXXX feet a Partially the largest ago. operating Net increases caused meaningful as are values renewal at Same-property and real now increase. their due X.X% as driven

leases million of our the expense will related we rent. commenced expenses operating it These $X also therefore will are in Cash cash take from before spaces the saw real that feet from leases the Growth tax previously square for from On XXX,XXX estate free increases vacant a and GAAP are revenue mentioned does flows rent, and $X.X not eventually million but NOI in to will time not generate through side, this annual or currently in of results. include occupancy. not quarter benefit on and leases but NOI. assessments signed

be in future anticipate by outs will In dispositions, NOI impacted our tenant although same-property continue cash addition to growth we portfolio. we to move solid

was third $XXX declared During per common we week. $X.XX special or which distribution paid earlier share the of this quarter, a million,

$XXX the the portion to loss utilizing by Projected of tax income year. operating purposes, an taxable dividends incremental approximately taxes loss An roughly level. our share. per as distribution net of allocated distribution additional Most result of was that The taxable deduction paid $Xbillion of $XX this by distribution net maintains be the remainder dispositions For state special in the the generated minimize is operating our carry-forward exceeds ordinary by order $X.XX completed million the of the of of of benefit distribution carry-forward. will million was paying treated at dividend. it the the gains out

revolving Turning credit includes mortgages. Borrowing now including one to and undrawn our capacity million million total due in XXXX debt preferred. E $XXX facility. balance sheet, $XXX our bond Repaid two our the Series just includes $X liability small billion

Our balance the per sheet week. this of after the per marketable earlier million share special is and of strong payment with share or dividend $X.XX $X.X $XX securities over cash

significant work built actively We value. to looking create have are to capacity long-term put it to and

invest And with open we vacancy, where it liquidity balance strategically we opportunities for sheet and Q&A. a competitive look and capital be team, Thank you. will our As flexibility address that, continue to to up we will advantage. growth

Operator

[Operator Instructions] Stifel. first proceed question of comes line Please Our John the question. your with Guinee from with

John Guinee

question, feet lease also, on The building upgrades what TIs, slight lease, by A more picture were commission a a leads square question. can that? then big detailed in done? be rollup required GAAP, then Great. And get and roll Amazon Amazon of sort and you down that base XXX,XXX specific to cash,

David Weinberg

It’s Sure, John. David.

math. the for Amazon Street, that the that terms quarter, cash the give lease vacant roll I lease Market down for to our The represented space been X.X%. roll than sense, a more rollup, two of In years. of The has referenced XX% XXXX was down, you

So included. not it’s

any and roll length, basically size think if it lease. related the substantially not disclosed supplemental, at that’s of backfill a the I tenant deal the in you on given that incur did So And good look you of can to it’s space. the the kind assume is down we all overspending unusual lease and a I in that our TIs, approximation cost once for TIs, we landlord lease again, single of would Expedia of that because Amazon say the the just terms then

John Guinee

Can think explicitly, have very you I you success. quantify to and horizon Great. said the David, patience long-term to a other you And that? lead then,

David Helfand

Quantify patience or quantify long-term?

John Guinee

definition then also, of the and both Well, success.

David Helfand

Okay, success, lead just I would didn’t you said, to to potentially invest. well, clarify. I’ll say did. I opportunities it

John Guinee

Oh, that. I misheard

Sorry.

David Helfand

we’ve said time, been consistently for long and John, we’ve But, you I in discussion believe this others we the think having what a with is, and team.

way we some, situation quarter. every maybe is long-term Board about capacity we unique won’t create the with in wait in invest with We we about value. with We capital wait the that hopeful Sam to than a and may that find have what a think and opportunity and to and longer are that comfortable the But talk balancing forever. can

John Guinee

Okay. Well, thank you.

Operator

Manny Our comes of Please Korchman next question from with Citigroup. with the question. line your proceed

Emmanuel Korchman

more were, if you sort Hey, good more question past, David, it here it John’s put a little to willing end in than morning. was on to XXXX. off the your see if maybe the a maybe early and and Is an you wait on it go-forward you the remember of follow-up backed correctly reply. was date bit In that? Have I past? of of now sort in and of will

David Helfand

talked and growing has year, tried liquidating this that I right, fate I to or year think investing determining we said. much about whichever about don’t last in in going think, consistent portfolio the year changed. We next and what – early then be either us portfolio. our we’ve took direction the

progress. make to continue We

to things do. have We

we that milestones leasing and management want asset to specific have We accomplish.

more the the an we If And don’t about in want doing we’ll portfolio. portfolio that We to we that, through find have hopefully we capital. in get that will as the need opportunity. of distribute or to we assets probably be we and business, want wait whether liquidate assessment to a go whether then make few

Emmanuel Korchman

managing value harvesting in order opportunities is So team right solution your advance where about spend the then, work? that your of do management Is if sort priorities doesn’t for first? of efforts of the first? now? that the we right finding it the you Sort entity now, think time it if all Is it

David Helfand

same we could Right, both I at say would the time. do like to

Emmanuel Korchman

Thanks.

Adam Markman

echo then one, not next. and the not It’s David’s that maybe just serial, finished right. I point. begin you’ve Adam. is It’s This

obviously to busy busy We will time mentioned, get for work before us our We disposition management. that the on David and front as are and we asset spend next sleep. very on and the continue looking through we what’s work opportunity we plate to keeping is

Emmanuel Korchman

guys. you Thank

Operator

of Please line Jamie comes your with question America/Merrill with from of Bank question. next Our the proceed Feldman Lynch.

Jamie Feldman

have portfolio couple of trying Austin about you to buy of you. decision of markets? and thought the talked I you into morning. the over to about kind this two then I Great, thank find to around you your Can if core could those? and time, markets maybe core sell guys a build Good think back talk pare Bellevue? would have anything to in in

David Helfand

Jamie, Hey, said we Austin We’ve we it’s David. love and do. always love continue to Bellevue,

in the they to in worth those we We in have perpetuity, both Bellevue both take just then makes get are also to said that that asset there in asset to a lot development we are determine should do. where the how They what have market isn’t determine hold now and opportunities be they see to we that asset Austin developed. and plans market we are it more and have of necessarily we the priced they and think the sense who to someone develop and in an

Jamie Feldman

contemplate you yourselves? developing Did

David Helfand

We, just to in perhaps of risk more that think But and a worth we it developer perceive at just dynamics market. and given maybe why some bullish, large we we’ve that’s market the the more doesn’t level opportunities. to It day, take delighted the focused. end to site, the who built-to-suit Bellevue, explored of same do it’s more that

David Weinberg

coming in with and capacity then, terms lease Austin, our then there, X.X have about located you development a have to unique with little both next just got million contemplate color, The site there capacity. outstanding really where land covered assets. is of you’ve there more flex play the are then these to a acres. the an existing up location provide Bellevue, site and corridor and takes that’s XX light essentially building Jamie, the And X.X and Northwest in adjacent to or just million really that development talking opinion site In much build. in to best And is the as that you some the rail

David Helfand

XX plus.

David Weinberg

planned sort – and time both for that’s over opportune and time and acres to unencumbered they thinking few and the then that really, market management the that’s phased those but strongly it of really and team weeks do, the markets in assets. yes, the are we markets Yes, given strength was, about remarkably the spent development last of what Board both was

Jamie Feldman

apply feels and the that pushback And markets? feeling feel more helpful. David some you to had what that’s assets does if mentioned types little that might give looks think you seeing cycle buyer it I – on asset to what Okay, prices up are like for you And like higher can on then, just a term due color of you bit plans? rate, based guys longer think this loosening we extended,

David Weinberg

have we are are communication have in call change the Yes, cost. spreads I things think, the a we to to be assets some hard and is underwriting specific hit of to in people more we regular where we to up that trying of point are who closely markets, there of comps, are buyers and and in on track buyers there fewer sale where the probably the external calls one major but some definitely were, think both borrowing major sense hearing those that it in taking we to a more in-process resolved be internal take I very to chatter is calls than to it’s in time transactions as seeing coming the most transactions the and going be investing to who is and are particularly sure selling for of more still make market and investment the get with guys constant are the houses, the

to highest excludes pricing rest up heard and evidence but is points probably country the some probably markets from XX to longer of means there which so market, is is definitely that And to substantially basis be we anecdotal very across the in hard XX downward assets. term, pushback the I how market the say, quality is facing the maybe have But flat all pressure, that backing that it’s of that will buyers. sustained what think,

Jamie Feldman

terms how have or of how given Okay. guys rent underwriting kind where desired changed the in you we cycle? growth you are your then, of – guys assumptions And yields are in prospects

David Weinberg

changed can for haven’t changed have the It’s therefore We return. the the a you our less pay targets. and inputs same get same to little really more

Jamie Feldman

question teed going distribution about, guess, from just special Okay. of for And another you potential I distribution? the me sale, have think should with the last then, forward. is on How up likelihood what we

Adam Markman

size dependent and Well, Adam. expected timing transaction. structure be The gains and this and to sells pricing the and of a timing The future sales of those what asset are is actually on generate will then gains.

to we how are this fill will gains. So, looking grows relative those million past NOL. we are you with in we assets when anticipating But year as gains $XX did the

Jamie Feldman

of also you pay the would think way work Okay. Is the $XX right that it? now, with? you then as out you But have to you about million think are

Adam Markman

That’s right.

Jamie Feldman

you. Thank Okay. All right.

Operator

[Operator from comes Securities. JMP your next the Germain with Instructions] question proceed question. with Please Our line of Mitch

Mitch Germain

you it your in some markets potentially you in, changed upon grow based are what at all has like of a that are seems to that underwriting the today? seeing So, conservative. bit looking the target more gotten funnels has But,

David Helfand

always are continue at high willing sense other like as markets We’ve do we Mitch, it’s we long-term with to Hey, to opportunities always we so as just it’s make the growth over look balanced and if their prospects markets. been well. We like David. the the said,

more are opportunities. these We find then versus kind returns, some markets, risk and and price compelling other of always we upside evaluating of maybe in

Mitch Germain

that then, for to as like Is And are properties leasing those to once Georgetown. say others, could queued Brookline up is among some Gotcha. that done well? completed, could, safe that’s seems it and there sale be be it those

David Helfand

think portfolio, our building sell It’s two a at at one we’ve that’s if we I Well, to Georgetown point. clearly, some plan determined you look property.

one lease a or we we we with a back at address If private some will may we sell the buildings get secured the can of One school. Georgetown. may to It’s point. long-term we building, lease

of as look done I on at very our we are if there that to and we’ve out to list be well. it put to and little sell just a tremendous quick the history, is put you created Tower amount building, think assets a and value we XXX, work Another one

Mitch Germain

And any anything potentially cash REIT sort risk to with you in a if are Gotcha. of is or there wouldn’t there on here pile sitting near-term? of regards status Adam, the be

Adam Markman

time XX% become income come in that short-term, for from has real from is investment. to gains that, estate good might of over asset challenge income. real our count qualified But estate the the the No, sales news

well we and So for that ended being up stay example patient liquid & real we are qualified when now. other meet we they longer, Fannie bonds If use covered way that of estate or would qualification. make sort most have find explain, Freddie to to investments to the people the

Mitch Germain

one with am I class? in offices? any regards it still philosophy me. apologize. sort on And shift for then, to is sorry, really there Has been just I focus and of asset more Or

David Helfand

of Well, all and different what evaluate to evaluated likely likely from we’ve lots said be in mandate to our the but our past to things opportunities. office, sorts is, broadened office, it’s we’ve of Board very be

are but We that. we going find also that’s we like to we would that. office be focus, likely We to do consider something have would feel if still we an compelling edge, the consider that to continue

Mitch Germain

you. Thank

Operator

question your with next John Please question from question. Stifel. is Our proceed follow-up a Guinee with

John Guinee

play? deal? done Mr. will with Ratner in Brookfield that chance Forest is Do Mr. a City is back putting deal the there you in be that a think Or successful

David Helfand

here sitting our nodding heads. all are We

up right left others Some to and down. to

say. It it's So hard feels late. like really it's to

John Guinee

Thank you.

David Helfand

John. you, Thank

Operator

the time. Mr. I like to further floor would Helfand, this questions We closing you at have to back for no comments. over now turn

David Helfand

and Well, Thanks lot. to we Francisco. we San many look forward your certainly a time of appreciate today you seeing in

Operator

gentlemen, conclude teleconference. and does today's Ladies this

participation this wonderful at and your Thank disconnect may day. You a for your time. lines have you

Equity Commonwealth (EQC) 25 Oct 182018 Q3 Earnings call transcript